Aviation and Aerospace to Mexico

Trends and opportunities

The market

Over the past decade, international aerospace Original Equipment Manufacturers (OEM) and suppliers have sought new destinations that offered competitive labour costs and potential for innovation, and increasingly Mexico is becoming a country of choice.

With exports averaging a 15% annual growth rate over the past decade, Mexico is positioning itself as a global leader in the aerospace industry. According to Boeing, the number of commercial aircraft around the world is expected to double by 2037, (Source: Boeing, Commercial Market Outlook 2018-2037: Report 17 February 2018) translating into strong demand for manufacturing. This, in addition to the emerging military and space segments, is expected to become a major driver of growth for the sector, especially given Mexico’s highly skilled, bilingual and cost competitive workforce. To better meet the current and future needs of the industry, the government and private sector have begun strengthening supply chains, investing in more efficient manufacturing processes and promoting technical specialisation and training. (Source: Oxford Business Group, Mexico Works to Become a Global Leader in Aerospace, 2018)

There are opportunities for businesses in the Mexican market where they complement and expand existing supply chains. Specifically, there are opportunities for Tier 2 and Tier 3 suppliers, component manufacturers and businesses with expertise in growth areas such as engines, alternative fuels, dual-use technologies and new materials.

While the outlook for the Mexico market is positive, it is highly competitive due to the presence of a large number of international companies and the government focus on growing the sector. Businesses seeking to enter the market will need to focus keenly on their price competitiveness and consider gaining accreditations such as National Aerospace and Defence Contractors Accreditation Program (NADCAP).

The coming years will be crucial for the Mexican aerospace industry as it heads toward its ambitious targets. Local authorities and key players in the industry have agreed that one of the best ways to achieve these objectives is by attracting more foreign aerospace suppliers – Mexico has always welcomed Foreign Direct Investment (FDI) and trade.

Currently, Mexico has more free trade agreements than any other country in the world – 12 FTAs with 46 countries – and is ready to find new opportunities and partnerships.

Mexico’s aerospace industry is relatively young, but dynamic. Benefitting from Mexico’s competitive advantage in manufacturing costs and rising global demand, particularly in the United States (US) and Canada, the sector is growing rapidly as a result.

The sector generated an estimated US$8 billion in revenue in 2017 and the country is now home to approximately 330 aerospace companies, operating in 18 states and employing more than 40,000 people, according to the Mexican Federation of Aerospace Industries.

Sector exports totalled US$7.1 billion between 2005 and 2016. The industry is expected to export 12.26 billion dollars in 2020, with a 14 per cent average annual growth rate, according to estimates from the “Strategic Program of the Aerospace Industry 2010-2020,” coordinated by the Ministry of Economy (SE).(Source: Border Assembly San Diego by TECMA, ‘The aerospace industry in Mexico is located in clusters’ 11 February 2018)

Of the 330 aerospace firms operating in Mexico, over 72 per cent are manufacturers, 13 per cent focus on design and engineering, 11 per cent are involved in Maintenance, Repair and Overhaul (MRO) and 3 per cent are in support roles. The sector is likewise divided into OEMs producing small final stage aircraft and companies focused on Tier 1 production (principal aircraft systems), Tier 2 (producers of sub-assemblies) and Tier 3 (parts and supplies).(Source: Mauricio Pineda, ‘Modern Machine Shop, Aerospace industry: Opportunities in full flight 2018’ 18 December 2018)

Progress in the aerospace industry owes much of its success to its regional clusters, of which the most significant are located in Baja California, Chihuahua, Nuevo León, Querétaro, Sonora and La Laguna.(Source: Oxford Business Group)

These clusters offer support, attract FDI, streamline production and develop workforce capability via training programmes. Development of the aerospace sector also benefits from Mexican Government support. In 2012, the government launched the Pro-Aereo 2012-2020 program, which aims to position Mexico within the top 10 countries in aerospace exports, creating more than 110,000 direct jobs and increasing the national content of goods manufactured for the aerospace industry to at least 50%. (Source: Mexican Federation of the Aerospace Industry (FEMIA), ‘Strategic Program for the Aerospace Industry 2010-2020’ 19 December 2018) Additionally, ProMéxico, in conjunction with the Mexican Space Agency (AEM), has developed the 2.0 Orbit Plan to forge ahead with its aerospace agenda through to 2030. From a government perspective, opportunities in the sector include the potential to attract FDI and the development of the supply chain for satellite manufacturing.(Source: Mexican Aerospace Industry 19 April 2017)

While prospects look positive, there are also a few challenges that could impact the country’s ambitious targets such as the consolidation of the industry’s supply chain, and the lack of raw materials and advanced manufacturing technologies. The Mexican aerospace niche is parts and assembly, rather than local contractors developing entire projects locally.

Opportunities

Mexico’s aerospace sector continues to develop and there are considerable opportunities for businesses to enter the market where they complement existing supply chains. Notably, there are already a large number of OEMs and Tier 1 suppliers in Mexico, but gaps at Tiers 2 and 3. (Source: American Industries Group, Opportunities in the Aerospace industry in Mexico)

Austrade has identified the following growth areas.

