Industry has bright 2020 outlook By Sergio L. Ornelas, MEXICONOW Editor
Why would Mexico want to piece together and mass produce a complete aircraft that makes its maiden flight from a Mexican airport?
There is a dose of country pride in this subject. If Brazil already assembles complete aircraft, why Mexico cannot? After all, it is just another discipline of global competition beyond soccer or skyscraper height; remember the race to the moon? You may call it the international pursuit for notoriety, a relatively important matter, particularly for emerging countries.
When the aeronautical industry became the center of attention in Mexico with the arrival of Bombardier in 2006, the industrial community and the news media welcomed the exciting world of airplane parts manufacturing with great enthusiasm. Mexico’s industrial chain of successes featuring the auto and electronics sectors could certainly use aerospace as the perfect icing on the cake.
Beyond the dignifying sense of pride to mass produce an aircraft, there are of course the economic benefits.
If an OEM ever decides to build a complete aircraft in Mexico, automatically the existing supply chain will improve in volume and depth and spur an accelerated relocation of new suppliers to be near the final assembly place, creating thousands of jobs, dramatically improving technology and academics and generating a very attractive domino effect of indirect economic gains.
Although to build a complete airplane in Mexico is mentioned only as a desirable landmark, it is not a specific objective in the official strategic plans for the industry by the public or private institutions of the sector.
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But the eventual accomplishment of this feat is well alive in the back of the minds of most industry players including manufacturing and service firms, politicians, domestic airlines, the Mexican Air Force, academic centers, industrial promoters, state development agencies and the sector industrial institutions themselves.
After all, Mexico has already been there and done that. Indeed, back in 1915, for military reasons, Mexico launched an aviation school and a shop to manufacture airframes, engines and propellers.
Back then, biplane and monoplane type aircraft were fully designed and manufactured in Mexico under the supervision of an Italian aeronautical engineer and mechanic, Francesco Santarini. The first 100% Made-in-Mexico airplane took off for its maiden flight on May 16, 1917.
The “Series A” biplane equipped with an 80HP “Aztatl” engine, “Anahuac” propeller and a reinforced laminated wood airframe was capable of flying at an altitude above sea level of about 17,000 feet in Mexico City. It was a very reliable and maneuverable airplane able to perform aerobatic exercises such as “Looping the loop” and the “Imelman turn”.
Unfortunately, the revolution war and the change of government ended what could have been a very large and great industry in Mexico today.
In total, 58 complete airplanes were manufactured in Mexico along with many propellers that were exported. Reportedly, the military flight school produced 40 pilots which were grounded after the unfortunate turn of events that ended Mexico’s first and brief encounter with aviation.
In this MEXICONOW issue we will first review the existing conditions and outlook of the aerospace industry in Mexico, following we will explore the opportunities and challenges that Mexico would face in a quest to build a complete aircraft, and if so, when?
By the numbers
Mexico’s aeronautics parts and components manufacturing industry continues to grow at a Chinese like pace. For the last 9 years, this industry has managed to average just under 17.5% annual growth in exports. And although the sector had an adjustment year in 2013, growing “only” at 9% over 2012, the export value growth rate is expected to exceed 15% in 2014 and reach US$6.3 billion by the end of the year.Exhibit #1
illustrates the main performance indicators for the aerospace industry in Mexico including the annual exports since 2004. Based on the industry’s new and expansion projects under development, the forecast period considers a sustained 15% grow rate for 2015, and a more conservative average annual growth of 12% during 2016-2020 to handily reach US$12 billion annual exports in 2020.
At an export level of US$12 billion, Mexico would represent about one half of one percent (0.5 %) of the global commercial aircraft (30 seats or more) production value. This is without considering the defense market, estimated to be about twice as large, or the corporate and civil aviation markets. Mexico’s potential to continue to grow at a fast pace is evidently bright…if things are done right.
Mexico continues to gain altitude in the global aerospace industry by strengthening its supply chain and moving up in product complexity. In a decade of operations, many of the key players are already into their second, third or higher number of plant expansion phases, with many including important design and engineering capabilities.Exhibit #1
also shows the annual estimated foreign direct investment in the aeronautical manufacturing industry in Mexico. Since the investments are usually spread over a few years and the accounting is a bit tricky, this particular datum is an elusive one. But most participants in the industry agree that new investment per year (Plant, equipment & working capital) reached US$1 billion on or about 2010, and will be close to US$1.5 billion per year in 2014.
