A high-flying industry
Having dazzled with its constant growth over the past decade, the Mexican aerospace industry is taking flight towards new ambitious goals and setting its course for taking advantage of the potential of the human talent and local supplies existent in Mexico.
The journey undertaken by the aerospace industry in Mexico has been simply extraordinary. Following the coordinates set out in a National Flight Plan and boosted by the "triple helix"–a joint strategy involving business, government, and universities– the sector has recorded annual growth rates of 17.2% in the last nine years and in a short time has emerged as one of the most competitive players on the global market. As if that were not enough, the pilots are now plotting a new course to fly even higher in the coming years.
With a history of operations dating back several decades, in the past ten years Mexico consolidated its position as a stellar player in the aerospace industry.
Exports rocketed from 1.3 billion USD in 2004 to almost 5.5 billion in 2013. The main driver of this growth has been the 287 firms and support bodies in the aerospace industry operating in the country, located in 17 federal entities generate 43,000 direct jobs, out of which 32,600 are highlevel professionals.
The future vision for the industry aims at even further growth. "By 2015 we will be capable of generating 52,000 jobs, while exports will exceed 7.5 billion USD and national content in components will be over 30%," explains Vladimiro de la Mora, president of the Mexican Federation of Aerospace Industries (FEMIA). The plan anticipates foreign sales reaching 11 billion USD by 2020, with the generation of 100,000 jobs and national content in the industry supply chains of over 40%.
De la Mora adds that Mexico is currently ranked 15th in the list of global suppliers to the industry; the plan is to enter the top ten by 2020.
How are these goals to be achieved? "It will be thanks to the triple helix: the government, with strong support from the authorities and universities, talent training, and companies that see that this kind of industrial work can be done in Mexico," something that is actually reflected in the growth in foreign direct investment.
With the vision of joining forces in a triple helix, a comprehensive plan was created and implemented: the National Flight Plan, which has provided the foundation for developing Mexico's national strategy for the aerospace sector (ProAéreo).
The most recent version of the National Flight Plan sets out the scope of each helix. The development of talent by the universities and training centers has been key to the evolution of the industry. Mexico is the most significant source of talent in the Americas, with over 110,000 graduates from engineering and technical programs each year. In addition to recent graduates, the country can rely on highly-trained personnel with decades of experience in the automotive, electronics, and medical device industries, among others –that are closely linked to advanced manufacturing.
Vladimiro de la Mora believes that talent development and rapid generation of experience among newly trained professionals are the two great challenges the aerospace industry is facing.
"The challenge is how to develop the specific expertise for this sector from among the engineering graduates," he points out. "We have to continue to work to swiftly train these young people, this demographic dividend we have. We have to achieve that in less than forty years," he adds. To achieve that goal, it is necessary to continue to invest in colleges and laboratories and to bring over "experienced people to teach us."
According to ProMéxico, there are 21 educational institutions in the country offering 52 programs in aerospace education, including core courses, highschool qualifications, technical courses, advanced technical-university courses, professional qualifications, engineering degrees –mostly aeronautics and aerospace– and several Master's programs.
In order to align the industry's needs with training availability, a working group was established to work on the Integrated Strategic Aerospace Education Program, defined by the "triple helix" and coordinated by a committee representing bodies such as FEMIA, the Mexican Space Agency (AEM), the Mexican Aerospace Education Board (COMEA), ProMéxico and the Ministry of Public Education (SEP), among others.
In the industry strand of this helix, the Mexican aerospace sector makes for an interesting mix: almost 79% of the industry is engaged in manufacturing, 11% in maintenance, repair, and operations (MRO) activities –which includes, for example, plants where aircraft landing gear is repaired– and the remaining 10% covers firms working on research and development (R+D), according to De la Mora.
International companies like Bombardier, Grupo Safran, General Electric (GE), Honeywell and Eurocopter have found the ideal conditions in Mexico for developing design, and engineering centers, laboratories and production lines capable of adapting rapidly to take on complex jobs to develop new generations of engines, components, and airframes.
The National Flight Plan sets out the global trends in the aerospace industry and how some of them are already reflected in Mexico, such as commercial supply of engines.
In Mexico, firms like GE and Honeywell are engaged in new engine R+D, in particular the GenX turbine, which makes fuel savings of almost 15% and reduces the carbon footprint by 30%. Design tests were carried out at the GEIQ center in Querétaro, where the next-generation LEAP-X turbine is also being developed.
In addition to R+D, numerous multinational companies also assign their aircraft engine MRO activities to Mexico. Firms like Honeywell, GE, and Snecma –together with their respective supply chains– base most of the processes and capacities required to develop engines, from concept and design to manufacture and repair, in Mexico.
Another global trend in the industry is the search for alternative fuels, in the face of international price rises and environmental concerns. On July 1, 2012, International Standard ASTM D7566 for the use of biofuels mixed with conventional jet fuel came into force, stipulating that commercial aircraft must have the capacity to fly using biofuels.
The Mexican airline Interjet was the first company on the continent to make commercial flights using biofuel, placing the Mexican aviation industry in the vanguard. Meanwhile, Aeroméxico completed the first transatlantic flight in a wide-body aircraft using bio-jet fuel –the first flight of its kind in the world.
