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Tecma Talk podcast on a growing industry of Mexican aerospace manufacturers

Tecma Talk podcast on a growing industry of Mexican aerospace manufacturers

Luis Lizcano, executive director, provides an overview of the current state affairs in the Mexican aerospace industry in this informative Tecma Talk podcast.

Tecma Group of Companies:

Hello. Welcome to another installation of Tecma Talk Podcasts in which we discuss information, news and other things that are of interest to people that have interest in what is going on in the maquiladora industry south of the border. Today we have with us Luis Lizcano. Luis is the executive director of the Mexican Aeropace Manufacturers Association, also known by its Spanish acronym Femia.

Hello Luis. How are you today?

Luis Lizcano:

Thank you. Hello. How are you?

Tecma Group of Companies

Fine. Thank you.

Luis could you tell us a little bit about the Association? When it was formed? What are its goals, and what is the role that it plays in fostering the development of the aerospace industry in Mexico?

Luis Lizcano:

Yes, of course. The Mexican Association for Aerospace Companies is a relativey new organization. It was founded in 2007. It was established to support the new aerospace industry in Mexico, and Mexican aerospace manufacturers. As you know, the Mexico has been growing this industry over the past twelve years. The Mexican Association for Aeropace represents the most important companies in the industry in Mexico.

Tecma Group of Companies:

You mentioned industry growth over the last dozen years. Can you tell us, from your perspective, having obviously intimate knowledge of what has occurred over those dozen years, how things were in the year 2002, and how are they today?

Luis Lizcano:

I can give you a detailed picture of what Mexican aerospace manufacturers have been doing for the past nine years. The year 2004 was the first year that the Mexican government separated the exports of the aerospace industry. We can only actually track them from an official export figure perspective from that year. That is how new the aerospace industry is in Mexico. Prior to that year, those exports were classified as “transportation equipment.” Consequently specific aerospace numbers are available starting in 2004, and from 2004 to 2013, which is nine years of historical data, aerospace exports have grown at an average annual rate of eighteen percent. That demonstrates very accelerated growth in terms of exports.

Tecma Group of Companies:

Here is a quick question with respect to a close to twenty percent annual growth in the industry: What do you attribute that to?

Luis Lizcano:

I think that it has been a combination of several things. We can say that we have had the “perfect storm” in a good way, because we have a growing aerospace industry globally. Just to give you an example, it is expected that the industry, over the course of the next few years, will be growing at a rate of five percent. This is a good for Mexican aerospace manufacturers. The two largest global aircraft producers, which are Boeing and Airbus, have a back log of orders of seven years each. This means that if you approach these companies and ask for an aircraft and make payment, you will actually get your aircraft seven years from now. There is a huge need for increasing manufacturing globally, because the sector is growing. That’s one of the factors.

The other factor is that, in the case of Boeing, but more relevantly in the case of Airbus, they have their main production facilities were in Europe. This means that all of their costs were in Euros, and they were selling the majority of their production in dollar zones. The exchange rate of Euros against the dollar goes against the competitiveness of that company. There are a lot of companies that are looking to start sourcing their supply chains in dollar zones, and Mexico has an added competitive advantage in this because of the fact that operating costs in the country are lower. Also, Mexico has the ability to deliver. It has been a global export platform for other industries such as the automotive and consumer electronics industries, and so forth. Moving towards another industry that requires different standards and certification is being executed by Mexico on very good terms. On the other hand, Mexico has an abundance of available engineering and technician skills that are required by Mexican aerospace manufacturers. Industry growth in Mexico has been the result of a combination of many things that have contributed to creating an accelerated pace of growth.

Tecma Group of Companies:

One thing that basic research on the aerospace industry shows is that several “clusters’ exist. What are the most predominant clusters of Mexican aerospace manufactures, and what regions are they in? Also, we would like to know if, in each one of these regions, is there an industry specialty? What might they be?

