Mexico, a Highly Efficient Manufacturing Strategy

Bruno Ferrari, Secretary of Economy
MEXICONOW Staff Interview

What is the current situation of the aerospace industry in Mexico? Mexico’s aerospace industry has been growing and developing in such a way that Mexico’s international presence in the Aerospace Industry has become increasingly important. In only five years, thanks to its manufacturing capability and talent, Mexico has gone from having just a handful of companies in this industry, to being the ninth supplier for the US and the sixth for the European Union.

The Mexican aerospace sector is growing rapidly. In the last five years, exports from this sector have reached two-digit numbers and the number of businesses established in Mexico has tripled, reaching more than 190 businesses in 2009. Aerospace companies that are established in Mexico—mainly foreign companies—employ close to 30,000 people and, in 2009, recorded exports close to 3 billion dollars.

Why are aerospace companies coming to Mexico? Many companies from the European, American, and Canadian aerospace sectors see Mexico as the cornerstone to develop a highly effi- cient manufacturing strategy. Within this context, Mexico’s challenge is to turn this window of opportunity into a national, high added value innovation ecosystem in a sector that offers well-paid, high-quality jobs, attracts investment and talent, and generates competitive poles that are linked to international innovation networks. To achieve this, Mexico has implemented ambitious goals based on certain abilities and capabilities that aid in understanding the environment and challenges that the sectors faces, and define strategies that will help the industry.

The academia and the government work together to build platforms for the future.

Foreign aerospace companies are aware of the following key factors:

  • Logistics axis. Mexico’s geographic location at the convergence of North America’s aerospace manufacturing corridors (the most important in the world) and the access to both the Asian and the European markets, positions Mexico as the natural logistics and manufacturing hub of the Americas. Mexico is essential to the optimization of North America’s supply chain.
  • Talent. Close to 90,000 engineering and technology students graduate each year from Mexican universities (ANUIES: Statistics Yearbook 2000-2008), compared to 70,000 students in the United States (About the Engineering Gap, Businessweek 2007). Mexico contributes with talent attractive to innovation companies in sectors such as the aerospace sector.
  • Experience. Mexico’s experience and success in developing sectors such as the automotive and electric-electronic have provided a specialized infrastructure platform that have aided the development of the aerospace industry in Mexico, and have allowed the optimization of supply chains, common support programs, and synergic advantages.
  • Productivity. According to KPMG’s “Competitive Alternatives 2010” report, Mexico’s costs are up to 18% more competitive than the current industry leaders’. This has led to an important flow of foreign investment in the aerospace sector that has created a new window of opportunity to develop an innovation ecosystem.
  • Innovation. Mexico’s manufacturing sector has developed several platforms with international success, such as automotive power trains, metallurgic systems (such as the HYLSA process), and advanced materials to name a few. Important universities and research centers in Mexico have that focused on advanced manufacturing and materials which has promoted the development of innovation projects in the aerospace sector.

Mexico offers savings of up to 34% higher, than those offered by countries such as Germany or Japan. The first group of large companies is already relocating their manufacturing processes in Mexico and making great use of our workforce.[4] Several overseas intensive manufacturing companies with sales per employee that range between 80,000 to 100,000 USD, can find significant advantages by relocating in Mexico.

In sum, Mexico means opportunity. Mexico has acquired a vast experience in the automotive and electric – electronic sector, and that guarantees the aerospace industry’s success. The country’s aerospace industry has a world class infrastructure, based on:

  • Transfer of quality methodologies
  • Development of suppliers
  • Manufacturing standards
  • Certification
  • Human talent

Has BASA been implemented? What are the missing steps to make it a reality on the production floor? BASA (Bilateral Aviation Safety Agreement) is the mutual recognition of aviation certification processes between the US’s Federal Aviation Administration (FAA), and Mexico’s General Direction of Civil Aviation (DGAC). Said agreement was formally signed by both countries in 2007, and ratified by the Mexican Senate on September 2009.

This agreement provides Mexico with a first level competitive advantage, which forces our country to consolidate our industrial capabilities and look for new product development and market placement schemes. These types of regulations are key objectives to accomplish the establishments of new production centers.

The current growth and coming of age of the aerospace industry has been halted by the lack of a solid aviation certification system. Economical issues have been the main problem for the operation of BASA, as talent and infrastructure exist in the country.

