In the past decade, Mexico's welcome mat for the aerospace establishment has found an industry eager to manufacture “south of the border.”
The obvious attraction is Mexico's lower wage-structure: some say that in Mexico manufacturers pay a tenth of what equivalent assembly jobs cost in the U.S.; others cite a differential of about a third from what is paid in Europe. This discrepancy is best explained by the costs of different skill levels, and by a hesitancy to be too specific on a subject that raises political hackles back home.
But lower wages tell only part of the story for why Mexico, a nation of 115 million, now counts 270 aerospace factories within its borders. On national and state levels, the country is aggressively pursuing “high-tech” aerospace jobs as part of a broadening of its industrial base beyond automobiles and electronics, for which it is already a major producer. U.S. shoppers may think of Mexico mainly in terms of summer vegetables in the winter, but the World Bank reports that industrial products account for 90% of its export earnings. The bank ranks Mexico as the world's 13th largest economy in nominal terms and No. 11 in purchasing power. “Hecho en Mexico”—Made in Mexico—is more common everywhere, including in aerospace.
The aerospace influx has not happened overnight. Its roots date to the mid-1970s when U.S. companies, a mix of multinationals and lower-tier suppliers, began sending basic parts manufacturing and assembly tasks across the border, mostly to border towns like Tijuana and Mexicali but also deeper into the country to cities like Monterrey. Service operations followed, as did company research activities.
However, it has been in the past decade that Mexico's aerospace manufacturing growth has mushroomed. Political reform led it to pursue a global free trade agenda vigorously and its 1994 signing of the North American Free Trade Agreement (Nafta) benefitted Mexico greatly. Still, it took about a decade for the aerospace sector to take off. Until 2004, growth was scattered, says Queretaro state Gov. Jose Calzada. Not anymore. “We've seen incredible changes in just the last five years,” he says.
The boom times are a testament to Mexico's geography, its embrace of free trade and adoption of legal mechanisms that provide a “soft landing” for foreign-owned factories. Local leaders clear red tape and amaze U.S. and European executives at how quickly they can put up factories. A typical response comes from Peter Huij, a senior Fokker Aerostructures executive in Chihuahua, about how quickly the company went from bare earth in May 2011 to a completed 75,000-sq.-ft. factory in November: “It would be impossible in Europe.”
Behind all of this is Mexico's Maquiladora factory system for supporting foreign companies, which allows them to control their own destiny, importing raw materials such as aerospace-quality alloys, or wiring and then exporting the finished product tax-free. Foreign manufacturers commonly turn to a large service provider—Intermex and American Industries Group are leaders for the aerospace sector—that lease buildings to their clients and handle their human resources, tax and other business needs under Mexican law. About 80% of the aerospace companies in Mexico use such services. Of the 36 Maquiladoras registered by the Mexican government last year, six were in aerospace, including a GKN Aerospace plant in Mexicali, Latecoere in Hermosillo, coatings specialist Ellison Surface Technologies andturbine supplier JJ Churchill in Guaymas and a fourth division for Zodiac in Chihuahua.
Under the Maquiladora system, Mexico allows resident foreign companies to control 100% of their businesses. They do not face the “local partner” rules so common elsewhere that limit foreigners to a maximum 49% share.
“They make it easy for you to do business down here,” says John Gardner, strategic program manager at Kaman Aerostructures, another newcomer in Chihuahua. “They provide a 'soft landing,' to get a quick startup—a good startup. We got a lot of support up front and afterward.”
Besides lower costs, the business case for going abroad is often a need to penetrate a particular market. That is particularly true in China but is far less meaningful in Mexico for original equipment manufacturers (OEMs).is an exception. The French-German company says the country is a prize sales territory. “It's the most promising economy in the region, perhaps better than Brazil, says President/CEO Lutz Bertling, naming Eurocopter's other hot new growth market in New World sales. Eurocopter opened a $100 million, 130,000-sq.- ft. factory in Queretaro in February as an offset for a large Mexican military purchase. Making such “proximity” manufacturing investments is “part of our DNA,” he says.
But for most, tapping into Mexico as a sales market is less important than the country's geography, trade policy and political and economic stability. “Our main reasons for being here are, number one, to be close to the U.S. market and number two, to be close to the U.S. dollar market,” says Stephane Lauret,'s national executive for Mexico and South America. The Mexican peso is pegged to the U.S. dollar, giving Europeans a currency hedge against the Euro. Nafta allows Safran to operate in a low-wage environment with access to the U.S. market. About 80% of everything Safran makes in Mexico, from Labinal's 787 wiring harnesses and Messier-Bugatti-Dowty landing gear to 's -7B low-pressure compressors, is shipped across the U.S. border.
