Fast 5: Shaking Up Mexico’s MRO Market

MRO Iberoamerica CEO Rafael Gomez Miaja speaks with Lindsay Bjerregaard on the sidelines of MRO Latin America in Buenos Aires about the dynamic aviation market in Mexico and how workforce investments will be crucial for future growth.

How is the economic and regulatory environment in Mexico changing the MRO business?

I see some challenges in the industry, many of them linked to government strategies and policymaking. For example, in Mexico the government has announced the development of a new government-managed or owned airline which could modify or put some pressure on the current airlines that have been hit previously. I don’t know if that’s going to be a fair competition or not, or if it will help the industry or not, but it’s definitely something to consider and keep in mind.

In Mexico there’s also been announced the possibility of cabotage. The pilots, unions and airlines are fighting against it. I think it’s mostly a political decision and about pressure to the airlines, but it’s not only about that. We as an MRO are very dependent on customs rules and costs, and the speed and efficiency of approvals for new ratings and capabilities. We also need our agencies to keep up to international standards. We also need to pair with more common circumstances like the high cost of capital due to inflation, and since we are in higher financial risk countries we will always have a disadvantage regarding cost of capital in this industry. These are all variables or issues to consider on top of what a regular or traditional carrier would consider in other parts of the world. Regarding the MRO market, we are very dependent on the operators’ market and dynamics, so we are linked to how they perform. We have seen some airlines going bankrupt—I think there were around 12 in the last 15 years in Mexico—so it’s still a very risky industry.

What organic growth potential do you see in the Latin American market, particularly considering the growth in low-cost airlines?

In Mexico there are 0.4 trips per capita compared to 2.0 trips per capita in the U.S., so that’s a five-fold opportunity. We might not achieve it in the short term, but that’s an indicator of the potential we have. If you look at the airlines that have been growing in Mexico, Viva Aerobus and Volaris, they are flying above pre-pandemic levels. They are increasing their market share not only in the aviation indicators but also in the transportation indicators, so they are getting more market share from ground transportation that used to be the traditional transportation form.

There was some discussion at MRO Latin America this week about airlines having difficulty finding painting slots. Since MRO Iberoamerica offers painting services, what trends are you seeing in this area?

After the pandemic we saw a recovery of demand, which overloaded MRO slots in terms of space capacity and labor capacity. All this, besides supply chain challenges that are still there. With all the maintenance that was pushed back during the pandemic and a lot of aircraft exchanging hands after the pandemic due to the Boeing 737 MAX groundings, aircraft being on the ground and new airlines starting up, these factors are creating demand for our maintenance  slots—especially paint slots—because planes are changing hands. MROs do have capacity, but when we see profitability between maintenance services and paint services, we have greater throughput with maintenance so that’s why MROs have not invested as much in paint and there is a shortage of paint slots right now. For us as a new, incoming MRO, paint has been a good opportunity to start relationships with new customers. I think Latin America is a good region for this since painting is a very manual, handcraft job, and I think we have the labor cost advantage, the labor quality characteristics and the detail characteristics to do these kinds of jobs.

Some MRO providers in the U.S. are trying to recruit workers from Latin America due to the workforce shortage. However, Alton Aviation Consultancy forecasts that there will be an aerospace boom in Mexico How has this impacted MRO Iberoamerica and what do you foresee in the future?

In Mexico we have around 30-50% technician turnover. U.S. companies are recruiting in Latin America, especially in Mexico, with significantly higher wages, and this has been very interesting for young technicians. Salaries are rising in the U.S. but also rising in Latin America, so [the trend of] MRO inflation is absolutely true. However, there’s the purchasing power of that salary, so as long as the cost of living is still lower in Latin America I think we’re going to be able to maintain, recruit and develop a very skilled workforce in the midterm. The cost of living is an advantage that we have and that allows us to retain and develop more technicians.

There is definitely going to be a boom—I have no doubt about it. Right now we are seeing this labor shortage and technicians going to the U.S., especially A&P technicians. But since wages are rising I think that will attract more professionals into the aviation industry—not only technicians but also engineers and roles across the whole value chain. I see a lot of aviation services developing in Latin America. I think near shoring is not only going to be seen in manufacturing, which is what we’ve seen so far, but it’s going to be also very tangible in aviation services. I think that some regions within Latin America are going to rise as a strong cluster of aviation services, and Mexico is probably going to be one of them. Overall, I would say that the labor shortage in the U.S. is increasing salaries there, which is increasing salaries in Latin America, and in the long run that is going to develop career services and aviation services in the region.

Which issues do you expect to be the most challenging for MRO Iberoamerica this year and why?

At the end of the day, we all face the same common challenges such as supply chain, customs, exchange rates and inflation. What defines who succeeds and who doesn’t from my perspective is management and people, so our main strategy for success is focusing on talent development. We started a training center as part of our strategy to bring more people into the aviation industry, to develop capabilities within our team at a faster pace and to be able to cope with the labor shortage that we are facing. We also need to cope with the quantity and quality of technicians that we’re going to need for the opportunities that we’re seeing. So for us, talent development and retention within a quality system is going to be the key leverage for growth and success.

In Mexico aviation has the capability to pay good wages and the capability to attract talent, so we need to be there developing the market, serving the customers but also developing the technicians and the engineers that are going to boost or support all these growth opportunities. Most of the schools within the country are designed as a profit center instead of focusing on strong training. What we want to do, regardless of training profitability as a standalone division, is to focus on the quality of the technicians and the training.