Mexican industry uses show as springboard for growth
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By Brendan Sobie
Mexico's budding aerospace industry, which has tripled in size since 2004, is confident of more rapid growth as European and North American manufacturers increase their reliance on Mexican factories despite the economic downturn.
Mexico has had a base of small aerospace manufacturers for decades, but it is only in the past five years that its industry has entered the global stage. The decisions by major international players - including Bombardier, Cessna, Goodrich, Honeywell and Safran - to open large plants in Mexico has firmly put the country on the global aerospace map and sent exports from that sector soaring. Mexico expects overseas sales of aerospace products to be worth roughly $4 billion this year - up from $2.7 billion in 2007 and $1.3 billion in 2004 (see chart).
"Over the last seven years there's been a real spurt in aerospace in Mexico, with growth averaging 20% a year," says Mexican Aerospace Industry Federation (FEMIA) general director Carlos Bello.
But Mexico is still a relatively unknown aerospace producer globally and even locally, says Bello. "Many people in Mexico don't even know we have an aerospace industry."
To improve the industry's awareness of its growing aerospace capabilities, Mexico will have a record presence at Le Bourget this year. Investment and trade agency ProMexico has organised a 150m2 (1,610ft2) pavilion, nearly double the size of the 80m2 Mexico pavilion that debuted at Paris in 2007.
ProMexico has also teamed with French aerospace industry association GIFAS to host a seminar tomorrow on business opportunities in Mexico. Bello and ProMexico's executive director of foreign investment, Rodrigo Contreras, will be among the speakers at the seminar.
"Our expectation for Le Bourget 2009 is to present the current Mexican capabilities in the aerospace industry and to invite those companies that are interested in expanding operations abroad to consider Mexico as the best manufacturing destination," says Humberto Huerta Moyao, director of ProMexico's aerospace industry unit.
Bello says there are almost 200 aerospace companies in Mexico, collectively employing more than 27,000 workers. While only 15 of these companies have more than 500 employees, and 40 companies account for over 90% of the exports, the number of large aerospace firms is expected to grow sharply as major international players unveil new plants and newly opened factories begin to spool up.
AEROSPACE CLUSTER
Queretaro, which has quickly built up its aerospace cluster after attracting Bombardier in 2005, is Mexico's best-known aerospace centre. But there are 14 other states in Mexico with aerospace companies, including 11 with manufacturing facilities (see chart). Nine of these states will be exhibiting at the Mexico pavilion and are part of the 60-member Mexican delegation attending this year's show.
Baja California has Mexico's largest aerospace industry in terms of employers, with more than 50 companies, including 48 manufacturers. Most of these are smaller firms based in the border towns of Tijuana or Mexicali, but there are also a couple of big aerospace players - Goodrich and Honeywell.
Three other states in northern Mexico - Chihuahua, Nuevo Leon and Sonora - each have at least 24 aerospace companies. Chihuahua has large factories operated by Cessna, Hawker Beechcraft and Safran subsidiary Labinal, and a factory that will produce Bell Helicopter parts is under construction. Bello says Labinal's Chihuahua operation, which is spread across two factories and manufactures harnesses, is the largest aerospace employer in Mexico with more than 2,000 staff.
In Sonora, there are rapidly growing aerospace clusters in the border town of Nogales, including a new factory by France's Daher which is expected to employ 1,000 people by 2012, and further south in Guaymas. The cluster at Nuevo Leon's capital, Monterrey, consists of 13 mainly small manufacturing companies, but includes a plant producing fuselages for MD Helicopters. It also has the country's largest concentration of maintenance providers and engineering firms - seven and four, respectively. By comparison, the clusters in Chihuahua and Sonora are all manufacturers.After Queretaro and Tamaulipas, which each have about 12 aerospace companies, there are eight states - from Yucatan in the far south-east to Jalisco in the west - with eight or fewer aerospace companies. Several of the 17 Mexican states that have no aerospace companies are eager for a piece of the action and are courting foreign firms.
Zacatecas in central Mexico, for example, plans to open an aerospace park next year, with US supplier Triumph Group as the first tenant. Another central Mexican state, Guanajuato, is also trying to attract its first aerospace company. To jumpstart this effort, Guanajuato is exhibiting at the Mexican pavilion and is the only state in the 10-state Mexican delegation that currently does not have any aerospace companies.
Northern Mexico has traditionally had the largest concentrations of aerospace activity because of its proximity to the USA. Northern Mexico is closer to several US aerospace centres than most parts of the USA itself. Wichita, in particular, has become a major destination for aircraft parts produced in Mexico.
