By Tamara Alliot
In recent years, Mexico has steadily been climbing the ranks to become a global player in the Aerospace and Defence (A&D) industry. Mexico has some unique attributes which have facilitated this growth, as well as strong support from the government. The future is also looking bright, with a long backlog of orders and clear plans mapping the industry’s growth until 2020.
The A&D industry is one of the most important industries in Mexico. In the 5 years to 2014, the Gross Domestic Product (GDP) of the A&D industry grew more than 20% each year and reached around 18,759.8 million MXN in 2014. From 1999 to 2014 the A&D industry has contributed 3,183.7 million USD to Mexico and contributed to its trade balance surplus. The country’s Free Trade Agreement (FTA) also helped build this success.
Geographically well positioned and with access to the European and Asian markets, logistically Mexico is ideal. The country stands within a corridor of several large aerospace manufacturers: the US (Boeing) is to the North and Brazil (Embraer) to the South. In addition, an increasing Aerospace industry presence in the southern US states over the last few years (e.g. Airbus in Alabama) means that Mexico is ideally located to build on its supplier base.
Another facilitator of the A&D industry’s strong recent growth was the established and experienced workforce. Trained in automotive and electric-electronic manufacturing, they were ready to transfer to the aerospace sector. A well-established infrastructure and supply chain was another benefit of having these other industries in place, which made the growth of the A&D industry much easier.
Mexico is more cost competitive than the United States with 2012 KPMG figure showing a 15.7% cost saving. This combined with a high proportion of engineering, manufacturing and construction graduates makes the workforce extremely attractive to international firms.
In order to fully develop its A&D industry, the Mexican government has paid attention to talent management, as well as establishing many research centres / institutions to serve the industry and enhance its current position in the industry. The value of the A&D industry is also expected to grow in the near future. The Mexican government has carried out a study called the ‘Pro-Aeréo 2012 – 2020 (In Spanish)’ to guide the industry, aiming to place Mexico among the top 10 suppliers in the A&D industry worldwide, as well as ambitious targets of $12bn in exports and over 110,000 employees, all by 2020.
On the technical side, Mexico is one of the few countries with a Bilateral Aviation Safety Agreement (BASA) with the Federal Aviation Administration (FAA). Companies in Mexico have certified their processes to comply with industry standards such as ISO-9001, AS9100 and NADCAP.
The economic potential of the country is underpinned by its ambitious President, Peña Nieto. Nieto has outlined a raft of social and political reforms during his time in office, including allowing FDI (Foreign direct investment) in Mexico’s oil industry, clamping down on corruption, new educational and constitutional reforms and business-friendly tax code changes.
This being said, despite its advantages and the progress Mexico has already achieved, many challenges for the government and the people still lay ahead, with social and political change ongoing. President Nieto’s reforms have faced resistance from all sides (he only won 39% of the presidential vote, so does not hold the legislative majority). Well-publicised corruption, and financial and business mismanagement in both government and industry remains, and Mexico’s drug war, as well as its ongoing violence and security worries show no sign of being quickly resolved.
The view from abroad
In March 2015, ADS, the UK’s Air Defence and Security Space sectors published their ‘ADS Global Aerospace Outlook 2014’ that identified Mexico as one of 9 priority countries that the UK aerospace industry and UK government should increase their efforts towards over the coming year. Indeed, many UK companies have already moved some production capabilities to Mexico’s aerospace clusters over the last few years.
Hoever, in 2013 the UK only exported £34m in aerospace to Mexico, so there is a way to go before the UK at least takes full advantage of the Mexican A&S sector.
The A&D industry is spread throughout Mexico, with Baja California, Sonora & Nuevo Leon being the areas with the most aerospace corporations.
Other global trends have had a positive effect on Mexico. Rising labour costs in China have shifted focus towards countries like Mexico, which boasts relatively stable wages, greater IP protection for companies, as well as its skilled workforce.
In 2013, Mexico’s GDP grew an estimated 1.2% and whilst this is relatively modest compared to some other emerging countries, it ranks higher than most western European countries, including Germany. In addition, Mexican government bonds earned an ‘A rating’ in 2013 for the 1st time, making investment in Mexico appear more attractive.
What the future holds
Here are some surprising facts about Mexico’s industry which underpin its future growth capacity:
- 17% expansion in aerospace productivity since 2010
- Currently over 260 aerospace companies (see split by region in illustration), with around 34,000 employees.
- 10th largest supplier to the US market.
- Around 5% of Airbus A380 suppliers are located in Mexico’s aerospace clusters.
Opportunities for the future
Large OEMs such as Boeing and Airbus are driving standards for the whole industry, and figures from 2012 show that the order backlog was 7 years for these large companies.
For the medium OEMs such as Bombardier, Embraer and Mitsubishi, they have a 5-year order backlog. In addition to this, private plane and helicopter companies, such as Dassault, have a 3 year backlog.
It is also very important to remember that the average age of the world’s aircraft fleet is 18 years plus, meaning that within the next 8 years 20,000 aircraft will need to be replaced, before taking into account any expansion or growth in the sector.
Although we have mentioned mostly commercial aircraft manufacturers, it is also worth pointing out that the defence market budget is significantly larger than the commercial sector, 4-5 times the size, with the 2012 total being 550-600 billion USD, and Mexico is well-prepared to claim its share.
Challenges for the future
In order for Mexico to be prepared for the future, there should be some slight adjustments at the local and national government levels, to ensure that future demand can be met. Certification capacity should be increased to attract local companies to the sector. The supply of talent needs to continue strongly, as well as streamlining government R&D incentives. The competitive advantage of the different regions needs to be optimised, highlighting their favourable geographical positions, their infrastructure connectivity, and their high capacity to react to increased product requirements.
In conclusion, Mexico seems to be uniquely positioned to grow its successful A&D industry even further in the coming years.