Mexico Aviation & Aerospace Review 2018 by Mexico Business Publishing

2018

â&#x20AC;&#x153;Once you have tasted flight, you will forever walk the earth with your eyes turned skyward, for there you have been, and there you will always long to return.â&#x20AC;? Leonardo da Vinci

2018

The aerospace industry is thriving in Mexico. While still small, the industry is capitalizing on a young workforce, an ideal location and a competitive labor force to penetrate the sector. Today, Mexico is ranked 14th for aerospace manufacturing in the world while it is the sixth-biggest exporter of aerospace parts to the US, the world’s largest aerospace market. With exports reaching US$7.18 billion, the country has climbed from the No. 10 supplier to the US’ aerospace sector to sixth. OEMs are finding in the country an excellent base for growth. Some that started with small manufacturing operations have widened their activities to include design and engineering.

While expectations are positive, Mexico’s aerospace industry is facing a few challenges. First, the international panorama is uncertain with many fixated on how Brexit will play out and the impact of protectionist US policies on the sector. Currency volatility is also affecting Mexican manufacturing across the board due to a strong dollar against the Mexican peso. Among the main internal challenges is the consolidation of the industry’s supply chain as the lack of ready availability of raw materials and special processes reduces the country’s competitiveness. Local authorities are taking strides to fill this gap. One solution promoted by both local clusters and FEMIA is to support SMEs and help them enter the Mexican aerospace supply chain. Another solution is to attract more foreign aerospace suppliers, which may pose its own challenges. Many real estate developers are reporting a lack of free space as companies express their interest in either coming to Mexico or expanding their operations in the country.

There are positive signs ahead for an economy that has always welcomed foreign direct investment and trade. With 46 free trade agreements, Mexico is ready to find new opportunities wherever they are.

ALL RIGHTS RESERVED ÂŠ Mexico Business Publications S.A. de C.V., 2017. This annual publication contains material protected under International, United States and Mexican Laws and international Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from Mexico Business Publication S.A. de C.V. Mexico Aviation & Aerospace Review is a registered trademark.

The publisher has made all reasonable efforts to provide accurate information, and the information contained in this publication is derived from sources believed to be true and accurate. However, the information in this publication should not be considered to be complete or definitive, and may contain inaccuracies or typographical errors. The publisher accepts no responsibility regarding the accuracy of information and use of such information is at your own risk. The publisher will not be liable to any party for any direct, indirect, special or other consequential damages arising out of any use of information in this publication. The publisher provides no representations or warranties, express or implied, including any implied warranties of fitness for a particular purpose, merchantability or otherwise in relation to any information provided by the publisher in this publication.

ISBN: 978-0-9993108-3-0

TABLE OF CONTENTS

STATE OF THE INDUSTRY

INFRASTRUCTURE

ORIGINAL EQUIPMENT MANUFACTURERS

CARGO & LOGISTICS

DIRECT SUPPLIERS

INDIRECT SUPPLIERS

EXECUTIVE AVIATION

MACHINING

MRO OPERATIONS

INNOVATION & NEW TECHNOLOGIES

AIRPORTS & HELIPORTS

HUMAN CAPITAL & RESEARCH

ON THE HORIZON

COMMERCIAL AIRLINES

Aircraft landing

STATE OF THE INDUSTRY

The aerospace industry has taken root in Mexico and has truly begun to bloom in recent years, advancing at an accelerated pace. Mexican aerospace exports reached US$7.18 billion in 2016 and are forecast to hit US$8 billion in 2017. With its strong manufacturing base, young workforce, ideal location and expanding middle class, Mexico is reaping the benefits and solidifying its position as it looks to become a key player in the global industry by 2020. The country is the 14thranked aerospace supplier globally but a joint-initiative between ProMĂŠxico and the industry has the sector working toward consolidation and a place in the Top 10. Industry players are confident that this will become a reality as the sector continues its growth spurt thanks to efforts from all players and a continuous supply of FDI from major international manufacturers.

This chapter provides an overview of the Mexican industry in a global context, and the main changes the sector has faced during late 2016 and first three quarters of 2017. This section includes interviews with industry regulators and policymakers, reviews regulatory changes and uncovers technological trends. The opportunities and challenges appearing in the Mexican aviation and aerospace sectors are also analyzed.

CHAPTER 1: STATE OF THE INDUSTRY 8

ANALYSIS: The Year in Review

INFOGRAPHIC: 2017 Sector Overview

ROUNDTABLE: What Are Mexico’s Capabilities for Aerospace and What Further Potential Exists?

VIEW FROM THE TOP: Ildefonso Guajardo, Ministry of Economy

VIEW FROM THE TOP: Carlos Robles, FEMIA

VIEW FROM THE TOP: Sergio Allard, CANAERO

VIEW FROM THE TOP: Francisco González, Bancomext

VIEW FROM THE TOP: Enrique Mondragón, CANACINTRA

VIEW FROM THE TOP: Miguel Peláez, DGAC

VIEW FROM THE TOP: Melvin Cintron, UN-ICAO

VIEW FROM THE TOP: Cuitláhuac Gutiérrez, IATA México

VIEW FROM THE TOP: Marco Antonio del Prete Tercero, SEDESU Queretaro

VIEW FROM THE TOP: Juan Carlos Corral, Queretaro Aerocluster

VIEW FROM THE TOP: Jaime Campos, Ministry of Innovation and Economic Development of Chihuahua

Omar Saucedo, Ministry of Innovation and Economic Development of Chihuahua

VIEW FROM THE TOP: Carlo Bonfante, SEDESU Baja California

VIEW FROM THE TOP: Víctor Hidalgo, Aerospace Alliance of Baja California

INSIGHT: Tomás Sibaja, Baja Aerospace Cluster

VIEW FROM THE TOP: Rene Espinosa, Chihuahua Aerospace Cluster

RESEARCH SPOTLIGHT: CENTA

VIEW FROM THE TOP: Enrique Ruiz, COPRESON

VIEW FROM THE TOP: Carlos Ramírez, Monterrey Aerocluster

Claire Barnouin, Monterrey Aerocluster

ANALYSIS

THE YEAR IN REVIEW Slowing but stable revenues, a backlog of existing orders, rising passenger numbers and a favorable manufacturing climate are expected to overcome protectionist hurdles to keep the aviation and aerospace sectors flying for a long time to come Aircraft deliveries also slowed in 2016 due to transitions

and globally. A need to update fleets and a record backlog of

to new models and supply chain problems, according to

orders is keeping OEMs busy, while the advance of low-cost

Deloitte. Yet, Deloitte expects that deliveries will reach

carriers is helping to boost passenger numbers and underpin

1,456 during 2017 with the production of 96 more aircraft,

commercial airline revenues.

driven by strong passenger traffic and higher demand for next-generation airplanes. Both Airbus and Boeing expect

The aerospace sector alone has reported years of record-

deliveries to rise between 2017 and 2018, mostly for the

breaking growth in terms of revenue since 2012, with global

A320neo and the 737 MAX, modern versions of their

revenue reaching US$709 billion in 2016. But the pace of

classic aircraft.

growth has slowed, with 2017 expected to come in at 2.0 percent, down from 3.0 percent in 2016 and 3.8 percent the

On the demand side, airlines want greater fuel-efficiency,

year before that.

leading to a preference for single-aisle, twin-engine aircraft. Boeing’s most popular plane during the first nine months of 2017 was the twin-engine 737, with 360 orders.

AEROSPACE REVENUE GROWTH PERFORMANCE AUTO PARTS PRODUCTION PER YEAR IN MEXICO (US$ billions) 5.8% 723

709

650

637

700 600 500 3.2%

aircraft in Boeing’s aviation history,” says Donna Hrinak, Vice President of Boeing and President of Boeing Latin America. This trend is also affecting manufacturing decisions across the board. For instance, in mid-2017,

super-jumbo jet, which uses four engines, as orders for the aircraft have been waning since it entered commercial

200

2.0%

1.9%

100 0

Latin America, such as the 737 MAX, the fastest-selling

Airbus decided to cut back on the production of the A380 3.0%

300

3.8%

400

“We expect single-aisle aircraft will be most in demand in 6

689

800

618

The aviation and aerospace industries are flying high in Mexico

service in 2007. In fact, to October 2017, there had been zero orders for this aircraft. On the other hand, the OEM

2012

Revenue

2013

2014

2015

2016

2017

——Percentage growth

Source: Deloitte and PwC. *Forecast by Deloitte.

announced plans to ramp up the production of the A320 by the first quarter of 2019. It also wants to manufacture 52 737s a month by 2018. Considering that forecasts suggest the industry will need approximately 2,000 new aircraft per year, these increases might be sustainable, especially

A Source: number of factors suggest the sector is heading in the right INA

taking into account that the current production rate is

direction. Deloitte highlights stable GDP growth globally,

closer to 1,400 aircraft per year, according to PwC, which

lower commodity prices and strong passenger travel demand

also says that further production increases are planned

as key drivers for aviation and commercial aircraft orders in

for narrow-bodies.

the coming years. PwC points out that revenue passenger miles grew 6 percent in 2016 for a second year in a row.

COST CONTROL

Furthermore, the existing backlog for major OEMs is at an all-

As players jockey for position in the industry, consolidation

time high with Boeing and Airbus reporting 5,659 and 6,691

is becoming key. During the first half of 2017, there were

units, respectively. In its 2016 annual report, Boeing stated

26 mergers and acquisitions totaling US$18 billion. This

the world will need a total of 41,030 new aircraft by 2036,

represents a 9 percent increase in comparison to the same

worth US$6.1 trillion. However, orders have been sluggish in

period in 2016 and 14 percent higher than in 2015. About

2017. For the first nine months of the year, Airbus received

half of the deals were in the aircraft and parts category,

only 319 new orders in comparison to the 556 during the

representing 47 percent of the value of all mergers. PwC

same period in 2016, On the other hand, Boeing is increasing

says that most of the industry deals have been local, with

its orders, with 565 booked in first nine months of 2017 and

85 percent of all mergers and acquisitions over the past

only 409 during that same period in 2016.

three years taking place within country borders. The major

TOP 10 AEROSPACE AND DEFENSE DEALS BY 2Q2017 Announced

Target name

Target nation

Acquirer name

Acquirer nation

Status

Deal value (US$ millions)

Category

01/19/17

Zodiac Aerospace SA

France

Safran SA

France

Pending

7,749

Aircraft & Parts

02/24/17

DigitalGlobe Inc

United States

MacDonald Dettwiler & Associates Ltd

Canada

Pending

2,134

Software & Security Systems

06/13/17

Hyundai Heavy Industries Co Ltd

South Korea

Hyundai Robotics Co Ltd

South Korea

Intended

1,297

Arms & Vehicles

06/28/17

Daewoo Shipbuilding & Marine Engineering Co Ltd

South Korea

The ExportImport Bank of Korea {KEXIM}

South Korea

Completed

1,127

Arms & Vehicles

04/07/2017

Soares Ltd China

China

Merchants Industry Holdings Co Ltd

Hong Kong

Completed

1,100

Raw Materials & Supplies

01/27/17

Harris CorpGovernment IT Services Business

United States

Veritas Capital Partners LP

United States

Completed

690

Software & Security Systems

01/26/17

Chengdu Yaguang Electronic Co Ltd

China

Sunbird Yacht Co Ltd

China

Pending

566

Electronic Equipment

04/06/2017

China Shipbuilding Industry Group Power Co Ltd-Assets China

China

Shipbuilding Industry Corp

China

Pending

412

Arms & Vehicles

05/10/2017

Hyundai Samho Heavy Industries Co Ltd

South Korea

IMM Private Equity Inc

South Korea

Pending

263

Arms & Vehicles

03/08/2017

Sotera Defense Solutions Inc

United States

KEYW Corp

United States

Completed

235

Supporting Services

Source: PwC and Thomson Reuters

acquisition of 2017 has been without a doubt Safran’s

developed capabilities working with sheet metal and

purchase of Zodiac Aerospace valued at US$7.8 billion.

performing traditional assembly. The country is also strong in the manufacture of harnesses for airplanes and

Despite growth, there is never-ending pursuit to keep costs

is developing the skills to work with composites. “Our

down in every industry and throughout the entire supply

expectation for 2017 is to reach 60,000 jobs, to have

chain. With a plethora of advantages, Mexico remains

330 industrial facilities, to surpass US$8 billion in exports

among the leading manufacturing centers worldwide. The

and to reach a 23 percent trade surplus with the US for

country has cost-efficient labor, qualified human capital,

aerospace products. Globally, Mexico is ranked 14th for

numerous free trade agreements, a growing middle class

competitive manufacturing platforms and our goal is be

and a key location as an entry point to both the US and

in the Top 10 by 2020,” says Robles.

Latin America. “Since 2004, Mexico’s aerospace sector has grown 15 percent annually,” says Carlos Robles,

CLOUDY SKIES AHEAD?

President of FEMIA and General Manager of Bombardier

While the skies seem mostly clear for the aerospace

Queretaro. “In 2016, exports reached US$7.18 billion, which

sector, it is undeniable that there are some clouds on the

helped us climb from 10th place to become the sixth-

horizon, both locally and internationally. An overall climate

biggest exporter of aerospace parts to the US, the largest

of uncertainty is settling over the sector at a global level,

aerospace market in the world.”

brought about by questions regarding Brexit in Europe and US President Donald Trump’s protectionist policies,

In the first quarter of 2017, the number of aerospace

which could be trouble for Mexico.

companies in Mexico totaled 312, according to the Ministry of Economy, of which 80 percent perform manufacturing,

When asked about the potential impact of Brexit, Loren

11 percent MRO activities and the remaining 9 percent

Engel, former General Manager of GKN Composites, said

do design and engineering. Over the years, Mexico has

it “remains to be seen it but we expect volatility over the

ANALYSIS next couple of years as the UK and the rest of the world

the country’s capabilities and determine, alongside

negotiate what the exit really means. In the short term, the

all industry players, what the country needs to start

uncertainty may cause distress in the British market. GKN

developing. This commission will search for companies

Composites will have to wait and see how the relationship

and help them to acquire the necessary certifications to

with our largest aerospace customer, Airbus, works out

supply OEMs and Tier 1 companies,” says Robles.

and how this will indirectly affect the business.” Another local hurdle is the lack of sufficient human capital to address the sector’s needs. “Mexico faces a challenging

defense budget, which would have a positive influence

situation in terms of human capital development and

on the aerospace sector, according to Deloitte. At the

education. Almost 50 percent of all new graduates are

same time, the professional services company warns of

not prepared to address the industry’s needs. As a result,

the impact of rising populist sentiment in the US, which

people who know they have the right skills and training

might take shape in protectionism and anti-globalization

are always looking for the company that offers the best

policies. While the impact of these policies is expected to

deal and the most attractive compensation plan,” says

be felt worldwide, Mexico, the US’ second-largest trading

Gabriel Aparicio, Country Manager of Kelly Services.

1,000

A third challenge is currency volatility. Expectations for positive fiscal stimulus, cuts in corporate taxes and higher interest rates have helped strengthen the US dollar

7,180

8,000 2017*

Industry at EY.

2016

2,000

6,600

says Francisco Bautista, Leading Partner of Aerospace

2015

3,000

6,366

largest company in the sector, Boeing, is based in the US,”

4,337

4,000

2011

aerospace sector but it is not possible to ignore that the

5,000

3,266

not know what impact this will have on the Mexican

2010

companies can offer foreign investors. We still do

2014

6,000 5,463

in the US could counteract any benefit that Mexican

2013

7,000

2012

significant reduction of taxes on products manufactured

5,040

8,000

2,522

Trump could be problematic for Mexican manufacturers. A

2009

“Tax reductions and changes suggested by President

BEST-SELLING BRANDS IN MEXICO (JANUARY-JULY) GRÁFICA DE(US$ BARRAS MEXICAN AEROSPACE EXPORTS millions)

3,082

partner, might find itself in a precarious position.

2008

The US administration has indicated it wants to hike the

Source: Ministry of Economy and FEMIA. *Forecasted by FEMIA

against other currencies. Emerging economies, such as Mexico, are in the crossfire. The peso-dollar exchange

Nonetheless, growth remains on track. FEMIA expects

rate skyrocketed after the US election, from MX$18.31 on

aerospace exports will rise 12 percent during 2017 to a

Nov. 8, 2016 to MX$20.80 three days later. The US dollar

total of US$8 billion. Investment also continues to pour

peaked at MX$21.95 in January 2017 only to gradually

in. FDI is up to US$33 billion to October 2017.

decrease to pre-election levels during the year. However, the sector remains dubious of the Mexican peso’s long-

AVIATION’S LOW-COST ATTRACTION

term stability.

Just in 2016, almost 3.7 billion passengers flew all over the world, a 6.7 percent increase over the previous year.

Mexico’s challenges do not come only from foreign

One of the main drivers behind this growth are low-cost

influences. The country is still pushing to consolidate its

carriers (LLC) explains ICAO, which expects for this

supply chain. While Mexico can boast of hosting plants

trend to continue. According to Deloitte, travel demand,

for some of the largest aerospace companies in the

measured in revenue passenger kilometers (RPK) has

world, including Airbus, Honeywell, Safran, Fokker, Zodiac

grown at an annual rate of 4.7 percent for the past 10

Aerospace and GKN Aerospace, the country still lacks a

years, to almost double the number of passengers a

base of suppliers. This generates a series of gaps in the

decade ago.

supply chain, from raw materials to final processes, that reduce the country’s competitiveness.

Deloitte expects this trend to continue for the foreseeable future, with passenger traffic growing at an average

The local aerospace sector is fully aware of this problem

annual growth rate (AAGR) of 4.8 percent for the next 20

and is making a great effort to find a solution. “In

years, while air cargo is seen growing at a 4.2 percent rate

December 2016, we created a commission for supply-

during that same period. Passenger load factor, referring

chain development. This commission will identify

to the utilization of an aircraft, rose to 80 percent in

2016 at a global level. CANAERO explains that the sector

has also been heavily influenced by Mexican LLCs, which

provides 9.9 million jobs around the world and by 2026

are quickly overtaking the market. “Low-cost flights

it will represent US$1 trillion.

have grown exponentially, making it possible for many people to travel by plane and leading airlines to make

Latin America was once behind other world regions in

important changes,” says Miguel Peláez, Director General

terms of aviation. The reason, explains Eduardo Iglesias,

of DGAC. Aviation represents 3 percent of Mexican GDP

former Executive Director of ALTA, is that “in Latin

and generates almost 1 million jobs, according to the

America, aviation was historically perceived as a luxury

organization.

product.” This is changing. In its 2017 Current Market Outlook, Boeing says that airline traffic, measured in RPK,

Led by tourism and a stable economy the aviation

is expected to grow at a 6.1 percent annual rate over the

sector in Mexico is expected to keep growing. Which is

next 20 years. This effect, a result of economic reforms

leading local airlines to update and increase their fleets.

and a competitive landscape, puts the region well above

For instance, in 2013 Viva Aerobus made the largest

the world’s expected growth of 4.7 percent per year.

acquisition of airplanes in a single deal for a total of 52 A320. In the middle of 2017, it decided to acquire a new

“The region will continue to see strong passenger growth

one. Expectations are high across the industry due to its

in the next decade that requires a significant influx of

growth history. “The sector has an enormous opportunity

new ideas, out-of-the-box solutions, and investments to

for growth and consolidation,” says Cuitláhuac Gutiérrez,

accommodate these additional travelers,” says Iglesias.

Country Manager of IATA Mexico.

He says that the region as a whole is undergoing a transition period caused by the introduction of LLCs into

Airport infrastructure is another chief challenge. The WEF

the market, which are pushing major airlines toward the

Global Competitiveness Index 2016-2017 ranks Mexico

creation of partnerships and alliances to optimize their

61st out of 138 countries in quality airport infrastructure.

profits. “Aviation follows economies of scale. An airline

An unavoidable hurdle is located in the heart of the

has fixed costs per airplane. Thus, to optimize spending

country. Namely, the oversaturation at AICM. This airport

we must increase the number of hours our aircraft are

was designed to have capacity for no more than 32 million

flying and the number of passengers and cargo per

passengers per year. In 2016, it transported 41.7 million

flights,” says Iglesias.

passengers, 8.5 percent more than the previous year, and this figure is expected to keep growing as demand for

OVERCOMING HURDLES

flights keeps increasing.

Still, airlines in Latin America must overcome a few hurdles to continue growing. One is the lack of harmonized

The oversaturation causes a number of logistical problems

regulations across the region. “There are over 45 different

not just for passengers and airlines operating in it. It is

consumer regulations in our region while the EU has a

also a barrier for new airlines to come into Mexico City

single regulation for roughly the same number of people,”

and for those already here to expand their operations.

says Iglesias. High airport charges add to the issue. As

Some, such as United Airlines, have found alternatives.

the increased number of competition has forced airlines

“Replacing smaller aircraft with bigger planes has

to reduce their prices, airport taxes and fees across the

enabled the airline to increase and even double capacity.

region continue to rise. “We lower fares, they increase

For instance, changing from 75-seat aircraft to 146-seat

taxes and fees. We incorporate new technologies,

planes almost doubles the number of available seats per

increase productivity, lower fuel consumption, and lower

flight,” says Rolf Meyer, Managing Director, Mexico and

costs, but they raise taxes and fees. We cannot go on like

Latin America Sales of United Airlines.

this forever. In some airports, passengers pay more in airport charges than for the flight itself and operating an

The situation at AICM has many believing the construction

airport cannot be riskier and more complex than running

of its replacement, NAICM, cannot be finished soon

an airline,” says Iglesias.

enough. “NAICM’s capacity will be valuable for the country as AICM is saturated and there are companies

Mexico is in a good position in terms of aviation, in

that want to fly to Mexico City but are unable to.

comparison to Latin America. In 2016, Mexican domestic

NAICM will bring in more companies and more people,

aviation grew 15.6 percent in terms of operations and

generating a trickle-down economic effect that will result

10.7 percent in terms of passengers in comparison to

in investment that benefits both Mexico City and the

the previous year for a total of 82.7 million passengers,

country. Its three air strips per terminal will enable more

according to DGAC, and just in the first eight months of

simultaneous take-offs and landings, permitting more

2017 this number had already reached 61 million. Growth

flights to more destinations,” says Meyer.

INFOGRAPHIC

2017 SECTOR OVERVIEW The aerospace industry slowed down during 2016 but

for cargo and passenger numbers grow. The organization

continues to perform well. Growth rates are expected

also predicts that airlines’ profits will reach US$31.4 billion

to fall from 3 percent in 2016 to 2 percent in 2017,

in 2017 but fuel, labor and maintenance costs will weigh.

according to Deloitte. Mexico has laid the foundations

Profit margins have dipped from 4.9 percent in 2016

for its industry to grow and consolidate the supply chain.

to 4.2 percent in 2017. Latin American airlines will hit

On the aviation side, the outlook is also positive. IATA

US$800 million in profits and regional demand in the

OF THE REGIONAL SUSTAINABLE forecasts that 2017 will be good for the sector as DISTRIBUTION demand passenger sector will grow 7.5 percent. DEVELOPMENT FUND 2 12

FDI FOR AEROSPACE EQUIPMENT MANUFACTURING 1999-2016 Queretaro

989.7

Chihuahua

Nuevo Leon

COMPANIES WITH DGAC APPROVAL TO MANUFACTURE AIRCRAFT COMPONENTS

604

Baja California

48.9% Chihuahua 19.1% Queretaro 14.9% Baja California 4.3% Guanajuato 4.3% Sonora 2.1% Zacatecas 2.1% San Luis Potosi 2.1% Yucatan 2.1% Nuevo Leon

599.5

441.9

Sonora

215.1

Tamaulipas

11% Mazapil

83.2

Companies Registered With 9% FDI Cananea for Aerospace Equipment2% Morelos

San Luis Potosi

FEMIA

Manufacturing in 2016 (US$ 2% Eduardo Neri 7% Nacozari de Garcia

63.9

millions)

5% Fresnillo

Mexico City

Jalisco

28.5

Yucatan

15.3

Investment amount (US$ millions)

200

2% Sahuaripa

400

600

800

Queretaro

Chihuahua

Baja California

79,7

2% Aquila

4% Ocampo Chihuahua

46,8

2% AlamosNuevo Leon

4% Caborca Sonora

40,3

1% Chinipas Guanajuato

Nuevo LeonMojada 2% Sierra

16,8

47% otherBaja California

Queretaro 8,7 Luis Potosi 1 Source: CGM, Ministry of Economy With figuresSan to March of 2015 San Luis Potosi

1000

5,7

Sonora

6 5

GRADUATES IN ENGINEERING, MANUFACTURING AND CONSTRUCTION (2016 - 2017 academic cycle) 3,801 923

3,648 1,972

96,467

New engineering, manufacturing and construction graduates

4,591 695

4,929 931

University Graduates Technician Graduates 4,672 1,756 CENTERS WITH AEROSPACE TRAINING PROGRAMS PER STATE State

Number of Centers

5,307

1,574

Mexico City

33.1%

State of Mexico

15.7%

Jalisco

9.0%

Queretaro

6.2%

Nuevo Leon

5.0%

Others

30.9%

1,628 8,982 1,017

8,540 1,449 2,429 5,344 8,422

Others

25.6% Market share 37.6% Share of commercial fleet in service (2Q17)

• 5,746 employees • 180.000 passengers moved in 2016

TAR Aerolíneas

1.4% Market share 2.8% Share of commercial

Aeroméxico

25.6% Market share 37.6% Share of commercial

fleet in service (2Q17)

• 246 employees

• 6,737 employees

• 614.000 passengers moved in 2016

• 11. 07 million passengers moved in 2016 NATIONAL AIRLINES OPERATING IN MEXICO

Viva Aerobus

Volaris

13.9% Market share 6.9% Share of commercial

33.1% Market share 18% Share of commercial

fleet in service (2Q17)

• 1,145 employees M VEHICLES SOLD PER • 6.02 million passengers moved in 2016

• 4,550 employees

Interjet

25.7% Market share 20.5% Share of commercial

• 14.35 million passengers moved in 2016

fleet in service (2Q17)

• 5,445 employees • 11.12 million passengers moved in 2016 150

120

Aeroméxico

Aircraft number

Volaris

Interjet

Viva Aerobus

TAR Aerolíneas

Others

——Average fleet age

INTERNATIONAL AIRLINES OPERATING IN MEXICO Expected Net Profit by Continent in 2017

29.14 million passengers moved in 2016

DISTRIBUTION OF THE REGIONAL SUSTAINABLE DEVELOPMENT FUND 2

MARKET SHARE OF INTERNATIONAL AIRLINES OPERATING IN MEXICO

11% Mazapil

15.7% 14.6% 9.8% 5.5% 5.2% 3.7% 3.6% 3.1%

American Airlines United Airlines Delta Airlines Southwest Airlines Alaska Westjet COPA Mesa Airlines

2% Sahuaripa

Sources: DGAC, IATA, FEMIA, Ministry of Economy and ANUIES

9% Cananea

2% Morelos

7% Nacozari de Garcia

2% Eduardo Neri

5% Fresnillo

2% Aquila

North America

US$15.4 billion

Europe

US$8.6 billion

Asia-Pacific

US$7.4 billion

Middle East

US$0.4 billion

Latin America

US$0.8 billion

Africa

-US$0.1 billion

2.5% 2.5% 2.4% 2.3% 1.7% 1.6% 1.6% 1.5%

Jet Blue Air Canada Sunwing Airlines Skywest Frontier Airlines Express Jet Avianca Spirit Airlines

1.4% 1.3% 1.3% 1.2% 1% 1%

Iberia Air Transat US Air Lufthansa Mn Airlines Air France

ROUNDTABLE

WHAT ARE MEXICO’S CAPABILITIES FOR AEROSPACE AND WHAT FURTHER POTENTIAL EXISTS?

Mexico is the 14th-biggest aerospace supplier in the world, but the country has high ambitions. According to ProAéreo, it plans to enter the top 10 by 2020. While there are many areas that must be developed to achieve this, such as consolidating the local supply chain, the country also has many strengths that have attracted the top aerospace manufacturers in the world, such as Boeing, Airbus, Safran and Honeywell. Mexico Aviation & Aerospace Review asked industry leaders to share their views on the country’s capabilities.

Mexico has strong capabilities working with sheet metal and performing traditional assembly, especially with aluminum. We are good manufacturers of CPUs and harnesses and we are developing skills to manufacture more composite parts. Moreover, Mexico has capabilities for MRO services, with ventures from Mexicana MRO and TechOps Mexico, making the country a destination for MRO. This trend is leading other states to develop their own workshops. Our expectation for 2017 is to

CARLOS ROBLES President of FEMIA

reach 60,000 jobs, to have 330 industrial facilities, to surpass US$8 billion in exports and to reach a 23 percent trade surplus with the US for aerospace products. Globally, Mexico is ranked 14th for competitive manufacturing platforms and our goal is to be in the top 10 by 2020.

The country has tremendous potential for Boeing’s three sectors: commercial aviation, supply chain, and lastly, defense, space and security. Our participation in the supply chain is of great importance to us. It represents about US$1 billion annually both in terms of direct purchases and those of our direct suppliers. Mexico is our largest supply base in Latin America. The growth of this supply base depends mostly on our suppliers’ ability to expand in the country and to develop the workforce to

DONNA HRINAK Vice President of Boeing and President of Boeing Latin America

continue meriting support from federal and state governments. Our suppliers mostly manufacture components but we expect to move Mexico up the value chain by requesting more design and engineering-based jobs here.

The country offers many advantages to the sector, so its continued specialization and development will raise Mexico as an emerging aerospace exporter. Thanks to the automotive sector, aerospace companies were able to find potential collaborators that had already installed state-of-the-art manufacturing technology, building a strong platform on which to grow. Both sectors can coexist since they are distinct in volumes, being automotive an industry of high production volumes, while aerospace

EDUARDO MUÑIZ Automotive, Aerospace and Logistics Financing Director of Bancomext

is an industry of low volumes, highly sophisticated equipment and high costs per unit. Aerospace emerged and expanded swiftly thanks to synergies with the automotive sector, which also led to the faster development of infrastructure and technical capabilities.

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TRIPLE-HELIX COORDINATION ADVANCES AERO SECTOR ILDEFONSO GUAJARDO Minister of Economy

Q: You have cited aerospace as an economic catalyst in

working on a 2.0 version of the program to trigger more

the past. What factors have made this industry influential?

ambitious results for the aviation and aerospace industry in

A: Over the last decade, the Mexican aerospace industry has

Mexico. The Ministry of Economy, along with ProMéxico and

become the third-largest FDI recipient worldwide, receiving

local industries, is leading a strategy to reshape some of the

60 FDI projects between 2009 and 2015. Having major

goals of the ProAéreo 2012-2020 program to better suit the

international companies in the field establishing design and

industries’ needs and performance projections. ProAéreo

engineering centers in Mexico, such as Bombardier, Safran

2.0 will extend its roadmap until 2025.

Group, GE, Honeywell and Airbus Helicopters, reflects the country’s competitive manufacturing costs, which

Q: As an industry that is dependent on FDI, how do you

are the most competitive in the Americas, according to

expect currency fluctuations to affect investment decisions?

KPMG Competitive Alternatives 2014. It also reflects the

A: Currency changes mainly impact a country’s export

availability of specialized human capital.

capacity, rather than impacting its attractiveness for investors. Foreign direct investment decisions rely on

The positive performance of the Mexican aerospace

a multitude of variables and they reflect a company’s

industry has been the result of coordinated actions

expectations for growth and its long-term strategy to achieve

by leaders of the triple helix: industry, academia and

its goals. Mexico offers favorable conditions for aerospace

government. ProAéreo will continue to be an important

and aviation developments, including legal certainty and

tool for guiding and promoting the aerospace industry’s

infrastructure, as well as specialized human capital.

development in the years to come. Regarding the aerospace sector’s contribution to the country’s manufacturing GDP,

Mexico is continuing its efforts to remain an attractive

it has doubled from 0.34 percent in 2007 to 0.71 percent

FDI destination by improving the business environment,

in 2016. We expect this contribution to continue growing

implementing structural reforms in key sectors,

over the next few years.

streamlining regulations and improving infrastructure across the country.

Q: How do you expect ProAéreo’s targets and measures to be adjusted in the face of Mexico’s more conservative economic forecasts?

The Ministry of Economy is a governmental organization in

A: I believe that the best way to cope with a complex

charge of promoting Mexico’s economic development both in

economic scenario, which is not exclusive to Mexico, is

the country and the rest of the world. It is in charge of local

by developing strong and suitable solutions. ProAéreo is

taxes and product exports

Airbus A380/ Airbus

VIEW FROM THE TOP

COLLABORATION IS THE NAME OF THE GAME CARLOS ROBLES President of the Mexican Federation for the Aerospace Industry (FEMIA) and Vice President of Bombardier Queretaro

Q: How has Mexico’s aerospace sector grown and what

Q: What are your main goals as the new President of

are your expectations for 2017?

FEMIA?

A: Since 2004, Mexico’s aerospace sector has grown

A: The key word for Mexican aerospace is collaboration.

15 percent annually. The country began performing

Thus, at FEMIA our priority is to promote collaboration

manufacturing exclusively and gradually entered into

among all clusters in Mexico. During FAMEX we, alongside

maintenance. Now, it is starting to develop its research

the five aero clusters, signed a memorandum to prioritize

capabilities. In the first quarter of 2017, the Ministry of

the needs of the sector using all the capacity and skills

Economy counted 312 industrial facilities for the aerospace

within the clusters. The Mexican aerospace sector has many

industry, of which 80 percent are related to manufacturing,

strengths that we need to capitalize on to improve the

11 to MRO activities and the remaining 9 percent to R&D,

industry’s image at a global level. Signing this agreement

design and engineering. Engine parts designed and

signifies the clusters’ will to act as a team in the interest

manufactured in Mexico are flying all over the world.

of developing the country’s aerospace industry.

In 2016, exports reached US$7.18 billion, which helped us

The second priority is to develop the supply chain. FEMIA

climb from 10th place to become the sixth biggest exporter

has a division in charge of supply-chain development

of aerospace parts to the US, the largest aerospace market

that is identifying the country’s existing capabilities to

in the world. This was achieved in 10 years and our goal is

address existing gaps by attracting foreign investment.

to enter the top three by 2020. The sector also generates

Furthermore, OEMs and Tier 1 companies can develop

over 50,000 jobs in 19 states in Mexico.

their supply chain through FEMIA. Aerospace parts volumes are low. By consolidating the volumes of

US$7.178 billion was exported by aerospace companies in Mexico in 2016

different companies, we can make an attractive package for interested suppliers. Other goals include raising our membership to 100 companies, which we achieved during FAMEX 2017. This year we are celebrating FEMIA’s 10-year anniversary and

Mexico has strong capabilities working with sheet metal

we are analyzing what is next in the federation’s future.

and performing traditional assembly, especially with

Mexico is in a unique situation at this point. We are at

aluminum. We are good manufacturers of CPUs and

the crossroads between continuing as a small industry

harnesses and we are developing skills to manufacture

or expanding.

more composite parts. Moreover, Mexico has capabilities for MRO services, with ventures from Mexicana MRO and

Q: How will FEMIA change to address the needs of the

TechOps Mexico, making the country a destination for

sector?

MRO. This trend is leading other states to develop their

A: The sector and all its members are growing. Safran,

own workshops.

Bombardier and other big players are expanding their plants and diversifying their operations. Many aerospace

Our expectation for 2017 is to reach 60,000 jobs, to have

companies began with simple processes. Now, they have

330 industrial facilities, to surpass US$8 billion in exports

diversified and created complex assembly lines with which

and to reach a 23 percent trade surplus with the US for

they can export to other countries.

aerospace products. Globally, Mexico is ranked 14th for competitive manufacturing platforms and our goal is to

During the past 10 years, FEMIA has built credibility with

be in the top 10 by 2020.

companies and government. Given the critical volume we

have reached, Mexico is going to become a key player in

One of our commissions, led by Benito Gritzewsky, aims

the industry. We must align our strengths to attract more

to bring the Mexican aero clusters together to promote

investment and direct it to the sector’s top needs.

collaboration and generate a strategic view of what must be done in the country. The goal is also to identify each

Q: How is FEMIA helping national and international

cluster’s success factors and help them communicate.

companies gain governmental support? A: In the case of international companies, we request

Our promotion commission also works with all industrial

the support of the government to simplify the process

parks and shelters in the country to promote the

of doing business in Mexico. The government has to

establishment of new players in the Mexican aerospace

create the appropriate conditions to capture companies

sector. To do so, the commission visits all international

interested in coming into the country and facilitate their

fairs to promote the country’s capabilities in the aerospace

entrance. We are also discussing agreements that the

sector in terms of human capital and facilities. Its goal is

government needs to generate with aerospace authorities

to facilitate every entity interested in opening a plant in

in other countries. We now have a good agreement with

Mexico, bringing new skills and experience into the country.

the FAA, for instance, but we lack one with Transport Canada. This means that Mexico can perform MRO

Q: What action is FEMIA taking to generate education

operations for US companies but not for Canadian

programs that address the needs of the sector?

companies, so we are asking the government to foster

A: FEMIA created an education commission led by UNAQ’s

these types of agreements with both Europe and Canada.

Dean, Jorge Gutierrez de Velazco. We are working with

Agreements such as BASA and the Wassenaar agreement

the Mexican Council of Aerospace Education (COMEA)

with the US have opened doors for new industries. BASA

to map our strengths in education. This has presented a

unified safety and security standards and Wassenaar

challenge because there are numerous universities and

allowed local companies to manufacture for the US

technical colleges in the country, such as the National

military. These opportunities spread across the industry

College of Technical Professions (CONALEP), all of which

to the people and the products manufactured, boosting

have different education plans.

technology and experience. FEMIA is often approached by education centers interested For SMEs, we ask the government to support them

in opening a new degree in aerospace engineering

financially to acquire new equipment or certifications. It

because many believe they can do so with only a wind

is hard for small companies to acquire these certifications

tunnel and design courses. This is disconnected from

because they are expensive and returns on investment

Mexico’s needs, however, because the critical mass is

take a long time. Now, INADEM supports small companies

located in manufacturing. It would be better for students

to acquire these certifications and re-certifications so

to learn about current manufacturing practices, project

they can become suppliers in the aerospace sector.

management and specific skills related to electronics or mechanics. Our goal is to create a curriculum that fully

Q: What initiatives is FEMIA promoting to support the

addresses the needs of the industry; the problem is that

consolidation of the aerospace supply chain?

these needs have not been fully identified. Once the local

A: In December 2016, we created a commission for supply-

capabilities of universities are mapped, we will identify the

chain development. This commission will identify the country’s

needs of companies and merge these two lists.

capabilities and determine, alongside all industry players, what the country needs to start developing. This commission will

An aerospace graduate must know the basics of the

search for companies and help them to acquire the necessary

industry before learning the specific needs of an OEM or

certifications to supply OEMs and Tier 1 companies.

Tier 1. This second part of training has to be provided by the employer as processes and certifications vary from

In five months, the commission garnered enough interest to

company to company. Mexico has a significant advantage

see a potential total US$160 million investment in casting,

in aerospace because the country produces more engineers

forging, metal casting, precision machining, hydroforming,

than countries such as Germany, as we have more young

metal stamping, heat and surface treatment, composites,

people. This is both a challenge and an opportunity.

NDT, wire harnesses and cables. All of these are capabilities that Mexico lacks. The country has a good number of OEMs and Tier 1 companies but lacks the lower tiers of the supply

FEMIA represents the Mexican aerospace industry with the goals

chain. This program is funded by the National Committee

of promoting it internationally and attracting FDI. It represents

of Productivity (Comite Nacional de Productividad) and is

the industry's interests and helped to create the Pro-Aéreo plan

exceeding its targets.

to position Mexico as the 10th aerospace supplier globally

VIEW FROM THE TOP

FLYING IN INTERNATIONAL BEST PRACTICES SERGIO ALLARD President of CANAERO

Q: What is CANAERO’s role in the Mexican aviation industry

in the creation of automated migration kiosks that will

and what are the chamber’s priorities for 2017?

reduce waiting times for passengers entering the country

A: CANAERO consolidated its position as the advisory

in the airports of Mexico City, Cancun and Los Cabos. We

body that, alongside national and international authorities,

actively take part in the revision of master development

faces the challenges that emerge from a quickly growing

plans of Mexico’s airports to incorporate best international

and dynamic global aviation industry. We prioritize the

practices into their operation and in the improvement of the

adoption of best international practices and regulations in

country’s airport infrastructure. CANAERO also promotes

security, operability, consumer protection and environmental

the implementation of technologies that improve the travel

practices. The chamber does this by optimizing migration,

experience of passengers in Mexico.

customs and security processes, promoting NAICM’s competitiveness in comparison to other airports in Latin

Q: How is CANAERO supporting the design and

America, modernizing Mexico’s existing airport infrastructure

construction of NAICM?

and raising awareness about the importance of the Mexican

A: CANAERO’s NAICM committee provides GACM

aviation industry and the challenges it represents.

recommendations for improvements in the design of the airport’s terminal building, airfield, cargo terminal, land

CANAERO estimates that Mexico will see its aviation sector grow 6 percent year-over-year during the next decade

accesses, baggage-handling system and back-up areas. The

The chamber has several projects in collaboration with

Q: What global and local aviation trends is CANAERO

national authorities. These include creating a smart

seeing in the industry?

regulation that further opens the Mexican aviation market

A: We estimate that air transportation in Mexico and Latin

to private investment and establishing the Federal Civil

America is in a growth stage because of the maturation

Aviation Agency (AFAC) and the Federal Transportation

and segmentation of this market. This has enabled airlines

Accident Investigation Agency (AFIAT). The chamber will

to offer products that cater to the specific needs of

also focus on modernizing the provisions of the Cape City

passengers. The chamber estimated that Mexico will see

Convention regarding financing conditions and aircraft

its aviation sector grow 6 percent annually during the next

leasing in Mexico, and on the adoption of best international

decade. The depreciation of currencies against the dollar,

practices for security and fatigue management among

the rise of fuel prices and the rise of aviation tax rates are

Mexican crews.

the most pressing challenges that Latin American airlines

chamber has presented a plan to improve migratory and customs procedures in order to have a hub that operates under the best international practices, uses state-of-theart, world-class technology and connects Mexico and Latin America with the rest of the world.

need to tackle. Also, setbacks in the process of deregulation Q: What strategies is CANAERO implementing to increase

of the aviation market raise compliance costs for airlines

efficiency in AICM?

and passengers.

A: CANAERO is working with the General Customs Administration (AGA) and the Tax Administration Service

Q: How will the aviation industry be affected by the

(SAT) to implement a revised process for international

opening of the jet-fuel market to other players?

passengers’ luggage. Passengers no longer need to

A: Free competition can provide several potential benefits.

go through customs after picking up their registered

Oil companies are interested in and working to enter the

luggage. Also, CANAERO is backing SCT and SECTUR

Mexican market. Their entrance will bring competitive

prices and transparency, which will result in the creation

treatment of disruptive passengers. There is no clear

of infrastructure for hydrocarbon transportation. In the

framework for handling these problems and the additional

midterm, we can expect competitive fuel prices similar to

costs brought about by passengers who violate security

those in international markets.

during a flight.

Q: How are Mexican airlines and airports doing compared

Q: How does CANAERO help its members become more

with the rest of Latin America?

efficient and safe?

A: The domestic market has been consolidating for the

A: CANAERO and its members communicate and actively

past several years as Aeroméxico, Volaris and Viva Aerobus

participate in industry committees within international

identified and segmented their products according to the

aviation organizations such as ICAO, IATA, ALTA (Latin

demands of passengers. Alongside the modernization of

American and Caribbean Air Transport Association) and

the Mexican fleet, this has allowed airlines to increase their

CLAC (Latin American Commission on Civil Aviation). These

capacity and the frequency of operations. There are still

organizations produce recommendations and provide

challenges ahead, though. The depreciation of the peso

updated procedures to increase efficiency and security for

against the dollar, high airport tariffs and overregulation

flight operations. Also, CANAERO’s committees discuss best

damage the competitiveness of the Mexican aviation

international practices and pursue their implementation by

industry against other countries. These issues make it

airlines, authorities and airports.

more difficult for airlines to reduce costs and to invest in technologies that help them compete against other

Q: What steps is CANAERO implementing to promote

transportation means and foreign airlines that operate

environmentally friendly practices among its members?

under better regulatory conditions.