There is another, more subtle, reason why Mexico's star is rising. As they search for industrial development opportunities, the country's leaders emphasize their goal is for Mexico to become a key player in aerospace's global supply chain. The message is not new, they have followed it for years—and succeeded—as automotive assemblers. However, what is not on the political agenda is a national aspiration to begin competing in aircraft, engine and major systems development or manufacturing. Of course, national ambitions are subject to change, but Mexico's focus on the valued-supplier role plays well with manufacturers concerned about the security of their intellectual property (IP) when they work in markets such as China, where a well-financed state agenda of competing with Western OEMs has been announced.
Besides IP protection, there are other benefits to this good-supplier attitude. Mexican workers are widely praised for their eagerness to meet their employers' standards. “Mexican workers want to learn the U.S. way,” says Alfred Espirio, senior vice president of international finance forin Mexico. “In China and India, they want you to do it their way.”
Mexico's aerospace industrial growth has followed a classic leader-follower pattern. Safran's first push was 25 years ago in Reynosa making electronics for cars. The company wanted to see how things went. Its first big aerospace bet was placed in 1998 when Labinal bought awire harness factory in Chihuahua as part of a broader push in North America for contracts. Largely because of Labinal in Chihuahua, Mexico has become Safran's third largest industrial base, behind France and the U.S.
But no one can reserve Mexico exclusively for themselves. Labinal's biggest competitor, Latecoere, says it will build a factory in Hermosillo, Sonora's capital, that will employ 400 by 2015 to make harnesses through its LATelec subsidiary. However, the factory's output will be more diverse than Labinal's; it also is to produce transport passenger doors.
Westinghouse andwere the first U.S. companies to arrive in Chihuahua, making components for the defense industry in the 1970s. The mountainous city has a farming, mining and automotive supply background with touches of the U.S.—Home Depot, Starbucks, Sam's Club. There also are 32 aerospace factories scattered across it in industrial parks, some neighboring car factories, and others for consumer electronics, such as China's giant Foxconn. Most of the aerospace activity has arrived since 2007 and the city has established itself as headquarters for general, business and rotorcraft manufacturing dominated by U.S. concerns, including , , and Beechcraft.
The leader-follower rule is even stronger in Santiago de Queretaro. The capital city is about 140 mi. north of Mexico City and came to aerospace later than areas along the U.S. border. Its lifestyle, with an old town filled with cafes and historic churches, is especially appealing to Europeans. Observers of the progress of Mexico's aerospace industry count's 2006 decision to locate in Queretaro as the start of the influx by other big companies, whether OEMs or major suppliers. In Queretaro alone, Meggitt, CFM, Messier-Bugatti-Dowty, Precision Castparts, AE Petsche, Aernnova and Eurocopter have all taken up residence near Bombardier.
Baja California and Sonora are centers for parts shops and actually have bigger company rosters than Chihuahua or Queretaro. Baja's output covers a variety of engine, airframe and interiors supplier functions. Sonora is known as an aero-engines supply center.
Of the roughly 270 aerospace companies currently in Mexico, 79% are in manufacturing, 11% in maintenance, repair and overhaul and 10% in development and engineering, says Vladimiro de la Mora, president of the Mexican Federation of Aerospace Industries (Femia).
Femia's goals are to see the country rank among global aerospace's top 10 supplier nations by 2020; it is now ranks 15th. The federation wants exports of $12 billion a year by then, with half their value coming from local content, and employment of 110,000 workers. Employment is now more than 34,000 and exports are worth $4.5 billion.
Although Mexico's aero business is booming, it is riding a wave of global demand dictated by others. It will live and die by how well U.S., Canadian and European OEMs and Tier 1 suppliers fare. But its factories also can be the tail that wags the dog. In February, Bombardier announced a six-month delay in first delivery of the Lear 85 because of technical challenges with its all-composite airframe, manufactured in Queretaro. These problems have now been overcome, the company says.
In Mexico, plant managers see a national industry in its infancy, still learning the basics but with an eager workforce. “The numbers tell us we are attractive now,” says Kaman Aerostructures plant manager Francisco Meza in Chihuahua. “What I would say is that the industry is not mature enough. One of my major challenges is to make this business more innovative, to introduce more lean.”