Recent new projects and expansions include: Bombardier (Global 7,000 & 8,000 components), Latecoere (Wiring systems for Airbus and Doors for the Dreamliner), Embraer/Zodiac (Interior finishes and components), TechOps (MRO Delta & Aeromexico), Snecma (Multiple components), Tyco (Wiring systems), Aernnova (Structures), UTC (Nacelles) and Eurocopter (Composites) to name just a few.
The final tally for total employment at the end of 2014 will likely exceed 45,000, including engineers, technicians, direct labor and administrative staff. It is expected that jobs in the industry will keep a pace of about 5,000 new recruitments per year to reach 75,000 by 2020, as shown in Exhibit #1
The aeronautical industry relies heavily on engineering and vocational training. Mexico produces, inclusive of all disciplines, about 50,000 engineers per year. Currently, there are 21 academic institutions offering over 50 programs specialized in aerospace and aeronautics for technicians and engineers.
Noteworthy is the exponential growth of college freshmen enrolled in aeronautical and aerospace engineering as illustrated in Exhibit #2
. Along with the industry, in just a few years, they have gone from about 1,000 in 2006 to over 4,000 currently.
Evidently those regions that want to lure aerospace firms have to first invest in academics. This is the case of Sonora, Chihuahua, Baja California, Queretaro and Nuevo Leon, the main industry clusters, where aeronautical firms and the engineering and technical schools work together in remarkable symbiotic curricula where internships, pre-hiring before graduation, custom training, on-the-job training and from-training-to-job programs are common practice. State sponsored training scholarships are a widespread incentive for aerospace firms in these successful regions.
The number of aerospace companies in Mexico has not kept pace with employment and exports which have about doubled from 2010 to the present, while the former has only increased from 220 companies to about 300 during the same period of time as charted in Exhibit #1
. This evidently tells us that the growth is coming mostly from expansions of the existing firms.
Nevertheless, the new ones keep coming: About once every three weeks a new aerospace firm or shelter contract gets under way in the industry, and very likely there will be over 400 firms at the end of 2020.
What is more important in the subject of the number of companies is their composition by country of origin and type of operation.Exhibit #3
illustrates the change in composition of the aerospace firms in Mexico by their country of origin. Currently, U.S. firms represent 80% or about 240 companies. By 2020, it is expected that there will be about 270 U.S. aerospace corporations in Mexico, but they will be “only” 64% of the total.
Besides Europe’s increasing participation in Mexico’s aerospace industry, particularly by way of “The French Connection”, the larger story here is the forecast for an increasing number of Mexican companies in the sector.
Domestic firms, particularly small and medium Mexican companies, have traditionally had a poor record in joining the supply chain of foreign manufacturers in Mexico. Quality, volume and financial constraints have prevented the vast majority of domestic small and medium potential suppliers from obtaining contracts in the auto, electronics and medical export industries.
But in the aerospace industry things are looking different. Some of the small and medium size domestic firms in aerospace include for example: Especialistas en Turbopartes, a company that makes bearing carriers which are part of the landing of various Boeing models; Volare, an engineering firm that designs and manufactures furniture for passenger aircraft; and SOISA, a producer of seat covers for airlines that claims to make 20% of all the world’s new airplane seat covers.
There are of course, large Mexican conglomerates active in the industry such as Frisa, which supplies seamless roll formed rings made from nickel and titanium alloys for engines to GE and Rolls-Royce; and KUO Aerospace, a machined components manufacturer which is a division of one of Mexico’s largest global industrial companies.
Our forecast is that by 2020, there will be about 75 companies of Mexican origin in the country’s aerospace industry.
The nature of the aerospace industry is one of the main reasons it is accessible to domestic firms. The aerospace industry has a low-volume/high-mix of products, where customized designs are the rule and not the exception, with frequent engineering and technological product changes.
Aerospace is also a “slow” industry, with lots of planning, engineering and quality control behind every piece. It is a “craftsmanship” world where every screw needs a detailed “birth certificate”. These characteristics are generally an excellent fit for Mexican small and medium companies.
The aerospace industry in Mexico is actually a great expansion and diversification option for those domestic companies that are already competent in the metals, machining, Engineering & Design and the automotive industries. The transition may not be easy, but it is well worth the effort.Exhibit #4
depicts the evolution of the aerospace companies in Mexico by type of activity. Manufacturing currently accounts for over 70% of the firms in the industry, and our forecast by 2020 reflects a relative stronger growth of MRO’s and Design& Engineering (D&E) firms.
