Supply Chain Rearrangement May Bring Opportunities

Q: What is the status of Mexico’s aerospace sector and capabilities?

A: In 2019, Mexico’s aerospace industry exported US$9.6 billion and employed 60,000 individuals at its 368 plants, 104 of which were founded with Mexican capital. Out of the remaining companies, 48 percent are headquartered in the US, 10 percent in France, 6 percent in the UK and the remaining in Canada, Spain and other countries. Mexico built strong production capabilities with 318 companies manufacturing for the aerospace sector, 43 providing maintenance repair and overhaul (MRO) services and 40 focusing on design and engineering.

During the past 10 years, the sector had been growing at an accelerated pace, reporting a 14 percent annual growth rate thanks to civil and commercial aircraft production. The Mexican aerospace industry has positioned itself as the 10th-largest aerospace exporter globally, competing with Spain, Brazil and Italy. The sector has also developed capabilities to build most parts of an aircraft, including aerostructures, interiors, propulsion, landing gears, brakes and avionics and developed capabilities in engineering, design and MRO. The industry is an attractive FDI destination, with 48 percent coming from the US. Most Mexican exports also head toward the US, at 80 percent of the total.

Q: How did the COVID-19 outbreak impact aerospace supply chains and how did these disruptions affect operations in Mexico?

A: The growth of the aerospace industry is strongly linked to passenger traffic, which was resilient to previous crises. However, by April 2020, passenger traffic had shrunk to 10 percent of what it was the previous year, which had repercussions throughout the entire aerospace industry. Globally, aerospace companies had to halt production and lay off numerous employees. For example, Airbus laid off 3,000 employees at its plants in France, Boeing pushed back production of the 737 Max and the 777X to 2021 and Embraer also saw closures. Overall, production of single-aisle aircraft was reduced by 40 percent, while production of double-aisle aircraft decreased by 60-75 percent. The hurdles faced by OEMs were felt throughout the entire supply chain, including Mexico.

Working with the available data, we estimate three potential scenarios for 2020. The most pessimistic foresees a 45 percent reduction in exports, the middle scenario sees exports shrinking by 35 percent and the optimistic forecast is for a reduction of 25 percent. This represents a reduction in exports from US$9.6 billion to between US$5.3 billion and US$7.25 billion during the year. We have also seen the elimination of 20,000 jobs, at least temporarily as companies want to keep their people. This industry requires highly specialized skills and knowledge, which are not easy to replace. We believe that recovering our exports will take between three and four years but this will depend on many different factors, including passenger traffic.

Q: What actions has FEMIA taken to support the industry during the outbreak?

A: We continue looking for opportunities and we are seeing companies in the US wanting to diversify their supply chain to not be dependent on a single location, which will generate opportunities for Mexico. We also foresee that some companies in other industries will enter the aerospace sector because they have available, unused capacity.

We are helping our companies to be more competitive through certifications and helping them increase their market access. Also, as part of our supplier development program, we are working with OEMs and Tier 1 companies to develop and present work packages to smaller companies. Mexican aerospace companies are contending with players across the globe so they have become more competitive. The global supply chain is restructuring after the outbreak as companies will want to have their suppliers closer to home. This will generate opportunities for Mexican companies.

Q: How is FEMIA supporting the development of Mexico’s incipient space sector?

A: There are significant opportunities for the space sector as it gains strength. We are working with the Mexican Space Agency on a few missions because we want to develop Mexico’s space capabilities, which remain limited. FEMIA has signed collaboration agreements with the agency that will allow us to work together to identify areas of opportunity to develop and support space missions.

Q: What international partnerships is FEMIA developing or strengthening to generate opportunities for local companies?

A: We are working closely with the US and Canada’s aerospace industry associations because there are many opportunities to collaborate thanks to USMCA. We have also been invited to participate as observers in the International Coordinating Council of Aerospace Industries Associations (ICCAIA), which participates in the design, development and production of aircraft. ICCAIA is part of the International Civil Aviation Organization (ICAO) and promotes technological advances to support the safe growth of civil aviation. FEMIA collaborates closely with similar organizations across the world, sharing best practices and opportunities.

Q: What are your expectations for next year’s FAMEX event?

A: The Mexican Aerospace Fair (FAMEX), which will celebrate its third edition in 2021, is the most important aerospace event for the industry in Mexico. We are looking forward to it but we are fully aware that there will be challenges. The first will be that the event will be held for the first time at the Queretaro Intercontinental Airport (QIA), which required reconditioning the space to receive both aircraft and attendees. The second will be keeping visitors safe from COVID-19 during the event. Many other aviation events have been postponed or canceled due to the outbreak, so this will be one of the first major aerospace events since COVID-19 arrived. For that reason, health and safety will be a priority.