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Analysis

Clear Skies as Industry Continues High-Flying Ways

Fri, 12/01/2017 - 17:28

Rising global demand for plane tickets continues to underpin new aircraft orders. Despite a slight decrease in orders in 2018, both Boeing and Airbus maintain a healthy backlog for the coming years and project positive demand for commercial aircraft through 2037.
“The world will need over 33,000 aircraft within the next 10 years and existing supply chains are unable to deal with this significant demand,” says Eduardo Marín, CEO of TechBA Madrid-Montreal and TechBA Aerospace. According to FEMIA, the Mexican aerospace industry achieved exports worth around US$8.5 billion in 2018, a figure that is expected to climb to US$12 billion by 2020. Luis Lizcano, Director General of the Federation, says Mexico is well on track to reach its goals and enter the Top 10 global aerospace suppliers by export value by the end of 2020. However, there are gaps to be filled and obstacles to overcome for Mexico to reach its true aerospace potential.
A study carried out by FEMIA and TechBA as part of FEMIA’s National Suppliers Development Program found several areas of opportunity for Mexican SMEs in composites and foundry components and a limited offering for highly specialized processes for the aerospace industry. Additionally, the lack of quality management certifications and other entry requirements for the aerospace industry are among the most important challenges Mexican SMEs must overcome. According to the study, it is necessary to establish strategies that strengthen SMEs in the areas of quality, financing and business culture within the aerospace industry.
MEXICO’S AVIATION THRUST
The Mexican aviation industry contributed US$37.1 billion to Mexico’s GDP and 1.4 million jobs in 2018, according to IATA. Data from DGAC shows that Mexico’s commercial aviation industry achieved solid growth rates of 7.6 percent and 12.8 percent in passenger and cargo traffic, respectively, in that same year. With 9.3 million people transported and 909,763 tons of cargo handled, 2018 was the seventh year of record-breaking growth in passenger traffic and fifth in cargo traffic. The domestic passenger subsegment was the most dynamic for the country’s aviation industry with growth of 9.5 percent, followed by international passengers with 5.6 percent.
Together, Mexican airlines reached a solid 10.3 percent of aggregate growth in passenger traffic. Grupo Aeroméxico remains the most important player with market shares of 22.4 percent of the country’s total passenger traffic (21.8 million people) and 12.8 percent of all cargo transported (117,094 tons). Volaris held the second-largest share of total passengers transported with 17.5 percent (17 million passengers), followed by Interjet with 14.3 percent (13.9 million passengers). While these three airlines maintained their positions as the largest Mexican aviation players, Viva Aerobus beat them in terms of growth, posting a 22.4 percent gain compared to 2017’s passenger traffic figures.
IATA projects a solid performance for Mexico’s aviation sector over the next 20 years, particularly in the segments of domestic connectivity and diversification of direct international connections. However, the association points to Mexico’s strained airport infrastructure as the main challenge that could put the brakes on the country’s aviation growth. The Mexico City International Airport (AICM), the country’s most important airport terminal, was originally designed to support 32 million passengers; it reached a new level of saturation in 2018 when it catered to 47.7 million passengers and 581,675 tons of cargo. With a projected capacity to support traffic of 120 million passengers and 2 million tons of cargo per year when completed, NAIM was former President Enrique Peña Nieto’s bet to alleviate AICM’s saturation. But its cancelation by the López Obrador administration puts pressure on the long-term growth of the aviation sector.
Still, IATA maintains its growth projections for Mexican aviation. By 2037, Mexico could double its annual passenger traffic to 196 million people per year, create another 8 million aviation jobs and increase its aviation GDP to US$80 billion, as long as aviation-friendly policies are in place. But IATA also warns that the absence of NAIM will lead to a shortfall in capacity of 20 million passengers per year in 2035 that is yet to be covered and could lead to losses of US$20 billion out of the country’s GDP by 2035.