Development of restricted and dualuse high technology is another global trend. As a result of Mexico's entry to the principal export control regimes –the Wassenaar Arrangement, the Nuclear Suppliers Group and the Australia Group– increasingly profitable and strategic investment projects have arrived in the country, which possess a high potential to promote competitiveness through technological and economic compensation.
The projects under development include combat aircraft, unmanned vehicles, next generation materials, and knowledge process outsourcing (KPO) services for the aerospace and defense sectors, including software design and other industrial processes.
Another global trend is the development of new materials and nanocomposites, with the aim of making airplanes lighter and quieter. In this field, research centers and specialist laboratories operating in Mexico include the Mexican Materials Research Corporation (COMIMSA), the Research Center for Advanced Materials (CIMAV) and the Institute for Materials Research (IIM) at the National Autonomous University of Mexico (UNAM). The dynamics of research has led the industry to develop new materials. An example of that is National Helicopters and Aerial Vehicles (HELIVAN), which is developing graphene17, a carbon fiber that is 200 times stronger than steel and is used in the aerospace and defense industries.
Unmanned Aerial Vehicles (UAVs) have experienced meteoric growth in the past decade. They are seen as crucial in the transformation of international defense systems, offering effective solutions without risking pilots' lives. It is expected that the military-use UAV market in the US will grow at a compound annual rate of 12% to reach 18.7 billion USD in 2018.
In Mexico, a number of firms have focused on the manufacture and development of UAVs. An analysis of trends in this area shows that Mexico has the capacity for specialized manufacturing, talent for R+D, and the international agreements relating to dual-use technologies required to become a key supplier in this market.
Vladimiro de la Mora puts forward development of local suppliers as the other major challenge facing the aerospace industry to complete its value chain. "The challenge lies in assisting small and medium enterprises (SMEs) to enter the industry. It is a highly certified sector and we need to examine what kind of incentives and support can be generated so that SMEs can gain certification and acquire the financial capacity to produce samples without impacting on the capital that underpins their operation," explains De la Mora.
"In Mexico we have geographic and cost advantages; we are just a couple of hours from the largest market in the world, the US, and our labor costs are very competitive," De la Mora affirms. In his view, these advantages have permitted the development of industrial sectors where Mexico is now a leader on the international stage, like the electronics and automotive industries. The interesting thing is that many suppliers in these industries are already successfully dealing with the aerospace industry, including, for example, Grupo Kuo, whose aerospace division is a supplier for the giant Bombardier.
De la Mora adds: "Right now we are working on a study of the value chain to determine where the areas of opportunity lie in the manufacturing processes and find ways of responding to them. The Ministry of Economy asked us to identify the most important areas in order to approach the major players in the sector on a global scale and convince them to set up in Mexico."
This is just one example of the joint work between industry and government, which is the third strand in the triple helix of the aerospace development strategy. De la Mora remarks that FEMIA works with the government to set up a laboratory for the industry. "It was decided to locate it in Querétaro. As an association we carried out a survey among our members to see what was most needed on the basis of what is currently being done in the country," he explains.
Meanwhile, the Mexican government has set up a number of programs to boost international trade activities, eliminating or reducing bottlenecks, and thereby contributing to the efficient integration of local and global supply chains.
These programs include IMMEX, an instrument that permits the temporary import of goods required for an industrial process or service aimed at the manufacture, adaptation, or repair of goods from abroad for their subsequent export (or provision of export services), without paying general import taxes, value added tax or, where applicable, antidumping duties. That means import activities are wholly tax-free.
Draw Back is a program that enables beneficiaries to recover the cost of the taxes paid on importing inputs, raw materials, components and parts, packaging and containers, fuels, lubricants and other materials used in the exported product, or for the import of goods that are returned in the same condition, as well as goods used in repairs or alterations.
The National Flight Plan shows that the Mexican government has also progressed in trade facilitation. The Ministry of Economy established a program for gradually reducing tariffs; the implementation of a tariff simplification policy is bringing the country's tariff levels into line with those of its trading partners, including the US. Thanks to that measure, savings of over one billion USD for companies have been generated.
Customs and trade facilitation includes the simplification and streamlining of customs clearance procedures, review of domestic standards, and homogenization with international standards, among others. Furthermore, tariff classification 9806.00.06 was created to provide tariff benefits for imports of inputs for the aeronautics sector in Mexico to increase its competitiveness. That tariff classification allows tarifffree imports for assembly or manufacture of aircraft or aircraft parts, as well as for goods intended for the repair or maintenance of aircraft or aircraft parts, benefitting MRO activities.
The strategies and actions deployed by the triple helix benefit all the sectors, agents, and activities in an industry that has set its course and plans to further develop two of its key strengths –human talent and local supplier capacity– to achieve the success anticipated in its flight plan for 2020. What is more, that route can also lead to large-scale achievements, like completing the full assembly of an aircraft in Mexico.
To remove any lingering doubts, Vladimiro de la Mora reiterates the advantages Mexico offers: "Proximity to the US, support from the government, and economic stability. There is stability in the exchange rate too, which is a significant factor for the aerospace business."