Political uncertainty related with the 2018 federal elections and NAFTA 2.0 negotiations plagued Mexico’s manufacturing sector during 2017 and 1H18. However, trade-promotion agencies such as ProMéxico have gone the distance to continue attracting FDI and showcasing the advantages of Mexico-made products with solid results. For instance, ProMéxico was present at the 2018 Farnborough Air Show with several Mexican companies to showcase the advantages that Mexico can offer to potential aerospace investors. During this event, new investment projects such as the expansion of Esterline’s operations in Baja California were announced.
In this edition of The Interview of the Week, MAAR presents an excerpt from its exclusive interview with César Fragozo, Sectorial Director of the Aerospace Unit at ProMéxico, that was originally published in Mexico Aviation & Aerospace Review 2018.
Fragozo will be moderating the “Opportunities for Mexico’s SMEs in the Local Manufacture Chain” panel at Mexico Aerospace Forum 2018. Register now to get your tickets to the event and find out more about ProMéxico’s support for the aerospace industry. Don’t miss out!
Q: How did the aerospace industry perform in 2016 and what are your expectations for 2017?
A: 2016 saw exports increase by 10 percent to US$7.2 billion and we closed the year with about 360 registered aerospace companies. We expect the sector to keep its current pace. The aerospace industry is stable because it has orders for the next five years. Demand is high as airlines must acquire new aircraft to cater to the growing number of passengers and also to renew fleets. The US, one of the world’s strongest aviation zones, is expected to maintain its fleet size but areas such as the Asia-Pacific, the former Soviet bloc and Latin America are expected to double their fleets. This also increases the need for MRO services, technicians and pilots so we can safely diagnose potential for the development of local MRO capabilities.
Q: How sensitive is the Mexican aerospace industry to domestic and foreign economic challenges?
A: The aerospace sector will not be affected as demand for parts and components is constant and manufacturers are always on the lookout for ways to increase their competitiveness. The aerospace manufacturing chain is extremely intricate as it involves the repeated transportation of pieces across borders before final assembly. To add an import tax to this transaction would only elevate costs for the final user. Neither is moving manufacturing to other countries easy, as producers must consider the installed capacity at every location and transportation costs to and from destinations. Moving production lines from Mexico to another country would greatly increase transportation costs and reduce competitiveness. Many people think that Mexico’s economy was only impacted by the US president’s policies, but the peso was facing problems before the election due to internal policies. Many are confusing these two different situations and often US policies are unreasonably blamed for decreasing the value of the Mexican currency, adding to the general uncertainty. The exchange rate, however, benefits investors. Last year, Mexico broke its own record of exports to the US and companies manufacturing in Mexico and exporting are actually increasing their profits due to the exchange rate.
Foreign aerospace companies perceive Mexico’s strength in the aerospace sector. European companies are showing their commitment to Mexican manufacturing, especially those in the aerospace industry, while some US companies are cautious of the comments they make. But manufacturers will be unwilling to move out of Mexico simply because of threats, as they would have to start over and invest in infrastructure, human capital and certifications.