Resources are also scarce where certifiers with the capability of visiting plants and test labs are concerned. The group of 15 certifiers hired by the DGAC, have proven to be not enough, therefore, the best mechanism found to solve this issue, has been the establishment of a Public-Private Partnership; that is, the establishment of a Public- Private entity where the business and certification processes are conducted by a recognized private institution and the certifier of compliance will be exerted by the DGAC.

ITR, a company based in Queretaro, undertook the design of valves for the Boeing 727, looking for FAA’s letter of design approval (LODA) and the Letter of Technical Standard Order (TSO) for its manufacturing.

These approvals were a necessary step, being one the FAA’s conditions for the signing of BASA: the existence of a home industry. What is the forecast for the aerospace industry in Mexico in 2010-2013? Mexico means great business opportunities for the aerospace sector.

Aerostrategy’s study concerning investments made from 1992 to 2005 by the world’s biggest OEMs, has shown that Mexico ranks first in manufacturing, and sixth in Research and Development. Investment in the aerospace sector in Mexico has increased since 2003, when the Ministry of Economy decided to boost its development.

Today, ProMéxico oversees a vast amount of projects involving foreign aerospace companies that see Mexico as an alternative for aerospace manufacturing. Today, 7 out of 10 leading companies operating in Canada are established in Mexico or evaluating transferring some of their operations here. Therefore, this FDI attracting process must continue in a way that allows the creation of a critical mass that can subsequently lead to higher efficiencies.

This year, Safran has announced the investment of 150 million dollars in a 5 year period, with the creation of approximately 500 new jobs.

When do you think a fully assembled plane in Mexico will be a reality? Bombardier’s facilities in Querétaro, focuses mainly on assembling metallic structures, electrical harnesses and cutters. The Canadian company is planning the second stage of their investment project, where it will evolve these abilities to focus on compound material manufacturing and installation of avionics and mechanic test systems. These abilities will allow Bombardier’s facilities in Querétaro to be involved in manufacturing the Learjet 85, along with the company’s facilities in the US and Canada. This will be completed in the subassembly and manufacturing system integration phase, focusing on actions aimed at developing human capital with a profound knowledge of the aerospace industry. It includes several projects, such as a catalog of industry professionals, a catalog of technical capabilities, and the definition of compound structures and electrical harnesses. This stage is expected to be implemented by the end of 2013.

How is Mexico developing the required manufacturing skills and labor force for the aerospace industry? Talent development and analysis made by COMEA, show that the opening of several companies of the aerospace sector, require training of highly qualified and specialized personnel, able to achieve the high educational standards required by this sector. It must be considered that the talent necessary to support the aerospace industry, must form a capabilities pyramid based on the training of highly qualified operators (CONALEP), technicians (CONALEP; UT’s), Engineers (Higher Education Institutions) and researchers (Higher Education Institutions and Research Centers). The pyramid developed by the Montreal Cluster is a good example of this. In this pyramid, 1 out of 5 workers in the industry is a researcher, an engineer, or a highly specialized Technician. Furthermore, the aerospace sector in France has 15,600 employees in R&D, with 8,400 researchers out of more than 100 thousand highly qualified employees.

To follow these examples, in Mexico’s case an innovation aerospace industry would require the collaboration of 6,000 to 10,000 engineers, researchers, and specialized technicians out of a total of 40,000 employees.

The Creation of a Mexican Space Agency is on the way, which will require personnel with a high quality education, and profound knowledge of some of the different areas that constitute space and aeronautical engineering.

Along these lines, universities part of COMEA, have been covering these necessities by creating different programs: MsC in Aeronautical Engineering, training programs for qualified instructors and certifiers, exchange programs between France and Mexico, among others.

As an integral part of the plan, the creation of a specialized talent management system is proposed. This system will have job offers and information systems that allow the creation of Training Maps, to coordinate the educational offer according to the market needs and define research lines, scholarship programs, and other incentives for the human capital.

Winning the “Talent War” is a priority for all innovation industries, but maybe in none as important as the aerospace and defense sectors. To attract and retain critical talent is seen as a strategic issue of primordial importance with increasing frequency”. The challenge of winning the hearts and minds of talented people is harder than ever”.

In the study “Winning the War of Talent”, where 42 high level executives of the aerospace industry in the United States were interviewed Deloitte arrives to the following premises:

  • The talent pool is cut in the aerospace sector.
  • Rotation is growing.
  • There is a fierce talent competition.

Following this tendency, Mexico has an advantageous position, especially if a training program and a specialized talent management system for the aerospace and advanced manufacturing sectors is established.

If defined this way, this would have a positive impact in other industries such as automotive and medical equipment.