At approximately a third of the cost for an engineer, a fifth of the cost for a technician and up to a tenth of the cost of direct labor of U.S. salaries, it is not surprising that the young unexplored fields of MRO activities and D&E will grow faster than manufacturing. Two examples of what can be done may be found in Queretaro:
As part of Delta TechOps’ long-term plan to become a one-stop shop and operating as a third-party MRO provider, a brand new facility was built in a joint venture between Aeromexico and Delta Airlines, with capacity for up to seven aircraft to be serviced simultaneously.
Every day, over 40,000 airplanes equipped with GE engines take off, and in most of those turbines, there is at least one engineering portion supported or developed by the Queretaro GE Engineering Center’s 1,500 professionals.
Please see the two-page spread in this article with the landscape of the main players of Mexico’s Aeronautical Industry in 2014.
The aircraft segments
Is Mexico ready to build and mass produce a complete aircraft?
Let’s start our discussion by reviewing the various general categories of manned “aircraft” by size and type:
-Commercial airplanes. - On top we have the ultra-large carriers (Airbus 380 and Boeing 747) followed by double-aisle wide-bodies (777, A350). There is also the most important segment: Single-aisle airplanes which account for 70% of all commercial aircraft deliveries (787, A330). At the end of this category, with a small size and a small market share are Regional Jets. The global industry delivers approximately 1,800 commercial airplanes per year.
-Business aircraft. - They come in many shapes and sizes, seating anywhere from 4 passengers up to the large Boeing business jets. Some of the most popular jets in this class include Bombardier’s Challenger, Global and Learjet families, Cessna’s Citation, Embraer’s Legacy and Phenom and the long-range, large-cabin Gulfstream family among other brands. All manufacturers considered, there are about 700 new business jets delivered per year.
-Civil aviation. - Two distinct sub-segments depending on their power plants are in this category: Turboprops (Pilatus) and conventional piston engines (Beechcraft Bonanza). There are many brands (Cessna, Cirrus, Piper, Daher Socata, etc.) and types (Trainers, special mission, etc.) in civil aviation aircraft. Included in here there are also the sports type units such as the uncertified brands and the ultra-light planes. There were about 1,600 piston and turboprop aircraft delivered in 2013.
-Helicopters. - They also come in two types: Piston and turbine. There are many sizes and models. The best known brands are Eurocopter, Bell Helicopter and MD Helicopters. There were about 1,100 total new units delivered in the market during 2013.
-Defense sector. - There are multiple manufacturers and types. It is a highly secretive and volatile industry, but its value output is estimated to be about double or more than the aircraft commercial market.
-Space. - Generally regarded as aircraft or spaceships capable of flying above an altitude of 60,000 feet above sea level, they are highly specialized and sponsored by governments. Although some commercial uses such as the Virgin Galactic program are emerging.
To put things in perspective, the approximate total global billings per year of the main categories are:
-Commercial aircraft: US$270 billion
-Business jets and civil aviation: US$24 billion
-Helicopters: US$3 billion
-Defense and aerospace: N.A.
The global commercial aircraft market is growing at about 5% per year; turboprop airplanes and turbine helicopters boast approximately 10% annual sales growth; and the business jets (1%), piston airplanes and piston helicopters (2%) markets have just marginal grow rates per year.
The existing platforms
Aviation is 100 years old and manufacturers innovate continuously. But during the last decade, the industry has really leaped in technological development. Glass cockpit avionics, composite materials, lightweight engines and ultra-large airliners were practically inexistent before the turn of the century.
As such, aircraft systems have become much more complex along with industrial processes and the supply chain. Yet, it has been during this time that Mexico’s aeronautical industry has flourished.
The aeronautical international firms in Mexico literally rushed from basic harness assembly to producing full structural aircraft components, composite airframes and micro-tolerance turbine parts. They also found fertile ground for research and engineering. Please seeExhibit #5
with Mexico’s aeronautical projects Time-line.
Most aeronautical manufacturing operations in Mexico produce independent aircraft parts and components, but there are four platforms in Mexico that produce practically the full aircraft airframe or “skeleton”, to which, conceivably the other systems could be added on to produce a finished product.
These four platforms are: In the business jet segment, Bombardier’s Learjet 85 operation in Queretaro; in the piston airplane segment, Cessna’s TTX and Beechcraft’s Baron and Bonanza facilities in Chihuahua; and in the helicopter niche, Textron de Mexico’s Bell Helicopter operation also in Chihuahua.