Luis Lizcano:

Even though the industry is still very young in Mexico there are some preconceived ideas about it. If you talk with people about the industry in Mexico there is a lot of information that indicates that it is located in Queretaro. This is true. Queretaro is a very important hub. It is a leader in the industry, but it is not the only one. There are other regions that actually have a high concentration of Mexican aerospace manufacturers, as well as an equivalence in importance in the industry as Queretaro. Although we have several regional clusters of aerospace manufacturers, I believe that Mexico is creating enough aerospace production volume to be considered a “pre-cluster” as a country. This is just the tip of the iceberg. The Mexican aerospace industry continue to
grow at a very fast pace, until we reach very important export volumes.

Going back to your question about the regions in which Mexican aerospace manufacturers are found, we recognize now that there are five main regions for aerospace industry production in Mexico. One is definitely, Queretaro, which is in Central Mexico. There is another one in Baja California. We have another concentration of Mexican aerospace manufacturers in Sonora, which have been concentrating on aircraft propulsion systems. There is also the state of Chihuahua, which has a good concentration of OEMs and Tier 1 suppliers, and also we have the state of Nuevo Leon, with Monterrey. I would say that those are the main regions nowadays, but that doesn’t necessarily mean that this is going to be the story for the future. We may have additonal areas or regions in which niche activities are developed within the aerospace industry.

Tecma Group of Companies:

Your industry’s latest figures show that their are two hundred and seventy Mexican aerospace manufacturers at present. Is that a correct number?

Luis Lizcano:

We are now in the process of finalizing updated information for 2014. We are working along with ProMexico and the Ministry of the Economy of Mexico to get the number. Findings show that we have close to three hundred Mexican aerospace manufacturers. There is still a debate going as to whether or not the real number is two hundred and ninety-eiqht or two hundred and ninety-nine, but we will just use the number three hundred as a rough figure.

Tecma Group of Companies:

Given that number of Mexican aerospace manufacturers, what kind of numbers have been generated in the industry in Mexico in terms of jobs?

Luis Lizcano:

This is a very interesting question, because this is one of the most dyamic performance indicator of the aerospace sector in Mexico. Just a few years ago, we came up with an estimate of thirty-one or thirty-two thousand. That was in 2010. The current estimate of jobs in the Mexican aerospace industry is somewhere between forty-three and forty-five thousand direct jobs.

Tecma Group of Companies:

That’s a pretty good boost in a short period of time.

Luis Lizcano:

Just to put things in perspective, for example, it is accounted that Brazil, which is already a consolidated industry with their own government brand Embraer, has somewhere around 30,000 direct labor jobs. In terms of job creation, I think that we a moving forward faster. The reason for that, I think, is that we have the some large OEMs and the main Tier One suppliers in the country. We can mention Bombardier, Textron with Cessna and Beechcraft. We have Gulfstream. We have Bell and MD Helicopter. We have Airbus Helicopter, and an array of aerospace companies that have taken definitive steps to estabish aerospace operation in Mexico. While we have a good number of OEM and Tier One Mexican aerospace manufacturers, we still have much work to do to develop the base of the supply chain to support these companies. That is that base of the pyramid that really makes this thing grow. Right now,

Tecma Group of Companies:

I was going to ask you a quick question about the number that you mentioned regarding the big boost in employment from the low thirties to the mid-forties. I would assume that Mexico, as far as its education system is concerned, has made some changes over the years to be able to capacitate people to enter positions that are generally higher skilled than other industries that exist in Mexico to be able to supply the Mexican aerospace manufacturers with the folks that will be able to do the jobs that are required. Would it be safe to say that Mexico’s educational institutions have made adjustments to be able to serve the industry?

Luis Lizcano:

That is definitely a true statement. There are several educational institutions that have adjusted their major engineering and technician programs to supply the human talent to this industry. If you put that into perspective, and take into consideration the fact that the engineering vocation of Mexico is a very strong one, it has been said that, per capita, there are more engineering graduates in Mexico than in countries like Germany and the United States. That is something that really makes a statement by itself.

Adding to that, educational institutions are actually adjusting their programs in order to serve the industry, by not only providing engineers, but, also, by providing engineers that are trained for to take on positions offered by Mexican aerospace manufacturers.

