Smaller Suppliers – Key to Growth in Mexico’s Aerospace Sector
Commentary by John Paul McDaris
There is a terrific article in the year’s first issue of MexicoNOW, summarizing the outlook for the Aerospace industry up to 2020. It’s also very long and you need to register to read it, so here are the main key points of interest, focusing on information for suppliers:
- Aviation and aerospace in Mexico needs more suppliers to truly take off as a global player
- Mexico is getting into higher-end processes and production within the aerospace industry, which will lead to more opportunities for talented engineers and suppliers. Fortunately, the Mexican government is also doing a good job of helping supply that skilled talent, in partnership with industry.
- Though more established in the northern cities near the US border (Nogales, Tijuana, Chihuahua), aerospace manufacturing in central Mexico is a fairly recent phenomenon, without the same strong heritage found in Mexico’s automotive industry
- Foreign direct investment (FDI) in Mexico aerospace manufacturing continues to grow strongly, as does level of export. Both are good indicators of future growth opportunities.
Growth potential for even smaller suppliers is here and service providers like ours, the Entrada Group, are often the best solution to entering the market. That’s because smaller suppliers who want to set up operations in Mexico without taking the massive up-front investment and risk of doing so all on their own can leverage Entrada’s expertise, quick setup and existing presence. But why are those opportunities here in the first place?
The Right Conditions
Like a young baseball player with all the skills (the five tools, as scouts say) the aerospace industry in central Mexico (Bajio region) is rich with promise. All the characteristics that make Mexican manufacturing strong for automotive, medical devices, electronics and construction are present for aerospace: proximity to the US market; free-trade pacts with countries in North America, South and Central America, Europe and Asia; competitive labor costs; and an expanding, educated workforce. Unlike other industries, however, aerospace is somewhat new on the Mexican scene. Though big aerospace suppliers like Honeywell and Westinghouse have been in Mexico since the 1970s, their production was limited to fabrication of basic components for use in US defense aircraft.
According to MexicoNOW, it wasn’t until 2005 when Bombardier set up shop in Querétaro that things really got serious for Mexican aerospace manufacturing. Now, according to FEMIA (Mexico’s aerospace industry association), the number of OEM suppliers with operations in Mexico include 36 for Airbus, 26 for Boeing, 13 for Bombardier and 17 for Embraer. It is solid supplier growth over nine years, to be certain. But Mexico currently supplies about two days worth of value of the global aviation market per year, or about one-half of one percent. So they’re just starting to scratch the surface.
Another interesting thing to note about the profile of both OEMs and suppliers is where they come from. Just take the above-mentioned Airbus, Boeing, Bombardier and Embraer as examples. These are four of the largest OEMs in the world, hailing from Europe, US, Canada and Brazil respectively. Such diversity is testimony to the pull of Mexico as a low-cost manufacturing destination, thanks to its free-trade status with so many different nations.
Aerospace on the Move in Mexico
The growth happening now is encouraging additional investment. By 2012, Mexico had become the 14th-largest exporter in the global aviation industry and one of the largest recipients of FDI in the sector. While fast growth is attracting additional suppliers to Mexico, it’s worth noting that those are mostly the big, global players like GE, Safran, Daher, Senior and Sargent. For smaller tier suppliers, it’s slower going. This is in contrast to Mexico’s automotive manufacturing industry, for example.
In automotive, the OEMs have enough leverage to pull suppliers, big and small, into Mexico with them. That’s because the auto suppliers know that a Mexican manufacturing presence will bring them additional growth opportunities. The same cannot yet be said for the aerospace industry, where even a global OEM alone isn’t enough for a smaller supplier to justify the investment in Mexico operations.