Several business jet models that are assembled in Wichita by Bombardier, Cessna and Hawker Beechcraft now have large Mexican contents. Queretaro, which has three Bombardier factories and a fourth under construction, is in central rather than northern Mexico, but has better infrastructure and highway access than many cities closer to the US border. It is only about 15h by truck from Texas.
Mexican-made aircraft parts are also trucked regularly to Canada and shipped across the Atlantic to Europe, but the USA is by far the biggest market for Mexican aerospace companies. According to FEMIA, the USA accounts for about half of Mexico's aerospace exports and the country is now the 10th biggest supplier of aircraft components in the US market.
These figures include US manufacturers that have set up shops in Mexico, as well as European tier one suppliers that have opened in Mexico to serve their US customers better. Several European suppliers, including Daher and Spain's Aernnova, which historically have not done much work for US manufacturers, have also opened facilities in Mexico to improve their chances of winning work from US OEMs.
Emilio Otero, FEMIA president and chief executive of Mexican engine maintenance company ITR, says the expansion of European companies has been a key driver of Mexico's aerospace growth this decade. As the strengthening euro prompted several European suppliers to look at moving some production to the dollar zone, several realised Mexico was a better option than the USA because it was cheaper, but still close to US OEMs.
"Europe started to see Mexico as a good place because of the exchange rate," says Otero. "At the same time, US companies started feeling pressure of cost and looking for new places. Suddenly the Mexican government started to promote the country. Both things came together. That's why companies started to come here."
Hardly a month now passes without a new aerospace factory opening in Mexico and the pace is not expected to slow. Bello says that FEMIA, following a recent survey of its members, expects Mexico's aerospace industry to grow by 12-15% this year despite the recession. All its members expect to increase sales in 2009 and several are planning to increase their headcount. "Last year we had $867 million in investment in new plants," says Bello. "This year the figure will be $1.2-1.5 billion."
RECESSION
For example, FEMIA member Safran, which has four aerospace facilities in Mexico and will add two more early next year, believes the recession could lead to more companies setting up in Mexico. "The crisis for Mexico is kind of an opportunity," says Emeric d'Arcimoles, Safran Group senior executive vice-president for international development.
When Safran was in discussions with government officials earlier this year about expanding its operation in Mexico, they said interest from foreign aerospace companies was continuing to increase, says d'Arcimoles. "They confirmed they were in contact with a lot of American companies to shift production to Mexico."
He says Mexico offers "a great opportunity" to reduce costs, with aerospace technicians' wages about 20% lower than in the USA, while maintaining the same business culture and not sacrificing on quality. "We can compare the two countries. The productivity is about the same. The difference is the wages of the people," he says.
As a result, Safran has decided to focus its future expansion on Mexico. "Mexico is certainly our biggest investment after Europe," says d'Arcimoles. "We know some of our competitors are focusing more on China."
Otero says Mexico has proved a better option than China because there are no restrictions on manufacturing components for military aircraft and "the learning curve is faster". Aernnova Mexico director general Javier Perez says faster learning and fewer problems with employee turnover were two main factors behind the Spanish manufacturer choosing Mexico over China in 2007. He says Aernnova, which opened two factories in Queretaro last year, also evaluated India and Morocco before shortlisting Mexico and China. "At the end of the day, when we put together all the risks, we came to the conclusion that Mexico offered the best alternative to Aernnova. It's not as much a low-cost country as others, but it offers advantages over other low-cost countries."
NO CHINA
Perez says China would have provided cost advantages beyond the 20% Aernnova achieved in moving some production from Spain to Mexico, but in China there are more "headaches", including higher employee turnover, longer training times, longer production times and language differences.
Mexico was also selected because of its proximity to US OEMs, says Perez. Aernnova, which is now a major supplier to Airbus, Bombardier and Embraer, is seeking new business from Boeing, Cessna and Hawker Beechcraft. "It was a good way to get into the North American market," he adds. "The focus at Aernnova is now to get business with American customers."
Otero says another advantage of Mexico over China is that foreign companies "do not have to be worried about being copied". Marcelo Lopez, Queretaro's undersecretary of economic development, adds: "In Mexico we really respect the industrial property. You come to Mexico and you know your industrial secrets are safe.
"Mexico is also a country with free investment, so you can come with 100% investment and you don't need to do a joint venture with any company or the federal or state government. You can do what you want."
