Cesar Fragozo
Chief of the Aerospace Unit
View from the Top

Mexico Lifting North American Competitiveness

Fri, 12/01/2017 - 12:39

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.

The coming year may be challenging for sectors like automotive, yet there are many positives, including an economic boost brought about by the Energy Reform.

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.

Q: How is ProMéxico supporting the country’s emerging space sector?

A: We are preparing for the bid of the third satellite from the MexSat system, which will be a support satellite for communications. The unit will offset national manufacturing by 10 to 15 percent and is expected to be finalized in a few years. Potential bidders include Airbus, Boeing, Safran and Lockheed Martin, which are looking for national suppliers.

This project will bring state-of-the-art technology to Mexico. The aviation sector is highly aware of safety, which has led to the creation of many certifications, including AS 9100 and NADCAP. On the other hand, safety concerns are not as prominent when dealing with satellites. In this latter case, the most prominent aspect is cost as satellites are valued at over US$1.5 billion. Certifications for satellites and their parts are issued by the manufacturers themselves, permitting a greater investment in developing materials and technologies. The incorporation of satellite manufacturing poses significant opportunities for Mexican companies. While MexSat would initially imply only a reduced number of parts, once we have developed the technology to manufacture satellites, we would be able to manufacture for other countries.