A: The chamber shares the objective of reducing carbon emissions from international operations to 2005 levels by

In terms of airport infrastructure, the construction of NAICM

2035 with ICAO and IATA. CANAERO works with two main

represents a transition for air transport in Mexico. We will

measures through its environmental committee. First, we

be more competitive against other passenger and cargo

work to implement emission-compensation models like the

hubs in America. To make the best out of the aviation

Carbon Offsetting and Reduction Scheme for International

industry in Mexico, it is necessary to develop a smart

Aviation (CORSIA) using market-based measures. Second,

regulatory framework that raises Mexican airports’ and

we support the implementation of Performance-Based

airlines’ competitiveness to the same level of other countries.

Navigation (PBN). CANAERO is also collaborating with

Reinforcing the airport and air navigation infrastructure is

SEMARNAT, DGAC and SRE to look at emission-reduction

essential to boost the capacity and safety of the industry and

schemes for national aviation.

mitigate the high costs resulting from inefficient regulations that are then passed on to passengers and airlines.

Q: How does CANAERO collaborate with the authorities and international aviation organizations?

Q: How will the new regulations on compensation for

A: The chamber campaigns to raise awareness among the

passengers who suffer delays affect airlines’ budgets and

authorities and citizens regarding the importance of aviation

operations?

to the Mexican economy. We also participate in work groups

A: Passengers and their safety are the main priority for

with civil aviation authorities and the Mexican Congress to

airlines. This has prompted airlines to provide protective

develop or improve regulations that liberalize the sector and

measures that had not been previously considered in the

advance passenger security and satisfaction. CANAERO

legislation. Although the new regulation imposes challenges

works continuously with international civil aviation

and restricts the contractual freedom that exists between

organizations to boost security and competitiveness in

airlines and passengers, compensation for delays will not

the Mexican aviation industry by creating proposals based

generate increases in ticket prices. Also, with the new

on best international operational and regulatory practices.

reforms, we will have more clarity on how to compensate

The chamber is in continuous communication with its

our passengers while following principles of proportionality

members so that they remain updated on these practices.

and international treaties.

CANAERO also helps its members adhere to these practices by providing advisory services.

Q: What policies on passenger rights is CANAERO proposing? A: For CANAERO, policies must be based on transparency

CANAERO is an autonomous institution of national and

and access to information. The chamber works to ensure

international airlines, air cargo companies, air taxis and aviation

passengers know their rights and obligations. We proposed

services firms, representing the interests of the aviation industry

a new regulation on the responsibility and appropriate

before Mexican authorities and international organizations

VIEW FROM THE TOP

PROVIDING FINANCIAL ACCESS WITH GOOD RATES, ACCESSIBLE PAYMENTS FRANCISCO GONZÁLEZ Director General of Bancomext

Q: Part of the bank’s mandate is to help SMEs integrate into

Q: How is Bancomext collaborating with Mexican

global production chains. How do you help them improve

companies to reap the benefits and opportunities related

processes and comply with international standards?

to Industry 4.0 (I4.0)?

A: Around 88 percent of the companies that we work with

A: It is important to note that Mexico will be the first country

are SMEs and the only way to integrate them into the global

in Latin America with the capacity to fully insert itself

production chain is through financial intermediaries, either

into the I4.0 trend. We will be the first country to have a

leasing companies or banks. In this regard, we are boosting

shared network that will provide a substantial percentage

the financial sector as well as SMEs, providing them the

of the population with access to the 4G network and

ability to access financial products at good interest rates

with enough spectrum to allow communication in a more

and accessible payment schedules. We want to maintain the

efficient and economical manner. The internet of Things

highest possible level of competitiveness and be a benchmark.

(IoT) will allow for a more dynamic communication than what we are used to. In industries, either through Radio

Q: How does the bank view the frequent increases in

Frequency Identification (RFID) or through the use of

Mexican interest rates?

specific communication tools, we will see containers

A: The interesting part of Bancomext’s portfolio is that

located at different ports communicating, arranging to be

we can access external financing. In 2015, we placed

delivered at the same time, and the buyer will be able to

debt certificates totaling US$1 billion. In 2016, we placed

access all this information with just one click. We already

certificates worth US$700 million, which earned the

have the hardware and the software components but this

recognition of “Deal of the Year” by the World Finance

is all useless if we do not have the know-how to produce.

magazine. We just placed certificates in Mexico totaling MX$7 billion in three and seven-year periods.

Q: How can Mexico become a global export hub? A: The first step is to develop a solid foundation. A solid

Interest rates have risen but margins have narrowed. We

value chain, which is a Bancomext goal, implies that the

operate efficiently and translate this efficiency to the client.

country has solid companies exporting at a global level.

We are enjoying better international rates and opportunities

If we are already managing all the metal-mechanics and

and because of this, a significant number of the rates we

electronics components, then we need to take that extra

offer have not been affected.

step and improve our management of materials. We also need to internationalize Mexican companies, which is

Q: What opportunities does the creation of Special

something we are also working toward. When a company

Economic Zones (ZEEs) offer Bancomext?

expands its production to other countries it needs a supplier

A: We see a significant degree of interest in these projects

network, so it invites its known suppliers to expand with it.

and we are leaders when it comes to the financing of

It becomes a virtuous cycle of having more international

industrial warehouses. We also see opportunities to support

trade and a greater number of Mexican companies abroad.

the importation of needed machinery. Since we work with export trading agencies we can provide structured support

Q: 2017 is a year of consolidation for Bancomext. In what

in this regard all around the world.

other sectors do you expect the bank to participate? A: Diversification is one of the bank’s pillars, especially toward Latin America. We are also trying to expand and develop

Bancomext is Mexico’s largest development bank. Over its

our portfolio of financial products and we want to support

80 years, the bank has played an important role in furthering

the development of creative industries and services, while

Mexico’s export activities as well as financing the development

also exploring opportunities offered by e-commerce. We are

of the tourism and industrial sectors

looking for ways to export Mexican machinery.

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CLEAR ANSWERS, DIGITALIZATION NEEDED TO COMPETE GLOBALLY ENRIQUE MONDRAGÓN President of Cámara Nacional de la Industria de Transformación (CANACINTRA)

Q: What must Mexico do to be more competitive at a

A: CANACINTRA is an important promotor of productive

global level?

chains, so we connect SMEs with the supply needs of many

A: To increase Mexico’s competitiveness at all levels it

industries established in Mexico, such as aerospace, through

is necessary to develop internally, including improving

Integradora CANACINTRA. We have promoted the dual

regulations. CANACINTRA has promoted simple and

education model to link the needs of the industrial market

clear answers, digitalization of paperwork and a reduction

with academia. We believe that human capital is the most

of the time it takes to obtain answers from regulators.

important aspect of all industrial sectors. For that reason,

The implementation of National Anticorruption System

CANACINTRA is betting on better preparation for young

regulations is essential to ensure transparency in the use

people and those who have already entered the labor market

of public funds in the case of public institutions and private

to develop the qualifications industries need.

entities that participate in government bids. Q: How would you describe Mexico’s contribution to the Strengthening the internal production market through

aerospace sector?

reindustrialization is another key element to increase

A: Triple-helix alliances have resulted in permanent and fruitful

national competitiveness. For CANACINTRA, industrial

programs that spur innovation. The country has public and

policy should be closely related to monetary, fiscal and

private institutions in which Mexican talent is constantly

economic policies that allow the generation of bridges

contributing to the development of parts and new materials,

between the industry and academia and the support of

creating automated systems and measuring productivity

development banks.

and efficiency on production lines. Thirty-three percent of airplane turbines are designed or made in Mexico. Automotive

Q: How would CANACINTRA describe Mexico’s manufacturing

companies can also participate in the aerospace sector. As

capabilities in comparison to the rest of the world?

a matter of fact, some automotive companies have already

A: Mexico has many advantages. At this point, North

entered the aerospace industry by obtaining the necessary

America is the most competitive region in the world due

certifications and are able to manufacture products for major

to the commercial exchange between Mexico, the US and

aerospace companies. However, other sectors can support the

Canada. In the case of Mexico, this translates to material

aerospace industry, such as metal-mechanics, chemical and

and logistic capabilities to successfully enter global value

information technologies.

chains. Thanks to the experience acquired during the last two decades, Mexico is now a leader in innovation in Latin

Q: What technological trends has CANACINTRA recognized

America. Northern Mexico and El Bajio together have 389

in the aerospace sector?

industrial parks and over 100 clusters dedicated to many

A: Through the implementation of Industry 4.0 practices,

different industries, ranging from automotive to aerospace.

high added-value industries such as aerospace are getting increasingly closer to automation. For that reason,

Through clusters, triple-helix alliances are generating good

CANACINTRA believes that for the sector to evolve,

job opportunities with low turnover to attract local talent.

manufacturing companies must be linked. The more

There is also a productive chain that incorporates certified

competitive suppliers are, the stronger the industry is.

SMEs that generate intermediary and final products of excellent quality. Furthermore, Mexico has high added-value manufacturing capabilities.

CANACINTRA represents the interests of Mexico’s industrial sector and promotes it internationally. The organization is the

Q: In which ways does CANACINTRA support the

largest of its kind in Latin America in terms of infrastructure

development of Mexico’s aerospace industry?

and representation

VIEW FROM THE TOP

IMPROVING AIRPORTS, INCREASING FLIGHT SAFETY MIGUEL PELÁEZ Director General for the General Direction of Civil Aviation (DGAC)

Q: How is the aviation sector growing in Mexico and

of aircraft and operations safety are met as operational

what global passenger and cargo transport trends are

savings are made. Despite cutting operating costs, airlines

shaping it?

must guarantee certain services and safety to protect

A: The sector is growing at an accelerated pace. In 2016, 82.7

passengers, their belongings and third parties. We have

million passengers flew with commercial airlines, which is 46

implemented several programs to monitor the activities

percent more than in 2012 and reflects an average annual

of concessionaires and air permit-holders with the goal

growth rate of 9.8 percent. From January to March 2017,

of detecting and preventing unsafe actions in advance.

commercial flights grew almost 3 percent in comparison to 2016. During this first quarter of 2017, AICM alone transported

To permanently improve overall air safety in Mexico and

10,364,775 passengers, which represents an increase of

prevent accidents, we have requested aviation service

almost 10 percent in comparison to the previous year.

providers to install safety management systems (SMS). Our goal is to organize every air service provider’s checks

From January to March 2017, commercial flights grew almost 8% in comparison to 2016

and systems process to anticipate and address security issues before an accident happens. These systems will also help us resolve problems if an accident does happen. We tailor the operational parameters of airports and air transport companies so they can qualify for foreign certifications, such as the State Safety Program (SSP), Runway Safety Team (RST), the International Standard for Business Aircraft Operations (IS-BAO), IATA Safety Audit for Ground Operations (ISAGO) and IATA’s Operational

Demand for air freight is also increasing. In that same quarter,

Safety Audit (IOSA) for global safety management.

a total of 184,022 tons of cargo were transported by air, representing a 6.7 percent increase over the same period

Q: What are the main challenges that the aviation sector

in 2016. National freight transport rose 9.5 percent in 2017

will face in Mexico?

while international cargo expanded 6 percent. Safety has

A: The biggest challenge is the acquisition of ICAO’s

also improved, by strengthening the effective verification of

Annex 14 certification. Of the 63 Mexican airports with

compliance with the standards established by DGAC.

international flights, 32 comply with this standard; a 51 percent compared to 2015. Mexican airports will continue

Global and Mexican flight demand is expected to rise

undergoing this certification process over the next two

and, if trends continue as expected, by the end of 2017

years. Three of the 16 airports to be certified by the end

more than 89 million passengers will travel by airplane.

of 2017 successfully received the certification during the first quarter of the year, so we expect that by the end of

Q: How has the sector changed and how does DGAC

2017, 71 percent of Mexican airports will be certified. The

support its development?

remaining 18 airports should be evaluated with ICAO’s

A: Low-cost flights have grown exponentially, making it

standards by the end of 2018.

possible for many people to travel by plane and leading airlines to make important changes. Airlines are looking

Q: What is the aviation industry’s contribution to

for ways to lower their operating costs as they move to

Mexicans’ quality of life?

increase efficiency. DGAC verifies that airlines take the

A: The industry’s growth has led to the modernization

necessary measures to ensure that optimal conditions

of several airlines’ fleets. Aeroméxico’s introduction of

the new generation 787-900 and 737-800, Viva Aerobus,

efficient use of slots, stipulating that airlines must apply

Interjet and Volaris’ acquisitions of the A320-271neo

best practices. Alongside COFECE, we have implemented

and Aeromar’s integration of the ATR 72-212A y ATR42-

programs for efficient slot allocation and to monitor

500(600) into its fleet all represent modernizations that

compliance with IATA standards. In accordance with new

improve passenger comfort and safety.

amendments to the Civil Aviation Act on passenger rights, new policies have also been created to monitor compliance

Flying is the most effective and safest form of travel so

with the new rules protecting passengers’ rights. We will

the industry can anticipate the need for more routes to

see the application of these rights in all airlines to improve

meet rising demand, whether for tourism or business.

passengers’ experience.

Growing connectivity is reflected in the increase in passengers. Passenger numbers on domestic flights increased nearly 8 percent in 2016 and the number of

DISTRIBUTION OF THE REGIONAL SUSTAINABLE PASSENGER DISTRIBUTION BY FOREIGN DEVELOPMENT FUND 2 DESTINATIONS

international passengers grew over 10 percent. Aerospace industry growth has boosted connectivity internally and with the rest of the world. The A380 that began operations in January 2016, for example, created direct flights between Mexico City and Paris. New international flight routes include Aeroméxico’s connections with Toronto and Vancouver and Interjet is now traveling to Dallas, Las Vegas, Lima, Chicago, Santa Clara, Orlando, and Chicago. Aeromar also has a new direct flight to Tucson from Mexico and new airlines like Alitalia and All Nippon Airlines (ANA) are linking Mexico with direct flights to Rome, Italy and Narita in Japan, respectively. These air links broaden Mexico’s options for business and pleasure travel.

US 11% 68.8% Mazapil 14.7% Latin America 9% Cananea Canada 7% 8.5% Nacozari de Garcia Europe 5% 7.7% Fresnillo 0.4% Asia 4% Ocampo Sources: DGAC

4% Caborca

Q: How instrumental has BASA been for the growth of the

2% Sahuaripa 2% Morelos 2% Eduardo Neri 2% Aquila 2% Alamos 1% Chinipas

aerospace sector?

2% Sierra Mojada 47% other Q: How is airport construction changing to make them Source: CGM, Ministry of Economy 1 With figures to March of 2015

A: BASA has generated growth in the aeronautical industry,

more sustainable?

in sectors ranging from design to parts production. It has

A: NAICM, which will replace the existing airport in Mexico

also facilitated the development of manufacturing hubs such

City, will be the first sustainable airport in the country. Its

as that located at Queretaro’s airport. Due to the success

construction should address flight demand to and from

of this agreement, we are looking for a similar deal with

Mexico and create new jobs in the aviation sector, all while

European authorities to certify parts that will be exported

meeting environmental standards. Mexico’s 2015-2018

to Europe. Mexican manufacturing is growing quickly and

Plan to Mitigate Greenhouse Gas Emissions in Mexican

increasingly gaining global recognition so we are keen on

Civil Aviation (Plan de Acción de México para Reducir las

obtaining quality certifications to export further and faster.

Emisiones de Gases de Efecto Invernadero de la Aviación Civil Mexicana) includes strategies for infrastructure

On top of developing Mexico’s production, BASA has

improvements in airports, building on the 97 percent of all

boosted civil aviation safety. The DGAC is working with the

airports that have procedures for handling, storage and final

Ministry of Foreign Affairs and the Ministry of the Interior

disposal of solid waste. More than 65 percent of airports

on transport safety management to develop personnel. The

that are concessions of airport groups keep inventories of

goal is to improve specific regulations for civil aviation via

direct and indirect hazardous waste management but this

measures including consultations, training and equipment

can be increased. The plan also encompasses objectives to

donation for aviation security.

improve airport facilities and services that would contribute specifically to the reduction of air pollution.

Q: What strategies exist to prevent flight delays and simplify processes in Mexico City’s airport? A: The AICM is re-engineering its operations to

DGAC is a division of SCT that regulates all airlines, airports,

consolidate flights, allocate slots to airlines fairly and to

private aircraft and drones. Its goal is to make aviation an

meet percentages stipulated by the Federal Antitrust

efficient mobility solution that will allow better passenger and

Commission (COFECE). It is also working toward the

cargo transportation on a national and international level

VIEW FROM THE TOP

POLITICAL, ECONOMIC DIVERSITY ARE BOTH DRIVERS, HURDLES MELVIN CINTRON Regional Director of International Civil Aviation Organization (ICAO)

Q: What is spurring aviation growth in Mexico and Latin

3.5 percent of 2015’s global GDP, an economic impact

America and what hurdles stand in the way?

amounting to US$2.7 trillion.

A: ICAO’s North American, Central American and Caribbean (NACC) regional office forecast in 2016 that political and

In Latin America and the Caribbean, air transport supported

economic diversity is likely to both drive and challenge

5.2 million jobs and created US$167 billion in GDP. In 2015,

the industry’s growth. Different countries and autonomous

17 narrow body and 80 wide body aircraft were delivered

territories mean that the NACC office has to unite the 40

to airlines in Central and South America, while in North

countries it represents, from small developing islands to

America, 46 narrow body and 296 wide body aircraft were

the world’s most advanced and developed states. The

delivered.

continent works in four main languages, as well as several local dialects. To overcome the region’s differences, ICAO

Freight is mainly transported globally by ships and over

oversees quality in air navigation arrangements, terminal

land, but for products with a short shelf-life, air cargo is the

areas, area control centers and air navigation services.

only option and these tend to be high-value shipments. We expect air freight from Mexico to grow as well as passenger

Every day, 9.8 million passengers take 104,000 flights

demand.

around the world, while goods worth US$18.6 billion are carried globally in air cargo. This volume of activity

Q: To what extent is unifying regulation, services and

is projected to double over the next 20 years, and the

processes across such a diverse region feasible and how

increasing demand for flights has pushed countries to their

can ICAO achieve this?

limits with many now struggling to supply seats and cargo

A: An important concern for ICAO is whether countries’

space. We expect globalization and worldwide purchasing

standards implementation can keep pace with aviation’s

power to lead to higher demand for skilled aviation

growth. ICAO’s Aviation System block upgrades, defined in

personnel and to exacerbate infrastructure deficiencies.

tandem with the global community, help in this regard, but

Travelers echo these concerns, but a lack of resources

it’s also important to note that we aim for harmonization

within ICAO’s member states and the regional office may

rather than homogenization to take account of the specific

complicate advances.

circumstances in each country.

To begin combatting personnel deficits, ICAO offers

The harmonization of services, airspace and procedures is

courses in several training areas, delivered globally but

one of our main goals and a key component of seamless

primarily in Canada, the US, Mexico and Colombia here in

air traffic management. In the simplest of terms, it lets

the NACC region. These include educational initiatives to

our network be truly global in scope. We are continuously

promote safety and sustainability in the region, such as

harmonizing aviation rules and regulations in the region,

the Safety Management Training Program, Universal Safety

concentrating on enhancing collaboration between

Oversight Audit Program, as well as three government

countries and creating regional mechanisms that are

safety inspector courses.

effective in smaller areas. We would like to see an exchange of inspectors between countries, as needed, and timely

Q: What is the aviation sector’s greatest contribution to

regulation updates to be compliant with ICAO Standards

economic development in the region?

and Recommended Practices (SARP).

A: Aviation and air transport in general supported 62.7 million jobs worldwide in 2015, of which 36.6 million were

We launched an initiative targeting Boeing and Airbus.

catalyzed by tourism, 9.9 million were direct jobs and

We hope to secure both so that European and American

11.2 million were indirect. Aviation was responsible for

manufacturers are represented and able to contribute

to a harmonized regional system. If we can recognize

into aircraft designs. The standard will apply to subsonic

equivalency of the FAR-145 for example, across several

jet and turboprop airplanes that are new type designs from

regions, an aircraft originating in one country could undergo

2020, as well as to designs that are in-production in 2023

maintenance in several destinations.

and need to undergo a change.

Q: Which programs are being developed and implemented

The impacts on pollution we hope to spark off will lead

by the organization to improve safety before, during and

up to 2028. This will be the production cut-off when

after flights?

airplanes that do not meet the standard can no longer be

A: Our No Country Left Behind strategy worked well in

manufactured or must be modified. The proposed global

its initial two years in Mexico. I am personally responsible

standard is especially stringent for larger aircraft with a

for fostering political will and assisting countries through

maximum take-off mass of more than 60 tons. This is the

growing pains via teleconferences with authorities and

type of aircraft we expect to be most affected.

technical teams. ICAO aims to fix what is broken in the system rather than fixing an end-product created by a

Q: What does ICAO hope to achieve in 2017 on top of

broken system. Having chosen Mexico as a strong-enough

stricter CO2 emissions controls?

candidate to be the pilot country, we have since confirmed

A: Three states in the NACC region registered up to 60

all States’ and territories’ commitments to the initiative, as

percent effective implementation of our regulations in 2016.

well as receiving their declarations of intent.

We hope to increase this to above 80 percent by the end of this year.

BEST-SELLING BRANDS IN MEXICO GLOBAL ACCIDENT RECORDS: 2012-2016 SCHEDULED (JANUARY-JULY) GRÁFICA DE BARRAS

My interests with respect to eradicating all safety concerns

1000

are aspirational, but I expect all states to comply as best

911

COMMERCIAL FLIGHTS

as they can. Before the end of 2017, ICAO will create a

800

regional accident and investigation group in the Caribbean and formalize the existing central American investigation

386

2012

2013

2014

2015

2016

Number of fatalities

simply laying down blanket regulations across countries

182 92

173

of understanding. This is easier and more effective than

200

encourage countries that are similar to sign a memorandum

400

group. Tremendous differences can be narrowed down if we

474

600

with distinct languages and cultures, as well as varying government budgets for safety measures.

Number of accidents

Q: What are your projections for aerospace in the NACC region?

Source: ICAO

A: Based on ICAO’s long-term traffic forecast for Statistics measuring the progress of the No Country Left

passenger and cargo, we expect global passenger traffic

Behind program are promising. In 2015, 33 percent of the

to grow 4.6 percent annually until 2032. This tendency is

member countries were reaching our target of 80 percent

also applicable to regions like Latin America and Mexico

effective compliance and by 2016 this had moved up to 48

in the short term. Freight traffic is expected to grow 4.4

percent. We hope to close 2017 with 62 percent of States

percent around the world in this same period but Latin

now at this level and 90 percent by the end of 2018.

America, the Caribbean and North America may grow slightly more slowly than this at 3 percent.

Q: What are the reasons behind ICAO’s new regulations on aircraft CO2 emissions?

With all the countries uniting, we can overcome the

A: Our new recommended controls on CO2 are another

weaknesses of each region. Aviation is a very dynamic

measure of our Plan of Action on International Aviation

sector and as it grows, governments need to sustainably

and Climate Change, as part of a set of measures to reduce

develop safety practices to maintain or bolster our

greenhouse-gas emissions cause by air transport. The 37

region’s low accident rate.

assembly requested ICAO to develop a worldwide aircraft emissions standard in 2010 and this was finalized in 2012. The system takes different aircraft categories into consideration,

ICAO manages the administration and governance of the

irrespective of purpose or capability. The reasons behind our

Convention on International Civil Aviation. It works with 191 States

recommended airplane CO2 emissions standard certification

to reach consensus on policies that support a safe, sustainable

is to encourage more fuel-efficient technologies be integrated

and environmentally responsible civil aviation sector

VIEW FROM THE TOP

INTERNATIONAL ASSOCIATION BACKS STRONG MARKET CUITLÁHUAC GUTIÉRREZ Country Manager of International Air Transport Association (IATA) Mexico

Q: What is your view of the aviation industry in Mexico

percent. Nevertheless, volumes remain 10 percent lower

and the main changes in the market since 2016?

than at their peak in 2014.

A: In Mexico, the aviation industry contributes positively to the national economy, generating more than 1 million

Q: What challenges does the aviation sector face in Mexico?

direct and indirect jobs and contributing 3 percent to

A: The sector has an enormous opportunity for growth

the national GDP. This represents more than US$35

and consolidation; the biggest challenges will come

billion annually and reflects the importance of aviation

from over-onerous taxation, airport infrastructure,

for Mexico.

operating costs and a stable regulatory framework. Air transport needs smart regulation, efficient operations

The Mexican aviation industry has entered a consolidation

and technology and most importantly, the adoption of

stage. The variety of airline business models have

best international practices to maximize the benefits of

found their market niches, maximizing the transport of

the sector.

passengers in the country. Airline offering includes legacy carriers, hybrid, low-cost and ultra-low cost, in addition

With hundreds of major airlines operating all over the

to regional aviation. An important element of the positive

world, airlines are used to competing among themselves

results is the solid commitment driving the development

by offering excellent services to a wide range of

of new routes and flows to maximize connectivity.

customers at attractive prices. The biggest challenge

Additionally Mexican airlines are entering a new era

airlines face in Mexico is more related to the country’s

through joint cooperation models such as that recently

aviation policies. Recently, we have seen a flurry of

implemented between Delta Airlines and Aeroméxico.

perhaps well-intentioned, yet misguided, legislation

We are likely to see additional strategic alliances that will

that is out of sync with global best practices and that is

drive potential consolidations or mergers in the future.

damaging air transport in Mexico.

In Mexico, the aviation industry contributes positively to the national economy, generating more than 1 million direct and indirect jobs and contributing 3 percent to the national GDP

Legislation mandating free checked bags, nonsequential coupon use and free ticket cancellations up to 24-hours before the flight prevent airlines from maintaining competitive prices or even being able to service some routes. Close consultation between the authorities, airlines and other key stakeholders is needed to ensure aviation policy is aligned with global best practices and does not damage Mexico’s budding, yet fragile, air transport industry. Q: What are the most important trends you are seeing

Q: What are IATA’s expectations for the passenger and

in the aviation market?

cargo market in the country during 2017?

A: Airlines have made major efforts to make flying more

A: The passenger market in Mexico is strong and has

affordable. Thus, more passengers are traveling today

registered robust growth for a number of years. We

than 10 or 20 years ago. The average roundtrip ticket

expect passenger growth to reach 4 percent this year in

price has fallen 64 percent since 1996 and this has

Mexico. In terms of the freight market, we do not have

democratized air travel. In Latin America, air travel is

specific numbers for Mexico but in the first half of 2017,

accessible for more people than ever and this is one of

airlines in Latin America saw an increase in demand of 9.8

the reasons why we expect the number of passengers to

double between 2015 and 2035. It is up to governments to

with a calendar for reducing our carbon footprint. Our

ensure airports and other vital pieces of air infrastructure

industry has a four-pillar strategy on climate change,

are in place so airlines can serve this demand.

comprising improvements in technology, operations and infrastructure.

Another trend that has transformed the industry and the passenger experience is technology. More and

In addition, we have supported the implementation of

more aspects of the passenger journey are controlled

the Carbon Offsetting Scheme for International Aviation

by the passenger, from check-in to baggage tracking,

(CORSIA), in which aircraft operators will be required to

in addition to other services from a smartphone. We

purchase offsets, or “emission units,” for the growth in

expect technology to facilitate further improvements for

CO2 emissions covered by the scheme.

passengers and usher in changes at airports as well that could speed up security processes and allow boarding

CORSIA was adopted in 2016 during the ICAO assembly

with automated access gates, for example.

by member States. By the end of the assembly, 65 States had already volunteered to implement the scheme from

Q: How would you describe the current status of Mexican

its outset, covering approximately 80 percent of CO 2

airlines and airports in comparison to the rest of the

growth in 2021-2035. The historic significance of this

Americas?

agreement cannot be overestimated. CORSIA is the first

A: Generally speaking, Latin American carriers are doing

global scheme covering an entire industrial sector. The

a superb job and the market has been supportive in terms

CORSIA agreement has turned years of preparation into

of growth. The airlines’ corporate strategy and discipline

an effective solution for airlines to manage their carbon

have boosted the sector and carriers co-exist amid intense

footprint.

competition. The region is emerging in recent years with new models of operations, consolidations, mergers and

Q: How does IATA negotiate with local governments to

strategic alliances. States must continue facilitating the

promote the sector and facilitate operations?

development of the aviation industry. There is a market

A: To generate strong partnerships with governments

of more than 600 million people with an average growth

is one of IATA’s top priorities. The airline industry

per year of 8 percent so without a doubt the potential

is unique and we have found that by working closely

is enormous. But States must work to modernize airport

with governments our industry is able to provide the

infrastructure, control operating costs, adopt international

most value. It is no surprise that where the industry is

best practices and apply smart regulation.

producing the most economic and social benefits — in places such as Panama and in the Gulf region in the

Only by adapting these policies will airlines be able to

Middle East — there is a close partnership between

absorb this market growth. The main airports in the region

airlines and local authorities. When we work together our

must be able to handle large volumes of point-to-point and

industry drives additional economic development, trade

connecting passengers through efficient mechanisms that

and job creation and of course more travel destinations

allow airlines to invest in their development with a long-

and flight frequencies for air travelers.

term vision, respecting the airlines' financial health but also passenger rights, and in security schemes while avoiding

Q: How does IATA determine the necessary measures

the pitfalls of an overregulated market. Given operational,

to undertake for safety and environmental protection?

capacity and cost conditions, the region has the potential

A: All IATA members must participate regularly in the

to double its aviation industry in the next 15 years.

IATA Operational and Safety Audit. The program is an internationally recognized and accepted evaluation

Q: Which areas should be strengthened to support the

system designed to assess the operational management

growth of aviation in Mexico?

and control systems of an airline. The total accident rate

A: The areas that should be strengthened are overall airport

for IOSA carriers between 2011 and 2015 was 3.3 times

infrastructure, slot regulation aligned to international best

lower than the rate for non-IOSA operators. As such, IOSA

practices, technology that allows efficient processes and

has become a global standard, recognized well beyond

smart regulation. This not exclusive to Mexico or any other

IATA membership.

specific country in the region. Q: What steps is IATA implementing to guide its airlines

IATA represents 278 airlines from 117 countries. Its mission is

to adhere or subscribe to environmental practices?

to represent the airline industry among decision-makers, lead

A: The airline industry was the first industry to make

it by developing global standards and help it operate safely

commitments on its own to reduce carbon emissions

and efficiently

VIEW FROM THE TOP

WORKING TOGETHER FOR GROWTH MARCO ANTONIO DEL PRETE TERCERO 28

Minister of Sustainable Development (SEDESU) of Queretaro

Q: How has Queretaro’s manufacturing sector and aerospace

November but the facilities are already operational. In 2015,

in particular grown in jobs, projects and investment?

Queretaro’s government invested MX$25 million (US$1.3

A: Queretaro’s manufacturing sector is growing quickly. We

million) through CONACYT’s mixed funds (fondos mixtos)

achieved and surpassed our goals in terms of employment

to finish the acquisition of equipment, topping up a total

for 2016. We expected to create a total of 30,000 new

investment of MX$50 million (US$2.5 million). CENTA is

jobs across all manufacturing sectors and we closed the

incubating a Mexican aerospace startup called Horizontec

year with 36,000. The aerospace sector represents between

and a local company developing an aircraft, which is in its

8,000 to 10,000 direct jobs in Queretaro, a large proportion

flight-testing stage. The center will begin developing R&D

of the total especially for a highly advanced industry with

projects for materials testing, aero structures and studying

many automated positions.

material-structure interactions. Once the center is officially open it will be part of Queretaro’s aero cluster and support

FDI also increased in 2016, as gauged by the Ministry of

existing companies in the state.

Economy’s new strategy to measure foreign investment. This new scheme no longer considers existing companies’

Q: In which projects is SEDESU supporting Queretaro’s

reinvestment in Mexico, only new investments. The new

aerospace cluster?

methodology reports FDI in the state growing from

A: We have several collaborations alongside the Queretaro

US$2.7 million in 2015 to US$8.7 million in 2016. We have

Aerocluster, including supporting Mexican startups through

announced at least three new investments per month

the certification process. We are also helping the cluster to

during 2017, representing both new plant openings and

map Queretaro’s aerospace companies with clear information

expansions. Duqueine, for example, began construction at

on processes and materials, to be able to link companies with

the end of May 2017 to supply Safran’s plants in Queretaro.

one another. With our support, the cluster is also developing programs for aerospace SMEs, which face significant entry

The state is competing for six aerospace investment projects.

barriers such as acquiring the necessary certifications to

In February 2017, Safran announced the construction of its

manufacture for the sector. Working alongside the cluster

sixth plant with a US$70 million investment, which will be

makes the process much more efficient.

opened around November this year. The plant is now hiring personnel to fill the 400 new jobs created. The two main

Q: What is your long-term vision for Queretaro’s aerospace

aerospace investments we expect in 2017 are the opening

sector and what is necessary to achieve it?

of Safran Albany and CENTA.

A: We expect Queretaro to continue attracting large foreign companies. The environment is conducive to the growth of

Q: What is the building status of CENTA and what will the

local startups. We are working with UNAQ so the university

center’s capabilities be once it begins operations?

can accelerate growth and incubate new companies within

A: This project is the result of a joint effort between the

its facilities. In 2017, Queretaro’s government invested

federal and local governments. The building’s construction

approximately MX$100 million in equipment for UNAQ,

has been finalized but its equipment still needs to be

which will increase the university’s training capabilities

bought. We expect CENTA’s official inauguration to be in

and promote local R&D. Queretaro’s strengths are in component manufacturing and MRO services, especially in TechOps Mexico and Safran facilities. The state and the

The Ministry of Sustainable Development (SEDESU) of

country must focus on developing local suppliers, which

Queretaro is a governmental organization that aims to make

has successfully been done for the automotive sector.

the state a sustainable and competitive economy through the

The aerospace sector must also generate a network of

attraction of FDI, support to local SMEs and financial training

specialized suppliers.

VIEW FROM THE TOP

RESTRUCTURING, STRENGTHENING THE STATE’S BACKBONE JUAN CARLOS CORRAL Director General of ITP Mexico and President of Queretaro Aerocluster

Q: What are your goals as the newly elected president of

industry. Queretaro Aerocluster will talk to FEMIA and

the aerocluster?

the other Mexican clusters as well as local and federal

A: My first commitment is to local SMEs. The aerocluster

entities to create a rational and integral plan for growing

was not created to support large companies, such as

the sector.

Bombardier, Safran, Aernnova or ITP. Its main objective is to support SMEs and their integration into the local

Q: What initiatives is the cluster developing to support

supply chain. Large, foreign companies will see long-term

Mexican SMEs?

benefits from the cluster in the shape of a consolidated

A: The cluster has four commissions: technology and research,

supply chain. My second goal is to increase the number

employment and training, supply chain and SMEs. This last

of members and for them to participate more actively

commission researches and addresses the main challenges

in the cluster. Queretaro Aerocluster’s current board of

SMEs are facing and develops support mechanisms for

directors incorporates three representatives from the

them. Entering the aerospace sector is hard for an SME

industry and three from academia, research centers and

unless it has the support of a large entity like an aerocluster.

the government organizations. Our goal is to duplicate

New companies often lack the necessary certifications and

these numbers to generate a larger collaboration that can

capabilities and knowledge of how to acquire them. We can

deal with a growing membership.

provide guidance and help them reach larger companies.

Q: How many members does the cluster have and how do

Q: What initiatives is the cluster developing to strengthen

you expect to grow this number?

Queretaro’s supply chain?

A: The state has approximately 80 aerospace companies, of

A: This is our main priority for 2017. At this point we are

which 50 percent are members of Queretaro Aerocluster.

mapping the demands of the larger companies in the

However, out of these 40 members only six are SMEs.

cluster. Once this information is compiled it will be made

Our goal is to attract more companies by showcasing the

public to let existing and future companies know our

added value the cluster offers to these companies. By the

needs, which can translate into business opportunities.

end of 2017, our target is to increase our membership by

This information will be useful for existing companies in

15 percent and to incorporate another 14 SMEs within the

Queretaro and to those in Mexico and abroad that are

next three or four years.

interested in investing or coming to Queretaro. I know of a few cases where companies opened offices in the state

Q: How important is it for the cluster to collaborate with

without performing their due diligence and suffered a lack

other states?

of demand for their products and services.

A: We are increasing our collaboration with other clusters both within and outside of Mexico. For instance,

Q: What other challenges are aerospace companies facing

Mexico’s five aerospace clusters signed a Memorandum

in Queretaro?

of Understanding (MOU) with FEMIA during FAMEX to

A: One problem companies face is acquiring qualified

promote collaboration among all signatories. Queretaro

professionals. We have many universities and training centers

Aerocluster has also signed MOUs with San Antonio’s

for engineers and technicians but we require even more.

Chamber of Commerce in Texas and with Spain’s HEGAN-Basque Aerospace Cluster. We need to improve the relationship between clusters because it makes no

Aerocluster Queretaro is an organization that brings together

sense for Mexico to have an aerospace cluster for each

the needs and capabilities of the sector with the goal to achieve

state. Because economic resources are also limited it is

the aerospace industry’s consolidation. The organization also

necessary to create a proper investment strategy for the

represents the sector to governmental organizations

VIEW FROM THE TOP

CHIHUAHUA LOOKS TO DEVELOP SUPPLY CHAIN, BOOST CAPABILITIES 30

Jaime Campos Aerospace Industry Director at Ministry of Innovation and Economic Development of Chihuahua

Omar Saucedo Deputy Minister of Innovation and Economic Development of Chihuahua

Q: What is the Chihuahua government’s strategy for the

ramp, the Mexican side in San Jeronimo has not developed

aerospace sector?

as well, but this is starting to change.

OS: The state entered the sector by manufacturing harnesses but since then it has incorporated the

The region also requires a railroad to connect both

production of aerostructures and complex machining,

countries. Our goal is to connect the railroad that crosses

such as that performed by Honeywell. The government has

downtown Juarez to the US, 5-6km south of Santa Teresa.

a clear strategy for the industry that includes attracting

This project is expected to be finalized within the next four

companies that manufacture structural components and

to five years and will allow a 24-hour connection that will

we want to bring more Tier 1 and 2 companies for engines,

raise the efficiency and capabilities of local companies. We

including companies involved in additive manufacturing.

are meeting with US railway operators Union Pacific and Burlington Northern Santa Fe (BNSF) and with Mexico’s

We are talking with companies such as GE, Boeing, Airbus

Ferromex to sign a memorandum of understanding and

and Rolls-Royce to discern their requirements in Mexico

obtain a presidential permit. A common concern for long-

and once these needs are identified we will focus on

term infrastructure projects is a lack of continuity after

bringing more Tier 1 and 2 suppliers. We are targeting

the 2018 Mexican presidential election but the presidential

companies that perform special heat treatments because

permit can ensure the project continues.

incorporating these services will allow the state to attract even more major companies. Chihuahua also wants to

OS: Chihuahua has an old and strong relationship with

develop its capabilities for design and support services.

the US and we have several important projects along the

Our priorities are to introduce additive manufacturing

border, including the intermodal ramp to Santa Teresa. We

capabilities and to strengthen the supply chain while

also have launched several promotional campaigns that

establishing more SMEs and providing further training.

showcase the strong bonds between us.

Within the Ministry of Innovation and Economic Development we have three training centers dedicated to

Q: What can the local manufacturing sector expect from

talent development for the aerospace sector: the Support

the renegotiation of NAFTA?

Institute for Technological Development (INADET), the

OS: : The ministry has done a number of analyses. A worst-

Innovation and Competitiveness Institute (IIC) and the

case scenario imagines the cancellation of NAFTA but even

Chihuahua Work Training Institute (ICATECH).

under these circumstances the results would not be as bad as many expect them to be. If NAFTA were to be canceled,

Q: How are infrastructure projects impacting Chihuahua’s

Mexican exports to the US would be levied a 4 percent tax

relationship with the US and the state’s efforts to attract

with the exception of pickups, which would be taxed at 25

investment?

percent. However, we now know that NAFTA will not be

JC: For the last 10 years, the ministry has been highly

canceled but renegotiated, which might be beneficial for

involved in developing the infrastructure adjacent to the

Mexico. It is often said that there is a trade deficit between

US border to attract more manufacturers to Mexico. An

Mexico and the US. We expect that the renegotiation of

agreement with Union Pacific permitted the establishment

NAFTA will allow the US government to fully understand

of a US$500 million intermodal ramp to Santa Teresa,

the relationship between both countries’ manufacturing

New Mexico, close to the city’s airport and international

sectors and how they complement each other.

park. This ramp is 11.5 miles long and almost two miles wide. During the past seven years, the impact of this ramp

When NAFTA was designed, some important provisions

on imports and exports has been enormous. While the

were not considered, such as those related to SMEs, a

government of Santa Teresa has invested strongly in this

key issue that should be addressed in the renegotiation.

Latècoére plant/ Sonora

This topic is a priority. Mexico has neglected SMEs but the

There is a significant opportunity to create more SMEs

country now recognizes their importance to the economy

here and to do so we are working with major aerospace

and the general population.

companies to identify gaps in their supply chains that can be addressed by local SMEs. The program Chihuahua

JC: Chihuahua’s manufacturing sector was created long

Innova aims to generate a community of almost 500

before NAFTA. Even the worse-case scenario is not too

entrepreneurs who will be trained in management. We

black because the state’s industry is well-established and

are coordinating funding with the federal government to

has had a close relationship with its US counterpart even

establish SMEs and to bring more FDI into the state that

before this agreement was put in place. The renegotiation

can be directed at SMEs.

of NAFTA is a good opportunity that will allow the three participating countries to establish a better regulatory

Q: What are the ministry’s priorities for the aerospace

system that benefits all members.

sector? OS: One of our priorities is to attract more funding so we

Q: What initiatives is the ministry launching to support SMEs?

can begin the construction of the Aerospace Design Center

OS: Unfortunately, for the past few years the government

in Chihuahua. This is a joint initiative with Chihuahua’s IPN

has neglected to gather the necessary data. Thus, the

campus and the private sector, supported by the state

first step is to collect information regarding SMEs in the

government. We expect to acquire the necessary funding

state. We are building a database that will allow us to

before the end of 2017 and to begin construction in the

understand how the local supply chain is integrated into

first months of 2018. The second priority is to continue

each specific sector. For example, we are gathering local

working with SMEs to consolidate the supply chain. We

SMEs in groups and clusters. In July 2017, we supported

will also continue investing in CENALTEC Chihuahua, a

two new clusters that integrated SMEs. The first is the

training institution oriented toward the aerospace sector.

Advanced Manufacturing Cluster, which incorporates

Our third priority is to offer better training programs and

new technologies, including artificial intelligence, and the

ensure that they add value for the existing industry and

second is Global Emerging Companies, which integrates

to new companies entering the state. We are already

SMEs that support manufacturing. Most of these

contacting companies interested in coming to Chihuahua

companies were working by themselves without any major

and are trying to discern the kind of employees they will

strategy so we are bringing them closer together. One of

need to operate locally.

the challenges Chihuahua faces is the “mortality” of SMEs, a problem that we are trying to reduce. The Chihuahua State Ministry of Innovation and Economic

We are also looking to create more opportunities for

Development generates economic development by strengthening

these companies. Of all the aerospace companies

the state’s scientific and technological capabilities. The Ministry

manufacturing in the state, only 3.6 percent are SMEs.

supports SMEs through training and consulting services

VIEW FROM THE TOP

AEROSPACE STRONGHOLD DETERMINED TO SOLIDIFY POSITION CARLO BONFANTE Minister of Sustainable Development (SEDESU) of Baja California

Q: What characteristics have helped position Baja

A: The ministry supports local companies by identifying

California as a leader in Mexico’s aerospace industry?

the challenges they face and by working with them to

A: Baja California has over 50 years of experience

develop solutions. Baja California is developing technology

manufacturing parts for aircraft. The state now has 80

for major companies, including Airbus, Boeing and

registered aerospace companies. It is an industry that

Gulfstream. To further support them, we are building a

has contributed to the development of a strong value

logistics platform that will help strengthen the state’s

chain in the state. Local companies are members of

leading position. During this government’s term, we have

the aerospace cluster, which is continuously working to

focused on improving competitiveness for local companies

develop suppliers and technology with the goal of raising

by lowering electricity costs through the installation

the capabilities of the local industry to international

of private generators. These lower costs benefit all

standards. Baja California is extremely well-positioned

companies in Baja California. Because a lack of water is

in this sector.

often an impediment for a company’s operations, we are also working to improve and ensure water supply for the

The state has many advantages due to its proximity to

next 50 years.

the sixth-biggest economy in the world, California. Both states are closely connected through an excellent logistics

We have also strengthened the port of Ensenada and

infrastructure comprising roads, trains, ports and airports.

expanded El Sauzal port to develop a viable alternative

Baja California spearheads logistics to the western region

for imports and exports, which reduces logistics costs for

of the US. By providing local companies sufficient access

parts and equipment coming from China, Latin America

to water, energy and natural gas at competitive prices, Baja

and the US. The capabilities of the port of Ensenada are

California provides an ideal platform to attract investment.

being increased to allow it to handle 250,000 containers,

For those reasons, the state has nearly double the number

which will eliminate the need for these products to arrive

of companies of any other in Mexico. Additionally, Baja

at Long Beach and travel the rest of the way by road.