Tecma Group of Companies

That’s interesting. You mentioned the growth in Mexico that is taking place in the Mexican aerospace industry in terms of numbers of companies, values of exports and the number of people that are working in the plants that are there now, the three hundred that you mentioned. In terms of other global aerospace industry players, how does Mexico stack up in its international ranking?

Luis Lizcano:

This is very interesting, as well, because you know that back in 2004 our exports did not amount to a volume that was sufficent to even put us on the charts. We were in the category of “other countries” at that time. Right now it is estimated that Mexico occupies the rank of number fourteen globally. The expectation that we have is that, by 2020, Mexico could be among the ten most important countries in the aerospace sector globally.

Tecma Group of Companies:

With respect to the United States, specifically, is it a correct statement to say that Mexico is one of the top ten suppliers to the United States?

Luis Lizcano:

Yes, as a matter of fact, back in 2004 Mexico was ranked at number ten in terms of aerospace exports into the United States. From that time, until the present, we have moved up to occupy the sixth position.

Tecma Group of Companies:

That is a considerable jump.

Luis Lizcano:

That is a quantum leap there.

Tecma Group of Companies:

There is a lot going on, and you stated before that it takes seven years to fill an aircraft order, there is going to be future demand and the industry is going to grow. What are the challenges that Mexico will have to overcome in the future to reap the benefit of that growth?

Luis Lizcano:

There are two main challenges. The first one would be to completely integrate the supply chain of Mexican aerospace manufacturers to include all of the technological processes required to build aircraft. We already have big companies with big names already here to create an industry. We need to create a supplier base. This can be accomplished by attracting companies that are already apart of the global a supply chain from Europe or North America that can open operations to fill technological gaps in Mexico to supply a growing demand. That is the easier of the two ways. The
most important challenge that we will face is the need to keep up with the provision of human talent to the industry. Even though the educational institutions are making a big effort and push to provide the right human resources, we see this as a challenge to keep up with the pace. We forsee this as being acheivable, however. As I mentioned previously, there is an engineering and manufacturing tradition in Mexico that can be easily adapted to meet the aerospace challenge in the future.

Tecma Group of Companies:

I would guess, and please correct me if I am mistaken, that a lot of that engineering tradition comes from the auto industry, which has been in Mexico fifty, sixty or, maybe, seventy years. Would it be safe to say that there is a connection there?

Luis Lizcano:

Yes. As a matter of fact, there is a lot of cross platform skills and similarity between the two industries, even though there is also some very important differences between them. I would say that the skills and certifications that are required in the aerospace industry are higher than they are in automotive. For example, in the automotive industry production is high-volume and low-mix, whereas in the aerospace industry it is acually the opposite. It’s a high-mix, low-volume situation. There a difference in the game, and you have to be a little more proficient in skills and knowledge in the aerospace industry for obvious reasons. In the automotive industry, you can have a parts per million defect acceptable for the standard. In the aerospace industry this cannot be afforded. If you have the one in a million defect in your car, you pull over and call roadside assistance and you’ve got your problem solved. If that happens at thirty thousand feet above sea
level, it presents a challenge.

Tecma Group of Companies:

Luis, this has been a great conversation. There are a lot of people that listen to these podcasts that have questions that go beyond the scope of the discussion. Would you, maybe through email, make yourself available for any of the listeners that may have follow-up questions to find out about the aerospace industry, whether or not they are doing research on it or whether or not they are from a company exploring the posibility of becoming a Mexican aerospace manufacturer. How can people in those categories get in touch with you?

Luis Lizcano:

The Mexican Aerospace Industry Association is www.femia.com.mx, and my personal email address is lglizcano@femia.com.mx.

Tecma Group of Companies:

Luis, I want to thank you today. This has been a very informative conversation about about a very dynamic industry with a lot happening in Mexico. Again, thank you for joining us. We hope that you have the best of luck, look forward to talking with you again in the not too distant future for an update.

Luis Lizcano:

It will be my pleasure to update your audience on the facts and developments in this industry  in the future.

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