Mexico as an aerospace manufacturing hub
It should be no surprise that the Mexican Aviation and Aerospace sector is booming, but what is remarkable is the speed at which it is doing do. Fifty years ago the industry was practically non-existent, until Honeywell & Westinghouse began manufacturing basic components in Chihuahua. After that, the sector grew slowly until 1994 when the introduction of the North American Free Trade Agreement (NAFTA) catalyzed industry growth. NAFTA, alongside governmental registration, created an ideal climate for aerospace companies to grow by facilitating importation and exportation and simplifying the creation of “maquiladoras.” As several small companies began operating in Mexico at the turn of the century, and the industry began to grow quickly. By 2004, the country had approximately 65 companies dedicated to manufacturing aerospace products. Today, there are more than 300 companies located across 16 Mexican states, most of which are concentrated in clusters in Chihuahua, Queretaro, Sonora, Baja California, and Nuevo León.
From 2010 to 2014, the sector has grown on average by 21% per year according to PwC. ProMéxico states that the country is the 12th largest exporter of aerospace products in the world and the 6th to the US. According to ProMéxico, aerospace exports amounted to US$6.3 billion in 2014. This can be attributed to the fact that the aviation and aerospace industry is becoming increasingly important to Mexico, currently aiming for the position of global leader in the aerospace sector. Worldwide, the sector presents near countless opportunities. In 2013, PwC estimated the total revenue of the aerospace and defense industry amounted to US$1,167.7 billion, and Forbes predicts that in the next 20 years air traffic will merit the introduction of 29,000 new planes. Mexico aims to capitalize on the growth of the global industry, which is now among the most active worldwide. Most of the global main players in the aerospace industry are now in Mexico, generating US$3.18 billion in foreign direct investment, primarily from the US (41.5%) and Canada (40.2%).
Mexico’s competitive advantage
There are many reasons that international companies are choosing Mexico for their manufacturing needs. The country is extremely open to international trade, holding 10 FTAs with over 45 countries. These agreements greatly facilitate the importation of raw materials and the exportation of finished products by eliminating tariff barriers to trade and investment. One of the agreements, the Bilateral Aviation Safety Agreement (BASA) signed with the US, has greatly improved trade by facilitating approval of aerospace parts, components, and complete planes assembled in Mexico.
Mexico offers a stable economic environment which promotes the development of a competitive industry and has also implemented several measures at a local level to deregulate business and promote private investment. An important factor is the relatively low labor costs, a great advantage for foreign companies interested in manufacturing in the Americas, as they greatly reduce production costs. Although professional individuals are not as cheap as in some developing countries, Mexico is a reliable source of qualified professionals, from technicians to engineers. Thanks to a large number of universities and training centers, the local population provides a trained and eager labor force to the aerospace industry. Finally, Mexico has strong intellectual property (IP) protection regulations and has signed multiple international agreements to protect IP.
The Mexican government is now recognizing the importance of the aerospace sector, leading to the proposal of a series of strategies and policies to strengthen the aerospace industry, by the Ministry of Economy, compiled in Pro-Aéreo 2012-2020. The goal of this plan is to position Mexico in the top 10 suppliers for the global aerospace industry and to increase exports to US$12 billion. To achieve this, Pro-Aéreo is implementing several strategies, including the international promotion of Mexico as a manufacturing hub for the aerospace industry, the development of the internal and external market through the generation of instruments to support sustained growth, the consolidation of a skilled workforce with ongoing professional development, and the integration of the supply chain.
Understandably, Mexico still has some hurdles to overcome in order to comply with the goals of Pro-Aéreo 2012-2020. However, the country mainly needs to develop and secure its supply chain. According to EY, while the crime rate is steadily decreasing, the country is still trying to shake off its bad reputation both for insecurity and corruption. Border-crossing can also pose a problem for companies operating internationally, as it involves complex documentation processes and delays that can take up to three days to clear for the traveler to be released.
Despite a number of challenges, the aviation and aerospace sector in Mexico keeps growing and now the country is in a privileged position to become a manufacturing hub and a center for trade. Here at Mexico Aviation and Aerospace Review, we invite you to follow us to discover more about this booming sector.