California is the ideal location to manufacture parts for

We are also reinforcing existing railroads to facilitate the

export, while the center of the country is better located

delivery of merchandise within short distances.

to manufacture parts for Mexico. Q: What initiatives is the local government developing

Over 80 percent of components manufactured in Baja California are exported to the US

to support SMEs willing to enter the aerospace sector? A: We have a series of support programs, including loans to establish and grow the company. We also often organize B2B meetings between SMEs and major companies. We are fully aware that certification can be an expensive challenge but it is extremely necessary for the sector. Certifications have been welcomed by the automotive industry and aerospace companies are

During the past three years, the state has attracted

also beginning to incorporate them. Local chambers

US$2.5 billion per year in FDI for all economic sectors.

of commerce are also playing an important role in the

The state also creates 50,000 new jobs per year and has

promotion of the local industry.

the lowest unemployment rate in Mexico at 2.9 percent. So far local businesses only represent 5 percent of total Q: How does the Ministry of Sustainable Development

suppliers to the aerospace sector. Our goal is to raise this

support companies in Baja California?

to 10 percent. This is not an easy task because international

33 Airbus A350/ Airbus

companies must adhere to strict internal regulations for

Q: What is the ministry expecting from a renegotiation

incorporating new suppliers. This makes entrance to the

of NAFTA?

sector much harder for small companies.

A: We do not expect any change to current regulations for local content, as an increase in taxes in this area can hurt

Q: How is the ministry addressing the lack of available human

local companies. We hope that the US government realizes

capital that is challenging the growth of local companies?

that it is necessary to continue with the current win-win

A: Mexicali is developing a training center under the name

conditions, although at this point we cannot determine

Aerospace Training Institute (ICA), which will generate a

whether the existing regulations will soften or harden. In

base of qualified employees who can easily enter the areaâ&#x20AC;&#x2122;s

a worst-case scenario, the local aerospace industry will

production lines. This will reduce the amount of training that

continue growing albeit at a slower rate. In a best-case

companies themselves have to provide new employees and

scenario, I estimate that the state can easily continue

facilitate their entrance into the workforce.

growing at a 5 percent annual rate.

We are helping young people to enter the labor force:

The US seems to want fundamental changes to the treaty

80,000 young people began working during 2016 and the

but changes of this kind can hurt all three countries. Baja

employment rate is expected to continue growing. Our goal

California greatly depends on the US, as over 80 percent

for this administration is to establish new conditions for

of the stateâ&#x20AC;&#x2122;s exports are headed that way, representing

competitiveness and to address the obstacles generated by

US$40 billion per year. It would not be easy to find

previous administrations.

other destinations for these products because they are closely linked to the US consumer market. If the US raises

Q: How will Baja California continue to attract foreign

import taxes over 10 or 12 percent, the local automotive

companies?

industry would find it hard to compete. However, moving

A: Major companies are convincing their suppliers to enter the

manufacturing from Mexico to the US would be extremely

state. For instance, the arrival of Gulfstream and Honeywell

complex and would significantly hike prices for end

led to the arrival of several of their suppliers. We work closely

consumers in the US.

with these companies and incentivize their introduction to the state.

The Ministers of Economic Development for border states have discussed strategies to manage our border policies

Without a doubt foreign aerospace companies will not find

with our current commerce practices with or without a

another state with the same privileged conditions. Baja

treaty. Border states in the US are also concerned as these

California provides excellent logistics through trains, ports and

states receive large numbers of individuals who shop in the

six border crossings with the US. The stateâ&#x20AC;&#x2122;s population also

US. Baja California also behaves differently from the rest of

has an industrial vocation. The maquila sector began in Baja

the country because the impact of policies in the US hit us

California and thanks to the many development schemes the

harder than local policies.

state has introduced we have generated highly qualified talent for manufacturing. The state has challenges to overcome such as insecurity, which we are addressing. One advantage that

Baja California is home to the largest aerospace cluster in

no other state in Mexico has is that Baja California reinvests

Mexico with 80 companies, including Textron Aviation, Safran

50 percent of its budget in education, which is a clear sign

Group, Zodiac Aerospace and Honeywell. The Ministry is in

the state is looking toward future economic development.

charge of strengthening the state's industries

VIEW FROM THE TOP

CREATING ADDED VALUE FOR BAJA CALIFORNIA VÍCTOR HIDALGO President of Aerospace Alliance of Baja California

Q: What is your vision for the industry as the new

the right equipment companies cannot secure contracts.

President of Aerospace Alliance of Baja California?

This is a vicious cycle because companies are not that

A: The vision the board and I have is to consolidate the

willing to put themselves at risk without any business

aerospace cluster in Baja California and to clearly define

secured.

the added value we can offer to the sector. We have three main goals on which we want to focus: human capital, the

Once a company manages to build its installed capacity

supplier network and to leverage government support for

to the right level, our goal as a cluster is to identify a

the industry. Regarding human capital, we want to ensure

larger supplier willing to give this SME a chance to prove

that companies can secure the right talent from local

itself. The problem is that most purchasing decisions

schools and universities. Previously, we had to source talent

for manufacturing activities are taken at the company’s

from outside the state, particularly for design operations.

headquarters, which limits the options for local suppliers.

Now, we are working with academic institutions in the

More companies are now willing to participate in the sector

region to make sure they align with the industry’s real

but especially in raw materials and advanced components

demands. We are also helping companies establish strong

there is still a gap to be filled.

talent-development programs and supporting them with training courses.

Q: How can companies break free from this vicious cycle of lack of capital versus lack of contracts?

Development of the supplier network is a more

A: This is definitely a challenge for the entire industry, not

complicated issue because of the certifications and

just Baja California. Other associations like FEMIA want

expertise companies need to participate in the sector.

to promote the local supply chain with big companies

Certifications take time and it is complicated to take

established in this region, but even for these companies

each supplier through the entire process. We are trying

it is not a simple decision either. These players need to be

to define the best way we can help the supplier base. At

sure they can rely on any new supplier in terms of quality

the same time, we are working with the state and federal

and timely deliveries. Without proper capital to invest,

governments to determine how we can help companies

few small companies can offer this commitment. There is

grow their business.

no easy answer to this question and it is an issue for both governments and private players.

Q: In your opinion, which capabilities are missing from the state’s supply chain?

Q: What is the cluster’s strategy to bring companies from

A: A big obstacle is financial access to new technology.

Baja California's cities under the same development roof?

Many SMEs do not have the resources to invest in the

A: Before inviting more companies into the cluster, we

machining equipment necessary to participate in the

want to define what is the added value that we can offer

production chain. Most processes do not need just one

to the region. Companies have different strategies and

piece of equipment but an integrated manufacturing line.

priorities but as a cluster we must present a unified front.

Modernization strategies require cash flow but without

We know what our priorities are as a cluster and now we

contracts, money will not come. Unfortunately, without

want to specify how we are going to achieve our goals. Companies wanting to join the cluster expect something from us and as a group we want to be able to meet their

The Aerospace Alliance of Baja California is a nonprofit

expectations. Our hope is that once we have our vision

association of companies, academic institutes, universities

clearly defined, we will not have to look for companies

and the state and federal governments. It focuses on the

to join us, because these companies will come to us on

development of the aerospace industry in Baja California

their own.

INSIGHT

SUPPORTING AN INDUSTRY WITHOUT BORDERS TOMÁS SIBAJA Executive President of the Baja Aerospace Cluster

As the oldest aerospace region in Mexico, Baja California

That is how we can best support the development of

could expand not only as a manufacturing base but as a

Mexican companies and increase our wealth as a region.”

technology enabler. The time is now, according to Tomás

According to Sibaja, the Baja California aerospace cluster

Sibaja, Executive President of the Baja Aerospace Cluster.

is the only organization of its kind in Mexico certified by INADEM, the entity in the federal government aimed at

“International companies brought their maquila operations

providing access to funding to support SMEs wanting to

and that is how Baja California started as a global platform,”

participate in the sector.

says Sibaja. “Now, it is time to think about our own capabilities to develop a national and sovereign industry

With 104 companies in the industry located in Baja California

in this sector.” The problem, from Sibaja’s perspective,

and 33,000 direct jobs created in 2016, Sibaja understands

is that even though Mexico has had access to aerospace

the potential the state has and the business opportunity

technology for over 50 years, the country has not grown

that exists due to Baja California’s proximity to California

its own industry. “Korea, Taiwan, Singapore and Hong Kong

as a natural liaison with the largest aerospace market in the

started as maquila suppliers but eventually they learned

world. “We do not only serve commercial aviation but also

from their masters and started developing their own

the defense business segment in the US,” he says. “Very

products.” Now even China, Sibaja continues, is producing

few states in Mexico participate in this segment.” Almost

its own aircraft.

40 percent of what Baja California produces goes directly to the US Department of Defense. The cluster also services

Sibaja suggests that the timing is now to move ahead

the space segment. "Several companies in the state focus

the state’s capabilities as demographics plays to Baja

on the production of micro, nano and femto components

California’s favor. Mature economies in the aerospace

working closely with universities and research centers to

sector are lacking skilled talent in proportion to the

develop our own propulsion systems that will catapult

existing and future demand in the aerospace sector. “This

Mexico’s own position in the space race in specialty space

is a generational game changer. Instead of wanting to

niches," Sibaja explains.

participate in manufacturing activities, younger generations in the United States and Europe prefer the service sector,

Baja California is also active in the development of

which creates a gap in the natural process of talent renewal

unmanned aerial vehicles. Sibaja says the state has

in engineering, math and logical thinking required and

maintained its leadership in the production and use of

demanded in the aerospace sector. There are not enough

these vehicles. “We have also been actively involved in the

young people to engage in manufacturing at the rate that

establishment of regulations for drones, collaborating with

the industry demands in those countries,” he says. “In 20

the Federal Aviation Administration in the US, Transport

years, the number of passengers will double and aircraft

Canada in Canada, and the DGAC in Mexico.”

production is expected to increase accordingly. Without suppliers, it will be impossible for OEMs to deliver on this

MRO activities also present a business opportunity for the

promise.” Mexico must take advantage and reach out as a

state, mainly due to the importance of the Tijuana airport.

natural ally on a number of fronts.

“Baja California has the largest flow of commercial, tourism and pedestrian border crossings in the world and Tijuana

Of several challenges, one is at the core of the Baja California

with the massive investment in its airport and the only

Aerospace Cluster: to invite more suppliers in the region to

one of its kind in the world, including a unique pedestrian

service this industry. The Baja California Aerospace Cluster

crossing uniting two countries, will eventually reach the

has made support for SMEs a priority. “We are constantly

status of a mega aviation city, or ‘aeropolis,’ within the

looking for opportunities based on the industry’s needs.

next 20 years.”

VIEW FROM THE TOP

LARGEST STATE GAINS EVEN MORE CAPABILITIES RENE ESPINOSA President of Chihuahua Aerospace Cluster and Plant Manager of Metal Finishing Company (MFCO)

Q: How has Chihuahua’s aerospace industry evolved and

prototype for the E190-E2 interior that was presented at

what role is the cluster playing in its consolidation?

the Paris Le Bourget Air Show. This project brings together

A: Major OEMs, including Boeing, Airbus, Bombardier and

many players working to consolidate the supply chain for

Embraer, are transferring and developing their supply chain

seats and interiors, including Soisa Aerospace, a local

to the state. This is impacting the region and strengthening

Mexican company that will provide the seats cushion and

sub-tier companies and other local suppliers. We are

the covers.

seeing more integration of the supply chain, not just in the city but in the region. Companies are increasingly

Embraer is now manufacturing parts for its E-Jet E2

incorporating local suppliers from Chihuahua, Queretaro,

family in Chihuahua and has a few projects for 2018 as

Nuevo Leon and other states. Integration is not new but it

the company increases its airplane sales. Bombardier

is growing fast and stronger, with major companies such

continues to expand its aerostructures supply chain and

as Fokker-GKN finding more local suppliers and SMEs.

bringing more work to the state, quickly making Chihuahua its most important supplier for aerostructures in Mexico.

Our goal as a cluster is to integrate local companies

Boeing’s supply chain is also growing with more programs

and to work along with other clusters to increase the

for the 737 and is developing its suppliers for the 787 in

capabilities in the country and business opportunities

which local companies are participating. Zodiac Aerospace

among the regions. Alongside FEMIA, we are performing

recently celebrated its 10th anniversary; it now has nine

a comprehensive analysis of the capabilities of the supply

divisions and is expanding some of its divisions. The

chain to understand the competences the state has and

growth of these companies impacts the entire supply

what companies from other states have to offer.

chain in the state because it supports the development of local suppliers and engineers.

The aerospace sector is facing uncertainty due to foreign geopolitical concerns, which has prompted some

Q: What strategies is the cluster pursuing to support the

companies that were considering moving into the state

development of local SMEs?

and Mexico to pull back. However, I foresee continuous

A: During the first half of 2017, the local government

growth in operations for companies already established

launched and initiative to accelerate potential SMEs that

here due to efforts to consolidate the local supply chain,

can be integrated in the industry. Also, a local group

which have resulted in new technologies and capabilities

of SMEs was formed under the name Cluster Eje (Axis

coming to the state. The state has been very successful in

Cluster). We are working with them and after categorizing

integrating Mexico’s supply chain due to our collaboration

them by the products they manufacture, we have identified

with other clusters.

those that can be integrated into the local aerospace supply chain. With the support of the city and state

Q: What new projects and innitiatives were launched in

governments and OEMs, we have identified what these

the state during 2017?

SMEs need in order to manufacture for the aerospace

A: At the beginning of 2017, EZ Air, the joint venture

sector. The aerospace industry has a seven to 10-year

between Embraer and Zodiac Aerospace, launched the

ROI cycle, which is very hard for an SME to handle. This initiative will help support them through this period. Chihuahua is successfully implementing this program

Chihuahua’s Aerospace Cluster has over 40 members,

and it is also planned to be replicated in Ciudad Juarez

including five OEMs. The state receives over US$1 billion in

and other key cities in the state. We are complementing

local and foreign investment and exports over US$1.5 billion

FEMIA’s work in compiling this database and generating a

annually across all sectors

comprehensive analysis of what every company is doing.

Q: What changes in policy are required to strengthen the local supply chain? A: Many existing economic policies across Mexico are overtly focused on foreign investment, as the country now greatly depends on FDI. While the country does need it, policies must also provide the critical support SMEs need to develop the local supply chain. Previously, cluster members used to joke that the only ones who could get governmental support were those named “Smith,” but this is changing as the government is increasingly supporting Mexican

companies. The government’s role is not just to encourage foreign investment but to also support companies already established in the region to help them grow. The state and city government has shown great support for the state’s manufacturing sector and is planning to develop comprehensive policies that will even outlast the current administration and lead future governments. This policy will provide continuity, which is important for existing companies and for future investment. Q: How can NAFTA be modified to improve manufacturing practices in the region? A: NAFTA should facilitate trade between border cities. For instance, Ciudad Juarez or any other border cities have many manufacturing companies and need services that cannot be found in the city or any other Mexican neighbor state but are available less than 1.5 hours across the border, and vice versa. US companies are aware that they can find a specific process at a better price across the border but they know that sending the part is too expensive and time consuming due to the complex paperwork they have to comply with. The border’s bureaucracy and costs complicates manufacturing across both countries and diminishes the border cities’ competitiveness. If we use NAFTA to support the industry on both sides of the border, we can make the Mexican and US border one of the strongest manufacturing regions in the world. Q: What new capabilities has the state incorporated? A: 2016 was an important year for the state. We established a core competence in the manufacture of aircraft interiors, not just seats and design but every part the passenger comes in contact with once they enter the airplane, from floors to entertainment systems. The state is also increasing its capabilities for the manufacturing of sheet-metal and assembly of aerostructures, high precision machining, and secondary processes such as steel heat treat and chemical processes. The cluster is surveying the capabilities of local SMEs and will incorporate this information into its technological road map. This map was launched in 2014 with the incorporation of the local capabilities back then, currently we are updating it and incorporating the new SMEs entering the aerospace industry.

Airplane over an airport

RESEARCH SPOTLIGHT

CENTA – RESEARCH AND INNOVATION The National Center for Aeronautic Technologies (CENTA), to be inaugurated in November 2017, is a research center aimed at boosting training, research, innovation, technology transference and competitiveness in the aerospace sector. Located on a 4.5ha plot inside Queretaro Aerospace Park, right next to AIQ, Bombardier, Safran, Daher and PCC Aerostructures, CENTA is in a strategic position to support the development of Queretaro’s and Mexico’s aerospace industries by providing high-level services to local companies, training graduate-level aerospace professionals and creating knowledge. CENTA’s first stage required an initial investment of MX$120 million, including the construction and equipping of a 1,500m2 materials laboratory and a 1,200m2 office building. Its first stage will employ around 50 people, including chemical, mechanical, aeronautic, mechatronics, control, materials and systems engineers, physicists and technicians who will be trained in foreign universities at master’s and doctorate levels. According to Felipe Rubio, Leader of the CENTA project and Deputy Director for CIDESI, “CENTA will operate as a consortium comprising eight centers with complimentary capabilities, enabling access to more than 70 collaborating laboratories all over the country.” These research centers include CIDESI, CIDETEQ, CIATEQ, COMIMSA, CIMAV and INAOE. Each of these centers specializes in an area useful to the aerospace industry, such as astrophysics, optics, electronics, material resistance and electrochemistry. In its first stage, CENTA will offer machining, assembling, maintenance and repair processes. As it consolidates, aerostructure services for metallic materials, advanced alloys and composite materials will be offered. At a more advanced stage, it will address engine noise emissions, external and internal aerodynamics and flight sciences. Rubio says CENTA has collaboration agreements with several Mexican universities and is looking for support in its activities with foreign research centers and R&D branches of established and to-be-established aerospace companies. It also recently started a business-incubation program that will connect research with business centers to start generating real applications as soon as possible. Once this fourth and last stage is completed, which is expected around 2026, CENTA will have another four buildings and actively employ 250 people, including 50 researchers.

VIEW FROM THE TOP

GROWING INVESTMENT IN SONORA ENRIQUE RUIZ Director General of COPRESON

Q: How have aerospace operations contributed to Sonora’s

subassemblies for the doors of the Boeing 787. Figeac Aero

growth?

has gone from construction to production in a record time of

A: Sonora experienced strong economic growth of over 5

seven and a half months and is now receiving new contracts

percent during 2016, which was fueled by several factors,

beyond their initial scope of implementation. The presence

including the aerospace industry. Even though this is a

of Latécoère also helped to attract Shimtech Composites, a

relatively new sector, it has propelled our manufacturing

supplier of composite components and assemblies for OEMs

economy in recent years. Sonora’s aerospace strategy is

such as Bombardier and Boeing.

focused on three main segments: engine components, aerostructures and MRO services. Our established aerospace

Q: What advantages can Sonora offer over other

companies continue to expand organically. Some have been

aerospace destinations?

the subject of mergers and acquisitions. As an example, in

A: Asian, Eastern European and North African countries,

September 2016 in Guaymas, Cornerstone Capital Holdings

such as Morocco and Tunisia, are strong candidates for

acquired the blades and vanes division of Walbar Engine

new aerospace projects. These regions have displayed

Components from United Technologies.

advantages in terms of production cost, but production cost is not the only driver leading to site selection. Factors

Hermosillo, as well, is seeing significant growth from aerospace.

such as logistics costs and convenience, human capital and

In November, an announcement was made of a US$200 million

training play favorably for Sonora. We offer advantageous

investment in the manufacturing of aeroengine components.

logistics to support the North American market, a qualified

In our opinion, this will be a paramount investment for the

talent pool capable of adapting to new technologies,

aerospace industry in Mexico, the likes of which have not been

universities, research centers and training centers.

seen in the last decade. This project will increase the need for new suppliers in Sonora and improve the region’s technical

Sonora also has the advantage of a dedicated aerospace

capabilities.

vocational training center. In support of our aerospace companies, the state commits to the training of their

Q: How has foreign direct investment benefited companies

new employees at the Sonora Institute for Aerospace

in the state?

and Advanced Manufacturing (SIAAM). We are proud

A: We now have 65 aerospace companies in Sonora employing

to say that this year we will graduate Latécoère’s 17th

over 11,000 workers. These suppliers produce components

generation of workers on structural assembly and the

and assemblies fitted on Boeing, Bombardier and Airbus

sixth generation of Figeac Aero’s and OTM’s employees

aircraft and on engines from GE, Rolls-Royce, CFM or Pratt

on CNC machining.

&Whitney. Suppliers most often surpass their customers’ expectations in terms of quality and delivery. For instance,

Another important asset in favor of the state is the

in March 2017, Airbus recognized Latécoère’s Hermosillo

integration of the supply chain. For instance, we have

operation for its outstanding performance in the production

worked jointly with Latécoère to allow the company to

of harnesses for the A380, A350 and A330. Overall, OEMs

source all their metallic parts locally for the manufacture

recognize the world-class excellence of Sonora’s aerospace

of doors for the Boeing 787. This effort led to the

companies and consequently are increasingly bringing new

establishment of Figeac Aero. Another example was the

business to our companies.

establishment of Ellison Surface Technologies, a provider of critical coatings in support of our aeroengine segment.

This flourishing business is creating new opportunities for other suppliers in the region. Figeac Aero, for example,

Q: What effect do you expect NAFTA talks to have on

became Latécoère’s partner in component machining and

Sonora’s operations?

GROWTH IN NUMBER OF SONORA’S AEROSPACE COMPANIES AND EMPLOYEES 70

65 11,000

10,000

9,000

45 38

12,000

7,500 6,000

5,000 20

3,000

10 0

41 2009

——Companies

2013

2015

2016

——Employees

Sources: : COPRESON and Sonora Ministry of Economy

A: All three countries are opening a discussion that

Q: What strategies has Sonora implemented regarding SME

has long been overdue, according to some government

inclusion?

officials in the US. It is clear that negotiations have created

A: As we identify opportunities for more foreign Tier 1

uncertainty among companies. The proposed changes

companies to establish in the region, we anticipate an ever-

regarding potential border tax and tariffs have caused

increasing demand for the participation of local SMEs in the

companies to deeply analyze their current operations

industry. We are developing plans to help local SMEs grow and

and future projects. Companies with operations in the

become strong suppliers. We are focusing on companies that

state came to the conclusion that their production in

offer casting, as well as special processing and nondestructive

Sonora remains superior in quality and time-efficiency

testing services. Developing SMEs in aerospace is a rigid and

to the results coming from other international facilities.

costly process but we expect favorable results in the medium

Despite the NAFTA talks, since the beginning of the year

term. We have seen local machining shops supported by the

we have seen an appetite for growth. Rather than seeing

state that are now supplying large corporations in Nogales

projects stalling, we see business growing.

and small tooling developers that are now working with Figeac Aero.

Companies also recognize Sonora for its increasing competitiveness in terms of location. In recent years, the

Q: What are your growth expectations for the state and what

state and federal governments have invested significantly to

are your priorities for 2018?

improve the state’s logistics infrastructure, investing in new

A: First, we hope to consolidate key aerospace investment

roads, gas pipelines and other services.

projects we have in the pipeline. We also need to begin operations of our new aerospace R&D center being built at the

Q: What best practices can you incorporate from international

Hermosillo Institute of Technology (ITH). The R&D laboratories

aerospace hubs?

are scheduled to start their first phase of operations in

A: We are in a constant learning process and our attendance

November 2017. Regarding our aerospace vocational training

at international events encourages us to determine how in

center SIAAM, we have a new training program starting and

line we are with the capabilities of other clusters in France,

a growing demand for the established courses.

the UK, the US or Canada. Our foremost opportunities lie in developing human capital and SMEs in the industry. Those

In 2018, we plan to promote Sonora differently. Three years

countries are references in these areas and we must align our

ago, aerospace in the state was faceless, composed largely

infrastructure to them.

of smaller Tier 2 companies all operating independently. Today, we have six world-class companies operating in

The state has set the goal of attracting strategic companies.

Sonora with a more integrated supply chain. We have also

However, we do not want to attract companies solely to justify

increased our visibility with OEMs by aligning our strategies

“instant” growth, but rather are interested in developing an

to their requirements.

integrated supply chain that complies with OEM standards and needs, as this will result in substantially more benefits over the long run. By supporting Latécoère and Figeac Aero

COPRESON represents the aerospace industry in Sonora,

in their work on the doors for the Boeing 787, we make them

which lays claim to having the second-largest number of

more valuable suppliers to OEM, reinforcing Boeing’s appetite

aerospace companies,, though there is no official cluster. in

to source more from the state.

the region

VIEW FROM THE TOP

AFFORDABLE TRAINING, CERTIFICATION HELP AMONG CLUSTER’S OFFERINGS 42

Claire Barnouin Executive Director of Monterrey Aerocluster

Carlos Ramírez President of Monterrey Aerocluster

Q: What is the most important contribution that Monterrey

this sector. In 2017, Parker-Stratoflex, Parker-Chomerics,

Aerocluster makes to the aerospace industry in Mexico

ABT Manufacturing, PS Advanced and Proquímica entered

and Nuevo Leon?

Monterrey Aerocluster. These companies either are ready to

CR: The aerospace sector in Nuevo Leon is still in an early

enter the aerospace sector or are interested in it.

stage and the infrastructure for this industry remains underdeveloped. But the region has a strong metal-

CB: The AS 9100 certification is the ISO of the aerospace

mechanic segment and these companies can adapt to

sector. This quality-management certification is part of the

supply the needs of the aeronautics sector. Monterrey

boarding pass to this industry. Aerospace businesses will

Aerocluster helps its members with this process by

not pay any attention to manufacturing companies that

providing training courses and helping with the preparation

lack this certification. Once a company is certified, it is

to acquire the certifications needed to enter the industry,

integrated into a global database called OASIS. Being part

since aeronautic companies require suppliers to sustain

of this database is a way to put companies on the global

their growth programs. Monterrey Aerocluster has started

aerospace map, so it helps companies enter the supply

integrating advanced manufacturing companies among its

chain. Monterrey Aerocluster also helps its members access

members. Once this process is complete, we expect to have

the Nadcap certification of special processes, such as

25 new members capable of supplying the needs of OEMs

materials testing, anodized coating, heat treatments and

and Tier 1 and 2 suppliers interested in entering the cluster.

similar secondary manufacturing processes required to elaborate final products.

Between three and five years are necessary for an aeronautics project to be profitable

Q: How does Monterrey Aerocluster boost the development of the aerospace industry in Mexico? CR: We focus on two main sectors: manufacturing and MRO. Monterrey Aerocluster has an ongoing training and FAA certification project for local MROs to provide maintenance to aircraft with foreign registration. These certifications could spur significant growth as they attract

Q: How does Monterrey Aerocluster support its members?

private aviation companies and aircraft that usually go to

CR: First, Monterrey Aerocluster trains its members in

Texas for these services.

the AS 9100 quality management system and provides them with affordable courses that prepare both internal

CB: On the other hand, Monterrey Aerocluster connects

and lead auditors in this certification. Second, we often

manufacturing companies through industrial tours.

take part in national and international aerospace events

Aérocluster Queretaro and Chihuahua Aerospace Cluster

as part of our promotional and networking efforts. Third,

have organized industrial tours for our members. We

we approach local universities to support the generation

have done the same for companies from other regions

of human resources who possess the skills the industry

to raise awareness about what is being done in Nuevo

demands. Fourth, Monterrey Aerocluster collaborates

Leon. Monterrey Aerocluster helps Tier 2 and 3 companies

with other clusters in and outside of Mexico and takes

enter FEMIA’s National Suppliers Development Program

part in FEMIA’s National Suppliers Development Program

and provides uncertified companies — including advanced

to stimulate interest in the state’s aerospace industry. We

manufacturing SMEs — certification and training programs.

expect to turn Nuevo Leon into a breeding ground for

For instance, the cluster organized the Aerospace Industrial

potential industry suppliers through this program as a

Meeting in June 2017. Ninety people took part in this event,

growing number of companies consider participating in

including several nonmember companies that possess the

43 Airport ground staff / Heathrow / Airbus

abilities demanded by the sector and are interested in

connecting cluster members and cooperating in suppliers’

entering it but which require the certification.

programs. Monterrey Aerocluster works with similar clusters in Mexico through business meetings as a way of

Q: What advantages does Nuevo Leon possess that would

strengthening the abilities of each region while dealing

appeal to possible investors?

with their constraints.

C R : M o n te r rey Ae ro c l u ste r wo r k s c l o s e l y a n d communicates continuously with the government and

Q: What does the public sector need to do to boost the

academic institutions. The state government plays a key

growth of the aerospace sector in Nuevo Leon?

role in attracting investment to the aeronautics sector.

CR: It takes between three and five years for an aeronautics

Aerospace is a tough industry to enter, so we focus our

project to be profitable. We need state and federal support

efforts on developing a supplier base for the sector. It

to mitigate the costs of adapting processes of metal-

would be great to have a large aerospace company in the

mechanic SMEs into the aeronautics sector. These include

region but it is less likely to happen if we do not work first

the costs of the necessary training, certifications, the

on creating a network of potential suppliers. Nuevo Leon

development of new products and perhaps the acquisition

has a deep-rooted industrial culture in the region and is a

of technologies. If an SME lacks certifications, such as

breeding ground for skilled engineers eager to grow with

the AS9100, it will find it difficult to enter this market.

the industry. Universities are doing a great job training

If there is no mechanism to help these companies meet

human talent.

these initial costs, it will be difficult for them to afford the investment required for this sector.

CB: We do not currently have a project to attract a specific OEM to Nuevo Leon. But Monterrey Aerocluster works with

Q: How is Monterrey Aerocluster collaborating with

OEMs established in other regions and regional clusters.

academic institutions?

Our efforts are more focused on the development of

CB: Representatives from academic institutions take part

local suppliers than on the attraction of foreign direct

in our work committees, assemblies and board meetings.

investment. No company will be interested in the region

We go to promotional events together. UANL leads our

that lacks a strong supplier base. Monterrey Aerocluster’s

human development committee. This committee’s objective

current members are split between the manufacturing,

is to develop a training plan that addresses the needs of

services and MRO sectors. Of our 25 members, 12 are in

companies in the sector. Monterrey Aerocluster also works

manufacturing, eight in services and five in MRO.

closely with CONALEP and UANL’s Álvaro Obregón Technical College to strengthen the study plans for technicians who

Q: How is the cluster cooperating on projects with other

will enter the aerospace market. Technicians specialized

aerospace players?

in machines and appliances are in high demand in the

CR: We are interested in collaborating with FEMIA’s

aerospace industry and Monterrey Aerocluster acts as a

National Suppliers Development Program because it

bridge between the school and the industry.

can help us and our members generate synergies in the short and medium terms. FEMIA has mapped the sector’s demands through this program and it looks for potential

Monterrey Aerocluster is a nonprofit organization that

suppliers and links them to these demands. Aeronautical

promotes the development of the aerospace sector in Nuevo

clusters want to leverage the growth of the aerospace

Leon. It works to incorporate local suppliers into the national

industry in Mexico by supporting each region’s abilities,

and international aerospace value chains

FIA engine turbine show

ORIGINAL EQUIPMENT MANUFACTURERS

Aircraft deliveries and orders rose steadily through the years leading up to 2015. The landscape began changing in 2016, however. While deliveries rose, orders stalled and they remained low during the first nine months of 2017. Still, major aerospace OEMs have backlogs in the thousands, which will keep them busy for many years to come. Furthermore, the rise in tourism, increasing global connectivity and lower oil prices are expected to keep aviation strong and in need of more aircraft. More players are also entering the industry looking for a share of the commercial aircraft pie, some of them already very strong in other areas.

The growth, challenges and opportunities that aerospace OEMs have faced in the past year will be analyzed in this chapter, focusing mainly on new aircraft and new technologies. The chapter will prioritize OEMs operating in Mexico and the conditions they face in the country, their main achievements during the past year and their expansion plans.

CHAPTER 2: ORIGINAL EQUIPMENT MANUFACTURERS 48

ANALYSIS: Clear Skies Ahead for Top Manufacturers

INFOGRAPHIC: Original Equipment Manufacturers

VIEW FROM THE TOP: Donna Hrinak, Boeing and Boeing Latin America

VIEW FROM THE TOP: Rafael Alonso, Airbus Latin America and the Caribbean

VIEW FROM THE TOP: Carlos Robles, Bombardier Aerospace Mexico

AIRCRAFT SPOTLIGHT: Bombardier C Series

VIEW FROM THE TOP: Francisco Navarro, Airbus Helicopters

VIEW FROM THE TOP: Luis Azúa, Bell Helicopter

AIRCRAFT SPOTLIGHT: SL-230 "SCOUT"

INSIGHT: Ryan Ramos, HondaJet

INSIGHT: Raúl Fernández, Oaxaca Aerospace

ANALYSIS

CLEAR SKIES AHEAD FOR TOP MANUFACTURERS A rise in tourism, increased global connectivity and lower oil prices have been great motivators for airline growth. While aircraft orders have been gradually decreasing, the sector remains on a strong footing for now, thanks to a solid backlog and significant growth expectations in the aviation sector

The world’s top airlines are facing a lag in orders. In the

face a challenging year due to the poor sales performance

first nine months of the year, Airbus sold 319 aircraft, while

of the colossal A380 and smaller overall orders. Airbus’ 731

Boeing received orders for 565 aircraft. This continues a

orders for 2016, represent a 29.4 percent reduction from

trend that saw orders fell by 38 percent in 2015 only to drop

2015’s 1,036 orders and by September 2017 the company

again in 2016 to a total of 1,579, a 24 percent decline. But

had received only 319 new orders and delivered 454 units.

an impressive backlog is keeping manufacturers busy and

Airbus says it expects to close the year with 700 units sold.

expectations going forward are positive, which could help bolster Mexico’s burgeoning aerospace industry.

Nonetheless, the OEM sees a good market in Mexico. “Mexico is our second-most important market in Latin America

Airbus and Boeing are working through a backlog of 6,691

after Brazil and we have had a leading presence here for

and 5,659 units, respectively. Furthermore, aircraft demand

almost 30 years. This can be seen in the approximately 120

is expected to keep up. Overall, during 2016 the aerospace

aircraft managed by our four clients in Mexico, which are

sector grew 3 percent in revenue and 7 percent in profits,

AeroUnion, Interjet, Volaris and Viva Aerobus,” says Rafael

according to PwC. In its annual report, Boeing states that

Alonso, President of Airbus Latin America and Caribbean.

41,030 new aircraft will be introduced to the market by

By the end of 2016, Airbus aircraft represented 40.3 percent

2036, with a market value of US$6.1 trillion.

of Mexico’s commercial fleet.

With its blooming aerospace industry, Mexico is in an

DISTRIBUTION OF THE REGIONAL SUSTAINABLE DEVELOPMENT 2 MEXICAN FLEETFUND DISTRIBUTED BY AIRCRAFT

excellent position to enter the aerospace global value chain. “For the next five years, a global supply shortage of US$50 billion is expected,” says Eugenio Marín, CEO of TechBA Madrid-Montreal & TechBA Aerospace. “Mexico is in good

40.3% Airbus 24.4% Boeing 22.2% Embraer 6.1% Sukhoi 5.6% Atr 0.8% Cessna 0.6% Bombardier

position to absorb 10 to 15 percent of that shortage in the next 10 years.” The country has already gained recognition for its impressive growth in the aerospace industry, ranked the 14th-largest aerospace manufacturer in the world. “In 2016, exports reached US$7.18 billion, which helped us climb from 10th place to become the sixth-biggest exporter of aerospace parts to the US, the largest aerospace market in the world. This was achieved in 10 years and our goal is to enter the top three by 2020,” says Carlos Robles, President of FEMIA and General Manager of Bombardier Queretaro.

AIRBUS BREAKING RECORDS For the 14th year in a row Airbus broke its own deliveries record in 2016, reporting 688 deliveries to 82 clients. Of its deliveries, 545 were from the single-aisle A320 family.

Source: DGAC 11% Mazapil

2% Sahuaripa

9% Cananea

2% Morelos

7% Nacozari de Garcia

2% Eduardo Neri

BOEING ON TOP

5% Fresnillo 2% Aquila Boeing is the largest aerospace company in the world, 4% Ocampo 2% Alamos according to PwC. It reported US$94.6 billion in revenue 4% Caborca 1% Chinipas during 2016. While an impressive figure by any means, it 2% Sierra Mojada 47% other stills represents a 2 percent decrease over 2015. More than Source: CGM, Ministry of Economy 1 With figures to March of 2015

two-thirds of its revenue, US$65.1 billion, was generated by

Furthermore, the company reported a 3 percent increase in

the OEM’s commercial division, which toped commercial

revenue from €64.5 billion (US$75.7 billion) to €66.6 billion

deliveries with 748 aircraft. In 2016, Boeing’s aircraft deliveries

(US$78.1 billion). The year also brought another milestone

fell 1.9 percent from 762 commercial aircraft, while orders also

as Airbus delivered its 10,000th aircraft, an A350 XWB.

declined, from 768 in 2015 to 668 the following year.

The OEM began 2017 by hiking its average list prices by 1

During the fourth quarter of 2016, Boeing delivered its 500th

percent to adapt to changes in materials costs, stating price

787 Dreamliner to Avianca. The OEM forecasts smaller revenue

increases reflect the value of the aircraft. The OEM may

for 2017, ranging between US$90.5 billion and US$92.5 billion.

It also expects to deliver between 760 and 765 commercial

EMBRAER FOCUSES REGIONALLY

aircraft. During the first nine months of 2017, the company

Embraer, which began as a state company for the military

received orders for 565 aircraft and delivered 554 units.

sector, is now among the largest commercial aircraft OEMs in the world. It participates in the construction of

Boeing expects Mexico and the Latin American region to play

commercial airplanes, executive jets and defense aircraft

a strong role in its future. “We anticipate that Latin America

with three commercial aircraft: the ERJS, E-JETS and

will need 2,960 new aircraft by 2035. Mexico is the second-

E-JETS E2. These are used mostly for shorter, regional

largest market in the region, so we expect many of these

flights by United Express, Delta Connection, US Airways

aircraft to come to the country. Of those, 70 percent will be

Express, Virgin Australia and Lufthansa CityLine. In

part of fleet expansions, not replacing existing airplanes.

Mexico, the OEM counts Aerolitoral, TAR and Aeroméxico

Airlines will continue expanding their fleets to potentially

Connect as clients.

double in size by 2035,” says Donna Hrinak, Vice President of Boeing and President of Boeing Latin America. Boeing aircraft

The E-JETS E2 completed its maiden flight in May 2016

represented 24.4 percent of Mexico’s fleet at the end of 2016.

and is now undergoing a certification process with the goal of entering commercial service during 2018

UPS, DOWNS AT BOMBARDIER

alongside the Norwegian Wideroe. Embraer finished

Extremely strong in its executive jet division with the

2016 with 108 commercial deliveries and has a backlog

Challenger, Global and LearJet, Bombardier appears

totaling US$19.6 billion. The company is a global leader

to have started on the wrong foot with its venture into

of commercial aircraft with up to 130 seats.

commercial aircraft. In 2004, the OEM launched a project for its first commercial airplane, dropped it two years later

WAITING IN THE WINGS

and relaunched it in 2008. The project ran behind schedule

Another contestant for the regional jet market took its

and incurred cost overruns calculated at US$2 billion.

maiden flight in 2015. The Mitsubishi Regional Jet (MRJ),

This caused the OEM to close 2015 with a loss of US$5.3

manufactured by Mitsubishi Aircraft Corporation, a joint

billion and a US$10 billion reduction in orders, leading the

venture between Mitsubishi Heavy Industries and Toyota

Canadian province of Quebec, the company’s home base,

Motor Corporation, has successfully flown three trial runs

to provide a US$1 billion safety net.

from Japan to the US and was expected to enter the market in 2018. However, a series of delays have pushed

The OEM subsequently launched the C Series, a family

its launch date to 2020.

of narrow-body jets with a capacity for 110 to 135 passengers, which is its first completely new aircraft

China is also looking for a share of the commercial

program in over 30 years. Orders have been sluggish for

aircraft pie. The Commercial Aircraft Corporation of

the C Series, comprised of the CS100 and CS300, with 123

China (Comac) is launching a passenger jet to reduce the

orders for the first and 237 for the second. Bombardier’s

country’s dependence on both Airbus and Boeing. The

aerospace division reported an 11 percent loss during 2016

company produces the Comac ARJ21 Xiangfeng, which

in comparison to the previous year, while the company

can seat up to 95 passengers. It made its first commercial

slashed its overall operating loss to US298 million in 2016,

flight in June 2016 and was approved for mass production

a 94 percent improvement over 2015’s US5.18 billion loss.

in June 2017.

However, the sky is not yet clear for the OEM. In October 2017, after a complaint from Boeing, the US government

AIRCRAFT BACKLOG (US$ billions)

imposed a 300 percent trade duty on the C Series. As the company continues its revival, Latin America is among the regions that could be a good bet. “In the

12/31/16

12/31/15

12/31/14

12/31/13

Boeing

473

432

440

374

Airbus

1,060

1,001

919

809

business division, we have a strong growth forecast for Bombardier globally as we estimate that the global

AIRCRAFT BACKLOG (units)

market will need 8,300 new business jets within the next

Boeing

Airbus

Total

Backlog on Dec. 31, 2015

5,795

6,831

12,626

by 2034. In Latin America, we forecast a need for 790

Net orders

668

731

1,399

business jets and 1,150 commercial aircraft during the

Deliveries

748

688

1,436

next 10 years,” says Robles. Bombardier aircraft represent

Backlog on Dec. 31, 2016

5,715

6,874

12,589

10 years. The outlook is also positive for our commercial division as we expect a need for 12,700 new aircraft

0.6 percent of Mexico’s commercial fleet, indicating significant room for growth.

Source: Boeing

INFOGRAPHIC

ORIGINAL EQUIPMENT MANUFACTURERS While the aerospace sector has been growing at a slower

high with Boeing and Airbus reporting 5,659 and 6,691

pace than in previous years in terms of aircraft orders, it is

units, respectively. Expectations for the sector continue to

still in a very strong position. In 2015, the sector grew at a

be strong, led by a growing number of passengers in an

3.8 percent rate, slowing in 2016 to 3.0 percent. Forecasts

increasingly interconnected world, Boeing forecasts that

for 2017 suggest growth will come in at 2.0 percent.

the world will need a total of 41,030 new aircraft by 2036,

However, the backlog for major OEMs is at an all-time

with a market value of US$6.1 trillion.