Let’s explore the Learjet platform for our purposes.
The Learjet 85 is the first all-composite business jet and Bombardier has three units involved for its development and manufacturing: Montreal is responsible for structural design; Queretaro is in charge of most of the manufacturing work of all the major components including the fuselage and wings, electrical harnesses and subassembly systems installation; and Wichita, where the final assembly happens for systems integration, certification and customer delivery.
So, if the engineering has been taken care of by Montreal, and the heavy work is done in Queretaro, why don’t we just bring in the engines, the avionics and the interiors for final assembly in Mexico? The know-how and engineering capability are certainly available and production costs and logistics would be a lot cheaper by having the airplane take off from Queretaro.
Not so fast…and not so easy.
The key impeding words are “Certification” and “Delivery”.
Not that the airplane could not be completely pieced together in Mexico because with proper training, as the crews in Wichita are having on lean manufacturing, the Mexicans could certainly perform.
The first huge hurdle is the airworthiness certification by the Federal Aviation Administration (FAA) in the U.S. without which the airplane cannot fly at all.
Mexico does have the Bilateral Aviation Safety Agreement (BASA) with the U.S. for aerospace products reciprocal quality certifications, but this process is still in its infancy stage. Mexico needs to become very efficient and reliable at certifying aircraft parts and components before it can think of higher altitudes in this subject.
The paperwork is on the right track, but the government needs to deploy more human and administrative resources to actually support the existing companies through the certification procedures.
The second significant stumbling block has to do with the market, the aircraft customers themselves. Even prior to taking delivery, during the purchase process, the customers are highly involved in the selection of systems, options and finishes of the aircraft.
The full process is like having a baby, with pregnancy and delivery and actually with life on the line. It is hard to imagine yet a CEO of a large company having his baby in a Mexican facility.
It took Brazil’s Embraer 20 years of prior experience building military aircraft for its own use, before the firm started in the mid 1990’s the development of a commercial aircraft for export.
Embraer’s jets are currently used throughout the world by major air carriers and they have the complete trust of the market.
By the same token, it took Mexico a few decades of being an auto parts producer before it became an assembler of complete vehicles and gain a reputation as a high quality builder of automobiles. Evidently, experience, time and sustained performance are fundamental in gaining that critical market trust and recognition.
Bombardier officials have never explicitly said anything about building a complete aircraft in Mexico. But in 2010, Pierre Beaudoin, CEO, said at the inauguration of the Learjet site in Queretaro: “The increasing complexity of the work being undertaken in Queretaro also affirms Bombardier’s confidence in its Mexican operations.”
The encouraging words are “increasing complexity”. And after all, when Bombardier chose the site for its operations in 2006, the number one requirement for the site selection decision was direct access to a runway of a modern airport, which they have. Maybe 2030?
Textron’s platforms offer alternative roads to build a complete aircraft in Mexico. In the case of helicopters, the Bell cabins built in Chihuahua are 15%-20% short of being a full aircraft, lacking avionics and the rotor system. Final assembly is performed in Texas, but the certification and market roadblocks are pretty strong for such a specialized aircraft to have final assembly in Mexico.
Textron’s Cessna and Beechcraft piston singles and twin engine platforms in Chihuahua are relative low cost airplane models for civil aviation and their market is likely to be less resistant as to the country of manufacturing origin.
These products are more “standard” and oftentimes built for inventory. They would be a great start for Mexico to mass produce airplanes that would make their maiden flight from a Mexican airport.
And what about all those Boeing components factories and the potential future single-aisle final assembly line in China, can we have one in Mexico? Nope. Those facilities are going there because of the size of the market in China and neighboring countries in Asia. Mexico does not nearly have a market of that size.
In this subject, there is also the related “off-set” practice in the industry by which if a country buys aircraft in a reasonable volume, the supplier is expected to reciprocate by relocating some manufacturing capacity to its customer’s territory. This is an important part of the reasons why Eurocopter started operations in Mexico, to give back something for the purchases of their aircraft by the government.
At this point in time, it may actually be irrelevant to think about producing a complete aircraft in Mexico.
Mexico should concentrate on continuing to build its aerospace academic foundation, on expanding the existing supply chain, on investing and consolidating its certification capabilities and persist on training more technicians and skilled workers.
Because there is, of course, the ultimate motivation to locate a complete aircraft facility in Mexico: Manufacturing costs and productivity. That is the way the global economy works. It is the same for aircraft, autos or computers. Once the right conditions are in place, they will come.