AQ Feature

Aerospace: An Emerging Mexican Industry

Airplanes have many parts, from seatbelt buckles and massive brake pads to thousands of precision-shaped screws. In fact, Boeing, the U.S. aerospace behemoth, brags that its 747s are composed of 6 million individual pieces. Multiply that by 35,000—the number of new airplanes needed to meet world demand over the next 15 years—and the opportunities for aerospace parts suppliers are clear. Mexico has joined this list.

In Querétaro, Bombardier has made headlines with the recent expansion of its operations, where it is now conducting all of the structural work, as well as a portion of the assembly work on the Learjet 85, its business jet due out this year. But beyond the Canadian aerospace giant’s two-year-old assembly plant, factories that supply it and other assembly plants have grown across Mexico during the past five years.

In 2007, the nation boasted 150 aerospace factories, which exported roughly $2.7 billion worth of mainly low-level airplane parts up the supply chain to the U.S. and Canada. As of 2011, that number had soared to 260 factories—and is expected to reach 300 aerospace factories by the end of this year—making everything from electronic panels to partially assembled engines for shipment directly to the world’s leading original equipment manufacturers (OEMs), including Bombardier, Boeing and Honeywell.

Aerospace exports from Mexico reached $4.3 billion in 2011, a 40 percent increase from 2007. With President Enrique Peña Nieto vowing to do everything in his power to accelerate the sector’s potential, optimistic government forecasters now say exports may double again by 2015 and hit $12 billion by 2020.

Of course, skeptics wonder whether the nation’s crime rates will frighten away the outside investment that will be required to achieve such growth. The hard-knuckle drug war policies of former President Felipe Calderón saw some 47,000 Mexicans killed between 2007 and 2012. Still, foreign direct investment in the aerospace sector rose steadily during those years. It topped $1.2 billion in 2010 and is projected to hit $1.4 billion by 2015.

Mexico boasts three advantages that make such projections hard to dispute: a vast labor force willing to work for as low as $4 an hour, a growing number of university-educated engineers, and choice geographic proximity to both the more established aerospace markets and the buying power of the U.S., Canada and, increasingly, Brazil.

What began as an initial push into Mexico by U.S. manufacturers such as General Electric during the years following the 1994 enactment of the North American Free Trade Agreement has now emerged as one of the nation’s most vibrant sectors.

With 30,000 Mexicans now employed in aerospace factories across 16 of the nation’s 31 states, Mexican government investment in the sector is also growing—most measurably through the establishment of training schools and new university programs aimed at delivering a future crop of homegrown aerospace workers, plant managers and possibly even designers. The nation graduated more engineers per capita than Germany in 2012.

While the states of Querétaro and Baja California make up the majority of aerospace production in Mexico, recent developments in Chihuahua City deserve a closer look. Ford Motor Company opened a factory in 1983 and has since built nearly 7 million truck engines.

Thirty-six aerospace parts factories have opened in Chihuahua City over the past five years. A recent reporting trip there revealed that the vast majority of the factories are not Mexican-owned—which makes Mexico’s aerospace market unique in the hemisphere.

The downside of this is that the country may be used increasingly for its cheap labor by profit-hungry companies from more established markets. But the upside finds Mexico emerging as a new center of globalization. A variety of international companies have recently opened new plants in Chihuahua City: U.S.-based supplier Nordam, which makes everything from airplane windows to cockpit doors; France-based Manior Aerospace, which cuts shiny precision-shaped steel discs that end up on Boeing commercial jets; and Netherlands-based Fokker Technologies.

The arrival of other companies appears imminent. More than a dozen vast and neatly demarcated lots surround the recently opened factories east of downtown. Jesus Mesta Delgado, president of Index Chihuahua, the leading business group, explains that the long-term vision is to create a “one-stop city.”

So far it appears to be working. U.S.-based OEMs Cessna, Hawker Beechcraft, Textron, and Honeywell have all opened branches in Chihuahua City in the past six years. The situation raises the question of whether the sky may truly be the limit for Mexico’s aerospace sector.

Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Tags: Aerospace factories, investment in Latin America