Bombardier's director of strategy and international business development, Vice President Michael McAdoo, watches the wage and skill-set forces at work in Mexico closely. His job involves tracking costs and managing capacity for Bombardier's global supplier network. He sees a narrowing cost gap between Mexico and China. China still wins on costs but Mexico has advantages in terms of education, investment climate and infrastructure.
Mexico is “assembling forces for expansion,” he says. “It wants to move into higher value-added activities.” The question is how much it can expand, and how quickly.
Soon after the Queretaro factory opened, Bombardier pulled work into it from, a tradeoff McAdoo characterizes as common with a long-time partner. But even as Mexico becomes more attractive, Bombardier continuously evaluates other locations for its supply chain. New on the list is Casablanca, Morocco.
The question of whether low-cost Mexico is taking jobs from U.S. and European workers is a sensitive one, especially for Americans. Many U.S. OEMs declined to comment on this issue.
Old-fashioned labor-rate hunting explains much of the recent push into Mexico, especially from the U.S. and Canada. For instance, pricing pressure on the 737 trailing edge flap drive transmissions that it makes for Boeing prompted Curtiss-Wright Flight Controls of Shelby, N.C., to open a 70,000-sq.-ft. factory in Queretaro in January 2012. “Wages are one-tenth those in Shelby,” Director of Operations Everett Rice says.
But other factors are also at work. Kaman Aerostructures' lead factory in Jacksonville, Fla., is largely devoted to military contracts, notes Vice President-Sales/Marketing Jim Melvin. The company needed to expand its commercial operations and knew it would be under pricing pressure. “We looked globally, at Asia and elsewhere, but zeroed in on Mexico based on where commercial aerospace is heading,” he says. “We weren't looking to take work out of Jacksonville. Our strategy was to put in the [Chihuahua] facility and then go after work.”
The first parts produced by France's Manoir Aerospace's finishing and machining factory in Chihuahua in 2009 did not head back home. They were for its long-time customers Snecma and Messier-Bugatti-Dowty in Queretaro, says plant manager Nicolas Maillard.
Easy logistics across the U.S.-Mexico border were early attractions, but increasing demand has opened flight connections deeper into the country. For Rice, shifting work into Mexico instead of overseas keeps time-zone changes to a minimum and allows him to board a flight at 8 a.m. in Charlotte, make a connection in either Dallas or Houston, and be in Queretaro by noon.
European OEMs say rising demand means expansion in Mexico does not diminish jobs at home, but it does overcome concerns they have about finding new hires in Europe, where open jobs listings can last for months. In Mexico, they find workers in their 20s and 30s eager to make a transition into aerospace from other industries. “Aerospace is very sexy now,” says Fokker's Huij.
Which is not to say that qualified workers are always available in Mexico. “Queretaro needs more engineers,” says Lauret. “Schools in Chihuahua are good—they're a strength, but more are needed.”
Competition among Mexican states for jobs is no less intense than it is in the U.S. Not surprisingly, the biggest group of foreign plants is in the six states that border the U.S. A breakdown by Femia ranks 22% of the country's aerospace industry with just 11-50 employees and 7% with 10 or fewer. Forty-three percent have 51-250 employees and 28% have more than that. There are 15 corporations with more than 500 employees, with the largest concentration (8) in Baja California.
Security concerns, from shootings or kidnappings for ransom, remain a consideration in Mexico because of drug-war violence. The government reports that industry in general, and aerospace in particular, has not been targeted and no manufacturing executives interviewed by Aviation Week reported problems. But the issue remains, and is one of the biggest political concerns for Enrique Pena Nieto, who became president in January. A month later, when he celebrated the opening of a Eurocopter factory in Queretaro, the company's second in Mexico, there had already been 2,399 deaths since the first of the year.
The most violent areas tend to be in the north, along the U.S. border. Although they emphasize that their facilities have remained safe, U.S. executives still exercise caution. When senior U.S. officials visit they take precautions, like not bringing U.S.-licensed vehicles across the border and following a strict hotel-to-factory travel regime. Queretaro is regarded as safe, which is one reason it has had such success attracting foreign firms. Chihuahua had a spate of violence in 2009 but it is said to have settled down.
Still, one manager who makes frequent trips there hires a trusted driver, just to be safe.
Tap on the icon in the digital edition of AW&ST for listings of 250 aerospace companies in 15 Mexican states, or go to AviationWeek.com/mexicoaerospace