Generating Synergies to Underpin GrowthFri, 12/01/2017 - 13:15
Almost 37,000 commercial aircraft, worth about US$3.7 trillion dollars, will be necessary by 2035, according to a 2015 Boeing forecast. Whether the global aerospace industry is ready to manufacture them is another question. “For the next five years, a global supply shortage of US$50 billion is expected,” says Eugenio Marín, CEO of TechBA Madrid-Montreal & TechBA Aerospace. “Mexico is in good position to absorb 10 to 15 percent of that shortage in the next 10 years.”
This represents a significant business opportunity for an industry that aims to export US$12 billion by 2020. The Mexican aerospace sector has been growing at an accelerated pace for the last 13 years, led by major international aerospace companies that saw in Mexico an opportunity to manufacture the same quality at more competitive costs. “For aerospace companies that invested five years ago, it is important to start upping the pace.” To achieve this, companies need to overcome a number of challenges. TechBA’s chosen path as a business accelerator for SMEs involves facilitating their entrance to the supply chain. TechBA is currently supporting 10 SMEs through various acceleration programs, explains Marín. “We help them create a road map to enter the sector.”
One of the recurring concerns in Mexican aerospace is supply chain integration, which is complicated by the lack of a strong supply base. One solution is for international companies to bring their suppliers to Mexico. Another is to raise the level of existing suppliers in the region to the requirements of OEMs and Tier 1 and 2s. “Many of these large OEMs are not willing to make the large investments necessary for supply chain development,” says Marín.
Initiatives like TechBA can help these suppliers improve as soon as possible. A pivotal role in the development of the supply chain falls on the shoulders of companies that support the growth and consolidation of local suppliers. TechBA was created by Mexico’s Ministry of Economy and FUMEC, a binational entity with an endowment from the US and Mexican governments.
With four offices in the US, two in Canada, one in Spain and one in Colombia, TechBA helps SMEs in many sectors, identifying value-added niches. TechBA also supports ProMéxico and FEMIA, contributing to a large study on supply chain integration and it provides feasibility studies for the Mexican Space Agency’s (AEM) technology transfer centers. AEM is creating centers across Mexico and is collaborating on a project with CONACYT to develop human resources and certification training in Sonora and Baja California.
Approximately 250 Mexican companies in the aerospace sector are working to obtain the certifications, human resources and infrastructure needed to achieve success. “About 50 percent of the sector has been working for over 10 years and those companies are well-positioned and fully certified. The rest have joined the aerospace boom in the past five years.” Barriers along the way, such as major aerospace companies requiring suppliers to provide strong production track records, causes setbacks. “OEMs and Tier 1s often look for companies that already have aerospace clients, complicating the entrance for newcomers. Furthermore, it takes companies four to six months to prepare for a bid.” These factors stall local SMEs and the consolidation of the supply chain. If suppliers are not ready to handle this workload, manufacturers send the work to competitive regions such as Turkey, Poland and Morocco.
SMEs that identify long-term opportunities and returns persevere but many excellent, quality companies give up. “Many Mexican family businesses are used to one-year ROIs but this is not possible in the aerospace sector,” said Marín. TechBA inspires patience in the face of adversity for those that have real potential.
TechBA’s team also identifies companies facing slowdowns in their specialist areas, such as oil and gas, and help them migrate these capabilities to the aerospace sector. “This can take up to two years, which can seem slow for budding aerospace players but it is fast for the sector,” says Marín. Companies that can be adapted to aerospace operations include automotive, metal mechanics and suppliers of medical devices.
Another problem is that SMEs often lack the financing merited by their expertise in manufacturing. Small companies in Mexico need agile access to grants and financing to speed up their growth. “A company may be the best at producing a specific component but to grow in this industry it must diversify its scope and increase its capabilities. This will attract larger customers such as Tier 3 and 4 companies,” Marín says. Once SMEs have taken this step they can access bank loans more easily, which will in turn allow them to invest in machines, processes, insurance and personnel. “This is the only way a small aerospace company can grow, and we support them by helping them to access these channels and capital.” TechBA performs a comprehensive analysis of a company’s capabilities and processes. Once strengths and weaknesses are identified, its team generates a comprehensive business plan so SMEs can expand their operations. The company will also guide them through submittal processes for loans and insurance.
On the other end of the scale from SMEs, international players that are already established in the country have invested in consolidating the supply chain. “Large companies must support the services they will need in the next five years to keep their manufacturing costs low enough to retain competitiveness,” says Marín. As companies look toward Mexico as more than an entry point to the US, but also to Canada, Latin America and even Europe, international companies must invest in developing more advanced capabilities. The next goal will be generating new intellectual property. GE Queretaro, for example, employs 2,500 engineers to develop the next aircraft engine locally. “Other companies have followed suit such as Safran and ITP, but these companies have operated in Mexico for decades. Newcomers are not doing so and it is necessary for them to bring in these complex capabilities.”
Marín points to Altaser Aerospace as one of TechBA’s greatest successes in 2016. Collaboration with this company goes back many years, to when the company expressed an interest in machining but lacked expertise in the sector, which led them to acquire a machining division from Soisa Aerospace with TechBA’s support. The relationship between both companies has been extensive. “From 2016, we have helped them in their commercial operations, financing and acquiring new contracts,” he says. Last year, Altaser started a joint venture with an English company for surface treatments. TechBA will help Altaser deliver greater added value and eventually to gain even larger contracts following the joint venture, Marín adds.