The overwhelming majority of Mexico's aerospace companies - about 150 or 80% - are in manufacturing, with the remaining 20% comprising maintenance shops and engineering and design firms. Most of the country's aerospace companies are second-tier suppliers producing relatively small and simple, but labour-intensive, parts.
Many of these are "maquila" factories - operating in free trade zones in northern Mexico, where companies can import material and equipment tax-free and re-export the finished product after manufacture.
"We are performing mainly machining and processes that require heating and plating," says Bello. "We are also very much into electronics and instrumentation and do a lot of harnesses."
But more and more tier one factories are opening, producing parts that are shipped directly to aircraft final assembly lines in North America and Europe. These include factories that are owned by OEMs, such as Bombardier, as well as tier-one suppliers, such as Aernnova. For now, these factories also produce only relatively simple components, primarily metal sections of aircraft.
FEMIA and the government are encouraging companies to move up the food chain to more complex components, in particular composites, and eventually get into full assemblies in addition to design.
"If a company wants a maquila, they are welcome, but the government doesn't need to promote that," says Otero. "What we need to promote is companies that really try to add value, do development and design."
So far, Queretaro is leading this evolution, with Bombardier and Aernnova opening factories for composites, and ITR developing and manufacturing low-pressure turbines. "When Bombardier started here, they were just doing maquila," says Otero. "They are now moving up. That's what we really need."
HIGHER-VALUE WORK
Otero says FEMIA is now working with the government to establish a five-year aerospace programme focusing on higher-value work in one or two industry sectors. The federation is also working closely with schools to set up the programmes needed to support further growth of Mexico's aerospace industry. Several states have expressed interest in following Queretaro's lead in evolving their aerospace industries, but lack the universities and training programmes.
Bello says there is no shortage of students interested in aerospace, but Mexico does not have enough programmes. "We are getting more and more into engineers, but our biggest need is specialised technicians," he says. "We need more technicians - that's the biggest challenge to growth."
Interjet chief executive Luis Garza says aerospace companies located away from Mexico City are struggling with recruitment, particularly managers. A shortage of mechanics outside the capital prompted the low-cost carrier in 2007 to open an aircraft maintenance shop at Toluca, near Mexico City, preferring it to other Mexican cities that were trying to woo the carrier, says Garza.
"Other areas of the country offer benefits of landing and infrastructure, but from the labour perspective there is a need to build training facilities," Garza adds. "The government is aware of this limitation and is doing its best to bring in universities and technical colleges. Eventually they will succeed, but they are pioneers and for now they are struggling. We are on the right path in Mexico in general, but Rome can't be built in a day."
Bello says FEMIA is also lobbying the government to provide financial support to help the industry develop skills. Bello says about $10 million in annual government grants is available to support aerospace research and development projects at universities, technical institutes and private companies. A further $6 million is available to help companies secure the foreign certification, in particular NADCAP standards, that is required by overseas OEMs.
FEMIA also works with the government to promote Mexico's aerospace industry abroad, says Bello. The government over the past couple of years has centralised its aerospace promotional efforts through ProMexico, which is now in charge of organising air show exhibits and delegations that bring together all of the country's aerospace states and companies. Bello says that members of FEMIA, several of which will attend this year's air show, play an important role in recruiting more aerospace companies to Mexico by sharing their experiences.
RAW MATERIALS
In particular, FEMIA hopes to use the air show to further its effort to recruit producers of raw materials that are used in aerospace manufacturing. Bello would like to see Mexico reduce its reliance on aerospace imports, which last year stood at about $2.4 billion.
"We need to bring more companies to the supplier base because the supplier base isn't really there," says Otero.
Bello adds: "I am trying to reduce the imports. For example, we are looking for carbonfibre. It is very important. Right now the industry is working together with education and with the government to create an aerospace industry in Mexico that is stronger and more competitive worldwide."
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BOMBARDIER RAPIDLY EXPANDS MEXICAN PRESENCE
Bombardier is only one of over 150 aerospace companies with manufacturing operations in Mexico, but it has quickly become the county's poster child.
Only three years after setting up shop in Queretaro, Bombardier's Mexican operation has quickly grown to over 1,200 employees spread across three factories. A fourth factory is scheduled to open in November and will be dedicated to producing fuselages and wings for the all-composite Learjet 85 business jet.
Bombardier's late 2005 decision to open an ambitious manufacturing centre adjacent to Queretaro airport drew widespread attention and prompted other aerospace manufacturers including Aernnova and Snecma to also open factories in Queretaro. But the Canadian manufacturer's rapid expansion in headcount and, more importantly, capability in Queretaro has really showcased the potential of Mexico's aerospace industry.