GLOBAL INDUSTRY LEADERS

With seven companies in the Top 10, the US is the global leader

The Top 100 aerospace companies are based in 23 countries DISTRIBUTION OF THE REGIONAL SUSTAINABLE DEVELOPMENT FUND 2

Country

Companies in Top 100

France

NEW AIRCRAFT

Japan

Canada

DELIVERIES FORECAST

Germany

Israel

India

Netherlands

Italy

Brazil

Singapore

China

Sweden

South Korea

Luxembourg

Switzerland

Hong Kong

Turkey

Australia

Norway

Spain

Austria

39% Asia Pacific 20% Europe 17% North America 8% Latin America 7% Middle East 4% Commonwealth of

(2015-2034)

Independent States (CIS)

3% Africa 2% Cargo planes 11% MazapilPERFORMANCE 2% Sahuaripa FINANCIAL OF TOP 20 GLOBAL AEROSPACE AND 9% Cananea DEFENSE COMPANIES 7% Nacozari de Garcia

2% Morelos 2% Eduardo Neri

Nine months Nine months 20 5%Top Fresnillo 2% Aquila ending ending global A&D September 2%September 4% Ocampo Alamos companies 2016 2015

4% Caborca

Revenues $347.4 (US$ billion)Mojada 2% Sierra

1% Chinipas $342.0

47% other

Percentage change

9.8%

9.7%

0.2%

The sector saw US$17.1 billion in deals, up 180 percent from

1.6%

Operating Source: CGM, Ministry of Economy 1 With figures to March of 2015 earnings $33.9 $33.3 1.7% (US$ billion) Operating margin

•

Q316 •

Rise in military expenditures will impact growth

FINAL ASSEMBLY VS AUTO PARTS PRODUCTION (THOUSANDS)

AIRCRAFT PRODUCTION 2009 TO 2035 979 972 1,011 1,189 1,274 1,352 1,397 1,360 1,456 • 1,452 1,474 • 1,511 1,550 1,590 1,630 • 1,672 1,714 1,758 1,803 1,849 1,896 1,945 1,994 2,045 2,098 2,151 2,206

2009 2010 2011 2012 2013 2014 2015 2016 E 2017 E 2018 E 2019 E 2020 E 2021 E 2022 E 2023 E 2024 E 2025 E 2026 E 2027 E 2028 E 2029 E 2030 E 2031 E 2032 E 2033 E 2034 E 2035 E

500

1000

1500

2000

Long-term demand nears

2,000 aircraft per year

1,400 per year Industry could support an additional 40 percent growth in OEM production Backlog at risk from lower oil prices (closer to 20

In 20 years, commercial aircraft are expected to reach 39,000 deliveries, or almost US$6 trillion

demand)

Auto parts

terminal production

2500

Mexico has no companies in the Top 100, but its industry is expanding Top 10 Mexico States

4 10 5

Five clusters concentrate most of

the companies and investments. •

Oaxaca Aerospace is developing a 100 percent Mexican aircraft.

•

51 % OF PARTICIPATION ON AUTOMOTIVE INDUSTRY IN 2015

percent of forecasted

•

60% Deliveries 40% Replacements

Current production rate is

E*: Estimated

MEXICO UNDER THE SCOPE

MARKET GROWTH

Bombardier’s arrival in 2007

Baja California

Sonora

Queretaro

Chihuahua

Nuevo Leon

Tamaulipas

State of Mexico

Jalisco

Mexico City

Coahuila

boosted Queretaro’s aerospace

Companies

cluster. The Canadian ﬁrm’s Mexican GLOBAL LIGHT VEHICLE2010) PRODUCTION facility (inaugurated is

responsible for the fabrication of Learjet 85’s major composite structures. AVERAGE AGE OF FLEET IN MEXICO 400 350 300 250 200 150 100 50 0

20 15 10

2005

2006

Number of Aircraft

2007

2008

2009

2010

2011

2012

2013

——Average age

Sources: CANAERO. DGAC. PWC. ATAG, Aviation Beyond Borders, 2016

Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Center

2014

2015

2016

2017*

VIEW FROM THE TOP

MEXICO A MAJOR CONTRIBUTOR TO ‘QUETZALCÓATL’ DEVELOPMENT DONNA HRINAK Vice President of Boeing and President of Boeing Latin America 52

Q: How do you see the aerospace sector developing in

influences all airlines. We can collaborate with Mexico on

Mexico and Latin America?

the development of alternative fuels and biofuels, which is

A: The country has tremendous potential for Boeing’s

one of the reasons Aeroméxico is working with us.

three sectors: commercial aviation, supply chain, and lastly, defense, space and security. Our participation in the supply

Q: How do you expect Boeing’s US$1 billion yearly investment

chain is of great importance to us. It represents about US$1

in the supply chain to grow in the next few years?

billion annually both in terms of direct purchases and those

A: This depends mostly on our suppliers’ ability to expand

of our direct suppliers. Mexico is our largest supply base

in the country and to develop the workforce to continue

in Latin America. The 787-9 “Quetzalcoatl” for example

meriting support from federal and state governments. Our

is visibly a Mexican plane due to its patterned paintwork,

suppliers mostly manufacture components but we expect

but its interior is also Mexican. Its wire harnesses, landing

to move Mexico up the value chain by requesting more

gear and doors are made in Mexico. The 787-9 is our most

design and engineering-based jobs here.

modern and high-tech aircraft and Mexico is contributing in major ways to its development.

Q: What are the main reasons behind the increased demand in single-aisle aircraft in Mexico?

We anticipate that Latin America will need 2,960 new

A: The country has 46 free trade agreements reflecting

aircraft by 2035. Mexico is the second-largest market in

Mexicans’ interest in traveling. This offers the possibility

the region, so we expect many of these aircraft to come

of opening new routes from Mexico. A similar trend is

to the country. Of those, 70 percent will be part of fleet

emerging throughout Latin America. Aeroméxico opened

expansions, not replacing existing airplanes. Airlines will

a route from Tijuana to Shanghai that is encouraging

continue expanding their fleets to potentially double in

many US citizens to cross the border into Mexico to

size by 2035.

fly from Tijuana. This direct flight is possible thanks to Aeroméxico’s 787. This Mexican airline is one of a handful

We expect single-aisle aircraft will be most in demand in

of all-Boeing fleets in the region, including Copa Airlines

Latin America, such as the 737 MAX, the fastest-selling

and Gol Airlines.

aircraft in Boeing’s aviation history. Aeroméxico has already ordered 60 and will begin receiving them in the

Q: How will the 787-10 change the aviation market?

first quarter of 2018. This type of aircraft will continue

A: The 787 has opened 160 new routes to date. It has the

to grow in Latin America and we expect a total of 2,530

size and range to be suitable to open many new routes

will be needed by 2035. Small wide bodies will also be

and the 787-10 extends that range to allow the generation

acquired for certain flight routes, such as the 787, also

of more direct routes. While there are larger aircraft in the

flown by Aeroméxico. It is true that orders for wide bodies

market, there may not be enough travelers to fill them.

have dropped but the market for the single aisle has

Instead of having one aircraft with 500 passengers making

remained strong.

a single flight, it might be more convenient for passengers and airlines to fly two 250-seat aircraft twice a day. This

We have to listen closely to know what airlines want

aircraft has the capacity and the same range as larger

and what their passengers will pay for. There are many

aircraft, offering significant flexibility to open new routes.

innovative technologies that could be used today, such as supersonic flight, but not at a price that everyone can

Another characteristic of the 787 might be best understood

afford. For the market to remain strong as the middle-

by quoting one of our executives: “Airplanes are cool but

class grows and more people fly, we have to make sure

flying sucks.” This refers to the fact that passengers can

innovations match market demand. The price of fuel also

find the experience uncomfortable. As an OEM, one way

we can improve the passenger experience is varying the

demands of the market, something graduates can learn

temperature ranges in an aircraft. The 787 incorporates our

through relationship management before rising in the

Sky Interior, which creates a more welcoming environment.

ranks to manage supplier companies. The companies that

The lighting can be changed depending on the time zone

successfully incorporate this ability stand out in the sector.

while larger windows let in more natural light. The aircraft is also much quieter and its humidity level is higher. This

To better understand how to work with suppliers in

is because it is made of composites instead of aluminum

Mexico, I reached out to an executive in France. We

and is pressurized at lower altitudes.

consider that country to be the model on how to interact with suppliers. He said, “here in France our suppliers are

Q: What other initiatives is Boeing developing to improve

French companies. In Mexico, our suppliers are French

passenger experience?

companies,” meaning that Mexican companies are not yet

A: The best way to improve this area is by talking to

big players and they will not be able to start at the level

passengers. We have two locations with an aircraft cabin

of Safran and Latécoère. But they can start as Tier 2 or

that can simulate the conditions of a real flight, one is

3 companies and supply to Tier 1s. That is what Mexican

in Germany and the other at Brazil’s

companies should focus on. Mexican

University of Sao Paulo. In Brazil, we

companies are very resourceful and are

recently asked for volunteers to test the conditions of a “flight” to measure preferences. For passengers with physical limitations, we have developed ways to make their experience smoother and easier, such as luggage storage that can be pulled down to an accessible height.

US$1 billion

Amount Boeing’s supply chain division buys annually from Mexico

quick to bring new ideas to the table so the country is in a good position to enter the Top 10 in the aircraft industry, building on its competitive supply chain with innovation. Q: What initiatives is Boeing developing to make aircraft environmentally

It is amazing how passengers around

friendly in the long term?

the world state the same needs. The main differences

A: Boeing has a project called ecoDemonstrator, in which

between passengers can be classified by age. Millennials,

we take one of our aircraft and fill it with environmental

for instance, want internet access so they can message

experiments. We have run this experiment three times

fellow passengers. They are willing to pay for that but

in the US using Boeing’s aircraft and in 2016 we ran

are unwilling to pay for what they do not use, including

it for the first time in Brazil, using an Embraer E-170.

food or drinks. This is one of the reasons low-cost carriers

This was a joint project aimed at addressing the

are growing so much in Mexico and other countries in

industry’s ambitious goals to reduce gas emissions.

Latin America. While these carriers charge for everything,

Some experiments included changing the paint of the

passengers who do not use most of these services and are

aircraft to one that prevents ice accumulating on the

willing to pay when they do need something.

surface and insects from sticking to the airplane. This reduces drag and fuel consumption. Other tested areas

Q: What are Boeing’s recommendations to keep the

included controlled noise pollution, air safety and flying

Mexican industry growing?

and landing techniques to reduce fuel consumption. The

A: So far, we have seen an excellent partnership

industry’s goal to reduce fuel consumption can be met

between the Mexican government and the industry via

partly by improving pilot training and partly by improving

organizations such as ProMéxico and FEMIA. The third

engines. The next ecoDemonstrator, to fly in 2018, is still

vertex of that triangle, academia, is just starting to come

under development and might happen through another

on board. We need to ensure the labor force is adequate,

partnership with Embraer.

in quantity of people and skillset, to be able to build the aircraft and satellites of the future. Mexico produces a

On the commercial side, our top priority is getting the 737

vast number of engineers but what the sector needs now

MAX to our local customers, including Aeroméxico, Copa

is technicians.

Airlines and Gol Airlines. The second will be to continue improving the added value of the supply chain.

Technical schools have to train their students not just on how the factory works but on relationship management because an instrumental part of the supply chain relies

Boeing is a multinational company and one of the largest

on good working relationships between Tier 1s and OEMs.

aircraft manufacturers worldwide. The OEM manufactures the

We want partners that are willing to develop long-term

fastest-selling commercial aircraft in the world, the 737 MAX,

partnerships and understand the changing needs and

and reported revenue of US$94.57 billion in 2016

VIEW FROM THE TOP

OEM DOMINATES MEXICAN MARKET, TARGETS THE WORLD RAFAEL ALONSO President of Airbus Latin America and the Caribbean 54

Q: How is Airbus shaping aviation in Latin America?

140 to 240 seats), it allows the airline to choose the most

A: Airbus has been present in Latin America for 30 years

suitable option to complement its business model.

and has played a vital role in building the region’s dynamic aviation market. Airbus is proud to promote and support

Also, Interjet, Viva Aerobus and Volaris have all opted for the

local aviation professionals at its training and manufacturing

A320neo, the newest member of the A320 family, allowing

centers throughout Latin America. Airbus has made a long-

them to operate efficient, latest-generation aircraft while

term commitment to Mexico by employing highly trained

improving their environmental footprint. New-generation

local professionals via its Mexico Training Center and its

engines, Sharklet wing-tip devices and the numerous cabin

suppliers’ manufacturing facilities, leveraging the high-

innovations of the A320neo result in a 15 percent fuel-cost

quality local talent and ample selections of manufacturers

savings per seat compared to previous-generation aircraft.

that Mexico has to offer. Q: How is the demand for Airbus aircraft evolving in Latin Since 1990, Airbus has achieved more than 60 percent of

America and Mexico and how is Airbus adapting to these

net orders in the region and just in the last 10 years, we

market changes?

have tripled the size of our in-service fleet in Latin America

A: Latin America is one of the most exciting regions for

and the Caribbean. To date, we have sold more than 1,000

aviation. According to Airbus’ latest Global Market Forecast

aircraft in the region and have a backlog of more than 450

(GMF), over the next 20 years, Latin America will need over

orders. In Latin America and the Caribbean today, there are

2,500 new passenger and cargo aircraft to fulfill increasing

over 20 operators who fly our aircraft.

passenger demand. We estimate passenger traffic will grow at an annual rate of 4.5 percent (a rate on par with the

Q: Over 60 percent of all commercial aircraft flying in

global average) and the region’s middle class to reach 500

Mexico are Airbus. What made your aircraft so attractive

million people by 2035, more than twice as many as there

to the country?

were in 2006.

A: Mexico, Airbus’ top market in the region after Brazil, is a flourishing market with significant potential, a stable

In Mexico, aviation traffic has grown nearly 60 percent

government, long-term investment plans and a booming

since 2000, and in the next 20 years more than 600 aircraft

market for commercial air travel. The growth of Low-

will be needed to serve the Mexican market. One of the

Cost Carriers (LCC) in Mexico has been remarkable

main drivers of this growth is tourism, which is forecast

in the past 10 years, and has catalyzed the growth of

to contribute 5 percent of the country’s annual GDP

commercial aviation in the country. Interjet, Viva Aerobus

growth and account for 2.6 percent of added employment

and Volaris have revolutionized regional air transport and

between now and 2024. This economic growth presents a

has made air travel more accessible than ever. As these

key opportunity for Mexico’s carriers to expand their fleets

airlines grew, we have been able to adapt to their growth

and routes, especially in the international air traffic market.

models and fleet planning strategies at a critical time as

There is also a growing demand for training services for

they were absorbing much of the demand covered by

over 85,000 technicians and pilots in Latin America in the

Mexicana when it left the market.

next 20 years. In response, Airbus has opened training and maintenance centers in Mexico City, Campinas, Brazil, and

Globally, the demand for single-aisle aircraft is growing and

Buenos Aires, Argentina. This also allows us to directly

the A320 family has prevailed as Latin America’s aircraft

support our customers’ growth and productivity.

of choice. The A320 family has been successful for our customers in Mexico particularly because of its versatility.

Q: Which regions in Latin America do you expect to grow

Because it is available in three different sizes (ranging from

the most in aviation and in aircraft demand?

A: Airbus has almost 650 aircraft in operation and nearly

the region’s top 20 cities are connected by one daily flight,

500 aircraft yet to deliver, most of which will go to airlines

leaving the rest of the region’s cities with less-than-weekly

based in Brazil, Chile, Colombia and Mexico, home to

connections or none at all.

some of the largest Airbus customers in the world such as Avianca and LATAM. Mexico’s economic and traffic growth

Q: What are your expectations for the growth of the Mexican

has led airlines to acquire larger, newer and more efficient

aviation industry?

aircraft, and the average fleet age has been reduced by

A: The future of the aviation industry in Mexico is promising.

five years in the last decade. Many of these fleets belong

Mexico is a very important market for Airbus at both a regional

to LCCs launched in the last 10 years, accounting for almost

and global level, which can be seen in the number of milestones

60 percent of domestic traffic in Mexico in 2014. In 2016,

we have achieved in the country in recent years. We recently

94 percent of LCC traffic came from Mexican or Brazilian

opened the Airbus Mexico Training Center in Mexico City (the

LCCs, but the LCC model is emerging in other key markets

first such training center in the region), which offers A320

such as Colombia, Chile, and Peru and we are seeing rapid

simulator training and courses to support growing customer

growth coming out of these airlines.

needs for training and services regionwide. In 2016, Interjet, Viva Aerobus and Volaris (the first North American-based

Q: Which aircraft are increasingly in demand in the region

airline to receive it) all began operating their first A320neos,

and how does Mexico differentiate from the rest of Latin

the newest and most efficient aircraft in the A320 family, the

America in this sense?

most widely sold aircraft family in aviation history.

A: Our 20-year outlook for Latin America predicts a demand for over 1,900 single-aisle aircraft and 550 widebody aircraft

And we cannot forget about the largest aircraft in the world,

like the A330, A350 XWB and A380, worth an estimated

the A380, which first began operating in the region in 2016.

US$330 billion. Single aisle aircraft are leading demand,

Transporting more people on fewer flights via very large

and the A320 and A320neo families have become the

aircraft like the A380 is the solution to rising aerial congestion

preferred aircraft families for the region’s carriers. We are

as, not surprisingly, by the end of 2036, Mexico City and

seeing the region’s top airlines modernizing their fleets with

Cancun airports will each be receiving more than 10,000

the A320neo family, allowing them to achieve efficiency

long-haul passengers on a daily basis, making them two of

gains even in a less-than-favorable economic environment.

nine aviation megacities in Latin America.

The A320neo is the market leader in the region with nearly 400 orders and almost 70 commitments from lessors

Q: What are your expectations for the growth of Airbus in

for leading airlines such as Avianca, Avianca Brasil, Azul,

Mexico in the short to middle term?

Interjet, JetSMART, LATAM, Sky Airline, Synergy Group, Viva

A: Today, about 140 aircraft are in operation in Mexico through

Air (presiding over Viva Air Peru and Viva Colombia), Viva

four customers: AeroUnión, Interjet, Viva Aerobus and Volaris,

Aerobus and Volaris. In Mexico, Viva Aerobus, Volaris and

which represents 63 percent of the country’s commercial

Interjet are all relying on A320 and A320neo family aircraft

aircraft market in service. The growing demand for single-

for the expansion and modernization of their fleets.

aisle aircraft in the country will help airlines, especially lowcost airlines, continue to grow. Travel per capita in Mexico

However, Latin America’s long-haul route expansion is

is expected to double over the next 20 years and Mexico’s

imminent, and we are already seeing airlines respond by

economic growth is 3.7 percent, higher than the regional and

opting for larger, longer-range and more efficient aircraft

global averages. This presents a good opportunity for Mexican

such as the A350 XWB and the A380, which both began

companies to expand their fleets and routes, especially

operating in the region in 2016 with LATAM and Air France,

internationally.

respectively. The long-haul market space presents a solid opportunity for Latin American carriers to claim back

Mexico is a strategic business market for Airbus and an

market share as today, European and North American

important component of our global manufacturing footprint.

airlines carry the majority of long-haul traffic into and out

We expect this partnership to only become more fortuitous

of the region.

as the years go by. Across Airbus, we work with more than 95 Mexican companies and there are over 5,000 direct and

Similarly, the intra-regional and domestic market within

indirect Airbus employees in Mexico via its supply chain.

Latin America holds tremendous potential given that traffic is expected to nearly triple in the next 20 years, growing at a favorable rate of 5.3 percent. Passengers in North America

Airbus is the second-largest original equipment manufacturer

and Europe can count on at least one flight per day to

in the world. It designs, manufactures and sells commercial and

connect them to the 20 largest cities in their regions, but

military aircraft worldwide. The OEM manufactures the largest

in Latin America this figure is smaller. Only 43 percent of

aircraft in the world, the A380

VIEW FROM THE TOP

BUSINESS JETS LEADER SEES BIG POTENTIAL IN QUERETARO CARLOS ROBLES Vice President of Bombardier Aerospace Mexico and President of FEMIA 56

Q: What is Bombardier’s outlook for Latin America and

movement within Latin America, so the C Series can easily

Mexico?

become a tool that connects the region.

A: Bombardier is divided into two large aerospace segments: commercial and business aircraft. In the business division,

Mexico in particular is one of the world’s largest regions

we have a strong growth forecast for Bombardier globally

for aviation, together with the US and Canada. The need to

as we estimate that the global market will need 8,300 new

be connected opens many opportunities for Bombardier’s

business jets within the next 10 years. The outlook is also

aircraft. Mexico has been evolving as airlines renew their

positive for our commercial division as we expect a need for

fleets. A few years ago, the country had 297 registered

12,700 new aircraft by 2034. In Latin America, we forecast

aircraft with an average age of 16 years. This number now

a need for 790 business jets and 1,150 commercial aircraft

has grown to 356 with an average of 9 years of age.

during the next 10 years. Q: What is behind Bombardier’s significant growth in Q: How does Bombardier’s C Series benefit the global

Queretaro state?

aviation market?

A: Our employees are the main drivers behind Bombardier’s

A: The C Series provides significant benefits to airlines as it

growth in Queretaro and have been among the key reasons

represents a 20 percent reduction in emissions and has the

our corporate offices are increasingly trusting in this division.

lowest fuel consumption in the 150-seat segment. It is the

Another reason for success is the blending of Bombardier’s

only aircraft originally designed for this segment, which is

culture with Queretaro’s, as the state prioritizes innovation.

extremely important for Bombardier. Other manufacturers

Our corporate offices are often amazed at the innovations

have adapted existing aircraft to address

that originate in this plant. Bombardier

this segment, but the C Series was

has an internal program called Excel

uniquely designed for it. The aircraft is extremely efficient and was designed with passenger’s comfort in mind. It was designed from the inside out to ensure that travelers have sufficient space. The

8,300

new business jets will be necessary within the next 10 years globally

cabin is also the quietest in its class.

Ideas, where employees propose new ways of carrying out existing processes in areas such as health and safety, quality and productivity. The plant in Queretaro is one of the largest contributors to this global program. We have strong capabilities for harnesses and a business

In mid-2017, the CS100 landed in London City Airport,

jet unit that has been declared a center of excellence by

becoming the only aircraft of this size to do so. The plane’s

our corporate offices.

aerodynamics reduce drag and the aircraft generates minimal noise, both important factors when flying into an

Our facilities in Queretaro perform mostly manual

airport that is located in the middle of a city. This provides

assemblies so most of our innovation comes from optimizing

the CS100 a competitive advantage for airlines that want to

manufacturing processes. Our main offices recognize our

fly to and from airports located in the middle of large cities,

operations in Queretaro for the value they add while lowering

such as London and Toronto.

costs and improving quality. In terms of innovation, we are mostly focused on training our people and we have many

Q: What potential does the C Series have in Latin America

agreements with UNAQ to train our employees.

and how could the C Series change this market? A: For airliners, the C Series will be a convenient aircraft

These facilities are an integral part of the Bombardier

as Latin America gradually increases the number of flights

Aerostructures Division’s internal strategy. Our main target

in the region. We have seen significant regional passenger

now is to focus on the programs we have on site, which

include aerostructures, composite manufacturing, electric harnesses, sheet metal and machining. All these units were developed a little more than 10 years ago. We are now in a stabilization period. Our goal is to increase the efficiency of these units and to become increasingly independent so that we can tackle all opportunities that come our way. Our facilities in Queretaro manufacture components for every single model of Bombardier’s aircraft, be they electrical components, composites, aerostructures or sheet metal. Every single one of Bombardier’s aircraft has

In Latin America, Bombardier forecasts a need for 790 business jets in the next 10 years 57

a component from Queretaro. sector and through collaboration and with quality Q: How are these facilities shaping Queretaro’s supply chain?

products we can convince foreign companies to introduce

A: Bombardier has the largest presence in Mexico of all

more processes to Queretaro. The state is big enough to

OEMs. We are actively working to develop the sector

reach critical mass and small enough to learn and grow.

alongside the local cluster, FEMIA and neighboring companies. The key word for the industry is collaboration.

Q: How is Bombardier ensuring the acquisition of

We have been working to develop the supply chain across

qualified human capital?

the entire country and now we have 10 Mexican suppliers

A: Across the entire country, the aerospace sector is

from Chihuahua, Sonora and Mexicali. Part of our mission

facing a challenge in acquiring qualified employees. To

when we established in the state was to develop Mexican

address this, the industry is collaborating with other

suppliers. We are closely working with FEMIA and the

sectors to train qualified professionals. Mexico has a great

local cluster to develop Tier 2 and 3 suppliers, which will

demographical advantage in its young population and the

help our facilities in Mexico to grow.

country generates more engineers than Germany.

Queretaro has given Bombardier a lot and we aim to

Bombardier is heavily committed to the professional

give back. Through our initiative Causa Queretaro every

growth of our employees. Once hired, we train people in

quarter we develop a new community support program.

the values and processes of our company and we work

We are one of the biggest employers for aerospace in

hard to retain them. Many of our employees develop their

Queretaro, thus we are very committed to the health

professional careers successfully within our company.

and safety of its citizens. We play an important role in

UNAQ is a strategic partner in the training of our

FEMIA and the local cluster, and we spend significant

employees, many of whom have received certifications

time developing the aerospace sector and the small

from the university in composites, aerostructures or

companies in it.

electrical operations. We are looking for people who are committed and engaged to learn.

Q: What initiatives is Bombardier developing to support the incorporation of SMEs into the aerospace supply chain?

Q: How will a renegotiation of NAFTA affect Bombardier’s

A: Aerospace is a complex industry. It takes a long

operations in Mexico?

time to acquire certifications and volume. This can be

A: We will comply with any changes in the law. The

a chicken and egg problem because companies that do

renegotiation is ongoing so it is not possible to estimate

not have the necessary volumes are not cost-effective,

the long-term impact it will have. Alongside other

but companies that are not cost-effective cannot reach

business associations, we are making sure that our

these volumes. Major companies in Queretaro, such as

industry’s concerns are addressed. The aerospace market

ITP, Bombardier and Safran, are working together to

has changed in significant ways since NAFTA was signed,

generate work packages that have the volume local SMEs

a time when there was almost no aerospace industry in

can supply.

Mexico. For that reason, the current agreement does not address aerospace that much.

The sky is the limit, especially in Queretaro. The market opportunities are there, given the extremely large demand for aircraft. This represents a major opportunity

Bombardier is a Canadian OEM that manufactures aircraft,

for local companies to improve their operations and to

high-speed trains and public transit. The company is a world

attract more contracts to Mexico. I believe that this is a

leader in regional and business aircraft. It has 73 production and

strategically important moment for Mexico’s aerospace

engineering sites in 29 countries and employs 66,000 people

AIRCRAFT SPOTLIGHT

BOMBARDIER C SERIES A growing aviation market demands lighter and more costefficient aircraft that can carry more passengers. Optimized for the 100 to 150-seat market, Bombardier has designed its C Series to be the most efficient model in the market. The C Series’ advanced aluminum fuselage, coupled with advanced composite empennage, rear fuselage, nacelle and wings, make it 5,400kg lighter than planes from other OEMs. The aircraft is powered by Pratt & Whitney PurePower PW1500G turbofan engines specifically designed for it, with a bypass ration of 12:1 – one of the highest in the world – and Gear System fan drive and advanced combustion technology.

The Bombardier C Series is 5,400kg lighter than similar planes from other OEMs The aircraft exterior design was validated through testing in a wind tunnel, as well as fluid dynamics analysis using state-ofthe-art supercomputing capabilities to ensure its aerodynamic performance. The design is supported by advanced flightdeck technology, fly-by-wire controls and integrated avionics. As a result, Bombardier’s aircraft offers a 20 percent better fuel efficiency with a fuel burn of 2L per passenger per 100km and 18 percent lower costs per passenger. The C Series onboard maintenance system can also lead to 25 percent cost advantages, resulting in maintenance intervals of 850 hours for “A” checks and 8,500 hours for “C” checks. Safety is also a priority for Bombardier’s new C Series aircraft, which is why the plane goes through virtual simulation, accelerated component testing, system-level testing and Complete Integrated Aircraft System Test Area. That allows Bombardier to guarantee 99 percent reliability at entry-intoservice and 99.5 percent reliability two years after entry-intoservice. Regarding comfort, the C Series’ interior was also designed to ensure a spacious feel in its single-aisle configuration. Storage bins are at only 62in (1.57m) from the floor, allowing easy access to wide storage space. The 19in (0.48m) seats are the widest in a single-aisle aircraft offering more personal space to passengers and large windows are positioned high to provide more natural light and an optimal viewing angle. In addition, the crew is equipped with a Cabin Management System platform that tracks the plane’s interior environment, including entertainment and mood lighting.

VIEW FROM THE TOP

HELICOPTERS SAVE LIVES, IMPROVE MOBILITY FRANCISCO NAVARRO Director General of Airbus Helicopters in Mexico 60

Q: How did Airbus Helicopters fare in Mexico and Latin

on our products’ competitiveness. We launched several

America through 2016?

initiatives to reinforce the operational parameters of our fleet

A: 2015 and 2016 were difficult years for all participants in the

and today all these initiatives are paying off, keeping Airbus

helicopter industry. In Latin America, the oil and gas crisis hit

Helicopters at the head of the pack.

Mexico, Brazil and other nearby economies. Exchange rates between the Latin American currencies and the dollar also

Q: To which market will the new H160 be addressed?

hindered market recovery during those years. This situation

A: The new H160 will create an entirely new concept for

affects the commercial, governmental and military segments.

helicopter operators. Our two prototypes accumulated over 360 flight hours by March 2017. The helicopter will be

Airbus Helicopters worldwide has maintained a safe position

certified by 2019 and deliveries will begin in 2020. Potential

during these shifts and we even increased our market share in

clients have tested the helicopter and we received positive

civil and para-public operations. We also gained market share

feedback. Many were astonished by the comfort, stability and

in the governmental and military segments. All in all, Airbus

low vibration levels.

Helicopters has become stronger and more successful than other entities despite the economic climate. In 2016, Airbus

This helicopter can enter every sector as it is well-adapted for

Helicopters booked 388 units and delivered 418, which are

demanding requirements. It is ideal for oil and gas operations

slightly better figures than the previous year. In the para-

thanks to its high performance and will be up to 20 percent

public area, we grew 47 percent and in the military market

more competitive in terms of fuel consumption than other

we increased our share by 15 percent.

alternatives for the sector. The H160 will also require less maintenance and have lower maintenance costs. It will have

Q: What was Airbus Helicopter’s secret to remaining

a capacity of 12 passengers and will be the most competitive

competitive despite economic hurdles?

product in the 120-nautical-mile range. Its comfortable and

A: There were many reasons we retained competitiveness,

luxurious interior and extremely low levels of noise and

including our diverse product portfolio. We have the widest

vibration in the cabin also mean it is well-positioned for the

helicopter range in the market, from the smaller H125 and

civil and para-public sector. This helicopter shares avionics

H130 to the medium and heavy twins. We have been working

with the H135 and H145 and will be well-positioned for military

on the renewal of all these helicopter models, including the

missions, including exploration and search and rescue.

H145 and the H135. We have also developed the H175, which was operated first in the Americas by Transportes Aéreos

Q: Which helicopters are in highest demand in Mexico?

Pegaso and is now a reference in the sector. We expect the

A: We have over 410 helicopters operating in the region with

next H175 to come to Mexico at the beginning of 2018.

all models of the Airbus Helicopters family. The best-selling helicopters in terms of units are the single-engine models, the

We are working to maintain our efficiency, technology and

H125 and the H130, which represent over half of those units.

versatility standards. Our second line of action is to keep

More than 240 Ecureuils represent 60 percent of the fleet

close relationships with our customers by reinforcing the

in Mexico, with 25 Dauphin Panthers, over 30 Super Pumas

H-Care concept and streamlining our component delivery

and 30 EC135s. We have high expectations for the H125, H135

and inspection times. Our E-Support is now fully operational

and H145 families for the development of emergency medical

in Mexico and Latin America.

services (EMS). Mexico has great hospitals and excellent medical service but being such a large country, it can lack

In 2015, we launched a renovation plan based on three pillars.

the necessary infrastructure to reach remote areas. Mexico’s

The first is to enhance the safety and quality of our products,

complex geography, which encompasses forests, mountains,

the second is customer satisfaction and the last is to focus

deserts and jungles, means helicopters are often the best

H175 / Airbus Helicopters

mobility solution. Helicopters are essential tools to provide

fire-fighting, ambulance services and police and military

medical assistance during natural disasters and accidents,

operations. They also have competitive operational costs and

and for transporting injured people. They can also transport

high operational availability, making them efficient tools for

organs in minutes and reduce mortality during complicated

these missions. Their demand will remain slightly low but we

cases, saving lives.

are convinced that the H125 and H130 models will continue to be the best-selling helicopters in the market.

Q: How can helicopters improve mobility in large cities in Mexico?

Q: What is the status of Airbus Helicopters’ plant in

A: Large cities, such as Mexico City, Monterrey and

Queretaro and what are your plans for it?

Guadalajara, will see an increase in the use of private and

A: Airbus Helicopters’ plant in Queretaro meets our

business helicopters, providing mobility to congested areas.

expectations. The initial commitment for this plant totaled

We want to participate in the “uberization” of society and

US$75 million dollars to employ 100 people. In 2016, the

make helicopter use available to a larger number of people.

investment reached US$100 million with a workforce of

This reflects a global trend. Large cities, including San Paulo

200 employees who generated over 160,000 working hours

and Tokyo, suffer from long commuting times within the

that year. This plant manufactures parts and components

city. At peak hours, traveling by road is slow and inefficient.

for the commercial aircraft A320 and A321 among others.

Helicopters are increasingly becoming a necessary mobility

As it is operating more quickly than initially planned, we are

tool for society.

introducing programs to reinforce our presence in Queretaro. Our current target is to multiply our production in the country

These cities will only continue to grow as Mexico receives

fourfold in the next five years. This plan runs parallel to other

significant foreign investment. The growth of companies

commercial opportunities.

generates a mobility need so Mexico is home to a significant number of companies willing to use alternative services.

Q: What are Airbus Helicopters’ expectations for Mexican aerospace?

Q: What main factors will drive the growth of the helicopter

A: Mexico is facing a complex situation due to the oil

services sector in Mexico?

crisis, the dollar-peso exchange rate and the renegotiation

A: The Energy Reform is attracting more companies to

of NAFTA but we expect to retain our market share. The

the country and raising competitiveness in the oil and gas

country acquires approximately 15 helicopters per year and

industry. The reform will increase the number of helicopter

we hope to maintain this rate. Airbus Helicopters has been in

trips from Ciudad del Carmen to platforms. The H160 will

Mexico for over 35 years and despite the country’s economic

be ideal for these movements but we already have a series

situation, our goal is to reinforce our local footprint. We are

of products for this market, including the H175, H145, H155

convinced that in the long term this part of the world will

and H130. The H175 is conducting some missions that were

become increasingly important.

previously impossible, such as moving 18 passengers over 241km. This helicopter has also been conducting search and rescue operators across 519km.

Airbus Helicopters is the largest helicopter OEM in the world and has a wide range of helicopters for different market

These best-selling helicopters are versatile and thus can be

segments. It has been in Mexico for 35 years and has a

used for a wide range of applications in any terrain, including

manufacturing plant in Queretaro

VIEW FROM THE TOP

EFFICIENCY HELPS RIDE OUT DOWNTURN LUIS AZÚA General Manager of Bell Helicopter 62

Q: How has the commercial helicopter market evolved

countries and to continue promoting the opportunities

over the past year?

the free trade agreement provides. What we can expect

A: We have seen a downturn in the market for commercial

is an efficient negotiation between the three countries.

helicopters in the past two years, triggered by hits to the oil and gas sector. We continue to feel this impact

This plant manufactures exclusively for the commercial

but challenges create a window of opportunity. This is a

division and exports only to Canada. As an advanced

time to look to different markets, and explore new ideas,

technology center, our Chihuahua plant is essential to

marketing strategies and partnerships.

every project that involves the assembly of structural parts and electrical harnesses, placing us at the center

Q: How is Bell Helicopter’s Chihuahua plant adapting to

of Bell Helicopter’s supply chain. While we do not ship

the market’s downturn?

a complete helicopter, we play a significant role in the

A: From an operations viewpoint, we are increasing

assembly of cabins, which are then shipped to Mirabel,

efficiency to reduce costs by investing in our people

Canada. When headlines talk about NAFTA, which is seen

and improving our inventory management and delivery

as a main influence on Mexico-based manufacturing, the

times. As a manufacturing company, the leaner the better.

third participating country, Canada, is often overlooked.

The downturn in production means there is inventory left over, so we must manage it effectively. More importantly,

Mexican industry must also look to other destinations such

manufacturing is driven by people. We are investing in

as Europe, which is already investing heavily in Mexico. We

our employees so that we will be ready when the market

can target the Asian market and generate partnerships with them. There is significant knowledge

recovers. Th e co m p a ny i s a l s o d eve l o p i n g manufacturing lines for electrical harnesses for the new Bell 505 Jet Ranger X, which was certified in December 2016. This is a light, high-

400

letters of intent for the Bell 505 Jet Ranger X

volume helicopter for which we counted

of processes and technology in Asia that we could learn from. Q: Which of Mexico’s competitive advantages should be stressed at this point? A: Our manufacturing practices are

over 400 letters of intent at the beginning of 2017. Also,

continuously improving and generating opportunities to

we are detailing a business case that aims to establish

integrate the supply chain. This will provide numerous

on-site assembly of the electrical harnesses for the Bell

business and expansion prospects to foreign companies,

525 Relentless, the new Bell super-medium fly-by-wire

mainly Tier 2 and 3 suppliers. It is important to

helicopter.

communicate the strength of our manufacturing practices, as they grant foreign companies the opportunity to

Q: What are your expectations following a potential

generate partnerships.

renegotiation of NAFTA? A: While the agreement needs to be reviewed as it is

The Mexico aerospace sector is growing and gaining

over 20 years old, in my opinion it is here to stay. During

relevance as more than a low-cost country, but as a best-

this long period, the market changed considerably and

cost country, regardless of challenges posed by the global

new technologies have entered the picture. It is time to

political climate. The country boasts several educational

adapt the treaty to the current state of the industry and

institutions that work closely with the industry to

world commerce. I expect the renegotiation to lead to

consider its needs when defining their syllabi. Mexico is

a stronger and more beneficial agreement for the three

increasingly becoming a high-technology country.

Bell 505 Jet Ranger X / Bell Helicopter

Q: How would you describe the growth of Bell

new technologies and processes and responding to new

Helicopter’s plant in Chihuahua during 2016?

challenges. Our goal is to be flexible enough to support

A: 2016 was a flat year, due to a lag in commercial

Bell Helicopter’s global operations in any way required.

helicopter orders, which we are feeling to this day. Our

We must continue to improve efficiency to be the strategic

plant has grown in different ways including safety — we

choice for structural assembly and electrical harnesses.

have recorded two years without an injury, a significant feat for such a labor-intensive operation. We also

This plan will adapt to market demands but as a strategic

reduced our defects-per-assembly rate by 40 percent in

partner and an integral part of the supply chain, our idea

2016 compared to the previous year. Our consolidated

is to stay in Mexico for the long term. We are seeing some

manufacturing operating system was recognized with the

signs of recovery already and once the market bounces

“2016 State of Chihuahua Award for Competitiveness” as

back we will be ready.

well as the “2016 Commitment to Quality Award.” Q: How does Bell plan to evolve in line with market

Bell Helicopter is a division of Textron, and manufactures military

trends in 2017 and beyond?

rotorcraft, and provides training and support services worldwide.

A: We are setting the bar higher and higher. We have to

The Bell 47 was the first helicopter in the world rated by a civil

better last year’s results by incorporating more projects,

aviation authority, becoming a civilian and military success

AIRCRAFT SPOTLIGHT

882kg full take-off weight of SL-230 SCOUT

SL-230 “SCOUT:” ECONOMICAL FLIGHT-BASED MOBILITY IBN-ND Group is the exclusive distributor in Mexico of the new Ukrainian helicopter SL-230 “SCOUT.” This aircraft has a 600km flight-range, a digital dashboard and a modern minimalist design by the famous Art Studio of Artemiy Lebedev. The studio describes the aircraft as “a light experimental helicopter,” saying the design of the SCOUT’s appearance borrows from automotive design. This makes the aircraft easier for amateur pilots to understand but also very attractive for experienced pilots, says Alex Tereshchenko, Director General of IBN-ND Group. It is able to reach the maximum speed of 209kph. The price of helicopters varies in the market between US$300,000 and US$700,000 but IBN-ND explored the opportunity to develop a more economical solution. The SCOUT, ready to fly, can be purchased for US$220,000 and with customization, the most kitted-out SCOUT can cost US$248,000, far below the current market price for a helicopter. Customers can choose between two types of engines: the ACE-379r and the ACE-428r, among many complementary options. Tereshchenko explains that it is optional but recommendable to get headphones for the three seats for US$2,500, which are not part of the basic package because customers sometimes already have their own accessories. IBN-ND stocks spare parts of all the components. The helicopter is also fueled with normal gasoline, making it more accessible in price and easier to refuel. The SCOUT can use standard A-95 gasoline for its fuel tank of 120L. The company chose to adapt to gasoline due to the high price of jet fuel, especially when tank filling services are included. Benefits like this are crucial to operating costs because jet fuel is heavily dependent on the dollar exchange rate. The SCOUT is lightweight, with a full takeoff weight of 882kg, which also keeps costs low. IBN-ND Group can include removable wheel jacks to transport the SCOUT more easily to airfields. The Russian-designed helicopter, manufactured in Ukraine, has presence in Belarus, Moldavia, Indonesia and now in Mexico. IBN-ND is evaluating certifications in Mexico to help grow the business in the national market. Tereshchenko says the company is also looking for local distributors who are intrigued by a more economical transport option. “We have several plans to enter new market opportunities here. We are looking for people interested in distribution of our helicopters so we can start selling them in Mexico.”

INSIGHT

AUTOMOTIVE TITAN STAKES AVIATION CLAIM

“

The HondaJet is ideal for the Mexican market as the airplane meets most mission requirements for Mexico” Ryan Ramos, Director of Sales, Latin America & Southeast USA at HondaJet

for a more pleasant journey. Another innovative feature is the aircraft’s natural laminar flow (NLF) wing and nose. The aerodynamic NLF design helps reduce drag, making the jet faster and more efficient. Its lightweight structure is achieved through an advanced composite fuselage, which reduces the aircraft’s weight and manufacturing complexity. The combination of the OTWEM and NLF innovations allows the HondaJet to achieve a maximum cruise speed of 422KTAS at 30,000ft. Its takeoff distance is less than 4,000ft and it has a climbing rate of 3,990ft per minute.

Mexico has the second-largest private aviation fleet in the

Globally, passengers seem to like these innovations.

world, and it keeps expanding. As private aviation users

“Passengers are looking for comfort, technology and

analyze the best bet for their aircraft purchases, they

reach. For instance, they want to be able to reach many

would do well to prepare for the long-term by choosing a

locations in a single day. They want their trips to be faster.

modern plane, says Ryan Ramos, Director of Sales, Latin

Furthermore, the HondaJet has smaller operational costs

America and Southeast USA for HondaJet.

than other aircraft in the same category,” says Ramos. For those reasons, he adds, “the aircraft has been very well-

“Mexico is very well-established in the aviation sector,”

received. We have 58 aircraft operating all over the world,

says Ramos. “As the economy continues to grow, its need

mainly in North America, Europe and Latin America. Our

for aircraft will also increase. Those with aging aircraft will

customers like the speed and comfort the aircraft offers

eventually need to be replaced and in those cases, the

and they are increasingly recognizing its value.”

HondaJet would be the perfect investment in a modern aircraft that incorporates state-of-the-art technology.”

The positive reception has made an impact. “The HondaJet was the most delivered aircraft in its category during the

Private planes are often the ideal solution for those looking

first half of 2017. It is a game-changer that offers features

for the flexible operations that commercial aviation

that no other aircraft in the light-jet category offers.”

cannot easily provide, allowing travelers to readily access destinations not served by commercial airlines. According

The company is focusing on expanding the jet’s share

to DGAC, the number of private aircraft in Mexico grew by

of regional markets. “We are working throughout Latin

2.9 percent in 2016 in comparison to the previous year for

America and we expect to eventually reach all countries

a total of 7,092 units.

in the region. We are working on market awareness and developing new markets,” says Ramos. This includes

Honda has had its eye on the aviation sector for a while.

Mexico. “The HondaJet entered Mexico at the beginning

More than two decades after envisioning the creation of

of 2016 with three aircraft and we have received great

a jet, the company delivered the first HA-420 HondaJet in

feedback in the country.”

December 2015. In its typical configuration, the HondaJet can accommodate one crew member and five passengers.

In Ramos’ opinion, Mexico is a sure bet for the HondaJet.

An alternative seating configuration offers space for one

“The HondaJet is ideal for the Mexican market as the

crew member and six passengers. The aircraft’s nose

airplane meets most mission requirements for Mexico.

compartment has a baggage capacity of 0.25m3 while

From the country’s two largest private aviation hubs in

the aft baggage compartment has a 1.61m3 capacity, the

the country, Toluca and Monterrey, travelers can reach all

largest in its class.

corners of the country, which will make it very attractive for the Mexican market.” HondaJet has ambitious plans

This aircraft featured state-of-the-art technologies,

to increase its presence, not just in the region, but around

including Honda’s patented over-the-wing engine mount

the world. “We do not have a specific forecast for aircraft

(OTWEM). According to the company, the engine’s location

sales but worldwide we expect to sell between 50 to 55

increases fuselage space that can be used to expand the

new aircraft within our next fiscal year to March 31, 2018,”

cabin or for external cargo areas while reducing cabin noise

says Ramos.