  • Engines: Mexico will primarily focus on commercial engine supply. Companies such as GE and Honeywell are conducting research into the design of new turbines, including the GenX turbine.(Source: PROMÉXICO, National Flight Plan, ‘Mexican Aerospace Industry Route Map’ 21 December 2018)
  • Alternative fuels: Investment in fuel efficiency Research and Development (R&D) will be a priority in the near future in areas such as biofuels, synthetic fuels and aromatic compounds.
  • Restricted and dual-use technologies: There will be more interest and investment in projects of aircraft combat, unmanned vehicles, cutting-edge materials and intensive knowledge services for the aerospace and defence sectors, including the design of software and other industrial processes.
  • New materials: Quieter, lighter and cleaner aircrafts. For example, Helicopters and National Air Vehicles (HELIVAN) is developing graphene, a carbon fibre 200 times stronger than steel that is used in the defence aerospace industry. Some component opportunities found in the industry include:
  • Turbines: Rings machining, valves, electronics, filters, buckets, gears, shafts, air and fuel cooling lines and turbine maintenance.
  • Aircraft dashboards: Harnesses, printed circuit boards and cabinets.
  • Fuselage: Special paints, seats, carpets and other parts.
  • Manufacturing processes: Forging, die cast, machining with 4 and 5 axles, stamping and plastic injection.
  • Other: Jigs and fixtures, and special heat treatments.

Querétaro’s cluster in particular offers opportunities for aviation operations intended to complement the supply chain in complex machining processes, surface coatings, heat treatments, sheet metalworking, forging and casting.

Aviation Sector Opportunities

In the long-term, the Mexican Government and the local industry aim to manufacture large commercial aircraft. Currently Mexico only manufactures aircraft parts and components (commercial, private, and military), provide design and engineering services and do R&D. (Source: Export.gov) The growth of Mexican aviation may generate opportunities in and around airports such as:

  • MRO services and maintenance programs
  • Airport construction
  • Aircraft and helicopter flight training
  • Aircraft supply and provisioning services
  • Airport equipment, supply, provisioning, and concessions
  • Small aircraft, executive aircraft, and helicopter sales

Defence Sector Opportunities

The Mexican Office for National Defence (SEDENA), which includes both the Army and the Air Force, has promising manufacturing programs where there are potential supply opportunities for manufacturing cannon prototypes, two seater airplanes, experimental training airplanes, air-to-surface missiles, and launchers for military aircraft.(Source: Export.gov)

Other identified needs are:

  • Aerial surveillance radars
  • C-295 airplanes for military transportation
  • Helicopters for high impact operations
  • Tactical operations assets
  • Cargo and personal transportation helicopters
  • Cargo and military transportation airplanes

Marketing your products and services

Market entry

The Mexican aerospace sector is relatively open to new entrants, as evidenced by the presence of a large number of foreign OEMs. However, the market is competitive, particularly on price, and there are regulatory requirements to be met.

Competitive Landscape

Global aerospace companies with a presence in Mexico include Lockheed Martin, Boeing, BAE Systems, Raytheon, Northrop Grumman, General Dynamics, Airbus, L3 Technologies. Leonardo, and Thales.(Source: Mundo Ejecutivo, ‘The 10 Major Aerospace Companies in Mexico’ 8 January 2019)

Price is a significant consideration for new market entrants. Mexico ranks as one of the most competitive countries in the world and the most competitive in the Americas in terms of aerospace manufacturing costs, which are approximately

13.3 per cent lower than in the US and 13.8 per cent lower than Australia.(Source: KPMG, Competitive Alternatives Study 2016, 21 December 2018)

Regulations

Some of the suggested participation and quality criteria in OEM manufacturing supply chain participation include, but are not limited to:

  • AS9100 certified
  • NADCAP (for certain processes)
  • Compliance with OEM internal requirements
  • Effective supply chain capabilities and management
  • Proven engineering and production capacities

The most relevant institutions that regulate and promote the aerospace industry at a higher level are:

  • The Mexican Federation of the Aerospace Industry (FEMIA)
  • The Directorate General of Civil Aeronautics (DGCA)
  • The Mexican Council of Aerospace Education (COMEA)
  • The Mexican Space Agency (AEM)

Austrade can facilitate access to the market by identifying local partners and can provide tailored services to help you identify opportunities or connect you with key distributors and buyers.

In addition to Austrade assistance, you may wish to consider:

  • Participating in major local aviation trade exhibitions
  • Highlighting your international track record to customers
  • Engaging a local distributor
  • Visiting the market on a regular basis
  • Opening a representative office

In addition, the IMMEX Maquiladora Program allows foreign manufacturers to import raw materials and components into Mexico, tax and duty free, under the condition that 100 per cent of all finished goods will be exported out of Mexico within a government mandated timeframe.(Source: NAPS, IMMEX Program Guide to Manufacturing in Mexico 8 January 2019) Several aerospace firms moved to the northern border cities to reduce costs and take advantage of the flexibility and customs procedures of maquiladora in-bond operations.

The Comprehensive and Progressive Agreement for Trans- Pacific Partnership (CPTPP) will similarly enhance Mexico and Australia’s commercial relationship. The signatory countries will benefit from reduced tariffs in various sectors including aerospace. (Source: Énfasis Logística, ‘Asia-Pacific Offers Business Opportunity for Mexico’, 8 January 2019)

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