"When I first came here there was no way I would have thought we could reach the level we are at today," says Bombardier Mexico Manufacturing Centre vice-president Real Gervais. "But we picked it up quickly."
Gervais says Bombardier reached the 1,200-employee mark "ahead of plan" and started producing large aircraft sections quicker than initially envisaged. "Today we're building Challenger 850 fuselages, which are 14m [46ft] long and 2.5m wide. And the tail of Global Express is the same - it's a major structure," he says. "We're ahead as far as complexity of what we're building. We were going to do that in three to five years and we've done it in less than three."
Gervais says composites were not part of the original plan, but after successfully and quickly assuming roles producing major metallic components, Bombardier had "proof" its Mexican operation was ready to make the leap. "We've transferred work from Belfast, Japan, Toronto and Montreal and all the products today are at an equivalent standard produced in these very experienced plants," Gervais says.
Bombardier began transferring the production of Challenger 850 fuselages from Belfast to Queretaro in mid-2006. At the same time it began transferring production of electrical components including harnesses for several aircraft models from Montreal to Queretaro.
But Gervais says the transfer of Q400 flight controls from Japan to Queretaro in September 2006 provided "the best example" showcasing Mexico's capability. Q400 flight controls were not part of the original plan for Mexico and the decision for Queretaro to take on this work was prompted by Mitsubishi's sudden decision to drop the programme to focus on larger Boeing 787 components. "We had to move it very quickly or find someone else to take it," Gervais says. "We even took the risk of not duplicating the tooling."
In less than one month, the tooling was shipped across the Pacific and production restarted in Mexico. To make sure Queretaro was ready to produce the flight controls from the day the tooling was in place, Bombardier had to task a team of Canadian employees to fly to Japan to learn from Mitsubishi how to produce the part and then fly to Mexico to teach the Mexicans.
"We had French Canadians who learned from the Japanese teaching Mexicans who couldn't speak English," Gervais recalls. "In less than six months we had 80 Mexicans building flight controls with one Canadian supporting them. That was much faster than anticipated. And we've been building flight controls now for almost three years."
Gervais adds that Queretaro has proven it can produce the same parts as other sites at the same quality and speed. But he says: "It's no question it's a lower cost here". Transport time from Queretaro to Canada is also only six days compared with 23 days from Japan to Canada. "Another important aspect we started to realise when we began working here is working in the same time zone makes a hell of a difference," Gervais says.
When Gervais first arrived in Mexico in April 2006 "all we had was a shell - a building with four walls and a roof. There was no electricity and no water." The first factory was quickly built at El Marques Industrial Park, about 15km (9 miles) from the airport, as the Queretaro Aerospace Park was not yet ready.
The first factory at the Queretaro Aerospace Park opened in November 2007, when production of the Global Express aft fuselage was transferred from Toronto. In 2008 all the electrical work originally done at El Marques was transferred to a second factory at the aerospace park. The Q400 flight controls and Challenger 850 fuselages continue to be produced at El Marques, as well as rudders and other small structures for the CRJ, which was transferred from Montreal last year.
"For the time being we decided to keep both factories although they are separated because the cost of transferring an assembly line is expensive," Gervais says. "We'll re-revaluate in three years."
But over the long term the future of Bombardier's Mexico operation is clearly at the Queretaro Aerospace Park. "We don't need an airport, but for the future if we think we want to develop an airplane, the best thing for us is to have all the plants in the same area, to have suppliers in the park and then we can make a complete plane," Gervais says. "That's the vision"
Queretaro undersecretary of economic development Marcelo Lopez says the "long-term goal" is to develop, produce, assemble and flight-test entire aircraft at the government-owned park. "That's the target. With the Learjet it could happen in 2012," Lopez says.
But Gervais says Bombardier for now has no plans to assemble or flight-test any aircraft in Queretaro. He says his focus is now on the current projects, which are expected to require 2,000 to 2,100 employees by the end of 2010. Lopez expects Bombardier's Queretaro workforce to reach 3,000 employees by 2012, although Gervais says such a prediction is premature.
Gervais adds that Bombardier's Mexico Manufacturing Centre already has a lot on its plate and while there are always possibilities for more work it is currently not in line to work on the new CSeries. "We have enough work now. We need to be careful not to hit the wall," he says.
"The danger is to grow too fast and hit the wall. We need to be careful with that. We believe we have a good plan which we feel we can sustain."