INSIGHT

SECOND PROTOTYPE FOR MEXICAN JET ON THE WAY RAUL FERNÁNDEZ President of Oaxaca Aerospace 67

Mexican industry does not make complete airplanes, it

to the Aeronautics University of Queretaro (UNAQ) and the

simply supports the French, Brazilian, Canadian and US

National Polytechnic Institute (IPN), to convince them to be

OEMs producing world-class aircraft. But these aircraft are

on hand to support with engineering, vision and hard work.

not low-cost, so third-world markets are under-represented, says Raul Fernández, President of Oaxaca Aerospace. His

But how can a completely Mexican company compete

company may be able to cater to countries on a budget,

with major aerospace companies to penetrate the aviation

and realize FEMIA’s dream of a “Made in Mexico” aircraft.

market? The Pegasus is, by design, fuel efficient and cheaper than the current trainer aircrafts available, making

The entrepreneurs behind Cinetransformer, a patented

it a prospect for the Mexican Air Force. “A standard fighter

expandable trailer that transforms into a mobile cinema, were

might cost US$12 million but our goal is to commercialize

not satisfied with one invention. A family business focused

the Pegasus at US$2.5 million,” says Fernández. The engine

on land-based solutions took to the skies with the opening

also burns fuel conservatively, using approximately 53-56L/h

of Oaxaca Aerospace, named after the state housing their

thanks to a composite fuselage and aluminum wings. Fuel

Cinetransformer manufacturing. The unlikely aerospace

efficiency could be traded for the speed a turboprop would

inventors impressed the industry when they revealed their

offer, but Oaxaca Aerospace’s original mission statement was

first prototype of a Mexican-made and designed trainer

to produce something light and affordable for governments.

aircraft, the first of its kind. Fernández’ invention and drive paid off at FAMEX 2017, when Fernández led his team in creating an airplane that could be

the company received a pact from the National Defense

used for everything from surveillance to light-attack missions.

Ministry (SEDENA) to support the project. The Mexican Air

The Pegasus 1 was created to put the engineer’s curiosity and

Force’s Major Carlos Rodríguez signed a contract to research

scientific reasoning to the test. With a successful prototype in

and develop technology in collaboration with Oaxaca

hand, Oaxaca Aerospace evolved the next version, with more

Aerospace, which will probably lead to more opportunities

G-force and better specifications and characteristics. “Our

to work with the military. .

first prototype is going through testing, and our Pegasus 2 was designed to meet military standards, such as reaching

The next markets to target will be different to those that the

7G during flight,” says Fernández.

major aerospace companies may prioritize. “We will market the Pegasus in third-world countries,” says Fernández.

The second prototype was made to structurally withstand

“Regardless of our target market, our innovation has not

seven times the force of gravity and reach 550km/h. It will

strayed from FAA standards because each part has been

carry a twin-turbocharged engine, run with Jet A fuel, as

designed from scratch specifically for our aircraft.” The

well as a contingency turbine for emergencies. The Pegasus

fuselage, wings and powertrain are made in Mexico. But the

2 is the model Fernández intends to market: “We will

Pegasus will need avionics to be integrated going forward,

create several specs, and versions may include turboprops

and the supply chain may include Continental for engines,

depending on what the client wants.”

Garmin’s on-board technology and MT for propellers. Fernández expects international suppliers to contribute to

The company did not launch into the aviation industry

make the Mexican design a reality.

without forethought. General Manager Rodrigo Fernández told El Financiero that Raul Fernández, his father, is a true

In five years, Fernández hopes to have several Pegasus

aviation fanatic. “He is not a pilot, he is an engineer, but he

units in the air. He will target South America and countries

has always been involved in the aviation sector in one way or

like Thailand first, where cheaper aircraft could fill a gap

another.” The elder Fernández has communicated his vision

in the market.

A380/ Singapore Airshow / Airbus

DIRECT SUPPLIERS

Boeing is predicting that the world will need 41,030 new aircraft in the years preceding 2036. Aircraft demand signals an increasing need for parts, leading global aerospace suppliers to look for more efficient and competitive opportunities. Aircraft forecasts for the next two decades would require the production of 2,000 aircraft annually. Yet, the current rate of manufacturing is 1,400 units per year. The need to expand production while keeping prices low has companies looking toward developing economies to support to their existing practices. Many have chosen Mexico, due to its competitive manufacturing costs, highly qualified workforce and numerous trade pacts. The country now boasts a significant number of OEMs and Tier 1 companies spread throughout the north and center of Mexico. While these companies saw the country at first as a low-cost destination, they are increasing their investment to include design and engineering operations.

This chapter will explore the opportunities Mexico offers foreign Tier 1 suppliers and the challenges they have to face in the country. Some of these companies have been essential for the development of a strong aerospace sector, yet they face challenges to fully consolidate in the country.

CHAPTER 3: DIRECT SUPPLIERS 72

INSIGHT: Juan Carlos Corral, ITP Mexico

VIEW FROM THE TOP: Daniel Parfait, Safran Mexico

INFOGRAPHIC: The Mexican Aerospace Industry

INSIGHT: Issa Valenzuela, Daher Aerospace Mexico

INSIGHT: Hector Fuentes, GKN Aerospace

PLANT SPOTLIGHT: Latécoère Plant in Hermosillo

VIEW FROM THE TOP: Vlatko Vlatkovic, GEIQ

VIEW FROM THE TOP: Felipe Sandoval, Zodiac Aerospace

VIEW FROM THE TOP: Patrick Bernard, Latécoère

INSIGHT: Franklin Gaxiola, Ducommun Incorporated

VIEW FROM THE TOP: James Dickson, Walbar Engine Components

Jesús Valencia, Walbar Engine Components

TECHNOLOGY SPOTLIGHT: LEAP: The Race to Efficiency

ROUNDTABLE: What Steps Must Be Taken to Improve the Industry's Supply Chain?

INSIGHT

SPANISH COMPANY HELPS SHAPE QUERETARO’S AEROSPACE INDUSTRY JUAN CARLOS CORRAL Director General of ITP Mexico and President of Queretaro Aerocluster

Many in Queretaro consider the arrival of Bombardier as the

expect to stop JT8D MRO operations in approximately two

beginning of the state’s aerospace industry. In fact, a Spanish

years,” says Corral. While its MRO operations are not what

engine manufacturer predated the Canadian giant by almost

they used to be, the company’s work in the segment allowed

a decade. Since entering the state, ITP has found in Queretaro

it to “realize that Queretaro has excellent capabilities for

the ideal place for growth and in turn has helped to shape the

aerospace manufacturing, thanks to its universities, training

state’s aerospace sector.

centers, airport, technology centers and other infrastructure.”

“ITP’s branch in Queretaro is the second-largest after Spain,”

ITP’s experience as an MRO also led the company into the

says Juan Carlos Corral, Director General of ITP Mexico

design and engineering segments in 2001, establishing ITP I&F

and President of Queretaro Aerocluster. The company has

(Ingeniería y Manufactura). This company now incorporates

influenced Queretaro’s development in many ways, including

over 100 employees and has a number of achievements under

in the introduction of other companies. “ITP brought Safran

its belt. “ITP is the first and only company in Mexico involved

into the state with a joint venture to repair and overhaul

in the certification of engines: Pratt and Whitney’s PW814 and

the CFM56 engine. Once this project was left by ITP, Safran

PW815,” says Corral. These two turbofan engines are used by

decided to continue manufacturing in Queretaro,” says Corral.

the Gulfstream G500 and G600 twin-engine business jets, respectively. The company also manufactures inter-stage seals

ITP is the ninth-largest component and engine manufacturer

and other parts for the Rolls-Royce Trent 1000 used in the

in the world, according to PwC. In 2016, the company reported

Boeing 787 Dreamliner, the Trent900 for Airbus A380 and

a turnover of €780 million for 9.9 percent year-on-year

other engines including the Trent 700, Trent 500 and Trent

growth. It also reported a 20.5 percent increase in activity in

XWB. “Half of the wide body aircraft fleet flying all over the

its commercial aviation division. The business outlook appears

world includes parts manufactured by ITP, including parts

positive for the Spanish manufacturer, fueled by engine

from ITP Mexico,” says Corral. The company’s third division is

demand for civil and military aircraft. Research and Markets

ITAM (Industria de Tuberías Aeronáuticas de Mexico), which

forecasts that this market will enjoy a 5.4 percent compound

manufactures aircraft pipes and end fittings.

“

annual growth rate from 2017 to 2021.

ITP is the first and only company in Mexico involved in the certification of an engine”

Overall, ITP is growing in Queretaro. “Our headcount increased by 8 percent in 2016,” says Corral. While ITP’s MRO operations (ITR) decreased in revenue, the other two companies have grown and Corral expects this trend to continue. “In Queretaro, our goal is to grow at a double-digit rate.” This growth can be credited to investments in the aerospace sector from all players, including academia, government and industry. “The state is heavily committed to the industry’s

The company started as a joint venture between SENER

growth, which is illustrated by the creation of CENTA, the

and Rolls-Royce but now the latter is acquiring SENER’s 53

country’s first research center exclusively for the aerospace

percent of ITP for €720 million. From its beginnings as an

sector,” Corral says.

MRO, ITP’s facilities quickly expanded into three different businesses spanning over 150,000m2. At its peak, the MRO

Aerospace has also been good to Queretaro. Corral points out

division had over 400 employees but that number has shrunk

that the aerospace industry in the state is not the biggest in

to approximately 100 amid the demise of the JT8D engine,

Mexico but it “represented 37 percent of the total aerospace

leading ITP to plan its exit strategy from that segment. “We

exports in 2016.”

VIEW FROM THE TOP

A LEAP FROM FRANCE TO QUERETARO DANIEL PARFAIT President of Safran Mexico

Q: How are low airplane orders affecting the aerospace

requires appropriate alliances with other companies, research

supply chain?

centers and academia. To achieve this in Mexico, we are

A: The backlog at major OEMs is extensive and it will take many

working closely with CONACYT and CINVESTAV.

years to fill so we are not worried about a smaller number of orders. We see the opposite happening as high demand for

Safran is committed to innovation, as it is fundamental to our

our engines is pressuring us to increase our engine production.

long-term strategy. Even mature companies are not immune

For that reason, by 2020 we plan to increase our global

to market changes and may be heavily hit by them, no matter

production of the LEAP engine to 2,000 per year. Increasing

the sector. Such was the case of Kodak. If a company takes

manufacturing by this amount is a significant challenge, as

a wrong turn in its long-term business strategy, it could even

engines are sensitive products, so we must implement the

disappear.

highest quality and safety standards to ensure their integrity. Q: What are Safran Mexico’s main priorities for local The true challenge is speeding up LEAP engine production to

growth during 2017?

meet demand from Boeing, Airbus and Chinese companies.

A: In 2016, we announced the construction of a new plant

Even though the LEAP engine just entered service in 2016,

in Queretaro that was the result of the rise in demand for

we have over 13,000 orders. As a point of comparison, over

LEAP engines. We expect it to begin production in 2017.

the 40 years we produced its predecessor, the CFM56 engine,

We have a strong presence in Queretaro and Chihuahua,

we delivered around 30,000. To speed up manufacturing we

and see potential for growth in both states. In Queretaro,

decided to continue investing in Queretaro, mainly by building

we are implementing innovative textile techniques to make

a new plant that will begin manufacturing before the end of

composite parts by “knitting” them together. This permits the

2017. By 2021, it may be possible to produce an annual rate

generation of much stronger and lighter pieces.

of over 20,000 engines blades. Q: What recommendations would you give Mexican companies interested in developing innovative technologies? A: Many believe that innovation starts from zero, but it requires building on decades of experience and a long time to mature. This is the reason there is so little competition in engines. The

Over 13,000 orders for the new LEAP engine

patience required is exemplified in Safran’s recent innovation award to a project that began 35 years ago. An investment in

Protectionist policies in the US will impact all economic sectors

innovation is an investment in the future and the long-term

so it is necessary for the authorities to prevent these kinds of

plans for the company.

policies as much as possible. Production in our new plant will be of the utmost importance as strategic components will be

Some may feel that innovation in aerospace is slowing

manufactured there. Our goal for 2017 is to continue ramping

down, as the airplanes do not appear to change decade

up production to achieve our 2020 goals and Mexico is an

after decade. This is false. The rhythm of innovation is simply

essential part of that.

different from sector to sector. For instance, innovation in mobile devices usually takes 18 months, while for aircraft it takes 40 years. A motor lasts for 40 years. Such long periods

Safran is a French engine and component manufacturer and

are practically unheard of in other manufacturing sectors.

one of the top 100 aerospace companies in the world. Safran

While we developed the LEAP engine, we manufactured many

started operating in Mexico 20 years ago with a plant in

CFM56s, which have a lifespan of 30 to 40 years. Innovation

Chihuahua and now has 13 plants in Queretaro and Chihuahua

INFOGRAPHIC

THE MEXICAN AEROSPACE INDUSTRY Decisions by OEMs ripple throughout the entire supply chain.

Aerospace companies are spread throughout 18 states in

As aircraft manufacturers continue their efforts to lower or

Mexico but most companies are clustered in five: Baja

keep down production costs, the entire supply chain finds

California, Chihuahua, Nuevo Leon, Queretaro and Sonora.

itself in a similar position. Many suppliers have found in

Some, such as Safran, entered the country with a modest

Mexico an excellent base of operations thanks to its ideal

proposal and have now greatly increased their investment

location, young labor force and numerous trade agreements.

and operations.

DIRECT SUPPLIERS

Safran is Mexico's largest employer in the aerospace industry with 5,400 employees

Baja California

Honeywell Aerospace Mexico GKN Aerospace Chem-tronics

Sonora Daher Aerospace

BAE Systems Products Group Ducommun AeroStructures Mexico

Chihuahua

Rolls-Royce

Safran Engineering Services

Latécoère Curtiss-Wright Controls Mexico

Mexico Honeywell Aerospace Mexico Kaman Aerosystems Zodiac/Air Cruisier Zodiac/Amfuel Zodiac/Icore International

Zodiac/IDD Aerospace Zodiac/Weber Aircraft

Nuevo Leon Honeywell Aerospace Mexico

Guanajuato

San Luis Potosi

GKN Driveline

GKN Aerospace San Luis Potosi

GKN Freight Services

Queretaro

Grupo Safran Snecma America Engine Services Snecma Mexico Rolls-Royce (former ITP Ingeneria y Fabricacion) Aernnova Aerospace Mexico

Edomex

Aernnova Componentes Mexico

Dassault

Curtiss Wright Controls Mexico

Mexico City

Daher Aerospace

Safran Mexico GKN Driveline

SAFRAN: THE TOP COMPANY

Queretaro: Three MRO centers

Mexico City: Main offices and design office

Chihuahua: Design center and industrial site

Safran support services for a fleet of nearly 600 helicopter turbine engines for 15 countries

RELEVANT DATES FOR SUPPLIERS 1979

SUPPLIERS OPERATING IN MEXICO* Top 100 rank

GKN Aerospace started production of CVJ Systems in Celaya

2006

GKN Driveline opened a second site in Villagran, close to Celaya

2007

DGAC and FAA signed the Bilateral Aviation Safety Agreement (BASA); this means that products made in Mexico no longer have to be examined internationally before being shipped, eliminating a step in the supply chain

2008

Aernnova started operations, two industrial plants manufacture metal pieces and assemble advanced integrated structures

Company

GE Aviation

BAE Systems

Rolls-Royce

Safran

Honeywell Aerospace

Zodiac

GKN Aerospace

Dassault Aviation

Curtiss-Wright

Latécoère

Kaman Aerospace 75

2017

Sener sold its 53.1 percent of Industria de Turbo Propulsores (ITP) to Rolls-Royce in a €$720 million deal

2017

Daher Aerospace inaugurated its newest logistics and industrial facility, which is dedicated to metallic aerostructures and supplies Airbus Helicopters in Queretaro

*Companies included in the PwC list of Top 100 industry manufacturers

A320 door production is done at Daher’s new facility in Queretaro

WHAT SAFRAN DOES IN MEXICO:

CFM56 engines

(by CFM International)

SaM146

LEAP

(by Powerjet)

(by CFM International)

engines

Interjet’s SSJ100 aircraft

engines

Interjet’s A320

Aeroméxico’s 737 MAX

Aeroméxico’s 737

Interjet’s A320neo

ITP / Rolls-Royce Rolls-Royce will open a new supply chain office in Guaymas, Sonora, which will strengthen collaboration with key suppliers in the region

GE General Electric Infrastructure Querétaro (GEIQ) is an engineering center that develops solutions for several industries, aerospace among them

Thales Thales is the first partner for SENEAM (Mexican Air Navigation Service Provider) for Air Traffic Management solutions. It supplies the TopSky-ATC solution in all Aerial Control Centers and deploys 80 percent of civil radars in Mexico.

Dassault Aero Personal, based in Toluca, became the 30th Dassault Falcon Service Center. The Dassault Falcon worldwide customer support network now includes 27 Authorized Service Centers (ASC).

SUPPLIERS OPERATING IN MEXICO

Honeywell Aerospace Its facilities in Chihuahua are classified by the company as “Centers of Excellence” for advanced precision mechanics.

Sources: Manufacturers information, ProMexico, PWC.

Kaman Aerospace Kaman Aerospace has in Chihuahua one facility for the manufacture of sheet metal and extrusion detail parts and subassemblies.

INSIGHT

A GIANT LEAP FOR NOGALES’ AEROSPACE INDUSTRY ISSA VALENZUELA Plant Manager at Daher Aerospace Mexico

Sonora’s manufacturing capabilities are becoming

reduce the noise produced by the engine. However, Safran

increasingly sophisticated as companies such as Daher

is increasing its manufacturing capacity by opening a plant

Aerospace introduce new technology and training to their

in Queretaro, which has led Daher to transfer the production

plants in the state. The company’s partnership with Safran

of these parts to Nogales. “The shrouds manufactured here

to manufacture noise-reducing shrouds for the LEAP 1B

will be sent to Safran’s plant in Queretaro. From there, the

engine is the perfect example of this evolution.

finished engine will be sent to Boeing’s facilities in the US. Our goal is to generate an excellent supply chain and to

“This part is more complex than anything we have

promote collaboration within the region,” says Valenzuela.

manufactured so far but we are confident that the training our employees acquired in France will allow us to overcome

Daher Aerospace’s plant in Nogales specializes in

this challenge quickly,” says Issa Valenzuela, Plant Manager

composites, a segment that is growing in the region but

at Daher Aerospace Mexico.

which is still far from its full potential. “Composites are relatively unknown in the area,” says Valenzuela. This was

The CFM International LEAP 1B used by the Boeing 737

a challenge for the company when it arrived to the state

MAX was developed by Safran to address two main

but significant investment in training and the support from

concerns for the aviation sector: sustainability and reducing

Daher Aerospace’s main offices have greatly improved

operational costs. Ensuring both is a priority among aircraft

the situation. The Nogales plant is AS9100, ISO 14001,

manufacturers because airlines must keep fuel costs down

OHSAS 18001-certified and accredited by Nadcap for the

and adhere to local and international environmental

manufacture of composites (AC7118).

regulations. The engine provides a 15 percent decrease in fuel consumption and cuts CO2 emissions by 15 percent

Valenzuela explains that the plant’s main priority for 2017

and NOx by 50 percent.

will be the technology transfer for the construction of shrouds, which should be finished this year. “We will double

Since 2015, Daher Aerospace has collaborated with Safran

the production of shrouds each year for the next three years

for the manufacture of acoustic shrouds for the LEAP 1B to

until we reach full capacity,“ says.

INSIGHT

GLOBAL AEROSTRUCTURES SUPPLIER FINDS SUPPORT IN MEXICALI HECTOR FUENTES Operations Manager at GKN Aerospace

Aircraft makers target weight reduction in the same way

imported from California as I am unaware of any supplier

other manufacturers target lower costs. Aerostructures giant

in Mexico that produces them. However, we try to use

GKN Aerospace has found a way to do both by moving part

local suppliers as much as possible. In that sense, the

of its composites manufacturing to Mexicali, says Hector

generation of a local supply chain would be ideal for local

Fuentes, the company’s Operations Manager.

manufacturers,” says Fuentes. GKN Composites is constantly looking for local suppliers but another possibility is to bring

The facilities of the company’s GKN Composites division

their existing supplier base to Mexicali. “This could be an

in Mexicali support the sister division in Alabama. “This

attractive opportunity for suppliers once they take into

plant helps to reduce costs by manufacturing simple parts.

account the many possibilities in Baja California, Chihuahua

Mexicali is a low-cost region, which allows us to lower

and Queretaro.”

overall manufacturing costs. The facility also freed up space in Alabama and allowed the latter plant to accept new

That would also help defer the problems it sometimes

projects,” says Fuentes. Composites, which are made of two

encounters at customs. “Many companies in the state find

or more different materials in which one acts as a matrix

customs to be a challenge for their operations. This can be

and the other as reinforcement, permit the generation of

minimized with good planning and logistics, but we still

components that are often stronger than each individual one.

have run into hurdles; for instance, one of our raw materials

Moreover, composites are lighter, making them an essential

is a chemical that takes a significantly long time to be

tool for the aerospace sector, which is on a constant lookout

processed and furthermore it has to be kept refrigerated at

for lighter materials because lighter aircraft use less fuel.

all times, which forces us to plan ahead on its importation to ensure its integrity.”

Fuentes says his goal is to expand the plant by attracting new customers. “At this point, this facility in Mexicali is still

An alternative, he explains, is the creation of a refrigeration

at half capacity so we are prioritizing its full occupation.”

unit not just for GKN Composites but for all companies

The plant’s capabilities include metal cutting and perforating

in Mexicali that require it. “This unit would be used to

but the company aims to incorporate CNC machining and

hold chemicals while they are at the border, liberating

nondestructive testing (NDT), followed by assembly. “This

significant production space, which is now occupied by

will allow us to offer a comprehensive service which is what

a freezer inside the plant.” GKN Composites and other

most of our clients are requesting,” he adds.

companies in the state are collaborating with the Ministry of Commerce to develop this unit and an analysis area for

GKN Composites manufactures exclusively for Alabama,

composites.

but as the facility incorporates more processes it plans to eventually acquire more clients. To do so, the plant must

GKN Composites is also focusing on increasing its

face the challenges that are hitting other companies in

manufacturing. “We had high growth expectations for

the state, such as talent attraction. “Mexicali has talented

2017 but several external situations have delayed a few

people but they are in high demand by local companies.

projects until 2018.” To ensure continued growth, GKN

We require individuals with very specific manual skills. They

works closely with Aerospace Alliance of Baja California

can almost be considered artisanal. Acquisition of human

and the Ministry of Commerce for business development

talent is not a challenge at the moment but it has been at

among local companies. The alliance acts as a business

different points in time.”

facilitator and supports training in the state, says Fuentes, who has high expectations for the industry. “The aerospace

Another challenge is acquiring raw materials and special

sector is growing in Mexico as the country is doing the

treatments in the state. “Most of our raw materials are

right things to become attractive to foreign players.”

PLANT SPOTLIGHT

8,000m2

is allocated to Interconnection Systems division

LATÉCOÈRE’S PLANT IN HERMOSILLO With the full support of the local government, Latécoère established in Hermosillo, Sonora, close to the US border but in a strategic location without too much competition for talented candidates. The French manufacturer of doors and fuselages, which is also the second-largest European supplier of harnesses and turned 100 years old in 2017, chose this location to be closer to its clients in Charleston and Wichita. In Hermosillo, the plant has two main divisions: Aerostructures and Interconnection Systems. The plant occupies a 16,000m2 space, of which 8,000m2 constitute the Interconnection Systems division and 4,000m2 is allocated to Aerostructures. The remaining 4,000m2 are still free but the company aims to use this space to expand its production lines for the Interconnection Systems division. Latécoère’s Aerostructures division manufactures passenger doors for the Boeing 787 and will ship its 2,000th door in November 2017. Latécoère aims to increase its production to include baggage doors for Bombardier CRJ700 and CRJ900 aircraft by the end of 2017. Expanding this division is harder than it seems. “Growth in the Aerostructures segment is more complicated. Given the length of time involved in the development of new aircraft, the related production for subcontractors will only really take off from 2025. Nevertheless, we are focused on the optimal execution of our order book,” says Patrick Bernard, General Manager at Latécoère. This division receives semi-finished parts and assembles them. When the plant began production, it took between 60 and 70 days to finish a door but those times have been gradually reduced through the implementation of lean manufacturing practices. The company’s goal for 2018 is to reduce that time to 25 days. On the other side of the floor, the Interconnection Systems division produces a variety of complex harnesses, such as the 20VU section harnesses, complete wings, wingtips, flaps, power feeders and vertical tail plane harnesses for different Airbus aircraft, including the A320, A330 and A350. These products are shipped to France and Germany. The division’s manufacturing process is entirely different from that for Aerostructures as the production of harnesses is a manual, almost artisanal process with significant changes from product to product and aircraft to aircraft. To improve productivity and reduce costs, the company has invested in a pull system and full kitting techniques.

VIEW FROM THE TOP

EXPLORING AEROSPACE FROM A TECH PERSPECTIVE VLATKO VLATKOVIC Director of General Electric Infrastructure Queretaro (GEIQ)

Q: How much Aerospace-related research is conducted at

to develop technology. GEIQ’s capabilities are on par with

GE Infrastructure Queretaro (GEIQ)?

other centers around the world, which makes it diverse and

A: Aerospace represents over 60 percent of the work

complex. Mexico’s impact on the sector is derived from its

GEIQ does in Queretaro. The center has almost 2,000

human capital. The country has excellent people who make

engineers and of those, 1,200 are working in aerospace-

us competitive. Our competitors come to Mexico because

related technologies including engine design, services and

they are attracted by this talent. My goals are to invest in

operations. We also have a division for aviation systems that

emerging technologies like additive manufacturing and

includes avionics and airplane and power systems.

design, and to grow the capabilities we have in the state.

Q: What are Mexico’s strengths and which areas should be

Q: How are you working with universities and research

developed to deepen its aerospace participation?

centers such as UNAQ, CIDETEQ or CENTA?

A: The country is very strong in assembly. My colleagues from

A: We are developing the right strategy to benefit not just

the automotive and energy industries all say that it is always

Queretaro or Mexico but the entire region of Latin America.

faster to assemble components in Mexico. The country has

Our current projects with these schools and centers are

world-class engineering and technology capabilities and

diverse in terms of technical content and we are exploring

educated, innovative people, which means that Mexico

further options for cooperation.

has great potential in these areas. Investing in research will provide Mexico with the opportunity to compete globally.

Q: Where does GEIQ stand in the research/academic

The goal of centers like ours is to get closer to the local

landscape and how is the center making a difference in

industry and to help the country become more active in R&D.

the sector? A: Focusing on research and development will create new

Q: As the largest aviation engineering center outside the US,

capabilities for the region and improve technology. The

what are your main contributions to the aerospace sector?

intellectual property generated in the region can have a

A: GE works globally and constantly ponders the future of

lasting impact on the global aerospace sector. We are also

many areas, including aerospace. The center in Queretaro

creating jobs for suppliers, designers and many others.

was created in 2000, when GE decided that it would be a key element to its operations in Mexico. This center conducts

Q: GEIQ has been in the state for 17 years. What are the

research and design for aerospace, among other sectors.

center’s next challenges?

Mexico has a good opportunity to grow in this industry and

A: For the future, we want to grow our technology

we are investing in the sector because we see potential to

capabilities and continue innovating. We need to work

develop the local supply chain.

intensively with the local government and universities to ensure we are making the appropriate investment in

The center focuses on heavy industries like energy, oil and

education. We need a global mindset and our vision is to

gas and aviation. Another area of importance is software,

become leaders in the area.

which will help optimize the performance of our equipment. In Mexico and globally, it is important to look ahead and

Q: What are GEIQ’s growth expectations within Queretaro’s aerospace sector in 2017? A: We will continue to work on developing the center. GEIQ

General Electric (GE) focuses on innovation through the use

is one of GE’s four major global centers, the others being in

of technology. The company has a series of research centers,

China, India and Europe. This center connects Mexico with

including General Electric Infrastructure Queretaro that has

Latin America and expands the technical capabilities that

been in the state for 17 years

we need to grow globally.

VIEW FROM THE TOP

INTERIORS SUPPLIER FOCUSED ON TRANSFORMATION FELIPE SANDOVAL General Manager of Zodiac Aerospace

Q: How is Zodiac Aerospace adapting to remain a competitive

means that lightweight components and new materials are

and innovative player in the sector?

among the priorities for new component development. One

A: Zodiac has been a worldwide aerospace leader in Mexico

of our leading innovations was the Optima seat, which is a

for more than 120 years and we are now in the midst of a

new seating design focused on comfort, space efficiency and

transition. We are implementing a world-class operating

lightweight application.

system called Zodiac Aerospace Operating System, which is part of a larger strategy called Focus that will lead Zodiac

Q: How is Zodiac addressing issues related to human capital

through its transformation. The final goal is to become a more

and high labor turnover?

robust company with reliable products and processes.

A: All border cities are facing issues regarding human capital attraction and retention. Just like we want to make our

Our human capital will be part of our transformation initiative.

products stand out in the market, we also want our company

We are implementing a new leadership model that will help

to be recognized by the way we treat our people and the

our employees understand what we want as a company and

development opportunities they might have by working

to create a shared mindset among Zodiac’s collaborators.

with Zodiac. People are looking for a pleasant working

Focus will take us to a zero-defect operation with a 100

environment in which they can grow professionally and

percent on-time delivery promise.

all companies should make these factors a priority in their development strategy. We do not see a problem related to

Q: How is Safran’s recent acquisition of Zodiac impacting the

lack of talented labor since Mexico is among the leading

transformation process?

countries in the production of engineering talent. The problem

A: Our transition began before we were acquired by Safran

is how companies are training these people to participate in

but the company is fully behind our commitment to change.

the industry and how they retain their talent.

Safran has high expectations for our new joint operations but even leaving the acquisition aside, all companies must work

Q: What is required for the aerospace sector to consolidate

toward a more efficient operation. Our new joint operations

as a key participant in the country’s economy?

with Safran will bring new opportunities for both companies.

A: The sector has grown continuously for the past 10 years and

We really did not act as competitors before because we are

that growth will be sustained. The country has the potential

more focused on interior components, aerosystems and seats,

to grow tenfold but we have several challenges that need to

while Safran is oriented to landing gears, engines and other

be addressed. The first is the state of the local supply chain.

electrical systems. Now, we will complement each other’s

We need better integration among suppliers and OEMs, but

capabilities.

we also need to collaborate between countries to have a more efficient North American region. Our work with suppliers has

Q: In terms of products, what do you see as the main

been effective. We helped Soisa Aerospace develop as the

opportunity for Zodiac to grow its business with OEMs?

first Mexican cushion supplier and our goal is to keep helping

A: Zodiac is a leader in technological transformation and

other companies grow their business within the aerospace

we are developing new concepts within our existing core

industry. Academic programs and governmental policies must

business to satisfy the demands from OEMs. We are working

be as dynamic as the industry in its transformation.

on more advanced and comfortable seating components, as well as innovative interior components. Our design team in Chihuahua won an innovation and design award in 2017 and

Zodiac Aerospace is a leading supplier of interior components

we also won the Red Dot Award for a new cabin concept we

for helicopters and space applications, as well as commercial,

created. Furthermore, we must always help our clients reduce

regional and business aircraft. The company has 100 locations

operational costs. Fuel is the largest expense in aviation, which

with over 35,000 employees globally

VIEW FROM THE TOP

BUCKING THE LOCATION TREND PROVIDES ADVANTAGES PATRICK BERNARD General Manager at Latécoère

Q: What attracted Latécoère to Hermosillo when most

The Interconnection Systems division in Hermosillo plant

aerospace companies are in other parts of Sonora?

produces a variety of complex harnesses such as the 20VU

A: First, we are located close to the US border, which

section harnesses, complete wings, wingtips, flaps, power

allows us to transport our product by land to our clients

feeders and vertical tail plane harnesses for different Airbus

in Charleston and Wichita. Second, Hermosillo is a city

aircraft such as the A320, A330 and A350. These products

with many talented candidates. Latécoère was one of the

are shipped to France and Germany.

first aerospace companies to land here and being the first was a great advantage to recruit people without major

Q: How is Latécoère improving the landscape of the

problems. Third, the company was in close relationship

aerospace industry in Sonora?

with the government from the very beginning. Sonora’s

A: The aerospace industry is not as automated as the

government accompanied us from the moment we started

automotive industry, so we introduced three Alema-type

building our facility. Thanks to the government’s help, we

robots from KUKA Roboter in the production of the Boeing

could start producing only three months after the building

doors and are introducing a SPIE automated riveting

was finished.

machine. This is a robot equipped with a riveting machine to fasten the door’s skin to the structure.

Q: What advantages does Latécoère’s plant in Hermosillo provide the company in terms of its global strategy?

Q: What are the main supply chain problems in the local

A: Our assembly plant in Hermosillo enables Latécoère to

aerospace industry?

be close to its clients based in the US. This plant assembles

A: In Hermosillo, for the Aerostructures division, semi-

Boeing 787 doors and Airbus harnesses. In November 2017,

finished parts arrive and we assemble the parts together.

we will ship the 2,000th door produced in Sonora. Aircraft

For the Interconnection Systems division, we purchase all

doors also need harnesses, so Latécoère not only wants to

the raw material to produce the harnesses. When we first

build these harnesses but also aims to integrate them into

started operations, everything was shipped from France.

the structure of the doors produced here before shipping

But most of Latécoère’s suppliers are now US-based. We

them to the final client.

want to create a dual component center in Hermosillo to develop a supplier base around Latécoère. For instance,

The plant has two main divisions: Aerostructures and

Figeac Aero, a French supplier, recently settled in Hermosillo

Interconnection Systems. Our Aerostructures division

and is producing some parts for the Boeing 787 doors.

manufactures all passengers’ doors for the Boeing 787.

However, it is difficult to build this supply chain in the area

The next step will be to transfer from France the baggage

because there are few companies that produce pieces for

doors for Bombardier CRJ700 and CRJ900 aircraft.

the aerospace industry in Sonora and Hermosillo does not

Although it is a small door, it will allow Latécoère to

have certified companies for special processes that clients

demonstrate to Bombardier that the Hermosillo plant is

like Boeing require.

efficient. Latécoère will transfer the production line of the Bombardier’s CRJ700 and CRJ900 baggage door to

Q: What is Latécoère’s strategy to reduce costs and

Mexico by the end of 2017.

delivery times? A: We have implemented lean manufacturing practices in the plant. When we began production, it took the

Latécoère is a 100-year-old, France-based, aircraft parts

Aerostructures division between 60 and 70 days to finish

company. Its assembly plant in Sonora manufactures doors

a door. Our objective for 2018 is to reduce that time to 25

for the Boeing 787 and interconnection system harnesses for

days, cutting down the number of doors being processed

the Airbus A320, A330 and A350

and reducing our inventory.

Manufacturing activities at Latécoère / Latécoère Sonora

Proximity to our suppliers also enables just-in-

Q: How would you compare the aerospace industry in

time production by having them manufacture and

Sonora with the rest of Mexico?

deliver components exactly when we need them. The

A: Queretaro and Chihuahua have more aerospace-savvy

Interconnection side is quite different due to the completely

workers. People in this area have a good education, but

different manufacturing process, which is manual, with

the industry still needs workers with a higher level of

significant changes of configurations between aircraft.

specialization useful to the industry. Latécoère has an

However, we have implement a pull system and full kitting

agreement with the Hermosillo Technological Institute (ITH)

techniques to improve productivity and reduce costs.

to develop a career focused on aerospace technology. Also, we are starting a dual program with the university in which

Q: What are the key challenges when assembling new

students will take part in an apprenticeship with us. They

products in Hermosillo?

will receive professional training at our plant during their

A: The first is focused on behavior when building your crew;

last semester. Students will spend 80 percent of their time

behavior is the mandatory foundation to develop great

here learning how to work in the aerospace industry.

employees. We prefer people with great potential to people with existing industrial skills. People are eager to learn, to

We have noticed that technicians do not want to remain

do the right thing and to take challenges with pride.

technicians but want to become engineers. Latécoère has started working with schools like ITH, the Technological

The second is to train the personnel we require. Training

University of Hermosillo (UTH) and local chapters of the

is instrumental to get a reliable workforce that follows

National Technical Professional College (CONALEP) to

instructions. That definitely leads to quality work.

encourage technicians to realize their dream.

We have implemented several programs to prepare

Q: What are your growth expectations for the rest of 2017

people to work with our products. For instance, Latécoère

and for 2018?

developed a training center alongside Sonora’s government

A: 8,000m2 of our plant are dedicated to the Interconnection

called the Sonora Institute for Aerospace and Advanced

Systems division and 4,000m2 are allocated to Aerostructures,

Manufacturing (SIAAM). Also, once employees start

but the plant has another 4,000m2 of available space. We

at Latécoère, they receive one of two distinct kinds of

want to make use of this space to introduce more production

training depending on the division in which they will be

lines. There are many opportunities for growth in the

working. Training in the Aerostructures division lasts up to

Interconnection Systems segment.

five months. Interconnection Systems, on the other hand, has an internal training program with special qualifications

Growth in the Aerostructures segment is more complicated.

that requires one month. The employees of the Latécoère

Given the length of time involved in the development of

plant in Hermosillo are well qualified. To reduce turnover, we

new aircraft, the related production for subcontractors will

provide attractive benefits and a pleasant work environment

only really take off from 2025. Nevertheless, we are focused

so employees are pleased to work with us.

on the optimal execution of our order book.

INSIGHT

INNOVATION ONLY POSSIBLE WITH THE RIGHT SUPPORT FRANKLIN GAXIOLA Plant Manager of Ducommun Incorporated

Being the first to do something can be a competitive

the industry is that now companies are talking to each

advantage in a growing industry, but being the first does not

other, helping other suppliers develop their capabilities to

come without a price, according to Franklin Gaxiola, Plant

participate in the industry and finding common challenges

Manager of Ducommun Incorporated. “Being a specialized

we all face,” he says.

company is both a blessing and a curse,” he says. “We can offer clients what no other company can but there is not

The company has now finished two contracts with Boeing and

enough specialized talent to participate in our processes.”

Embraer and is investing in its proprietary technology called Ducommun’s Foam Matrix Core System™. Aerostructures are

Focused on composite and aluminum component

commonly built with two plies of aluminum or composite

assemblies, Ducommun is among the few companies

material and a layer of a honeycomb structure in-between

in Sonora that can offer aerospace clients lightweight

them. Bonding these materials is challenging for clients,

aerostructures. The problem Gaxiola has found is that the

which is why Ducommun modified the material of that

local talent lacks the necessary skills to participate in the

honeycomb structure to a foam that molds between the two

manufacturing of these components. “We have found young

other plies. Instead of having a two-step bonding process, the

talent eager to learn new things but we cannot really ask for

foam needs only be injected into the component to obtain

the skills and knowledge we need because they are not out

the same structural strength. “The resulting aerostructure

there,” he says. “We had to make one of our manufacturing

is lighter, as well as easier and faster to manufacture,” says

lines into a training center for new recruits so they could

Gaxiola. “We have presented this new technology to our

understand the basics of production processes.”

customers and we have received positive feedback."

The situation is changing, however, and Gaxiola has a positive

Ducommun wants to establish its foam matrix as the

perspective regarding talent development in Sonora. More

company’s flagship solution. Market research company

universities are offering aerospace engineering degrees in

Markets and Markets expects the composite material market

Guaymas and Obregon supported by an educational model

to represent US$115 billion by 2022, with a compound annual

oriented toward aerospace technicians, which according

growth rate of 8.13 percent between 2017 and 2022, mainly

to Pedro Mar, Rector of Guaymas Technological University

driven by the aerospace and defense industries.

(UTG) (see interview, Chapter 7), is now used by 114 schools nationwide. “Quality is now being embedded in academic

Gaxiola is also betting on an upgrade in Ducommun’s

programs, as well as English training, which was not common

Mexican operations to attract more projects. Previously,

in the past,” says Gaxiola.

Ducommun’s manufacturing process had two stages, the first in the US and the second in Mexico. All the bonding

Having skilled talent is essential, considering that Ducommun

was done north of the border and the more labor-intensive

is planning to grow its operations in Sonora. The company

assemblies were performed in Mexico. The company is

has tripled its production capacity to 5,570m and it has

building a new production line at its plant in the US and

worked with local suppliers to ensure a seamless local

Gaxiola’s goal is to mirror that in Sonora. Ducommun is

operation. Although the company was not worried about

introducing automation equipment mostly to handle all its

its capabilities to transform sheet metal and composites

heavy tooling components and Gaxiola is planning to also

into final components, its operations demanded chemical

automate the company’s paint shop as well. “With our new

pretreatments that could not be done in-house. Instead of

production line, we will place much more importance on

sending material to the US to be treated, Gaxiola found a

adhesives. We will be able to handle the entire process in our

local supplier wanting to be certified in aerospace operations

Sonora facility,” he says. “Our goal is to finish modernizing

and invested in its capabilities. “The biggest difference in

our facilities next year.”

VIEW FROM THE TOP

INDEPENDENT OPERATIONS LEAD TO FURTHER GROWTH James Dickson Vice President of Operations at Walbar Engine Components

Jesús Valencia Plant Manager of Walbar Engine Components 85

Q: What role does Guaymas play in Walbar Engine

manufacturing complex engine components that would

Components’ global operations?

have been previously produced in the US or the UK.

JD: Walbar is an independent supplier of turbine components that collaborates with several aerospace

JV: Walbar has worked to grow its operations in the state

companies, including Pratt & Whitney in Canada, MTU and

but to do that we need the support of a strong local supplier

Rolls-Royce. We are actively seeking new customers such

network. Over the past 17 years, we have seen development

as Honeywell, Safran and GE Aerospace. Our operations

of other companies that can now participate in our

in Guaymas focus on exports to Germany, the UK, the US

production chain. However, especially for components that

and Turkey. We focus on blades, vanes and segments and

must go through special processes, it has been challenging

we have a variety of machining capabilities, from grinding

to find suppliers that can meet our expectations.

to electrical discharge machining and fast-hole drilling. We also have non-aerospace operations mainly oriented

JD: Instead of trying to bring a supplier from the US to Mexico,

toward turbocharger manufacturing through complex

the industry should address the holes in the local production

5-axis machining. Regarding special processes, we can offer

chain by developing local companies. Foreign companies

clients heat-treatment solutions, metallographic and X-ray

should work together to find common deficiencies and

analysis and coordinate-measuring machine inspection,

identify local players that can potentially meet them.

among others. Q: What makes Walbar’s operations in Guaymas more JV: Before becoming Walbar, we operated as Goodrich.

efficient than in other global locations?

Walbar moved its operations from Phoenix to Mexico

JD: Our work ethic has been a crucial factor, since we

and it chose Guaymas because of its proximity to the US

always make sure all parts have zero defects right from

border and the advantages it found in the shelter services

the start. The Mexican culture has also contributed to our

offered in this location. We only had to worry about our

development and we have found a true hunger among

manufacturing operations, while the shelter took care of

the local talent to learn, grow professionally and to help

the building and all other operative costs.

the company grow. In other locations, workers leave the plant as soon as they can but here we have seen absolute

Q: What are Walbar’s plans to offer special processes to

commitment from our employees who sometimes spend

third parties?

over 12 hours a day at work. The quality of our components

JD: We already provide X-ray inspection services to another

might be the same as in other locations but our people

company in Sonora. However, our main goal is to support

make Walbar’s operations in Mexico better.

our own operations in-house. Developing services for other companies would be complicated and we would not be able

JV: Our relationship with customers has also helped us

to satisfy the needs of our current clients, plus new ones

grow consistently. We try to keep close communication

demanding special processes.

with our clients so we can address their concerns effectively and maintain the highest level of quality in our

Q: How has Sonora’s aerospace industry evolved to date

products and operations.

and how much do you expect it to change in the future? JD: The evolution of the local labor’ skillset and the technological integration in the state have been

Walbar Engine Components is a turbine-engine component

considerable. Academic programs are gradually catching

manufacturer headquartered in Arizona. The company was

up to the industry’s needs and that has great impact

previously owned by UTC Aerospace Systems but now works

on Mexico’s capabilities in the sector. We are now

as an independent entity

TECHNOLOGY SPOTLIGHT

13,000 Orders for LEAP engines have been placed

LEAP: THE RACE TO EFFICIENCY The race to develop increasingly efficient and lightweight jet engines is intensifying as the pathway to greener air travel is in engine technology rather than in cleaner fuels, according to MIT Technology Review. Pursuing this goal, CFM, a 50/50 joint venture of Safran Aircraft Engines and GE, created the revolutionary Lead Edge Aviation Propulsion (LEAP) engine. LEAP engines are designed to power single-aisle jets that need between 20,000 and 35,000lpf of thrust. The three versions of this engine are being implemented in three iconic aircraft models. LEAP-1A, the version that delivers the highest thrust, is used in the Airbus A320neo family. LEAP-1B is destined for the Boeing 737 MAX family and LEAP-1C for the Comac C919 family. According to CFM, the LEAP engine delivers a 15 percent reduction in fuel consumption and CO 2 emissions compared to previous-generation engines, a 50 percent reduction in nitrogen oxide emissions versus ICAO CAEP/6 standards and substantial noise reduction that complies with ICAO’s Chapter 14 regulations. But this engine retains the dispatch reliability and maintenance costs of its predecessor CFM56, the best-selling engine in the history of aviation. The cutting-edge technology implemented in LEAP engines includes an advanced compressor to deliver thermal efficiency, a new-generation combustor that burns leanly and at a low temperature and a revolutionary debris-rejection system that ensures engine durability by preventing harmful items from reaching and eroding the engine’s core. Also, the use of composite materials in its parts reduces total weight while also enhancing endurance. Queretaro is a key link in this engine’s production chain. Daher collaborates with SAFRAN in the production of acoustic shrouds for LEAP engines and LEAP’s 3D woven composite material blades are manufactured in one of SAFRAN’s local plants. According to CFM, LEAP is the fastest-selling engine in the history of aviation. The company has received over 13,000 orders for various versions of the LEAP engines. From 2013 to August 2017, over 75 LEAP-powered aircraft entered service with 15 airlines on four continents. The LEAP-powered fleet has registered 200,000 flight hours and 100,000 flight cycles. CFM expects the transition from CFM56 to LEAP to finish by 2020 with an anticipated production rate of over 2,000 LEAP engines a year.

ROUNDTABLE

WHAT STEPS MUST BE TAKEN TO IMPROVE THE INDUSTRY’S SUPPLY CHAIN?

The Mexican aerospace industry has an inverted pyramid problem, meaning that while the country has managed to attract major companies, such as Airbus, Safran and Honeywell, these companies lack a Tier 2, 3 and 4 supplier base to provide them everything from raw materials to final treatments. This situation forces companies to import raw materials and to send unfinished products to other countries for treatments and bring them back to Mexico to continue the manufacturing process before they are sent to their final destination.

The consolidation of the supply chain is a priority. At this point, Mexican companies need to focus on increasing their presence and incorporation into the sector, not just at a local level but also in the US and Canada. It is common for companies to only want to enter the local supply chain but a large percentage of the sector is based north of the border. With the necessary certifications, technology and expertise, those companies could enter supply chains in other countries. Our main goal is to help the

LUIS LIZCANO Director General of FEMIA

industry grow through the consolidation of its supply chain. FEMIA also promotes the sector locally and internationally and gives its members the opportunity to enter this supply chain network, which will facilitate their operations in the country. One of our main goals is to help local and foreign companies interested in entering the Mexican market to join forces and strengthen the supply chain.

We must increase the added value of our companies and the best way to do so is by consolidating the supply chain with Tier 2 and 3 companies. This is a strategy we are implementing alongside the state’s government and, although it will be difficult, achieving it will permit the local aerospace industry to grow tremendously. We are not targeting OEMs, as there is not enough volume to justify the introduction of one into the state, we must concentrate on the smaller companies in the supply chain. There

CARLOS RAMÍREZ President of Monterrey Aerocluster

has been talk of assembling a complete airplane in Mexico but that will not happen until local industry expands. Although we have not had the state’s governmental support that other clusters such as Queretaro, Baja California or Chihuahua have had, Nuevo Leon’s companies have made progress independently and are convinced that the cluster association will help them to accomplish further growth.

The aerospace industry is rigid due to all the necessary certifications that require substantial investment and time. While processes may seem long and complex, some local companies, such as Soisa Aerospace, have been successful. To support these companies, we bring together different players. We have identified several continuing needs. For instance, Chihuahua still needs a local casting and forging supplier. The state has the largest high-precision machining center in Latin America in Honeywell

RENE ESPINOSA President of Chihuahua Aerospace Cluster

Aerospace. It has over 1,100 CNC machines that manufacture turbine parts and blades but the company outsources all its casting and forging needs to other countries. Mexico faces an inverted pyramid, meaning that the country has a significant number of OEMs but lacks a strong supplier base. Aerospace is different as the companies capable of attracting suppliers are mainly Tier 1s. The state also needs a series of distribution centers.

The next step is to consolidate local aerospace industry. We have already attracted many companies and are now working on the development of these suppliers and new technology. Strengthening the supply chain will allow the consolidation of Mexican industry, which will in turn strengthen the country to better handle the economic changes that Mexico is facing, such as the devaluation of the peso. Under these economic conditions it is common for interest rates to rise, hurting companies and thus the economy. To consolidate the aerospace sector this year we will launch a financing program for any company that may need it. SEDESU is developing guarantee funds from the state government alongside state industrial development lender NAFIN and through the Employment Promotion Trust (FIPROE). This program will provide loans at very low rates to support innovation.

MARCO ANTONIO DEL PRETE TERCERO Minister of Sustainable Development (SEDESU) in Queretaro 89

The Mexican aerospace sector is gaining momentum. Four years ago, investments boomed but it is now slowing slightly due to the recovery of the strong automotive sector in the country. The supply base has to grow in numbers and diversify its skills as it is not practical to have thousands of companies providing one small component each. Our goal is to help suppliers integrate vertically all necessary competencies and offer more complex packages. Some companies are losing contracts because they do not have the necessary information prepared. Of Mexican exports, we estimate that between 30 to 40 percent represent those of indirect suppliers, including non-critical, small components and services such as

EUGENIO MARĂ?N CEO of TechBA Madrid-Montreal & TechBA Aerospace

heat and surface treatment.

The second pillar is industry collaboration to consolidate the aerospace supply chain, which is a feat urgently needed by the entire sector. Several OEMs, after entering the country, found gaps in the supply chain that diminished their competitiveness. The need to send a component outside of Mexico for certification or for treatment and bring it back can cause unforeseen costs and delays. Due to meticulous safety requirements, aerospace companies prefer to rely on functional parts and processes instead of risking changing them for newer, untested parts. Thus, enterprises take a long time to adapt to new companiesâ&#x20AC;&#x2122; processes. Furthermore, since the aerospace industry requires very small volumes and has extremely high-quality standards, pieces take much longer to manufacture. While initially problematic, this is good for the industry as it translates to longer contracts.

FELIPE ALEJANDRO RUBIO Deputy Director for the Center for Engineering and Industrial Development (CIDESI)

Developing the supply chain is both a challenge and an opportunity. We are working with SMEs in the state, in particular with engineering companies to obtain the necessary certifications. We also have studied the capabilities of local companies to introduce them to procurement officials of Tier 1 and Tier 2 entities in the state. These efforts have proven successful as SMEs have grown exponentially in personnel, equipment and clients in a short space of time. Nevertheless, we are not neglecting the introduction of foreign suppliers to Mexico. A two-pronged approach is necessary, choosing companies through constant communication with OEMs and Tier 1 and 2 companies. These enterprises are under constant pressure to optimize their costs, which is a great opportunity for the state to introduce enterprises that can meet their needs. We also have analyzed our supply chain closely and developed strategies to close any existing gaps.

ENRIQUE RUĂ?Z Director General of COPRESON

Harness manufacturing process/ LatĂŠcoĂ¨re Sonora

INDIRECT SUPPLIERS

The aerospace industry is characterized by its strict quality standards and small volumes, demanding complex processes that in some cases can be considered almost artisanal and often require advanced technologies and significant specialization. For some, these requirements represent an attractive business opportunity. For others, they are nearly insurmountable entry barriers. The Mexican aerospace sector lacks a supplier base that can address the needs of OEMs and Tier 1 companies. This is a very large problem for companies in the country as it forces them to import raw materials and even to send unfinished parts north of the border for special treatments and then bring them back to continue manufacturing before sending them to final clients. This means that companies can take a heavy hit in terms of logistics costs, which also reduces Mexicoâ&#x20AC;&#x2122;s competitiveness. Consolidating a supply chain that can facilitate and enhance manufacturing is a priority for the industry.

This chapter will analyze gaps in the existing supply chain and opportunities for smaller suppliers, both local and foreign. It will also focus on the hurdles they must face to incorporate into the aerospace supply chain and the effort government, third parties and regulators are making to support and facilitate their entrance.

CHAPTER 4: INDIRECT SUPPLIERS 94

INSIGHT: Edgar Escalante, AEISA

INSIGHT: Leonardo Romero, Helmut Fischer

INSIGHT: Juan Rodríguez, Exova Mexico

INSIGHT: Beatriz Aguilar, Axon' Interconex

VIEW FROM THE TOP: José Luis Figueroa, Marposs Mexico

100

INSIGHT: Thayne Hardy, Amphenol Optimize

101

INSIGHT: Victor Ruiz, 3D Systems

102

INSIGHT: Genaro Manilla, Coast Aluminum

104

INSIGHT: Rene Espinosa, MFCO

105

INSIGHT: Ángel de Lope, Kaeser Compresores de México

106

INSIGHT: Itziar Larrañaga, Aeroprocess TTT

107

INSIGHT: Javier Mesta, Soisa Aerospace

108

INSIGHT: Humberto Ramos, HT-MX

109

INSIGHT: Miguel Saldamando Rangel, Técnica Test

Miguel Saldamando Flanagan, Técnica Test

Israel Salas, Técnica Test

110

ROUNDTABLE: What Barriers Do SMEs Face and What Can Be Done to Support Them?

111

INSIGHT: Guillermo González, Platinadora Baja

112

INSIGHT: Francisco Sepúlveda, SI-EMC

113

INSIGHT: David Berruecos, Switch Luz/Electro-Mech Components

115

INSIGHT: Jessica Madrid, Laser & Manufacturing

INSIGHT

NEW NDT TECHNIQUES FOR STRICT STANDARDS EDGAR ESCALANTE General Manager of AEISA

While fear seemed to permeate Mexico’s manufacturing

X-ray computed tomography has a number of applications

sector as 2017 began, many remained confident of its

in the aerospace sector as the technique offers technicians

strength. Hardy companies brought new technologies to

an in-depth view of a part’s structure. The analysis is

the country, some focusing on quality testing to improve

performed by directing X-rays at a sample from different

Mexico’s manufacturing prowess, but more advanced

directions in a 360° scan, acquiring a number of images.

technology is still needed to comply with the industry’s

An algorithm is used to reconstruct these images into a

strict requirements, says Edgar Escalante, General

3D representation of the complete part.

Manager of Asesoría y Equipos de Inspección (AEISA). Among its advantages, little sample preparation is Demonstrating high manufacturing quality is a common

required and in no way does it damage the part’s

goal for manufacturers planning to enter the aerospace

integrity. Parts can return to the production line and be

supply chain, which is unsurprising considering the strain

welded, potentially allowing every single piece’s quality

parts undergo during flight. Comprehensive inspections

to be tested.

throughout the manufacturing processes are just as essential as ensuring that the part remains in perfect

Though this technique has applications in several sectors,

condition for further use after testing. This has led to

for aerospace it can be used to analyze composite

significant investment from nondestructive testing (NDT)

components and cast parts, including turbine blades.

equipment manufacturers to devise better and more

With the growth of X-ray computed tomography, Xylon,

efficient ways to assure integrity and quality.

a leader in this field, has an agreement with AEISA for

“

Mexico has many areas that make it a strong manufacturer and those cannot be dismissed”

equipment installation and maintenance. Clients buy equipment directly from manufacturers that are based internationally, but alliances with these manufacturers give clients a reliable local service provider that can support them with the installation and maintenance of the equipment. With stock and offices in Monterrey, Queretaro and Mexico City, AEISA is in a good position to quickly address clients’ needs.

Modern techniques, such as X-ray computer tomography,

AEISA aims to promote X-ray and Eddy Current

are increasingly entering Mexican manufacturing

technology, the latter mostly alongside Rohmann. Eddy

processes in line with the aerospace industry. Escalante

Current’s applications in aerospace range from detecting

says that the technique was introduced to the country in

cracks to measuring corrosion. Another project will be the

2015 as local manufacturers required it. “X-ray computed

introduction of NDT services, mainly for the aerospace

tomography is growing quickly in many manufacturing

sector. To do so, the first step will be to acquire the ISO

sites in Mexico thanks to its advantages for testing

17025 certification, which AEISA expects to hold by mid-

because it provides a comprehensive view on the inside

2017, and later the NADCAP certification. The company

of parts,” he says. AEISA commercializes NDT equipment

already holds the AS 9120 certification.

and provides maintenance and repair services for the equipment. The company represents several brands

AEISA operates in many different sectors, automotive

in Mexico. Magnaflux and Xylon are its most relevant

being its main one. The fluctuations that these sectors

in terms of sales but Rohmann is gaining importance,

face led the company to diversify. Oil and gas, for example,

especially in the aerospace industry.

was among the industries that faced the greatest hurdles

in the last couple of years, but AEISA compensated for

company’s operations. He expects operations in the

related losses with gains in other sectors for a positive

sector to expand to 12 percent this year. “Customers

end-of-year result in 2016.

come to AEISA for its good customer service during the installation and maintenance processes,” says Escalante.

The company is also optimistic about 2017 as it

Results, he says, were slightly better in 2016 than in 2015

acquired new clients in the first months of the year but

thanks to aerospace. During 2017, AEISA has focused on

is still weathering initial concerns sparked by external

aerospace and automotive. The company expects 6-7

factors that weighed on manufacturers. In the wake of

percent growth in revenue during 2017, highlighting

a deteriorating US-Mexico relationship, the automotive

customer satisfaction. It also remains open to other

industry, for example, faced canceled plants and

possibilities such as a comeback in the oil and gas sector.

investments early in 2017. “While there have been negative comments from the US, our neighbor needs to see that

Considering the characteristics of the aerospace sector, it is

Mexico is not a competitor but a partner,” says Escalante.

the least likely to be affected by foreign protectionist policies,

At the beginning of the year, analysts predicted that the

in Escalante’s opinion, as the industry is extremely specialized

dollar could rise to MX$25, although it never did reach

and the supply chain is highly international. “The Mexican

that pinnacle. “But what really seems to impact Mexican

aerospace sector benefits from this. Investments come from

companies is the feeling of uncertainty, which has led

various countries, many of which are still committed to the

some to postpone investments. In all economic sectors,

country and its manufacturing capacities,” says Escalante.

projects are being placed on hold as investors wait for clearer US policies before taking serious decisions.” The

AEISA plans to continue growing alongside Mexican

atmosphere has since settled, somewhat. “We still do not

manufacturing and is not fazed by the hurdles the country

know what direction these policies will take but some

is facing, some of which can even be advantageous when

data is encouraging, such as the lowering exchange rate

added to verified high-quality production. Exchange rates,

between the peso and the dollar.”

for instance, have been beneficial for AEISA as many of its customers operate in dollars so a higher exchange rate

AEISA’s move into aerospace has been gradual,

motivates sales. “Mexico has many qualities that make it

representing only 10 percent of operations so far, but

a strong manufacturing destination and those cannot be

Escalante says the industry will gain importance in his

dismissed,” Escalante says.

INSIGHT

INNOVATION AS A STRATEGY FOR GROWTH LEONARDO ROMERO Director General of Helmut Fischer

On a daily basis, aircraft go from the relatively benign

X-ray source with an electron-scanning microscope (SEM).

environmental conditions at ground level to the extremely

This permits a more comprehensive sample analysis, as a

low temperatures and pressures of midflight. Added to the

traditional electron-scanning microscope only grants a

constant de-pressurization and pressurization cycles, the

view of the sample’s surface. Helmut Fischer’s technique

burdens placed on any aircraft would be sufficient for parts

simultaneously measures parts per million (ppm) of heavy

of less-than-perfect specifications to succumb to corrosion

elements from aluminum to uranium. This technology

and structural failure. In the case of aerospace alloys, an

augments analysis capacity while avoiding the need to

incorrect metallic distribution can be catastrophic. For

buy completely new equipment because the iMOXS can

that reason, all aerospace materials must adhere to strict

be retrofitted into existing electron-scanning microscopes.

resistance requirements and constant and reliable testing is necessary for all components.

The company’s goal is to introduce its new measurement technology to many manufacturing sectors. But since

Helmut Fischer, which specializes in coating thickness

aerospace is growing more than other sectors, Helmut

measurements, material testing and surface inspection,

Fischer has incorporated new clients from the sector.

believes the development of new technologies can

These include ITP in 2016, and the company is focusing on

reinvigorate testing. In 2016, the company brought X-ray

continuing relations with Safran Messier Dowty and Airbus.

fluorescence and radioactive isotope probes to Mexico. In

“Safran Messier Dowty is using our high runners, which

2017, it plans to bring a new line of ultrasonic equipment

measure the thickness of zinc and zinc-nickel coatings,”

to measure the thickness of materials, a portable X-ray

says Romero. For environmental reasons and lower costs,

device for spectral analysis and pulsed laser at a terahertz

zinc coatings are gradually being replaced by zinc-nickel

frequency to measure multilayers of paint. Of all these

in military and civil aircraft coatings. The company is also

techniques, Leonardo Romero, Country Business Manager

supporting Airbus to certify its equipment and has more

of Helmut Fischer, says the company “believes that the

projects in the pipeline for the sector. “In 2017, we expect

ultrasonic and X-ray fluorescence equipment will impact

to work with Aernnova and Honeywell Chihuahua. Both

the aerospace sector the most.”

companies showed interest in our equipment.” It is also developing projects for Eaton, Amphenol Aerospace and

Ultrasonic equipment measures materials’ thickness up to

Textron’s Hawker Beechcraft.

2in and has the advantage of not requiring the presence of metallic elements in the tested material. This characteristic

Romero expects the aerospace industry to continue growing

makes it suitable for the analysis of composite materials

even after recent hurdles are taken into account. “We feel

that are commonly used in the aerospace sector, Romero

that Queretaro’s aerospace sector has slowed down slightly

says. X-ray fluorescence, on the other hand, is a useful

since the US election in November 2016 but most players in

technique to determine the exact composition of metallic

the state are still optimistic about its future. In Queretaro,

alloys. In the aerospace industry these are often aluminum,

aerospace is more active than the automotive or the oil

titanium and nickel-cobalt alloys. Both techniques have the

and gas sectors,” he adds. Helmut Fischer works with many

added advantage of permitting a part to be tested without

different sectors so Romero says that this slowdown is an

dismantling it.

opportunity to enter new markets, such as jewelry, and to explore a return to oil and gas. In spite of the cited slowdown,

To address the testing needs of many sectors, the company

in 2016 the company still secured deals in Queretaro, closing

invests in the development of innovative equipment. In 2017,

a sale with CIDETEQ for the latest generation nanoindenter

Helmut Fischer performed the installation of the first iMOXS

that measures indentation hardness. This equipment will be

in a Mexican research center, which couples a modular

the first of its kind in Latin America.

INSIGHT

SCOTTISH POWERHOUSE SUPPORTS MONTERREY TESTING JUAN RODRÍGUEZ Director General of Exova Mexico

Monterrey was the second-largest contributor to Mexican

with 135 offices spread across 33 countries and in 2016, it

manufacturing GDP in 2016 but this cluster is mostly

reported almost 11 percent revenue growth totaling £328.6

incubating small companies, which among aerospace

million (US$435.2 million).

businesses means no on-site testing. While large organizations can develop their own testing departments

Exova Monterrey’s core business is mechanical testing

in-house, smaller manufacturers find the cost to develop

followed by metallography and nondestructive testing. The

entire testing labs prohibitively expensive. These companies

company is planning to introduce two additional testing

struggle to fund certifications, which Juan Rodríguez,

capabilities, immersion ultrasound testing and chemical

Director General of Exova Mexico, says are complicated to

tests to measure the percentage of oxygen, nitrogen and

obtain for any company.

hydrogen in super alloys and titanium materials. “We are fully certified for the aerospace industry as we possess

To address these companies’ needs, Exova has introduced

NADCAP and ISO 17025, and have certifications from

a series of comprehensive services to the region, offering

several aerospace giants including Boeing, GE, Rolls-Royce,

a more convenient alternative to outsourced testing.

Snecma Safran and Pratt & Whitney,” says Rodríguez.

“Certifications and approvals for the aerospace sector are

Following its local success, the company is considering

complex to obtain, so sometimes we are the only ones in

opening a second office in another state. A goal that it

the region to have them,” says Rodríguez.

plans to crystallize in 2018. “We want to be close to our customers to obtain immediate feedback,” says Rodríguez.

Exova opened offices in Monterrey 11 years ago, having

He is analyzing Queretaro and Guaymas, where ample

seen an opportunity to work with Frisa, and signed

potential customers have facilities.

another 10-year contract with it in 2016. Exova will offer the metalworker several aerospace testing services, including

Exova’s investments mimic its expectations for the

mechanical, chemical, nondestructive and metallurgy

aerospace industry. “The sector will continue growing. New

testing, for a value of £28 million (US$37 million). This

engine programs which use fuel more efficiently and reduce

alliance will require Exova to make an initial investment of

noise are being developed and will enter the market in the

£1.6 million (US$2.1 million) in its offices in Monterrey. “Our

coming years. Furthermore, the industry will demand the

offices in Monterrey have steadily grown over the past 10

replacement of old engines,” says Rodríguez. He also has

years as we have excellent support from our headquarters,”

high expectations for Mexico’s industry. “Mexico does not

says Rodríguez. “We have to increase our skills to address

currently assemble entire aircraft but this will develop as the

new needs for the local aerospace industry.” The company

country’s aerospace sector becomes fully fledged.”

focuses mainly on the aerospace sector in Monterrey. “Every Exova laboratory has different capabilities,” he says. “As

High expectations imply a lot of work. “We have been

a group, our goal is to provide a comprehensive service

busy thanks to strong local industry,” says Rodríguez. “Our

through our network.”

work volume has risen and we are improving our internal processes to keep up.” He plans to double Exova’s capacity

Exova Monterrey works alongside several offices in Canada,

for mechanical testing, including stress and creep testing,

the US and Europe. Their offices in northern Mexico support

and implement chemical testing by the end of 2017. “We will

the local sector and other countries, providing services to

need to increase our workforce to include an additional shift

all of Mexico and the US. This is thanks to strong customers

for several of our operations and acquire new equipment,”

including Bodycote, EZI Metales, Global Composites, ITP,

says Rodríguez. For 2017, the company expects to grow by

PCC Noranco, Snecma and Wyman Gordon. Globally, the

20 percent, encouraged by several new investments that

Scottish company is becoming a testing powerhouse

have been signaled by aerospace companies.

INSIGHT

A PAUSE TO BREATHE AND RECONNECT BEATRIZ AGUILAR General Manager of Axon’ Interconex

Products for the aerospace sector are designed according

The company’s work with the aerospace industry is not

to a key truth: keep weight and volume low, while ensuring

limited to airplanes. “We are working with a Mexican

reliability and quality. Cables are no exception to the rule.

drone manufacturer that is well-positioned due to its

Queretaro-based Axon’ Interconex has followed that

work with the Mexican Air Force, among other drone

axiom with success, introducing products for aerospace

startups,” says Aguilar.

applications among others, but a general slowdown in local manufacturing has led the company to take a moment to

Axon’ Interconex is also looking beyond the skies. “We are

tweak its processes.

working closely with the Mexican Space Agency (AEM) and several academic institutions to develop electronics for the

“Our aerospace division manufactures cables for harnesses

space sector,” says Aguilar. Through its work with AEM,

and cockpit equipment,” says Beatriz Aguilar, General

the company plans to generate regulations for harnesses

Manager of Axon’ Interconex. Cables used in airplanes

and their parts. Alongside the agency, it also participated

manage high frequencies and data rates while ensuring

in ProMéxico’s Plan Órbita 2.0 (Orbit Plan 2.0), which

reliability, electromagnetic protection and resistance to

aims to strengthen the Mexican space sector. The plan

low temperatures at high altitude. Above the Karman

was developed under the triple helix collaborative model.

line, conditions become much harsher. This line, set

Axon’ is participating in the tender for the construction of

at 100km above sea level, represents the boundary

platforms for the new satellites required by the Mexican

between the atmosphere and space, where cables for

government and is developing another astronautics project

satellites and space shuttles have to tolerate even lower

with an academic center. “These many projects reflect a

temperatures and higher radiation levels. “Because of

wish to diversify our services.”

these characteristics, manufacturing them involves a very artisanal process.”

Diversity is especially important now. Queretaro is facing a period of uncertainty in its manufacturing sector and orders

“We work with Picocoax® wires, tiny cables that

did not grow as expected, explains Aguilar. In the meantime,

compromise between a very small diameter (e.g. 0.20mm)

Axon’ Interconex will be internally restructured to allow it

and a capacitance of 50 to 100pF/m, meaning their

to remain strong. “This period will affect costs throughout

thickness is less than that of a human hair. Axon’ Cable,

the supply chain so we had to review our processes to avoid

a specialist in interconnect solutions, has wide expertise

raising our prices,” says Aguilar. She expects this internal

in the manufacturing of coaxial cables and harnesses for

restructuring, which includes training and process revision,

applications where a large number of signals have to be

will allow the company to weather the slowdown until the

transmitted with no interference.”

market bounces back. The timing, however, is opportune. “In 2017, ISO standards were updated. Slower demand will

Axon’ Interconex supplies the automotive, electronics,

give us time to invest in renovating these processes.”

aerospace and energy industries. The Queretaro division sells to different OEMs established in Mexico, local research

Axon’ Interconex’s goal is to continue focusing on the

centers and Mexican UAV manufacturers. Based on demand

generation of new projects. “We are now increasing our

and a positive reception, the company is investing in

capacities, such as moulding, overmoulding, stamping,

Queretaro. “We have moved operations from our foreign

mechatronic components, assemblies, wire pines,

offices into Mexico, which has allowed us to streamline our

interconnect pin headers or nanotechnologies,” says Aguilar.

processes.” says Aguilar. Axon’ Interconex was established

The company is confident of its future and is investing in

to serve Axon’s customers in the US and Mexico with a

restructuring its operations. “We will focus on increasing

competitive labor rate and proven quality.

sales by ensuring we maintain our high-quality standards.”

VIEW FROM THE TOP

ITALIAN METROLOGY EXPERT ENTERS QUERETARO AEROSPACE JOSÉ LUIS FIGUEROA Director General of Marposs Mexico

Q: What led Marposs to change its processes and enter

signals into visible light or infrared radiation and vice versa.

the Mexican aerospace sector?

This product can be used to measure many kinds of parts.

A: Our business model consists of manufacturing unique

Marposs also invested in generating an in-process gauge

products to customers’ specifications. The parts that we

for a grinding machine.

make for Safran cannot be used by any other company in the aerospace sector. Marposs entered the aerospace

Following industry 4.0 practices, Marposs is creating

industry by acquiring a tooling company in France that

and implementing a network that will collect data from

manufactures for Safran Group and Bombardier. Now that

machines related to the manufacturing process. This

these two aerospace giants have opened plants in Mexico,

information can be easily communicated to managers and

Marposs is using the same model to continue collaborating

supervisors, analyzed and used to improve operations. This,

with these companies in Mexico.

in turn, improves output quality. Marposs’ many products to measure grinding machines’ output had to be individually

Marposs Mexico started working for the aerospace sector

connected to the machine’s CPU, but Industry 4.0 makes it

in late 2016 but we expect the industry to represent 8-10

possible to share all this information through the internet.

percent of our profits by the end of 2017. In the next five to six years, our operations will be divided 50/50 between

Q: How will Industry 4.0 practices benefit Mexican

aerospace and the automotive sector. We now have the

manufacturing and what challenges do you see preventing

necessary tooling capabilities to make gauges for our

its implementation?

clients’ metrology needs in Mexico and are well-positioned

A: Industry 4.0 can help companies become more efficient

in Queretaro to provide specially designed tooling. Our

and reduce their costs. Information can be processed

future plans include an expansion into the other four

sooner, effectively preventing mistakes. This will also save

Mexican aerospace clusters.

time and increase accuracy. Industry 4.0 will generate many opportunities and improve practices. Some Mexican

Q: What challenges did Marposs Mexico face when entering

business owners are already taking the initiative to

the aerospace industry?

incorporate these technologies and local branches are

A: Entering the aerospace sector has been challenging

doing so at the request of their headquarters.

because the technical specifications are greatly different from automotive, which is our core business in Mexico.

Q: In which areas must Marposs Mexico invest to develop

Our goal is to meet the quality and delivery specifications

its aerospace division?

for the aerospace sector while maintaining competitive

A: Marposs Mexico is keen to grow its aerospace division and

prices. As Marposs Mexico extends its business from the

we are in a great position to do so. We will invest MX$10-15

automotive to the aerospace industry, it is necessary for

million (US$528,000-US$792,000) in machinery for the new

us to change the way we work. To boost our presence, we

workshop and in hiring more employees for the aerospace

have attended several aerospace events in Mexico alongside

division. So far, our automotive and aerospace divisions have

FEMIA, including FAMEX. FEMIA has been extremely

worked together but due to growth in the latter sector it is

helpful, introducing us to other companies through their

now necessary to open another facility in Queretaro.

B2B meetings. Q: Marposs invests 10 percent of revenue in R&D. What are

Marposs is a multinational company headquartered in Italy. It

the company’s most innovative products to date?

manufactures precision metrology equipment that can be used

A: In 2016, Marposs invested in reinforcing its new line of

in different sectors, including automotive, energy, oil and gas

optoelectronics, which is hardware that converts electric

and aerospace. It has branches in Queretaro, Saltillo and Puebla

INSIGHT

MEXICO’S ADVANTAGES WIDEN, SUPPLY CHAIN A WEAK LINK THAYNE HARDY General Manager of Amphenol Optimize

100

Mexico is an increasingly attractive manufacturing base

environment here and improving the talent pool. “I have

compared to China and other Asian nations, competing not

seen an evolution in Mexico’s manufacturing sector,” says

only on costs but on skills, although the local supply chain

Hardy. “When we first came into the country, we only

remains a weak link, says Thayne Hardy, General Manager

performed assembly using imported components from all

of Amphenol Optimize, the Mexican branch of the second-

over the world. Now, we are making our own components.”

largest interconnect and cable manufacturer in the world.

He says that several processes that were once only done in the US are now performed in Mexican maquilas, such

"Mexico has a clear advantage over other manufacturing

as material planning, purchasing and customer service.

countries such as China," says Hardy, because although

The knock-on effect is also a plus for employees. “This

the cost of manufacturing in either country is similar,

is beneficial for Mexicans who are seeing higher salaries

inflation is rising faster in the Asian powerhouse, leading US

because they are operating CNC machinery rather than

manufacturers into Mexico. “From 2016, we started seeing

manual machinery.”

a growing preference from US companies to manufacture in Mexico instead of China because they find this country

With more businesses coming to Mexico, competition

easier to manage,” says Hardy.

is increasing, which is also putting pressure on the local supply chain. Hardy says that the the lack of local suppliers

Parent company Amphenol has a worldwide presence with

is a growing issue. “While we perform CNC machining here

over US$6.3 billion in sales in 2016. In Mexico, the company

we still have to send products abroad for plating. It has

has operated as Amphenol Optimize for more than 32 years

been a struggle to get local suppliers for this process,”

with the goal of becoming a vital cog in an increasingly

he says. Amphenol Optimize is now looking for certified

demanding supply chain by taking advantage of the

suppliers “that are willing to undergo the most rigorous

country’s manufacturing benefits. "Mexico has been good

quality-control checks and that have the necessary capacity

for the company. From three plants and 360 employees in

and productivity.”

the 1990s, it has grown to 5,500 employees and five plants in Hermosillo, Tijuana, Mexicali and Monterrey."

As the company grows, it is also keeping an eye on potential problems caused by external factors. He is not concerned

The aerospace sector represents 40 percent of Amphenol

about the rift in Mexico-US relations since the inauguration

Optimize’s sales, making the industry its largest

of President Donald Trump, which some fear will hurt

manufacturing segment. Many of its products are being

Mexico’s manufacturing sector. “Everything will work out

sold to companies in Mexico. For instance, Safran Labinal

in the end. International trade is powerful and benefits

buys many of its connectors. Amphenol Optimize’s

both sides of the border because it creates jobs not just in

products for aerospace include connectors, sensors, flex

Mexico but also in the US.”

circuits, assemblies, and antennas. In Nogales, the company manufactures cable assemblies and PC boards for the

Amphenol is the second-largest connector manufacturer

aerospace sector. The company’s growth has led to the

in the world. To become number one, the company is

creation of a new sales unit, Amphenol Commercial. “We

balancing organic growth and strategic acquisitions. “We

are selling more and more and our key clients are coming

are striving to work both organically and through strategic

to Mexico, including Airbus, Boeing and their suppliers,”

acquisitions,” says Hardy. Amphenol Optimize expects to

says Hardy.

grow 10 percent in 2017 and has a positive outlook for the sector as more companies come to Mexico. “Mexico is a

Companies that are entering Mexico are also bringing their

rising force in the aerospace industry and about to reach

technologies and best practices, altering the manufacturing

its peak,” says Hardy.

INSIGHT

“

STRETCHING THE LIMITS OF MANUFACTURING

3D printing is the technology that will grow the most in the next 10 years”

is useful for most auto parts but cannot handle the heat

Victor Ruiz, Director General of 3D Systems

techniques. “The technique used depends entirely on

Manufacturing companies worldwide are touting the benefits

says Ruiz. “Stereolithography is the technique most used

of 3D printing, also known as additive manufacturing, for

in the aerospace sector.” Another useful technique for

product design optimization. Aerospace companies that

the sector is selective laser sintering, which uses a laser

have incorporated this technology have grown because they

source to sinter nylon or polyamide powders.

or stretch resistant materials required by an aircraft during flight. To manufacture aircraft pieces requires the more expensive stereolithography, which uses an X-Ray to harden a photosensitive resin in layers and provides more precise and larger pieces than other the final piece and the materials it will be made from,”

can create prototypes faster, shortening time to market, says Victor Ruiz, Director General of 3D Systems. But Mexican

3D printing is useful for the aerospace sector because

companies have lagged in incorporating this technology.

it permits the creation of lighter pieces, which is of the utmost importance in aircraft. It also saves time on piece

“3D printing is the technology that will grow the most

development but Ruiz sees potential in this technology

in the next 10 years but Mexican companies are only

beyond prototypes. “3D printing permits the design of

recently recognizing its potential,” says Ruiz, although its

parts that would not be possible by other technologies.

penetration varies by industry. The automotive sector is

Our company is shifting its vision from prototypes to

incorporating additive manufacturing without fear and Ruiz’

manufacturing parts for the automotive, aerospace and

expectations are positive for the Mexican aerospace sector,

healthcare sectors,” he says. “When the aerospace sector

as well as the consumables, manufacturing and healthcare

uses 3D printing to manufacture final pieces it will save

industries. “In the aerospace sector, most companies in

time, materials and money because it does not require

Mexico are foreign so they are well-acquainted with these

molds. Creating a plastic mold to manufacture only 1,000

technologies.”

pieces is not cost-effective.”

3D Systems was the first 3D printing company in the world

The main barrier for Mexican companies to incorporate

and now sells related printers, materials and software. It

3D printing technology is cost. A MultiJet machine

also offers on-demand manufacturing for several sectors,

has a price tag between US$80,000 and US$120,000

including aerospace, automotive and healthcare, the latter

while equipment for stereolithography ranges between

for which it supplies dental implants.

US$250,000 to US$600,000 per unit. The company sells approximately 20 to 25 machines per year

The Wohlers Report 2017, by Wohlers Associates, an

to manufacturing and 120 personal units per year.

independent consulting firm specialized in additive

However, “we have decided to stop selling equipment

manufacturing, valued the additive manufacturing sector at

for personal 3D printing because it is not as profitable

US$6.06 billion in 2016, with a corporate annual growth rate

per unit as industrial manufacturing,” Ruiz says. Additive

of 17.4 percent that same year. 3D Systems, founded by the

manufacturing is expected to continue growing and as

inventor of 3D printing, Chuck Hull, has grown even faster than

new technologies develop, it has potential to transform

the industry. “The company is growing at an exponential pace

manufacturing practices.

following the industry’s growth,” says Ruiz. 3D Systems pegs its growth at 32 percent per year globally. Results for Mexico

3D Systems has significant room for growth in line

are even better, with 60 percent growth in 2016 compared to

with industry trends. But Ruiz says that 98 percent

the previous year and a forecast of over 40 percent growth

of Mexican companies are unaware of the benefits of

for 2017. The company has 171 offices globally.

this technology so growth will depend on overcoming resistance to change. “In 2017, we expect 3D Systems

Ruiz explains that Mexican manufacturing companies

global offices to grow by 32 percent. For Mexico and

use mostly MultiJet Printing, which uses UV radiation to

Latin America, I would suggest 10 percent more as the

crosslink a photosynthetic polymer. This popular technique

region’s manufacturing is doing very well.”

101

INSIGHT

CERTIFICATIONS, REGULATIONS AMONG SUPPLY HURDLES GENARO MANILLA Director General of Coast Aluminum

102

As Baja California enjoys a period of accelerated growth,

thrive in the local market. The company’s revenue jumped 30

access to raw materials is becoming a crucial factor for the

percent in 2016 and it expects 22 percent growth for 2017.

success of the local manufacturing industry, including the

“We have incorporated more clients, some of them for the

aerospace sector. Genaro Manilla, Director General of Coast

aerospace sector. Most request AA7075, AA6061 and AA2024

Aluminum, says that among the state’s main challenges is

aluminum alloys. We are extremely strong in the north of

consolidating its supply chain amid a lack of local suppliers.

Mexico so we are helping existing clients to solidify in the

“Most raw materials used in the state are imported and

state. We can help them to focus exclusively on manufacturing

acquiring them domestically would help local companies

and to forget about inventory. By partnering with them we can

increase their competitiveness,” he says. “The challenge,

strengthen machining operations in the state,” Manilla says.

however, is that many complex and time-consuming

Coast Aluminum acquires its inventory from mills in South

certifications are required to import materials to the state,

Africa and Asia and distributes it in Mexico.

especially for the aerospace sector.” Coast Aluminum, a distributor of various aluminum alloys for the automotive, aerospace, metal mechanic, medical devices

ALUMINUM ALLOYS IN THE AEROSPACE INDUSTRY Alloy (AA)

Aerospace application

2024

Fuselage and wing skins, cowls, structures and repair and restoration

2124

Machined fuselage bulkheads and wing skins in high-performance military aircraft

2324

Lower wing skins and center wing box components

2524

Fuselage panels

Since the use of lightweight materials has become the rule

2624

Lower wing panels

in several manufacturing industries as a way to reduce fuel

5052

Fuel Tanks

consumption and reduce emissions, there is a market for

6061

Landing Mats

6063

Anodizing applications

7050

Fuselage frames, bulkheads and wing skins

7055

Upper wing structures, keel beams, longeron, seat tracks, cargo tracks, fuselage frames and fuselage stringers

7068

Valve bodies and connecting rods

7075

Skin sheet, structural plate components and general aluminum structures strengthening

7150

Stiffened upper wing and horizontal stabilizer panels, extruded fuselage stringers, keel beams and seat tracks

7175

Machined fittings

7255

Upper wing panels

and infrastructure sectors, is among the few aluminum suppliers in Baja California, which has been instrumental to the company’s accelerated growth. Added to this advantage, the price of aluminum and aluminum alloys have been on the rise in the last few years. According to CAMIMEX’ 2017 Annual Report, the value of aluminum transactions shot up from US$244 million in 2015 to US$3.4 billion in 2016.

aluminum in the aerospace industry, especially for aluminum alloys needed in aerostructures. For instance, aluminum and its alloys amount to 20 percent of a Boeing 787’s mass, while other metals including titanium and steel amount to 30 percent and composite materials to 50 percent, according to Asian Metals. The National Chamber of the Aluminum Industry (CANALUM) underlines that aluminum is the second-most employed metal after steel and Mexico accounts for 1.6 percent of the global aluminum production. This number amounts to 1.5 million tons and a production that has grown steadily at an average rate of 13.7 percent since 2011. These local and international trends and a strategic growth plan have provided Coast Aluminum with the opportunity to

Source: Continental Steel, Arconic, Kaiser Aluminum.

The company’s growth is a reflection of the expanding

6-7 million pounds of materials. This facility will supply

industrial sector in the state, which can be a double-

all types of manufacturing companies in the Bajio region.

edged sword. Baja California is growing very fast. In

“One of the reasons we chose it was the central location,

July 2017, the Minister of Economic Development of Baja

which also will allow us to supply Queretaro’s booming

California (SEDECO), Carlos Bonfante, told media that

aerospace sector.” The new facility will have a stock of 5

the state was the one that grew the most in number of

million pounds and potentially employ 80 people by 2018.

companies during 2016. And according to the Ministry of Economy, during 1H17 the state has received a FDI influx

One concern for Manilla is the potential hit to local

of US$1.05 billion, 20.5 percent higher than during 1H16.

competitiveness from the importation of illegal and poor-

The local aerospace equipment manufacturing sector

quality materials. “Without the proper regulation the

received a FDI of US$16.5 million during 1H17.

sector can become less competitive,” he says. Ironically, the problem was only exacerbated by new regulations

The constant growth of the aerospace industry in Baja

that came into force in 2016. “New regulations on the

California has brought its share of problems. The state

importation of materials implemented in late 2016 are

now lacks available real estate for new companies to

causing trouble for local companies,” Manilla says.

occupy or existing businesses to expand, which is a challenge that Coast Aluminum faces. “We are trying

These new regulations have complicated manufacturing

to expand our plant but it is impossible as there is no

practices. For instance, aluminum is now labeled as a

room. Industrial real estate is scooped up as soon as it

sensitive material so it requires a more comprehensive

is built and most industrial parks are already full. It is

and time-consuming revision process at customs. As

extremely hard to find real estate,” Manilla says. Instead,

Manilla explains, companies unprepared for the new

the company is restructuring its offices in Baja California

regulations are losing their IMMEX certification, which is a

to maximize its inventory in the available space, while also

significant problem as it makes them unable to import raw

taking advantage of its facilities north of the border. “We

materials and efficiently continue their manufacturing.

have the advantage of having a 200,000ft2 plant in Los

“These regulations have created complications for local

Angeles that allows us to quickly supply to Baja California

manufacturers, effectively slowing down the maquila

and to avoid excess inventory. We are fully aware of what

sector. Even though the sector is still growing, the new

local clients need so we can keep an efficient inventory

regulations are having an impact.”

and still supply them in 24 hours.” For Coast Aluminum, this problem can also be a market To further address its needs, Coast Aluminum went

opportunity. “These companies often contact us to supply

outside Baja California and opened a second facility in

them but they often require rare alloys such as titanium

Guadalajara, Jalisco additional to its locations in Tijuana,

that we do not handle because they require complex

Hermosillo and Ensenada and various spots in the US.

treatment.” Coast Aluminum is studying the pros and cons of importing these materials but “we cannot easily

This new facility, inaugurated in July 2017, is 65,000ft2 of

import any kind of material as it might contaminate our

area, has eight cutting machines and the capacity to store

existing inventory.”

103

INSIGHT

COATING COMPANY AIMS TO PROVIDE COVER BEYOND CHIHUAHUA RENE ESPINOSA President of Chihuahua Aerospace Cluster and Plant Manager of Metal Finishing Company (MFCO)

104

As Chihuahua continues to bolster its aerospace capabilities

OEMs. MFCO prides itself on holding “more Boeing special

with the introduction of additional processes, a strong base

process approvals than anyone worldwide,” says Espinosa.

to support the industry is more necessary than ever. These circumstances are also providing significant opportunities for

MFCO’s capabilities have expanded alongside those of its

suppliers to grow their own businesses, says Rene Espinosa,

clients. “MFCO is becoming one of the major coating and

Plant Manager of Metal Finishing Company (MFCO) and

chemical-processing suppliers for Bombardier in Mexico

President of Chihuahua Aerospace Cluster.

so we have acquired a significant number of new parts orders,” says Espinosa. The company is working on the

According to the Ministry of Economy, Chihuahua is the

second package transfer from Bombardier and has two more

second-largest historical recipient of FDI for the aerospace

programs lined up until the end of 2021. These projects will

sector, attracting US$604 million between 1999 and 2016.

push forward MFCO’s growth in Chihuahua and lead to a

The state received US$46.8 million in FDI during 2016

facility expansion. “We will expand by another 12,000ft2 to

alone. This growth was in part due to investments from

include new processes for steel parts and new paint booths.”

companies already established here. “Different OEMs such as Boeing, Airbus, Bombardier and Embraer are growing and

Attracting new clients will lead to the development of more

developing their supply chain in the state,” says Espinosa.

capabilities locally, says Espinosa. “In 2016, we signed a long-term agreement with Hermosillo’s Figeac-Aero to

For its part, Metal Finishing Company (MFCO) has found

support Latécoère for the Boeing 787 program. The OEM

opportunities to incorporate more programs for which the

is introducing two interesting programs, one for the cargo

company had to strengthen its anodizing capabilities and

doors for the 737 and the other for the 787. During 2017

acquire more certifications for major OEMs. “One of our

and 2018 we will continue focusing on NDT for steel and

goals is to continue developing our nondestructive testing

composites. We are strong in composites in the US and

(NDT) capabilities, including ultrasound inspection programs

we can expand this work to Mexico.” The company is also

to support the inspection of composites,” says Espinosa.

developing capabilities for Eddy Current and fluorescent penetrant inspection for aluminum, which has allowed

The largest family-owned aerospace finishing company in

it to receive a higher number of testing requests from

North America that offers heat treatments, MFCO’s growth

local companies. During mid-2017, MFCO acquired a new

reflects that of the overall sector, Espinosa says. “Our three

processing line for steel parts, which will include passivating,

main customers grew 300 percent during the last months

zinc nickel, magnetic particle inspection and cadmium

of 2016 and the first half of 2017, so a significant challenge

plating, as the company’s core business is aluminum work.

was keeping up as we had to continuously hire and train

“This year we greatly invested in the improvement and

people.” However, he says this process was simplified by

expansion of capacity of our paint booths operations. We

MFCO’s well-developed training programs, which it even

also increased our sales by 100 percent in 2016 and we will

offers to OEMs and Tier 1 companies. MFCO is constantly

expand our operations another 100 percent in 2017.”

working alongside Boeing, Spirit and others to develop new training programs.

MFCO wants to acquire more chemical processing lines and paint booths and to consolidate its aluminum heat-treatment

The company offers heat treatments, paint applications and

operation. “We acquired the NADCAP certification for

chemical processing, including coatings, primers, chemical

aluminum heat treat in July 2017 and the oven is certified

conversion, anodizing and nondestructive testing (NDT).

for Bell Helicopter and Bombardier, which is incentivizing the

It has clients across Mexico, mainly in Chihuahua, Saltillo,

latter OEM to transfer more work into the state. The company

Monterrey, Hermosillo and Queretaro that supply major

expects this growth trend to continue until 2019.”

INSIGHT

INDUSTRY 4.0 CAN CHANGE MANUFACTURING IF COMPANIES LET IT ÁNGEL DE LOPE General Manager of Kaeser Compresores de México

The pace of overall FDI in Mexico slowed in 2016 but

SAM 4.0, which uses an optimization algorithm to generate

Queretaro’s aerospace sector bucked the trend to post

the most energy-efficient solution for every compressed-air

percentage growth in triple digits. It is an indication of the

station, arrived in Mexico in 2016. The system uses Industry

industry’s strength and Ángel de Lope, General Manager

4.0 principles to monitor system performance throughout

of Kaeser Compresores de México, says if companies want

the entire use of the product. “Industry 4.0 allows our

to keep up, the use of Industry 4.0 can be a powerful tool

compressors to connect to each other and to share real-

for optimization and efficiency. Unfortunately, he adds, its

time data on the compressor. We can monitor a compressor’s

penetration “is still incipient.”

efficiency to provide better services and maintenance, effectively improving its use.”

According to the Ministry of Economy, FDI for the aerospace sector in the state rose 171 percent in 2016, compared with

The main barrier to the incorporation of Industry 4.0

the previous year, to total US$8.7 million. “FDI in Queretaro

processes, according to de Lope, is a lack of awareness.

is still very strong,” says de Lope. “The manufacturing sector

“There is a long way to go as there are very few companies

has grown the most in the center of Mexico, including San

actively incorporating these practices because they are

Luis Potosi, Guanajuato and Queretaro.” This growth has

unaware of the many benefits that Industry 4.0 can bring

brought numerous benefits to Kaeser Compresores, the

to the sector. Only when companies see these benefits will

Mexican branch of a German manufacturer of industrial air

they be interested in adopting it.”

compressors and vacuums used in nearly all manufacturing sectors. “Every manufacturing sector needs compressors,

While communicating the benefits of fully connected

from textiles to aerospace, from food to automotive,” he says.

compressors is proving troublesome, this has not slowed

This widespread use helped Kaeser Compresores’ turnover

Kaeser Compresores’ growth. According to de Lope, 2017

jump 24 percent in 2016.

looks extremely positive. By midyear the company had grown 32 percent compared with the same period the

To continue growing, the 90-year market veteran is

previous year. The company also increased its staff by 25

investing heavily in technology to improve processes and

percent. Next year, however, might be tricky. “We hope

reduce energy expenditures. Innovation will help keep the

Kaeser Compresores will continue growing at the same

company ahead of its competitors, says de Lope. In 2017,

rate as previous years during 2018 but we estimate a lower

“we introduced a new rotary screw blower that is 25 to 30

rate although still in double-digits. It will depend on the

percent more efficient than other products. We are also

exchange rate, the economy’s behavior and the growth

introducing new compressors in the 200-250hp range that

of our competition. The exchange rate may vary widely,

are 30 percent more energy efficient than its predecessors,”

depending on what the US does, but we expect the Mexican

he says. De Lope adds that Kaeser Compresores’ products

peso to depreciate slightly.”

have several advantages, including low life-cycle costs, easy installation and superior connectivity due to their

Kaeser Compresores prides itself on its customer service and

incorporation into centralized control systems, such as the

points to its 24-hour support, 365 days a year as a factor in

company’s Sigma Air Manager (SAM) 4.0. “Our products

its success. “If a machine breaks down, we can temporarily

provide more compressed air using less energy.” This is

substitute it so production is not affected. The main benefits

important as compressors may have the largest electrical

we provide customers is access to our large inventory and

motors in a manufacturing plant and can represent over 40

excellent personnel.” Kaeser Compresores is betting on a

percent of the facility’s total electricity consumption. Even

bright future for manufacturing in the region and thus for

so, their use results in significant energy savings, which

compressor sales. The company is building a new facility that

makes them increasingly attractive to manufacturers.

will be completed by October 2017.

105

INSIGHT

SPANISH COMPANY CERTIFIED TO HELP LOCAL AEROSPACE ITZIAR LARRAÑAGA Director General of Aeroprocess TTT

106

The growth of Queretaro’s aerospace sector has created

division,” says Larrañaga. In 2016, the company had no

new needs that can be addressed by small local companies

invoicing for aerospace but from the beginning of 2017 it has

performing processes and treatments locally to reduce

been incorporating aerospace customers. Now, its aerospace

transportation costs and boost competitiveness. TTT Group,

operations represent 15 percent of all operations. Overall,

a Spanish company that specializes in heat treatments,

Aeroprocess TTT has grown 40 percent in Mexico.

is bringing these services to Queretaro under the name Aeroprocess TTT.

"The aerospace sector is a long-term investment because certifications must be approved by OEMs, a process that

“Logistics used to be too expensive because there was

can take a long time," says Larrañaga. TTT Group handles 23

no company here that could provide the required heat

different processes developed according to its clients’ needs

treatments. The parts had to be outsourced to the US and

and Aeroprocess TTT is planning to continue expanding,

brought back to Mexico,” says Itziar Larrañaga, Director

adding more certifications and installing new technologies.

General of Aeroprocess TTT. “Providing this process locally saves companies a lot of money. Aeroprocess TTT has the

“The vision of Juan Carlos Corral, president of Queretaro

necessary services, quality and accreditations to provide

Aerocluster, has been excellent. We are now part of the

these services, she adds."

cluster’s board for local aerospace SMEs. We work with the cluster and receive support from the government of

TTT Group has over 50 years of experience in heat and surface

Queretaro,” says Larrañaga. Aeroprocess TTT also belongs

treatments. The company is a leader in Spain, Larrañaga says,

to Querétaro Aerosme’s S.C., a network of seven aerospace

and is increasing its market share in France. The group is made

SMEs. According to ProMéxico, the network is one of 12

up of four companies, each specializing in a different process:

new business groups created as part of an International

vacuum heat treatments, cryogenic treatments, HVOF and

Promotion Program called Export Network Manager

hard chrome. The main customers for these processes are in

(REDEX). Members of REDEX come from all parts of

the aerospace and automotive industries but the company

Mexico and export worldwide. Aerosme's S.C. also works

also has operations in machine tools, capital goods, oil and

in the US and offers several services for the aerospace

gas, among others. In Queretaro, the company operates

industry, including machining, laser cutting, heat treatments,

as Aeroprocess TTT and specializes in the aerospace and

engineering, design and composites.

automotive industries. Aeroprocess TTT has had the AS 9100 certification for heat treatments since 2015 and in September

Larrañaga says Queretaro will grow much more as local

2016 the company acquired the Nadcap certification for the

manufacturers push other companies to enter the state and

same process. Larrañaga says that the investment to improve

acquire industry accreditation. However, these companies

the company’s procedures has placed it in a favorable position

also require an investment program that will allow them

in the local aerospace sector.

to adapt their entire systems to the needs of OEMs. She compares the aerospace sector in Queretaro to that in

"As Mexico becomes less reliant on the US, its manufacturing

Spain’s Basque Country, which went from zero to a steady

sectors are moving faster," says Larrañaga. According to

multibillion-dollar industry in just 25 years. Larrañaga credits

El Financiero, the aerospace industry in the region has

this growth to the trust that has developed between large

grown 17 percent on an annual basis since 2007. In 2016,

companies and SMEs. “The industry is starting to trust small

Queretaro attracted 45 percent of Mexico’s total foreign

companies. When the latter start operations, they lack

direct investment for aerospace. Yet, there are still hurdles

knowledge but this changes in time. We now work with big

to overcome. “Since the beginning of 2017, Queretaro has

companies like Safran, ITP, Aernnova, which know we can

faced an economic slowdown that affected our automotive

do an excellent job.”

INSIGHT

“

MEXICAN SEAT MANUFACTURER WANTS MORE LOCAL SUPPLIERS

With the integration of Mexican companies into the supply chain, Chihuahua can become a onestop city” Javier Mesta, COO of Soisa Aerospace

manufacturing, certifications and integration, producing fully assembled products based on an idea in the client’s mind,” says Mesta. The one area Mesta is working to improve is the company’s use of local raw materials. The company is working closely with local suppliers to achieve that goal. “We assemble an aluminum part that is sent to Metal Finishing Co. (MFCO) for special treatments. It is then returned to Soisa Aerospace for final processes before

Of the raw materials used by manufacturers in Chihuahua,

being delivered to its final destination,” says Mesta. This

less than 4 percent are produced in Mexico, says Javier

is in sharp contrast to other local companies that must

Mesta, COO of Soisa Aerospace. He says that needs

send their products across the border and back, which

to change. “All our fabrics come from Europe and our

increases logistics costs while also forcing companies

synthetics come from the US and Europe but we are

to deal with customs. “With the integration of Mexican

now developing more local suppliers. We are a Mexican

companies into the supply chain, Chihuahua can become

company and we want to add more Mexican companies

a one-stop city. With more local companies, we have

to our value chain,” he says, adding that incorporating

access to more processes, so the entire product can be

Mexican companies into the assembly line is vital

manufactured locally.” Soisa Aerospace is working with

because doing so will provide added value to the city’s

FEMIA to search for local suppliers. “There is a lot of talent

manufacturing sector.

in Mexico,” says Mesta, “Soisa Aerospace is working with Chihuahua’s Aerospace Cluster to develop suppliers not

Soisa Aerospace was founded 11 years ago by Jesus and

only for us but for other manufacturers too.”

Javier Mesta. It entered the aerospace sector making canopies and dress covers and aims to be the preferred

Soisa Aerospace prioritizes passenger comfort and works

supplier in aircraft interiors, but Mesta says that importing

with Tier 1 seat manufacturers or directly with the OEM.

materials hinders the production process. “The main

In the latter case, Soisa Aerospace developed a seat

problem we face is importing products because it takes

cushion in Mexico alongside Embraer. This, says Mesta,

a long time. For instance, a fabric request can take up to

was “one of the greatest achievements for the company

12 weeks.” External pressures are making it even more

because it was the first cushion for the aerospace industry

imperative to speed up turnaround. “There is growing

developed in Mexico.” The cushion was developed jointly

pressure from OEMs to shorten lead times. The products

between Soisa Aerospace, La Salle University (ULSA) and

are needed more quickly.”

CONACYT for the Embraer E2.

A 100 percent Mexican company, Soisa Aerospace entered

Soisa Aerospace is also focusing more on the laboratory

the aerospace industry about 10 years ago. It now holds

tests required to acquire certifications. The company

25 percent of the seat market and sells to OEMs, such

can provide certifications for flammability, endurance or

as including Embraer. Soisa Aerospace started as an

comfort of the cushions that it manufactures. The most

assembly company that provided little added value

important areas for the seat sector are flammability

to the sector, according to Mesta, but over time, the

certifications and toxicity, says Mesta.

company developed the capabilities to produce aircraft interiors, arm rests, cushions and dress covers. Soisa

Mesta says the entry of more companies into the aviation

Aerospace also incorporates additional features, such

sector is a welcomed spur that will help Soisa Aerospace

as foam inserts, to deliver integral products, sometimes

to continuously improve. “New competitors are forcing us

made to order, that have gradually increased the added

to work harder and be more innovative and creative. There

value it provides its customers. As a result, the company

are always new people knocking on the company’s doors.

is enjoying double-digit growth each year. “We began

It is hard to enter the aerospace sector and once in, it is

as an assembly company; now, we are a completely

necessary to build a positive reputation. Our goal is to be

integrated process company from design, engineering,

the best in terms of customer satisfaction."

107

INSIGHT

MEXICAN COMPANY CLOSES TREATMENT GAP HUMBERTO RAMOS CEO of HT-MX

108

There are few companies in Mexico capable of performing

The company’s most popular processes for the aerospace

secondary treatments, which means unfinished products

sector are treatment of carbon alloys, including processes

are sent north of the border and back again for final

such as quenching, carburizing, carbonitriding, nitriding,

processes. Read between the lines and what appears is an

nitrocarburizing, annealing, normalizing and stress relief.

opportunity. HT-MX, a fully Mexican SME Heat Treatment

It also performs hardness and microhardness tests among

plant, is taking aim at this opportunity, says Humberto

other complementary services and sees a growing demand

Ramos, the company’s CEO.

for controlled atmosphere heat treatments. “At this point, the aerospace sector represents a huge opportunity

“HT-MX Heat treatment fills a gap in the supply chain and

as it involves processes that are extremely hard to do,”

helps companies produce whatever they want to produce.

says Ramos. "A successful heat treatment has significant

For the past 15 years, the state of Chihuahua has been

engineering behind it because the process requires

unable to provide special treatments, not machining or

precise control of time and temperatures, consideration

stamping but secondary manufacturing processes including

of the part’s chemical composition and analysis of the

coating, paints and heat treatments. By closing this gap in

atmospheric conditions," he adds. While challenging, the

the supply chain, we enable the region to add more value

process is also extremely important because it determines

to the products it manufactures. Our goal is for Chihuahua

the mechanical properties of parts.

to stop relying so much on manual labor and to become more technologically oriented by offering finished products

While the availability of these service providers is expected

worldwide,” says Ramos.

to attract more manufacturers, Ramos says there remains a need for more special-processes suppliers. “When

The company is a relatively new player in the sector. It

companies come to the state to evaluate a potential

began operations five years ago when it focused mostly

investment, they analyze the supplier base before making

on the automotive industry, where higher volume orders are

a final decision.”

commonplace, says Ramos. “Once we gained experience in this sector we were able to fine-tune our projects and now

In aerospace, HT-MX focuses mostly on alloy steels,

we are beginning to contact aerospace companies. So far,

emphasizing excellent delivery times, quality service and

the reception has been extremely positive. At this point,

competitive prices. “Our goal for 2017 is to transform HT-

we divide our operations equally between automotive and

MX into an aerospace company. We are installing a new line

aerospace but we expect our aerospace division to quickly

of furnaces exclusively for the aerospace sector. To fully

surpass automotive.”

enter the industry, we are improving our lean manufacturing systems and quality system.”

Heat treatments vary widely depending on the part, the alloy the component is made of and its final use. Yet, these

HT-MX is also investing in more specialized equipment

treatments are extremely important and controlling the

to improve its offer. “We are installing a couple of new

heat treatments that a part undergoes allows manufacturers

aerospace operations including hot isostatic pressing (HIP)

to determine its hardness and other mechanical properties.

and Austempering.” The company will begin introducing

HT-MX has a complete metallurgical laboratory that helps

additional furnaces and expects that these processes will

customers analyze their products and even design the heat

allow it to continue its growth spurt. “In 2016, we increased

treatment they require. “We began doing mostly stainless-

our batch capacity by 100 percent. Our sales are expected

steel work for interiors but now we perform more steel

to grow by 65 percent in comparison with 2016. We

work as we incorporate more customers who manufacture

currently focus on heat treatments but we are always open

structural parts made of stronger alloys,” Ramos says.

to new services and processes.”

INSIGHT

ELIMINATING POTENTIAL HUMAN ERROR A KEY DIFFERENTIATOR

Miguel Saldamando Rangel Operations Director of Tecnica Test

Miguel Saldamando Flanagan Director General of Tecnica Test

Israel Salas Commercial Director of Técnica test

Despite a pressing need — or opportunity — to bolster the

that can detect shiny objects and identify defects that

aerospace supply chain, the lengthy timeframe to reach

are unnoticeable to the human eye.” Técnica test expects

ROI along with stringent certifications are discouraging

to eliminate human error from manufacturing and testing

some new entrants, according to Miguel Saldamando

processes and according to Saldamando Flanagan, the

Rangel, Operations Director of Técnica test.

company’s equipment can already reduce human error by 20 percent.

“In aerospace, production volumes are smaller,” he says. “When companies have a return of MX$0.50 (US$0.03)

However, Técnica test has found that potential clients

per part on a 1 million-component deal it is no problem.

do not always know the advantages they can get from

But when processes are cut down to 4,000 pieces or

state-of-the-art measuring equipment. “Companies are

less, clients do not think it is a good business.” Mexican

not aware that they can get hardness or defect detection

companies realize they can get their money back faster

data without touching the components,” says Israel

in other industries such as automotive, with a likely ROI

Salas, Commercial Director of Técnica test. “Optical

in five years instead of the 20 it takes in aerospace.

and magnetic induction solutions are ideal alternatives

“That forces investors to think twice and harder before

for noninvasive tests, which can ensure quality without

committing to any project,” says Saldamando Rangel. “As

compromising the parts.” Having a touch-free solution

a result, we tend to work mostly with large companies

becomes even more important when considering that

that can handle slower returns.”

quality tests are now standard for all components produced and not just for sample pieces.

Técnica test has been in the market as a supplier of nondestructive testing equipment for 30 years. Located

Saldamando Rangel expects Técnica test’s solutions to

in Queretaro, the company’s main clients are part of

become more common in the aerospace sector. At the

the automotive production chain but for the past five

moment, the aerospace sector represents 10 percent of

years, it has grown its presence in the aerospace sector

Técnica test’s operations. The company has found a place

by focusing on one of the biggest OEMs in the country:

for its solutions with clients such as Bombardier and ITP

Bombardier.

that are in need of microscopes and metallographic equipment. “The first half of 2017 was slow but we

Técnica test has a direct partnership with equipment

expect to close the year with a similar growth rate as in

manufacturer Foerster, a German leader in nondestructive

2016,” says Islas. “By the end of 2016 we grew 15 percent

equipment based on Eddy Current testing, and Karl

and we expect that due to reduced uncertainty and an

Deutsch, a German manufacturer of portable instruments

improvement in the Mexican economy, 2017 and 2018 will

and stationary testing systems. These two brands have

be successful years.”

helped Técnica test offer Bombardier reliable equipment for material testing and aircraft maintenance inspections.

That being said, Saldamando Flanagan finds there are still opportunities for the Queretaro government to boost

“We are introducing new optical technologies coupled

certification among smaller companies and promote

with artificial intelligence,” says Miguel Saldamando

participation in quality-driven sectors like aerospace.

Flanagan, the company’s Director General. “We are

“Orders are fewer and returns might be slower but in

bringing equipment from Finland that features cameras

the end, aerospace is a good business.”

109

ROUNDTABLE

WHAT BARRIERS DO SMEs FACE AND WHAT CAN BE DONE TO SUPPORT THEM?

The aerospace industry in Mexico continues to grow at an accelerated pace, but most of that growth is from international companies establishing maquila operations in the country. When asked, these companies will note a lack of local suppliers to address their needs. Yet, SMEs are quick to point out the many difficulties in entering such a demanding sector with long ROI times. For that reason, some entities representing or supporting the sector are looking for effective ways to incorporate these companies into the aerospace value chain.

110

Competitiveness relies on the development of the supply chain, as well as supporting certification processes and providing workshops on compliance. This support is of the utmost importance because we had noticed that some small and midsized companies were unaware of the proper practices regarding this subject so we are working to help them improve. One of our main goals is to help local and foreign companies interested in entering the Mexican market to join forces and strengthen

LUIS LIZCANO Director General of FEMIA

the supply chain with the least possible risk. FEMIA supports the development of the supply chain, as well as supporting certification processes and providing workshops on compliance. This is of the utmost importance because we noticed that some small and midsized companies were unaware of the proper practices regarding this sector so we are working to help them improve.

Sourcing raw materials has been particularly complicated because certifications and standards are very stringent, hindering the benefits that Queretaro enjoys in such a central location. Raw materials must also be certified and since aerospace tends to require small amounts of less common resources, the first companies in the supply chain do not consider it attractive to process expensive certifications for these quantities. Of the four or five types of aluminum that are used in the aerospace

JERĂ&#x201C;NIMO SĂ NCHEZ Executive Director at HYRSA Aerospace

sector, each can have another three or four variations. Maintaining stocks of this type of alloy is complicated and as the industry is just starting to develop, locating providers for this material is difficult.

We must prioritize the development of a national supply chain. It is important to identify successful companies that could become aerospace suppliers but have not yet dabbled in this area. These companies usually have potential to become suppliers but refrain because they are unaware of the opportunities or they think the certification processes are too long and resource consuming. For SMEs it is even more challenging because they need more support to comply with certifications on

TOMĂ S SIBAJA Executive President of Aerospace Cluster Baja California

their own. As a cluster, we must help SMEs access funds from the federal government and to find the appropriate aerospace advisors to guide them according to their niche. Our mandate is to increase national content through local suppliers because it will help the overall industry in the long term.

INSIGHT

FINISHING PROCESSES FOR COMPANIES SOUTH OF THE BORDER GUILLERMO GONZÁLEZ Plant Manager of Platinadora Baja

The tough requirements to enter the aerospace sector can

Even though the company launched its incursion into the

be a barrier for Mexican companies, but there is one way

sector only seven years ago, the industry now represents

to help ensure a successful incorporation into the industry’s

between 25 and 30 percent of the company’s sales, with

value chain, says Guillermo González, Plant Manager of

medical devices representing between 20 and 25 percent,

Platinadora Baja: prioritize quality.

automotive about 5 percent and the rest commercial services. “We focused on the aerospace sector after

“To position a company in the aerospace sector, follow the

seeing market trends that favored it,” says González. “Five

strictest quality requirements,” he says. “Companies must

years ago, we invested in this plant because we believed

become trustworthy suppliers through the incorporation

the constant migration of aerospace manufacturing into

of strong quality systems and products. Ensuring

Mexico would make it a good investment.” The company’s

quality should be a first priority for an SME, followed by

strongest area for the sector is plating for connectors, a

competitiveness through low costs and short delivery

high-volume product.

times.” While entering the sector is not easy, it is certainly a sound bet, González adds. “Certifications and approvals

Platinadora Baja works with Tier 2 and 3 companies, including

of prototypes for aerospace are hard to obtain, but once

TE Connectivity, ITT Cannon and Delphi Connection Systems.

acquired the sector has a great return on investment. This

The presence of these kinds of service providers is of great

industry operates with long-term contracts.”

help to multinational companies. “Our services greatly benefit local companies. Without these services, companies

Platinadora Baja has 21 years of experience providing plating

would be forced to send their products to Europe or the

finishings to many maquila sectors. The company entered

US to continue the manufacturing process. Our presence in

the aerospace and defense industry in 2010, performing

the state allows them to reduce their logistics, importation

nickel and cadmium finishing. “This allowed us to develop

and labor costs.” The company has ambitious growth plans

a process for platinated aluminum connectors. We built a

including the incorporation of X-ray machines, atomic

pilot line with excellent results. Although the line did not

absorption equipment and current rectifiers.

have a large volume capacity, it produced outstanding, quality products,” says González. Quality alone, however,

As with many other companies in border states, Platinadora

will not get the job done. “Entering the aerospace sector is

Baja is conscious of the possible impact from the

only possible if a company has the capabilities to compete

renegotiation of NAFTA. “The entire sector is awaiting

and supply a trustworthy product. Products have to be fully

the results,” says González. However, he says that the real

traceable, comply with our client’s specification and pass all

challenges the industry is facing are not foreign but local.

tests. This sector also has short delivery times.”

“The Mexican government needs to develop policies that promote the generation of local companies and education

The company took advantage of the pilot line’s success to

centers that allow these businesses to reach the level of

transform it into a production line with limited capabilities,

competitiveness enjoyed by foreign companies. Mexico’s

but here, too, it ran into hurdles. “The requirements

internal policies should focus on the development of

(for aerospace) are even higher than the ISO system,”

Mexican startups.”

González says. “We realized that it would not be possible to have this line next to our other commercial lines due

González maintains a positive view for Platinadora Baja’s

to potential contamination issues.” For that reason, the

continued growth. “We are beginning new projects with

company decided to acquire a new site and build a new

aerospace clients that we expect will lead to an expansion

line from scratch focused on technical plating for the

in the short and middle term. It might even be possible to

aerospace industry.

open new facilities.”

111

INSIGHT

EMC TESTING A DIFFERENCE MAKER AS PLANES BECOME MORE AUTONOMOUS FRANCISCO SEPÚLVEDA Director General of SI-EMC

112

Airplanes are increasingly incorporating technology and

Among the tools SI-EMC employs in its studies are numeric

reducing manual processes, to the point that many aircraft

simulations and modeling with FEKO, an EM simulation

can now take off and land automatically, with the pilot

software, which simulates how an antenna should radiate

acting only as a failsafe in case something goes wrong.

and the direction of greatest radiation. “If the simulation

As the aircraft becomes more autonomous by integrating

is correct, it is possible to save lot of design and test time

electronic equipment and software, ElectroMagnetic

for components or electronic circuits. With a computer, it

Compatibility (EMC) compliance and testing become

is possible to create a virtual reality that represents the

increasingly important to the safety of flyers, according

fuselage, boarded antennas, circuits, their behavior and

to Francisco Sepúlveda, Director General of Sistemas e

other data,” says Sepúlveda.

Ingenieria de EMC (SI-EMC), a specialized provider of EMC training and test solutions.

Working with advanced technologies requires a labor force equipped with the appropriate knowledge, and Sepúlveda

“If there is too much electromagnetic noise caused

says it is imperative that Mexico continue developing this

by electronic devices such as computers, radios, or

talent. “Design and testing will evolve in line with the

smartphones inside an airplane, it can interfere with the

processes that are already in place to perform assembly.

aircraft’s equipment,” says Sepulveda. “The use of electronic

If the aerospace sector benefits the country’s economic

equipment, software, and antennas inside the aircraft is

and technological development, no one can stop it. For

essential and with the growing integration of these, EMC

that reason, it is increasingly important to increment EMC

studies and testing ensure airplane equipment does not

compliance.” SI-EMC works with OEMs coming to Mexico

interfere with the correct functioning of each.”

by integrating their equipment, electronics, antennas or electric harnesses. Sepúlveda says the sector has extremely

"Proper EMC testing that follows aerospace standards can

high standards, as it cannot work with cheap materials.

be the difference between life and death," says Sepúlveda.

“Everything needs to be high-quality and follow all EMC

“For safety, all electronic equipment needs to be working

technical regulations to ensure maximum airplane safety.”

correctly, all the time. If not, the airplane could crash,” he says. “Many aircraft accidents due to interference

Sepúlveda sees significant potential in Mexico’s aerospace

from atmospheric discharge, electric transients or signal

industry. “Many foreign businesses are interested in Mexico,

interference can be prevented if EMC design and tests

which will lead to the development of more capabilities

are performed correctly. For that reason, strong testing is

beyond maquilas,” he says. “These companies realize that

the aerospace sector’s goal to ensure the best safety and

they can also do research and development in the country.

quality products.”

The entire design, testing and manufacturing process for an aircraft and its components can be done in Mexico.”

SI-EMC provides technical training on EMC regulations for aircraft, including Radio Technical Commission for Aeronautics

SI-EMC expects to grow significantly in 2017. One of its

(RTCA) DO-160G, which also regulates all electromagnetic

goals is for potential clients to recognize the company as

emissions from antennas and electronic equipment in

a Mexican specialist fully familiar with the requirements of

an aircraft. This regulation must be closely followed by

local and international regulations, and which can develop

manufacturers to ensure safety. The company designs and

solutions and training for EMC applications. “Investing on

builds complete solutions for EMC tests; such as anechoic

training and technical knowledge locally,” Sepúlveda says,

chambers, which are radio frequency (RF) shielded rooms with

“will help companies to save money, speed up product

electromagnetic (EM) wave absorbers to get a nonreflective

design and compliance because there would no longer be

echo-free volume for testing aircraft components.

a need to send engineers abroad for special training.”

INSIGHT

STABILITY THE NAME OF THE GAME DAVID BERRUECOS Plant Manager at Switch Luz/Electro-Mech Components

Stability is the name of the game in the switch segment of

is that one can always continue growing if quality standards

the aerospace industry, where volumes are low and quality is

are met. A recall in the aerospace sector is unheard of. An

everything, says David Berruecos, Plant Manager at Switch

aircraft might involve millions of pieces and all of them must

Luz/Electro-Mech Components.

work to perfection.”

Switch Luz, the sister company in Tijuana of Electro-Mech

Switch Luz has prevailed in this market not only because

Components, has manufactured switches for major OEMs

of its flexibility and capabilities, but also due to its ability to

such as Boeing and Embraer for over 20 years. Founded

offer lower costs thanks to its location in Baja California. “The

in 1963, the company participates in the avionics sector by

global aerospace sector is trying to reduce costs and under

manufacturing electronic equipment to be fitted in an aircraft.

these circumstances, bringing manufacturing into Mexico

“Our push button switches have not changed much over the

is an excellent opportunity to take advantage of the lower

past 20 years. There are over 20,000 airplanes flying at any

labor costs and high technical capabilities,” says Berruecos.

time so it is not feasible to change the switches in all of them

"All companies in the market are constantly on the lookout

as it would be prohibitively expensive. We believe that our

for competitive prices," he says, which is allowing the sector

switches will remain in use for a long time but we also have an

to grow in the state and the country. “Mexico’s central region

R&D division that works closely with the sector. The aerospace

is developing a strong aerospace industry supported by the

industry is so closely interconnected that it is not possible to

federal government, but northern Mexico represents the

change an individual part without alerting all partners.”

global, strong Mexico. The latter region hosts the vast majority of exporting companies and the largest number of aerospace

That does not mean production is stagnating. In 2016, Switch

companies.”

Luz began distributing switches for Airbus. Although the company started with small volumes, Berruecos is certain that

For the sector to continue growing, Berruecos says the federal

once the OEM sees the quality and value of Switch Luz-Electro

government should prioritize the industry in a similar way that

Mech Components products, orders will increase. This new

it did the automotive sector. “The industry is still facing many

switch is already being used in the Airbus A350. “Volumes are

challenges, including an overwhelming amount of reporting

still small because Airbus manufactures about 450 aircraft per

for imports and exports and finding appropriate qualified

year in different models, so not that many are required. But

personnel. The strict regulations involved in the aerospace

we consider this a good start.”

sector require that companies attract not only technicians but engineers, which raises salaries and overall costs. This

"Switch Luz manages about 670 different products, all of

situation is forcing companies to optimize their processes and

which are sold in small numbers," Berruecos says. “All switches

to do more with less. Component costs are not dropping in

are exclusively made for a specific function of the aircraft.

the short term.”

We have the capabilities to manufacture small, medium and large volumes with the same standards of quality and delivery

While Berruecos expects that 2017 and 2018 will be years of

times.”

stability for aerospace, he warns that changes are coming to the market. New players from China and Russia are entering

The aerospace sector is growing in two ways, Berruecos

the market and that will affect the two major OEMs. Other

continues. The first relates to the increased number of aircraft

companies that are not specialized in aircraft are also entering

orders and the second is aircraft repairs and maintenance

the sector, such as Mitsubishi, which is producing 90-seat

as a result of this larger number of planes. These two areas

planes. These will be popular in Asia because they will increase

allow Switch Luz to expand at a stable and sustainable pace.

connectivity within China. All players must be attentive to the

“The good thing about working for the aerospace industry

changes in the market.”

113

Machining equipment / CIIA

114

INSIGHT

SMALLER COMPANIES FACE HURDLES BREAKING INTO INDUSTRY JESSICA MADRID Director General of Laser & Manufacturing

Even with the right certifications, it is sometimes difficult

the US and 5 percent to Germany. “However, our goal is to

for small businesses to crack their way into the aerospace

increase this number to 50 percent,” says Madrid. “We are

industry. A lack of effective networking and trust issues

in a good position to target the aerospace sector and our

are among the hurdles these companies face, says Jessica

capabilities in terms of equipment brands and systems are

Madrid, Director General of Laser & Manufacturing. “Maybe SMEs need more knowledge to understand designs or how to make a price projection,” she says. “These are some of the reasons why companies are still not taking their chances with us.” As a small provider, Laser & Manufacturing knows firsthand the challenges of trying to make a name for itself in the aerospace sector. The company focuses on laser and water-jet cutting and is certified in ISO-9001 quality practices. “Our focus was automotive when we started operations in 2011. Although it was a different industry,

“

similar to what clients can find in the US.”

We are making positive contributions to the country but as a business, we are not getting much in return”

Madrid also highlights the potential benefits of working

we saw potential to grow in the aerospace sector but so

with SMEs in terms of human capital. “In a big company,

far, it has been hard to enter.”

people can be highly skilled but if there is no one to notice their talent and show them appreciation, they can desert

The aerospace industry represents 5 percent of Laser &

easily,” she says. Having a more personal approach with

Manufacturing’s operations. Madrid expects to continue

its employees has allowed Laser & Manufacturing to retain

growing in this sector alongside the industry’s development

quality human talent that can help the company meet

in the country. “The aerospace sector in Queretaro has

its clients’ demands. “Almost 70 percent of our staff are

completed its establishment phase and is now looking

engineers.”

at growth opportunities,” she says. “There is still work to do but everything is moving along.” Leon and San Luis

Along with laser and water-jet cutting, Laser & Manufacturing

Potosi are two other regions where Madrid sees potential

is exploring bending and machining applications. “We will

for the company although she is currently not focusing on

have a bender installed by the end of 2017 and by 2018 we

expanding to another state. “Our clients have to take care of

would like to have a new machining center and another

added logistics expenses and if we are far away from them

laser-cutting machine,” Madrid says. However, even growing

it could impact negatively on our business.”

its installed capacity is a challenge for a small company. “We had to look for financing in the US because no local bank

The company has already approached FEMIA and a group

would trust us or our operations,” she says.

of exporting aerospace SMEs called Querétaro Aerosme’s. This group is one of the 12 groups in ProMéxico’s

The aerospace industry is a long-term investment and

RedExporta plan implemented in 2016 to incentivize

sometimes SMEs cannot afford to wait years to see financial

Mexican exports through the consolidation of exporting

results, explains Madrid. “The aerospace sector is moving

networks supported by foreign representation offices in

in the right way but the country still needs to improve in

countries such as the US.

terms of financing. We need better incentives from the government for local companies,” she says. “We are making

At the moment, only 30 percent of Laser & Manufacturing’s

positive contributions to the country but as a business, we

production volume is destined for exports, 25 percent to

are not getting much in return.”

115

Person operating equipment / CIDESI

MACHINING

Component machining is an essential process for many manufacturing industries, from medical devices to automotive parts. It is also instrumental in every step of the construction of an airplane and its parts, and is often used to manufacture tools and other supporting equipment. While machining pervades many sectors, the aerospace industry requires the use of advanced materials and more complex processes, with the highest quality standards. Computer numerical control (CNC) machining is essential for the sector as it provides capabilities that manual machining cannot.

The sector often uses special materials, including stainless steel, nickel, aluminum bronze, nickel aluminum bronze and manganese bronze, which also require the use of specialized equipment. Nonetheless, Mexican companies that are already providing this service for other industries, such as automotive or medical devices, are expanding their capabilities and venturing into the sector with mixed success.

117

CHAPTER 5: MACHINING 120

ANALYSIS: Strict Tolerances Demand Advanced Equipment

122

INSIGHT: Jorge Ávila, Chandler Industries

123

VIEW FROM THE TOP: Nora Guerra, Omni-X

Hugo Valdivia, Omni-X

124

INSIGHT: Jerónimo Sánchez, HYRSA Aerospace

125

INSIGHT: Javier Betancourt, Sargent Aerospace Mexico

126

INSIGHT: Roberto Amado, ISA Ingenium

127

VIEW FROM THE TOP: Benito Gritzewsky, HEMAQ

128

ROUNDTABLE: How Would You Describe the Penetration of Industry 4.0 Practices?

129

INSIGHT: Heberto Angulo, CSS Manufacturing

130

AIRCRAFT SPOTLIGHT: Boeing 767

132

INSIGHT: Blanca López, MIMSA

119

ANALYSIS

STRICT TOLERANCES DEMAND ADVANCED EQUIPMENT The high-quality demands of the aerospace sector have put pressure on both suppliers and manufacturers of manufacturing and machining equipment. However, with the introduction of Industry 4.0 practices, meeting even more stringent standards is possible

120

The average width of a human hair is only 50µm, the

control (CNC) equipment. With computer-aided design

silk thread of a spider web is between 3-8µm and

(CAD) and computer-aided manufacturing (CAM)

bacteria have an average length of 1-10µm. Component

software, a component must only be outlined digitally

manufacturing in the aerospace industry is so extremely

for the equipment to translate all lines and spaces into

precise that it must address tolerances narrower than

cutting paths that result in the final piece. According

1µm. Complying with these dimensional standards is

to the material specified and the tools available in the

what gives aerospace companies like Bombardier the

manufacturing cell, the software does all the necessary

confidence to guarantee 99 percent reliability of its

calculations to determine all rotary and linear speeds

aircraft. Machining plays a key role in delivering complete

for both the tool and the component. The software then

parts that meet these strict standards.

transforms the production steps into commands for the CNC equipment to interpret and perform. If necessary,

To understand how machining operations participate in

the equipment can automatically change tools stored in

the aerospace production chain, it is necessary to first

the manufacturing cell’s magazine.

have a clear idea of what machining is. Manufacturing is constantly evolving as new materials come into play

The introduction of automation technology can naturally lead

and components demand engineering of more complex

to greater productivity and faster production. However, that

geometries. Today, processes are divided between additive

does not necessarily mean components will automatically

and subtractive manufacturing. The former refers to all

maintain the same quality. According to Marcos Sepúlveda,

processes that deliver a component through controlled

Director General Mexico and Latin America of machining

material addition and is more extensively covered in

chuck manufacturer company SCHUNK Intec, equipment

chapter four, Indirect Suppliers. The latter, also known

has to be optimized according to the pressing needs of the

as machining, includes all activities that include material

industry. “We had to evolve to offer greater cutting speeds

removal; the most common are turning, milling and drilling.

and machining conditions had to become more efficient,” he says. “As speed increases, manufacturing tolerances are

Sandler Research expects a 5.68% increase in CAGR in the machining sector

narrower. This forces companies to be more demanding

Turning is the process in which a rotary cylinder is shaped

to units between 3-4m that can be easily accommodated

by a fixed tool that moves linearly over a component

at a maker’s facility,” says Clemente Hernández, General

while it spins. Milling involves the use of a rotating tool

Manager of chuck manufacturer SMW Autoblok. “This has

that moves linearly over a fixed workpiece. Finally, drilling

made tooling and part machining much more flexible.” The

refers to the perforation of a piece with the use of a

use of alternative materials such as aluminum and titanium

rotary spindle. Depending on the material used and the

has also forced the industry to optimize its processes and

desired final geometry, calculations must be made to

deliver precise and durable tooling components that can

determine the cutting speed, or feed, and the dimensions

perform at the necessary speed and tolerance.

when sourcing their tools.” Just as the aerospace sector has incorporated new standards and innovated in its technology, the machining sector has made R&D a priority to comply with stringent manufacturing requirements. “The machining industry has slimmed down from transfer machines measuring 15-20m

of the tool required.

INNOVATING BEYOND HARDWARE Although these processes can be done manually, the

Hardware, however, is not the only area where machining

need for productivity and reliability led to automation

companies are looking to innovate. The growing trends

and the now commonly used computer numerical

of Industry 4.0 and the Smart Factory are gradually

permeating manufacturing processes, including machining

resources to invest in advanced manufacturing equipment,”

and how it can deliver better results. As with any other

says Manuel Nieblas, Partner and Manufacturing Industry

automated equipment, CNC manufacturing cells can deliver

Leader at Deloitte Mexico. “The situation worsens when we

enormous amounts of data regarding the manufacturing

consider there are no real incentives from the government

process and its efficiency. The data generated is useless,

to incorporate advanced technologies at national suppliers.”

however, unless it can be employed to further optimize the entire production floor.

There is a way for companies to meet their automation goals, though. Within the robotics sector, it is a common

By connecting the advantages of CNC production with

practice for smaller companies to acquire used equipment

the principles of connectivity and data analysis inherent

from larger suppliers. These machines may not have the

in Industry 4.0, companies can detect and prevent

latest software in the industry but they help SMEs bridge

unscheduled downtime, thus reducing costs. At the same

the technological gap with their potential clients.

time, maintenance operations can be scheduled around production deadlines without affecting the company’s

The machining sector offers a similar alternative that allows

overall output. According to PwC’s Industry 4.0: Building

companies to integrate new technology without having

the Digital Enterprise research of 2016, 50 percent of

to wait for larger companies to discard their equipment.

2,000 executives surveyed in 26 countries see data

Refurbishing companies like SIMSA have specialized in

and analytics as a priority during the decision-making

retrofitting machining equipment to incorporate CNC

process. Furthermore, the study shows an expected cost

controls and increase companies’ productivity. “A Mexico-

reduction of US$9 billion or 3.7 percent by 2020 in the

based company that can refurbish grinding, balancing and

aerospace, defense and security industries thanks to the

polishing equipment to the correct machining standards

implementation of Industry 4.0 solutions. “The industry

is invaluable and we expect this business to double our

has reacted to client needs to make their processes more

company’s growth rate, or better,” says Ricardo Martínez,

efficient,” says Sepúlveda. “Industry 4.0 makes companies

President of SIMSA, adding that equipment usually had to

work more closely with their clients to sell solutions

be sent to the US, Japan or Europe to be renovated, leading

rather than specific products.”

to great interest from companies looking for a local partner. “Two years after opening the plant, we reached full capacity

With a growing backlog in aircraft production – 5,744

and are already investigating an expansion.”

units only at Boeing – there is a definite opportunity for more suppliers to participate in the aerospace production chain. As a result, machining companies will

GLOBAL COST REDUCTIONS EXPECTED PER INDUSTRY (US$billions and percentage per year until 2020)

have a chance to grow their participation in the market.

Industry and market research company Sandler Research

3.7%

US$5 billion by 2020 with a compound annual-growth

Automotive

rate (CAGR) of 5.68 percent between 2016 and 2020.

28 3.9%

Market research company Technavio, on the other hand,

Chemicals

has a more promising outlook for the machining industry.

49 3.9%

The company expects a CAGR of 6 percent between 2016 Electronics

and 2020 with the Americas representing 28 percent of

62 3.7%

the global machining market. Furthermore, according Engineering & construction

to its most recent study, the automotive, aerospace and metal fabrication sectors will be among the main drivers

78 78 3.4%

for the industry’s growth.

Forest, paper & packaging

CNC equipment will be essential in this development but not

Industrial Manufacturing

4.2% 4.2%

all companies are ready to embrace advanced machining and automation equipment. PwC’s research shows than only

Metals

Industry 4.0 technology. Although that number is expected

52 52 3.6% 54 3.2%

33 percent of the executives surveyed are ready to embrace Transportation & logistics

to reach 72 percent by 2020, in Mexico there is a definite

61 3.2%

lag in the implementation of advanced technology. “SMEs advances can offer and they do not have the necessary

Aerospace, defence & security

expects the machining center market to represent over

are practically unaware of the advantages that technology

0 Source: PwC

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INSIGHT

SUPPLY CHAIN GAPS FORCE RELIANCE ON US

“

Companies are spending a lot of time looking for suppliers and they can be right next to you” Jorge Ávila, Operations Manager of Chandler Industries

122

a single client and brought in more business over a long period of time. Now, we have several projects running at the same time and have a very aggressive plan for the future,” says Ávila. Chandler Industries launched new products in 2017, including two new families of Coupler Clamp shells, and is generating a third family of products with Eaton Aerospace, the company’s main client. The machining company also collaborates with Emerson, Parker Aerospace, Zodiac Aerospace and GE.

Chihuahua’s strategic location facilitates business with the US and northern Mexico but the lack of aerospace suppliers

In the medium-term, Chandler Industries’ goal is to

can be a challenge, says Jorge Ávila, Operations Manager

incorporate a few five-axis machining mill centers to

of Chandler Industries, which has had to turn its eye to

support the horizontal machining equipment assimilated

other cities while relying on the US for specific processes.

as part of a 2017 project. Chandler Industries has five facilities, four of which are located in Minnesota and

“For instance, while we recently incorporated two more

the last in Chihuahua. The Chihuahua facility represents

suppliers with sufficient storage capabilities in Mexico,

5 percent of Chandler Industries’ business but aims to

they cannot supply our aerospace division because raw

grow to 15 percent in the short-term. “The company has

materials for the industry have higher requirements. We

grown quickly,” Ávila says. “The only challenge is the time-

have started to look outside the city and we recently

consuming validation of projects, which causes delays. At

found a few suppliers in Tijuana but we still rely on the

Chandler Industries, we want to be faster.”

US for special processes,” says Ávila. Although Chihuahua’s location close to the US border makes it easy for IMMEX-certified Chandler Industries to import raw materials from the US, the company requires a variety of processes that are not readily available in Mexico. These include anodizing, heat treatment and

During 2017 the company will grow 35 percent in revenue and equipment in comparison with 2016

coating processes. While there are some companies in the state with these capabilities, they do not have the

Amid the chatter regarding the renegotiation of NAFTA,

necessary certifications for the aerospace industry.

Chandler Industries remains optimistic. In fact, the

Industry group FEMIA is among the entities looking at

company has dramatically increased its operations since

possible solutions. “FEMIA aims to understand the needs

the renegotiation was announced, Ávila says. “We only

of every single facility,” says Ávila.

expect a revision of the existing agreement and nothing else. There is significant investment of US companies

The association brings together all aerospace companies

in Mexico and that will not change. To be honest, I do

in Mexico to connect those looking for specific services or

not believe that a renegotiation of NAFTA can affect

investment opportunities. “Companies are spending a lot of

operations in Mexico at this point,” says Ávila. "There

time looking for suppliers and they can be right next to you,”

are areas in which NAFTA can be rewritten to benefit the

says Avila. He adds that governmental support for smaller

maquiladora industry."

companies would help address gaps in the supply chain by facilitating the acquisition of necessary certifications.

Beyond suppliers, Chandler Industries sees no obstacles in its path. “In 2017, the company will grow 35 percent in

Chandler Industries, created in Montevideo, Minnesota in

revenue and equipment in comparison with the previous

1962 and acquired in 2011 by Arch Equity Partners, performs

year. There is a huge opportunity in the aerospace

highly specific machining, manufacturing and assemblies

sector as many companies need machining and several

for the aerospace, defense, industrial and medical sectors.

businesses in Mexico are looking for suppliers, so we have

The company has been in Chihuahua since December 2013.

many chances to increase our number of customers and

“It was difficult to begin working in the state with new

to grow our business with the ones we already have,”

customers and certifications. We started operations with

Ávila says.

VIEW FROM THE TOP

TOOLING EXPERT LOOKS TOWARD SOUTH AMERICA

Nora Guerra President of Omni-X

Hugo Valdivia General Manager of Omni-X

Q: How is Omni-X increasing its presence as a tooling

with Mexican society to empower employees and

powerhouse in Mexico?

consolidate a transfer of know-how.

NG: In 2016, we created two new alliances to address our clients’ requests, one with a US manufacturer of

Q: How is Omni-X managing the period of uncertainty

bender machines called Horn Machine Tools (HMT) and

brought about by the US presidential election?

the second with a Swiss company called Wecotech,

NG: The company has been growing enormously in

which manufactures end-forming machines. In Mexico,

2017 despite the uncertainty created at the end of 2016

these alliances will allow us to respond to the rapid

in the wake of the US election result. Many of our US

growth of the automotive and aerospace sectors. We

clients were wary of the actions their president said he

are restructuring the company to better handle this

would take regarding trade. Nevertheless, our European

expansion. In 2016, our workforce expanded by one-third

customers are strengthening their position in the region

so we are investing in our employees by bringing trainers

and investing more with us.

from Switzerland and the US. Omni-X Mexico is a mature company, so our customers HV: We are also increasing our capabilities and focusing

feel confident in the quality of our products. Five years

more on the customers’ needs and on our alliances

ago, our goal was to be known in the country, but our

with those two companies. Omni-X is in continuous

clients now know who we are and how we work.

development taking the best practices from our sister sites in the US and the Czech Republic to develop our

HV: We do not depend on only one economic sector.

own engineering, sales and machining departments.

Omni-X is active in aerospace, automotive and commercial appliances, so if one sector is hit we can rely on the

We achieved a very solid platform in our facility in

others. One of our strengths is our customer service. Most

Queretaro. In the past five years, this facility was the

of our competition is from the US and cannot provide

fastest growing of our three plants in Mexico, the US and

customer service in Mexico. Customers know this. They

the Czech Republic.

are aware of the benefits we can provide.

Q: Last year you mentioned that the attraction of qualified

Q: What is Omni-X’s short-term growth strategy?

professionals was a challenge. What is the company doing

NG: We expect continued double-digit growth in 2017. One

to address this?

of our strategic targets for 2018 is to begin expanding our

NG: It is generally difficult for us to find qualified people for

presence in Latin America, especially in Argentina and Brazil

our specific sector, but during 2016 we were lucky to find

where we already have a footprint but not a permanent

employees with more qualifications for machining processes.

presence. Our customers in those countries are pushing

We are finding better people, so the level of graduates in

us to become more active. There are not enough tooling

Queretaro might have improved. It is also possible that as we

suppliers in Latin America so it is a good opportunity for

continue growing we attract better people.

us. For now, we are focusing on covering that market from here. We might then open an office followed by a plant.

This year we joined CANACINTRA. Among the benefits the chamber offered was the dual-training system it is developing. This program allows students at universities

Omni-X is a machining and tooling company founded in the

and technical schools to work in their field while they

Czech Republic. Its office in Queretaro was launched in 2012 to

study. The chamber is looking for partner companies to

support the US market but is now focusing on Latin America. The

participate in this program, Omni-X is actively engaged

company performs tooling for OEMs and Tier 1 and 2 suppliers

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INSIGHT

WHEN GROWTH MEANS CHANGE JERÓNIMO SÁNCHEZ Executive Director of HYRSA Aerospace

124

Rapid growth in air travel led to an increase in aircraft

“Foreign manufacturing companies are increasingly

orders and created a significant backlog for major OEMs.

recognizing the importance of SMEs in Queretaro’s supply

Some companies see in this backlog a strong opportunity

chain and our collaboration with them is strengthening and

for individual companies and for Queretaro’s manufacturing

leading to new projects.” The objective of this collaboration

sector, which is developing new capabilities as it gradually

is to manufacture entire parts instead of only components,

consolidates, says Jerónimo Sánchez, Executive Director

says Sánchez, adding that the state has Mexican SMEs with

of Hyrsa Aerospace, a fully Mexican company that

the certifications to manufacture components for aerospace,

manufactures fittings, bushings and connectors.

including parts for landing gears, fuselage and turbines. Others are also working with advanced materials for the

“The global aerospace sector has a significant backlog

sector including composites.

and existing manufacturers cannot keep up with aircraft demand,” says Sánchez. By the end of 2016, Airbus reported

While a growing number of parts are being manufactured

a commercial backlog of 6,874 aircraft. Boeing’s backlog

in Queretaro, the state is still highly reliant on imports to

hit 5,715. While orders have decreased during the past two

manufacture them. “The state now manufactures wings and

years, the aerospace sector remains confident that this

fuselages but these parts can involve up to 90 percent of

strong backlog will translate into a period of stability, leading

imported components.” Sánchez and many other members

many to see the industry as a sure business opportunity,

in the sector are trying to change this. “Alongside foreign

especially in Mexico. “The aerospace sector involves long-

companies we are pushing toward the substitution of

term projects in comparison to other sectors. Some of

imports for local products.”

these contracts can last between 10 and 15 years, which is beneficial for Mexican manufacturers,” says Sánchez. “Local

The state is working to consolidate its supply chain. Some

manufacturers are producing tried and true products that

SMEs have been certified with the support of the Program

already have a developed market.”

for the Development of High Technology Industries (PRODIAT) but there is still room for improvement in the

The industry’s potential has not gone unnoticed among

development of the supply chain and in the integration of

investors. A clear example is Queretaro, which developed

SMEs. “Some SMEs are afraid to enter the aerospace sector

a booming aerospace industry in less than two decades.

due to high initial investments and long ROI times but it

Sánchez credits the collaborative work of all players for this

is a significant and profitable opportunity,” says Sánchez,

growth. “Both public and private sectors are making a great

emphasizing the importance of incorporating them into the

effort to strengthen the industry. The aerospace sector is

supply chain. “SMEs are the basis of every manufacturing

also gaining importance in the state and for the past three

sector.”

years I have seen more interest from the government in supporting the sector.”

For Sánchez, the aerospace industry was a personal challenge. Hyrsa started operations over 50 years ago in the food and

Growth can also mean evolution and this seems to be the

beverage industry before diversifying into the aerospace

case for Queretaro. “At first, Queretaro’s aerospace sector

sector. Hyrsa’s goal is to become a national supplier for OEMs

was mostly comprised of subsidiaries of major OEMs, which

and MROs in the short term. “We have the capabilities to

received significant support from a government that was

continue growing. We use only 30 percent of our installed

focused on attracting of FDI.” Yet, Sánchez points to a small

capacity for the aerospace sector and, at the rate we are

but growing number of local SMEs and the support from the

growing, I expect to double our capabilities in one and a

local government and major companies as a sign that the

half years.” In the long term, Hyrsa aims “to become the key

sector is becoming more welcoming to Mexican businesses.

machining company for small parts for aerospace.”

INSIGHT

INVESTMENT IN TECH AN INVESTMENT IN THE FUTURE JAVIER BETANCOURT Plant Manager of Sargent Aerospace Mexico

As Sonora’s industries adapt to the needs of an increasingly

As the company expands, it is investing to bolster its

demanding manufacturing sector, local producers are

manufacturing capabilities through the incorporation of

investing in technology to keep up with the rapidly evolving

new processes and technologies. To address the sector’s

market, says Javier Betancourt, Plant Manager of Sargent

needs, it is switching to more complex machining, including

Aerospace Mexico.

5-axis CNC, integrated either vertically or horizontally and incorporating hydraulics processes.

“Sonora’s manufacturing environment has changed greatly during the past few years. It used to incorporate more

Like other companies in the state, and across the country,

labor-intensive processes and now includes more high-tech

Sargent Aerospace emphasizes the need to improve the

processes, which are more skill-intensive,” says Betancourt.

local supply chain to the point where processes can be completed domestically. “The main obstacle we are facing

Maquiladoras have been good to Sonora and vice versa.

concerns the unavailability of special processes in the

The state’s governor, Claudia Pavlovich, says the maquila

state, which forces us to send unfinished pieces to the US

industry represents 21 percent of the state’s GDP, brings

and Canada,” says Betancourt. He says that Mexico needs

US$200 billion in FDI and generates 2.7 million direct and

to incorporate these processes because it would help

over 7 million indirect jobs. Foreign income entering the

manufacturers dramatically reduce production times. “At

state’s manufacturing sector rose by 4.7 percent in 2016,

this point we need to send these products abroad, wait

the highest in the past three years. Sargent Aerospace has

two to four weeks for them to come back, receive them and

been among the beneficiaries of this growth. “Our plant

continue with the manufacturing process before sending

in Guaymas is the company’s most profitable due to our

them abroad again for a final treatment,” says Betancourt.

careful control in terms of quality, delivery, safety and

He sees an investment in treatments and other special

costs,” Betancourt says.

processes for the aerospace sector in Sonora as a large business opportunity.

Sargent Aerospace, acquired in 2015 by RBC Bearings, is a US company that manufactures precision parts and

The problem has hounded the industry for many years. “We

components for aerospace engines, structural airframes

have a couple of suppliers in the region but they are not

and landing-gear components. Its plant in Guaymas,

growing. While Mexico has aerospace hubs in Queretaro,

Sonora, has NADCAP and ISO 9001:2008 certifications

Chihuahua and other states, I do not see anyone paying

and manufactures components for sealing solutions and

attention to special processes,” says Betancourt. He adds

hydraulics. “We are manufacturing large-diameter ceiling

that the state needs a strategy for the next five to 10

rings for engines, which control airflow. These products

years to provide foreign investors with a clear picture of

are often manufactured in the US or Europe by manual

the near future. “I feel that the government is prioritizing

machining but Sargent Aerospace developed and patented

this. Mexican organizations such as FEMIA and the five

an exclusive process for their manufacture,” says Betancourt.

aerospace clusters are also supporting the industry. Once

Sargent Aerospace manufactures mainly for OEMs including

this investment is complete we will change the world’s

GE and Pratt & Whitney. The company is working with GE’s

perspective of Mexico’s aerospace sector.”

new generation of motors and developing its European market with French engine manufacturer Safran Snecma.

To achieve that goal, Betancourt says key players must also collaborate in the process: “Sonora’s manufacturing

“2016 was a great year for Sargent Aerospace as the

companies have to work together and share their experiences

company grew in employees, technology and revenue.

in the sector, to learn from each other and simplify processes

2017 is also going great, we are on the right track.”

to develop the local manufacturing community.”

125

INSIGHT

QUERETARO SME TARGETS STRATEGIC AEROSPACE PARTNERSHIPS ROBERTO AMADO Project Director of ISA Ingenium

126

As major aerospace companies continue their expansion

stress in mechanical and structural components to predict

in Queretaro, the sector requires suppliers to support

potential breaks, and provides 3D modeling, reverse

them, especially in terms of development of technology,

engineering and design updates of tools and semiautomatic

research and development, mechanical design, automation

workstations. The company uses mostly SolidWorks but

and advanced manufacturing, says engineer Roberto

also has capabilities for Solid Edge, Inventor and CATIA.

Amado, CEO of ISA Ingenium. He adds that it is not just the aerospace industry that needs to see an improvement

“Having a close relationship with technological partners

in advanced manufacturing, also automotive and other

such as Bosch, Misumi, Balluff, Festo, Datalogics, SMC and

industrial sectors.

Siemens allows it to stay at the forefront of technology, integrating innovative products into its projects,” says

“Even though in Querétaro there are a lot of good

Amado.

workshops that work with excellent quality, the state’s capabilities for advanced manufacturing are still limited

“We can manufacture different mechanical components

because the state needs more certified suppliers that

that involve milling operations, turning operations, CNC

use advanced equipment for manufacturing and certified

operations, mechanic welded components and welded

processes,” says Amado. “The entire country has room for

structures.”

improvement in advanced manufacturing and technology development. Mexico could benefit from investing in

ISA Ingenium also has capabilities for checking fixtures,

advanced manufacturing and technology due to the

retooling, vision systems, manufacturing cells, reverse

automotive boom across the country.”

engineering of parts and the mechanical design and assembly of special machinery. “Our goal is to become a

While many OEMs have come into the state, once they are

strategic partner with our clients to help them design and

here they often find themselves lacking the specific tooling

manufacture the necessary tooling for their production."

to finish their products. Mexican companies can fill this market gap, Amado says. “Large companies need suppliers

“If needed, we can also provide engineering services as PLC

to address this market.” ISA Ingenium was created for this

programming and control systems in case a workstation

purpose. “Our mission is to provide industrial solutions

requires a programmable logic controller (PLC),” says

in terms of mechanical design, engineering services,

Amado. The company works mostly with Tier 1, 2 and 3

automation and the manufacture of specialized tools,

international companies.

such as gages, fixtures, semiautomatic workstations and special devices, designed and manufactured specifically

Given its track record, ISA Ingenium says it is ready to tackle

to allow our clients to increase their competitiveness.” The

the aerospace sector but that it will take time. “We are

company works in many different manufacturing sectors,

focusing on obtaining the necessary certifications for the

including electric appliances and automotive. “We work to

automotive sector. Once we have those, we will look to

the highest quality standards to comply with our client’s

aerospace,” says Amado.

requirements in terms of costs, quality and delivery times.” Entering the sector will be a gradual process. “We will need ISA Ingenium develops technological, automated projects,

to acquire proficiency in CATIA, a more comprehensive,

including the conceptual design of mechanical tools and

broad and expensive software in comparison to SolidWorks.

semiautomatic work stations, their manufacture, assembly

We believe that entering the aerospace sector will be a

and start-up. The company has capabilities to develop

middle-term project unless we find specific niches that we

Finite Element Method (FEM) analysis, used to measure

can address.”

VIEW FROM THE TOP

PREPARING THE INDUSTRY FOR WHAT IS COMING BENITO GRITZEWSKY Director General at HEMAQ

Q: As a Mexican company, what was HEMAQ’s strategy

and support certifications and re-certifications, which

to compete with international distributors?

stipulate companies meet very specific requirements to

A: All the lines that we carry are exclusive, which is why

operate in the sector.

we have over 5,800 machines installed and supported in our country. We understood the market’s demands

We have high expectations for the aerospace industry’s

and have been able to prepare ourselves accordingly,

growth. The country has the required skills, we just need

with the right human resources, the right quality and

to provide certainty to foreign investors that when they

volume of equipment to meet orders. We have long-

come to Mexico their projects will succeed.

lasting relationships with our customers and suppliers, a partnership that we value tremendously after almost 30

Q: To what extent does the exchange rate make Mexico

years since we first opened our doors.

more attractive for investors? A: We are more competitive and our costs drop even more

Q: What are the main capabilities of HEMAQ’s Advanced

when the dollar-peso exchange rate favors the dollar.

Manufacturing Technology Centers and the country’s

We also manufacture more efficiently than comparable

aerospace talent?

countries so if we take into consideration the exchange

A: Our main capability is process development,

rate, Mexico gains a lot of added value.

innovation, state-of-the-art technology and detecting competitive advantages. This is why Mexico has been

Aerospace is an important part of our business together

successful, not because of cheap labor but because

with the automotive industry. Both share quality and

its human capital is competitive and anxious to learn.

process definition, with the main difference being the

Companies install manufacturing facilities in Mexico that

culture of quality. Automotive companies produce high

cannot be replicated to the same standards anywhere

volumes of a limited variety of parts, whereas aerospace

in the world due to Mexican labor. Many multinationals

sees very low volumes but a greater mix of products. This

know this. The Mexican workforce is eager to learn and

is reflected in order numbers only under 40,000 aircraft

continuously questions how to improve processes.

that will be required globally by airlines between 2017 and 2034. In 17 years, we may see a really big difference

Years ago, one of our aerospace projects in Mexico

in the industry’s behavior and how business is distributed.

ended up being between eight and nine times more productive than the customer’s other global facilities.

Q: What are your expectations for 2017?

The company allowed suppliers the freedom to perform

A: Our expectations are enormous. The growth of FAMEX

differently, suited to local processes and with an open

compared to the first event two years ago is impressive,

mind to implement suggestions. Investors have to trust

more than double. Many more visitors and participants

the national talent.

came to do business and it was evident that new countries are watching Mexico expectantly. This is why we need to

Q: How have the needs of local aerospace manufacturers

be careful, especially with public policies, to welcome

changed in the past year?

more potential business opportunities.

A: We faced serious challenges but have resolved most of them, even growing on average close to 15 percent per year over the last 14 years. Public policies must be

HEMAQ is a provider of integrated solutions for CNC Machine

adjusted by the federal government to allow projects

Tools since 1988. Its vision is to be the best option within the

to flow more efficiently. The authorities should push

metal machining sector and its goal is to have the most impact

to make it less complicated to start a new company,

on the technological, social and ecological aspects of the industry

127

ROUNDTABLE

HOW WOULD YOU DESCRIBE THE PENETRATION OF INDUSTRY 4.0 PRACTICES?

A new transformation promises to reshape manufacturing. Labeled Industry 4.0, or advanced manufacturing, this latest revolution is transforming systems across companies, industries and countries. It is progressing at an exponential pace and with a global scope. Advanced manufacturing consists of the implementation of new, optimized processes and practices, while reducing production costs in any sector, including aerospace.

128

Industry 4.0 is not exclusively limited to automation. To develop the best manufacturing process, companies have to accumulate and control an abundance of data. Any machine producing high volumes of parts must have all the information gathered about performance, efficiency, labor, tools, maintenance and statistical data calculated before it starts operating. Industry 4.0 is important and, when well implemented and integrated into processes, tremendous success is achieved. Mexico

BENITO GRITZEWSKY Director General at HEMAQ

is integrating this knowledge competitively and strongly moving forward. Automotive parts that must be produced in millions per year, will greatly benefit from savings, productivity, efficiency and performance. In aerospace, the advantage of this is quality and being able to define how efficiently you will be able to manufacture this with the required quality and delivery performance.

The sector is implementing Industry 4.0 practices, which simplify manufacturing and communication. It is now possible to design a part and to share the design instantly all over the world without exiting the platform. This improves offices’ communication with their manufacturing plants. Mexico is gradually turning into a critical manufacturing location, supplying the main offices of major OEMs and Tier 1 companies. The country has qualified professionals but as more of our clients

GUNTHER BARAJAS Vice President Mexico of Dassault Systèmes

establish manufacturing centers in the country, the need for local designers increases. Dassault Systèmes has a network of PLM centers in Chihuahua, Queretaro and Aguascalientes to train students to use these platforms for the aerospace industry. This network was created with the support of the Ministry of Education.

Industry 4.0 encompasses much more than just the Internet of Things. It involves Big Data, virtual reality, cyber-security and much more. The company is designating a lot of resources to technology development. We are generating associations with institutions to develop ecosystems that foster technological improvements. Adapting to Industry 4.0 practices is not only about developing new products, but also about updating and adapting our manufacturing processes. We have just inaugurated a

BERND NOACK General Manager of FESTO

plant in Scharnhausen that works following Industry 4.0 practices. Software and Hardware developers are in a race to take leadership in Industry 4.0 practices. Both types of developers are trying to venture into each other’s business.

INSIGHT

LOCAL SUPPORT FOR INTERNATIONAL PLAYERS HEBERTO ANGULO General Manager of Pencom CSS Manufacturing

Having a partner in Mexico can help companies maintain

ISO 9001:2015 certification. We are also in the process of

cost-effective operations and access advantages offered by

revising our AS 9100 D certification.”

the country’s IMMEX program, says Heberto Angulo, General Manager of Pencom CSS Manufacturing. “Manufacturing

Pencom has three facilities in Nogales with a total working

costs are much more affordable in Mexico,” he says. “As part

space of 85,000ft 2, including warehousing and space

of the IMMEX program, companies can offer tax breaks and

for chemical processes such as anodizing, passivation

temporary imports to customers. We can offer those same

and chem film. All operations are ISO, AS and NADCAP-

benefits to our local clients as long as they are also part of

certified, in the last case for chemical processes, NDT and

the IMMEX program.”

welding, in line with aerospace standards and, according to Angulo, the company’s nondestructive tests and welding

Headquartered in California, Pencom saw an opportunity

processes will be NADCAP-certified by February 2018. “Our

to support its clients from Mexico, offering lower

goal is to have all necessary processes for our operations

production costs while maintaining key competitive

in-house.” Only two of Pencom’s three buildings are in use

advantages. According to Angulo, the company chose

at the moment but Angulo expects that new business from

Sonora as its investment destination due to the area’s

the US aerospace sector will shortly fill its remaining facility.

skilled human talent, the state’s proximity to California

“We have ambitious goals and we expect to start assembly

and all the large aerospace companies in the local market.

operations at our third facility. The building is already

Pencom used to buy components from a company based

complete and we only need to finalize all safety and legal

in Nogales called CSS. Eventually, business grew enough

requirements to start operating,” he says. “Our expectation

for Pencom to buy CSS, creating what is now Pencom

is to begin mass production between 3Q18 and 4Q18 but

CSS Manufacturing.

we will most likely begin testing our operations by 4Q17.”

Even the volatility in the dollar-peso exchange rate has

The Nogales operations employ 200 people but once the

proven to be an advantage for Pencom as most of the

third building is up and running at full-tilt, Angulo expects to

company’s raw materials are imported from the US due the

increase the company’s workforce by 50 percent. In terms of

need for certifications. However, Pencom’s headquarters

production, he is hoping to grow machining capabilities at

takes care of these purchases in dollars so there is no impact

least 30-40 percent. This puts Pencom in a strong position

on the company. “The advantage is in our operations in

to target the growing industry, which according to Deloitte’s

Mexico and the costs the company has to pay in pesos. The

2017 Global Aerospace and Defense Sector Outlook, has an

current peso-dollar exchange rate leads to increased profits.”

all-time high backlog of 13,500 aircraft, which represents over nine years of the current global production.

The company started as a machining and welding partner for companies in the aerospace and medical devices sectors

Although Angulo has positive expectations for the company,

but its scope has evolved significantly due to the demands

he acknowledges that Pencom still needs to evolve to better

from existing and potential clients. “Since we had to send

cater to the industry’s requirements. “We still need to develop

components to other companies for testing after they were

our administrative capabilities regarding the approval

welded, our CEO had the vision to introduce nondestructive

processes for production parts to be competitive enough

tests to our portfolio and eventually anodizing,” says Angulo.

for large clients such as Safran, Honeywell or even Boeing,”

The company is continuously analyzing the potential of

he says. Rather than being a concern, this has become a

different processes and is gradually growing its services

development opportunity, according to Angulo, who says

according to the needs of the industry. “Our operations

Pencom’s growth strategies are allowing the company to

are ISO 9001:2008 certified and we are transitioning to the

diversify from its initial focuses.

129

AIRCRAFT SPOTLIGHT

712

of these models have been delivered by Boeing

BOEING 767 The Boeing 767 family is a group of twin-engine airplanes designed for medium to long-range flights. These planes have earned a reputation among airlines for being both profitable and comfortable. The main buyers of the different versions of the Boeing 767 are FedEx, UPS, American Airlines, Delta Airlines and International Lease Finance Corporation. There are three models in the 767 family that remain in production and each caters to a specific market. Boeing 767-300ER is designed for passenger transportation, Boeing 767-300F transports cargo and Boeing 767-2C, which can be adapted to become a KC-46 military tanker. In total, Boeing has delivered 712 C since March 1987 and its backlog amounts to 101 as of September 2017. Boeing 767-300F has become a favorite in the mediumwide body freighter sector and the company recently delivered its 100th freighter aircraft to UPS. The craft has a payload of 52.5 tons, a total volume capacity of 438m3 and a range of 6,030km. This last aircraft constitutes over 10 percent of the operational Boeing 767s.

A Boeing 767-300F can reach a speed of Mach 0.80 and can easily reach Frankfurt and China, when departing from Dubai These aircraft are kept busy by cargo operators around the world because of the planesâ&#x20AC;&#x2122; remarkable operational efficiency, flexibility and intercontinental capability. Each airplane is used on average 10 hours a day. A Boeing 767-300F can reach a speed of Mach 0.80 and can easily reach Frankfurt am Main, Germany, and Guanzhou, China, when parting from Dubai. The KC-46 Tanker, another plane based on the Boeing 767-2C, is the aircraft that refuels all US military aircraft midflight. It is designed to carry passengers, cargo and patients and according to Boeing, can detect, avoid, defeat and survive threats. Boeingâ&#x20AC;&#x2122;s 2016 World Cargo Forecast expects that by 2035 the number of freighter aircraft in service will increase from 1,770 to 3,010. Furthermore, the growth in the medium widebody sector, where Boeing 767-300F thrives, is expected to increase from 580 to 920 aircraft in this same period.

131

INSIGHT

GAINING TRUST AND LEARNING FROM THE BEST BLANCA LOPEZ Director of MIMSA

132

Large companies can pick from dozens of suppliers. They

Being audited by the aircraft company helped the industrial

do not always want the lowest price or fastest response,

machining company enormously. Obtaining those clients

experience has taught them that these are not to be prioritized

was difficult but doing so made it easier to attract and

over quality. Multinational aircraft designers, manufacturers

close deals with new businesses. Companies face many

and sellers of aircraft chose MIMSA because the machining

barriers to entry in the machining industry, including

company’s quality won their favor, says Blanca Lopez, MIMSA’s

audits by every client, all of whom have different needs

Director General.

and expectations. While the industry operates under the same AS 9100 standards, each company may have different

One large aircraft company was not interested in suppliers

administrative processes. “We grew in other sectors before

that only wanted to sell. The OEM wanted stability. Its team

entering aerospace. Working with companies like Boeing

saw the machining company’s family roots and challenged

and Safran gave us a vote of confidence among new clients.

it to a long-term commitment, half-sure that MIMSA would

Other companies have been more benevolent in auditing

pull through. Proving them right with certifications in hand,

us and trust our expertise,” says Lopez.

MIMSA was awarded the aircraft manufacturer’s trust and projects. “Solid finances helped in the matter,” says Lopez.

Although the automotive industry has been the company’s

“After four monthly or bimonthly revisions, we gained this

star sector, food and mining have become increasingly

“

client’s trust among many others, and learned from them

important. Diversity provides the solid foundation to survive

during the process.”

over the long-term. Its extensive techniques, from conventional

We grew in other sectors before entering aerospace. Working with Boeing and Safran gave us a vote of confidence among new clients”

and counterboring to milling of varying dimensions, mean MIMSA’s operations are not limited to CNC machining. The company also manages maintenance and reverse engineering, branching out into areas of expertise that will allow its business to weather slumps in each industry. Aerospace clients using MIMSA’s CNC machining skills are primarily located in Queretaro and the US, so its northern location in Monterrey is convenient for the moment. But now that it is in a growth stage, the company could consider expanding out of the Monterrey and into other Mexican

The route that secured MIMSA’s growth in aerospace began

states with growing manufacturing sectors. “We have been

when it obtained the key to the industry, the AS 9100

offered the opportunity to put a small plant in Queretaro or

certification. After three years MIMSA is about to be recertified

Guanajuato, to be a part of the manufacturing boom in the

under the aerospace manufacturing standard. Fresh in Lopez’s

central Bajio region.” Lopez is evaluating this possibility on

mind are the steps that led to the industry’s door.

the basis of several industry pull-factors; the company works with many different industries including automotive and

“Our aerospace operations grew between 10 and 15 percent

agribusiness and aerospace may not prove enough to sustain

in 2017, to represent 12 percent of our operations. This is

MIMSA. Nuevo Leon is the priority location for the moment to

because we took on new machining contracts and offered

stay close to many clients and will be the location of a third

packages to develop parts for new airplanes,” says Lopez.

industrial plant next door to its current facilities.

When these aircraft parts are developed and handed over in November, aerospace will register an increased share in

Experience in other industries allows Lopez to offer succinct

MIMSA’s operations.

advice to budding aerospace suppliers. She describes

aerospace as more complicated to enter and to prepare

pieces. This would require more equipment but MIMSA’s

quotes for projects than the automotive industry, for example.

current CNC machining meets its clients’ requirements.

“The largest buyers manage distinct templates and cost

“The aircraft manufacturer saw we managed much more

guides. We also have to calculate long-term costs, such as

complicated pieces than they required so no equipment

tooling wear-and-tear, and compete with a global industry.”

purchases were stipulated as part of our agreement,” says

Buyers may request quotes from several countries. Such high-

Lopez. “What is complicated, is packaging and administration.

cost operations may justify long-distance transport costs to

The red tape takes up more of our time than manufacturing.”

achieve the right standards at a lower price. “We have to estimate costs to budget for things we would not usually

Lopez says that going forward, “we could branch into fixture

consider for other industries, and offer a competitive quote

repair while maintaining our focus on small scale pieces.” In

knowing that aerospace projects are slow to reach fruition.”

the short term, it plans to continue the chosen route although new clients with distinct needs can easily be accommodated.

The benefit of being certified in this demanding industry means that not only do aerospace companies trust the certifications, brands in automotive or mining perceive the

DISTRIBUTION OF THE REGIONAL SUSTAINABLE

MATERIALS USED FUND IN THE2787 BODY (by weight) DEVELOPMENT

company as guaranteeing precision for their operations too. Lopez adds that sticking to regulations is a necessary effort that all companies should observe if they are interested in entering aerospace. “This can require a change in mentality among employees, as safety and tidiness are vital for us to

50% 20% 15% 10% 5%

reach the level of precision our clients and certifications demand.” Lopez also prescribes patience to aerospace novices. “Certifications take a long time to obtain and negotiations and auditing processes may take four or five years until a client is guaranteed.” Source: Metals 11% Asian Mazapil

Because Mexico already is proficient in the aerospace industry

9% Cananea

Composites Aluminum Titanium Steel Other

2% Sahuaripa 2% Morelos

any exterior forces that affect the local economy are unlikely

7%saw Nacozari Garcia 2% Eduardo Neri 1Q17 MIMSA de grow 12 percent and Lopez expects this pace

to be strong enough for local industry to crash. Aerospace

Fresnillo 2% especially Aquila to 5% continue throughout the year, considering the

manufacturers work to the long term, and order lists for

4% Ocampo 2%also Alamos strength of Mexican industry. “We decided that becoming

aircraft are years long. These factors provide job security,

4% Caborca 1% Chinipas a member of FEMIA would provide us with more direct

making companies feel safe to project several years ahead

2% Sierra 47% other contact with Mojada Tier 1 suppliers, further supporting our growth

and make investments regardless of economic fluctuations.

CGM, Ministry of Economy 1 With figures to March of 2015 in Source: the aerospace industry.”

Neither the challenges nor the audits are over, although they

On the brink of opening a new plant, MIMSA is training teams

should become easier with experience. Lopez expects difficult

and preparing the infrastructure to retain its valued clients in

audits only if her team takes on projects for more complex

an expanding aerospace sector.

133

Designing equipment / AEISA

INNOVATION & NEW TECHNOLOGIES

For the aerospace industry, the sky is not the limit. As the industry sets its sights high, it also invests heavily in R&D and innovative practices to increase efficiency and reduce fuel consumption, noise and air pollution through the use of new materials, engines and designs. These innovations range from extending battery life to produce a fully electric plane to creating materials that protect astronauts from gamma radiation in space. Most local innovations, however, focus on telecommunications to expand connectivity across the country. Through the Mexican Space Agency (AEM), Mexico is also promoting the space industry and the generation of launchers and rockets built with Mexican components alongside major space manufacturers. There is still much room for growth as the country has only taken baby steps in the sector, yet AEM believes that it is possible for the space industry in Mexico to develop its own capabilities.

This chapter reviews new R&D developments with a special focus on those occurring in Mexico. It will highlight emerging research areas, such as satellites and drones.

135

CHAPTER 6: INNOVATION & NEW TECHNOLOGIES 138

ANALYSIS: Telecomm Needs, Services Boost Innovation

140

VIEW FROM THE TOP: Francisco Mendieta, AEM

142

INFOGRAPHIC: Space Communications: The History of Mexican Satellites

144

VIEW FROM THE TOP: Rodolfo Neri

146

VIEW FROM THE TOP: Antonio Quintanilla, Thales Mexico

148

INSIGHT: Javier Martínez, InDeplo

149

VIEW FROM THE TOP: Gunther Barajas, Dassault Systèmes

151

INSIGHT: José Torres, Tata Technologies

152

INSIGHT: Sergio Mancinas, FabLab Chihuahua

153

VIEW FROM THE TOP: Oscar Lambert, Schneider Electric

154

VIEW FROM THE TOP: Bernd Noack, FESTO Mexico

155

VIEW FROM THE TOP: Gustavo Moya, Ixaya

156

VIEW FROM THE TOP: Manuel Sordo, Universal Robots

157

INSIGHT: Alejandro Athie, StarGo

158

RESEARCH SPOTLIGHT: CIDETEQ

137

ANALYSIS

TELECOM NEEDS, SERVICES BOOST INNOVATION A fast-evolving and connected world needs fast-evolving technology and constant innovation to support its growth. The aerospace and aviation industries by nature must evolve, improve and connect continuously, and they have not fallen behind in Mexico Be it telecommunication satellites, data processing solutions,

country, growing from 2.7 percent in 2011 to 3.5 percent in

bandwidth, electronics, automation software or robots,

2017. The number of workers in this sector grew from 226,953

Mexican companies, research centers and government

to 256,628 during this period.

agencies are deeply involved in creating and implementing

138

technological solutions. As Industry 4.0 practices permeate

EYE IN THE SKY

the Mexican manufacturing industry, it is becoming imperative

As the trend toward smart cities and smart factories continues

for local companies to employ automation and Big Data

unabated, the future is in the growth of telecommunications

processing solutions into their operations.

that can support Internet of Things (IoT) and Industrial Internet of Things (IIoT), providing sustainable, trustworthy Industry

The aerospace industry is young yet ripe enough to fully

4.0 practices. This will require better internet infrastructure,

integrate into the global value chain. Aviation in Mexico

including satellites.

has not seen a major demand downturn since the Great Recession of 2008-2009. Both industries offer various

Francisco Mendieta, General Director of the Mexican Space

opportunities for growth and development. As the

Agency (AEM), points out that the emergence of Big Data

aeronautics sector is consolidating, it is the ideal time to

has expanded the requirements for communication and

start focusing on manufacturing and assembly of space

information processing and pushed countries to demand

components, industry experts say. “This is the moment

better communication systems. “Satellites can be a good

for aerospace companies to turn to Mexico and make the

solution for countries that are developing land infrastructure

necessary investments that will eventually support their

but need an integral, short-term solution that guarantees

global plans,” says Gunther Barajas, Vice President Mexico

access to broadband, and can be deployed quickly

of Dassault Systèmes.

with low risk. Emerging economies like Mexico invest in satellites for fast, economical and reliable infrastructure and

The World Economic Forum’s 2017-2018 Global

telecommunications support.”

Competitiveness Report states that Mexico’s technological readiness ranks 71st of the 137 evaluated countries. The

Since the first Mexican satellites were launched and the

country lags in comparison with other Latin American

whole country was connected for the first time, the use

countries such as Argentina and Brazil in this parameter. The

of privately and publicly funded Mexican satellites has

growing need to send, analyze and process the large amounts

become commonplace. But they have failed to include any

of data that the country, its citizens and its manufacturing

percentage of Mexican-developed technology. Rodolfo Neri

companies require, especially with the introduction of Industry

Vela, a telecommunications expert and the first Mexican in

4.0 practices, will only place a greater importance on the

space, underlines the importance that satellites have had in

development of telecommunication infrastructure to sustain

the process of accelerating trade and banking processes and

the country’s development.

enabling companies and government agencies to install their own networks, but points out that the lack of any Mexican-

According to the World Bank, 88 out of every 100 people in

produced component in any of the Mexican satellites has been

Mexico had a mobile cellular subscription in 2016, a number

a mistake that should not be repeated. Generating or at least

that has grown exponentially since 1988, when only one in

assembling space technology is a crucial step, he says. “It

every 5,000 had one. The ability to connect rural Mexico with

is necessary to start thinking about the next generation of

the country’s urban areas via microwaves did not take place

satellites and to demand that their manufacturers invest in

until 1985, when the Morelos I satellite was placed in orbit.

Mexico and generate both knowledge and human resources so that at least 5 percent of the satellites’ components are

The increasing importance of telecommunications and

made in Mexico,” says Neri.

the opportunities that the 2014 Telecommunications Reform brought along have spurred a steady growth in the

ProMéxico’s Orbit Plan 2.0 (Plan de Órbita 2.0) outlines

participation of the telecom sector in the total GDP of the

targets for Mexico to have a 1 percent share of the global

market by 2026, to be a global leader in the space sector in

software developers racing to be at the forefront of Industry

terms of market share by 2035 and for the country to have a

4.0 practices. But technology development goes hand in hand

renowned role in the development of components, products

with alliances as a single company cannot develop all the

and services. However, “Mexico’s space sector is still far from

required technology on its own.

reaching these goals as the budget for AEM is scarce, the training of human capital in the aerospace industry usually

“Industry 4.0 is a concept that will continue developing hand

focuses on aeronautics and there are few projects that can

in hand with technology in the coming years. SMEs must

attract companies to enter the space sector,” says Neri.

become aware of the necessity of investing in technology (because it) … can reduce costs by 15-20 percent and in some

Mendieta, however, expects a larger participation of local

cases, up to 30 percent,” says Schreiber.

technicians, operators and companies in the next bids for space vehicles and ground operations, which will likely boost

Finally, as automation is a key part of Industry 4.0 practices,

the national space sector. “AEM is surveying companies with

the entrance of robots to production lines in Mexico’s

capabilities in mechanics, materials, software and orbital

manufacturing sector is both a challenge and an opportunity

studies for the space sector. The tender for the [next] satellite

for technology companies – a challenge because potential

will include Mexican companies and professionals from the

customers may not be able to pay the cost that robots

beginning,” he says.

generally entail, an opportunity because the high level of competition to enter the manufacturing sector means

INDUSTRY 4.0

companies want an edge.

The rise of Industry 4.0 has meant delivering advanced manufacturing solutions that improve operations across

Manuel Sordo, South Central US/LATAM Sales Manager of

several sectors, boosting efficiency and improving salaries

Denmark-based robot builder Universal Robots, says that

of increasingly skilled workers across various sectors. In

since acquiring these devices can be daunting for SMEs,

aerospace, where quality control and innovation are key

creating maintenance-free, easy-to-repair robots and selling

for successful operations, small companies have a hard

them at competitive prices will make these solutions more

time accessing these solutions as the prices for necessary

accessible to small companies and provide a return on

equipment and software are high. The goal, then, is to help

investment in only three months. “There are thousands of

SMEs access this technology and take advantage of it through

companies competing at an entry level and the only way for

different means.

them to participate in advanced manufacturing activities is by investing in automation,” he says.

FabLab Chihuahua, for instance, helps local SMEs generate high added-value products and services by offering design,

Telecommunications is an essential part of any economy’s

product development and reverse-engineering services

backbone. The challenges brought about by an increasingly

and granting SMEs access to state-of-the-art laboratory

interconnected manufacturing industry through Big Data are

equipment that these small players could otherwise

evident as they place stress on the telecom infrastructure

not employ, which helps local companies improve their

to grow and improve to meet demand. The aerospace and

manufacturing operations. On the other hand, Bernd

aviation industries in Mexico will continue creating and

Schreiber, General Manager of FESTO, a global pneumatic and

implementing technological solutions to improve efficiency

electric automation technology producer, sees hardware and

and better compete in the international market.

GLOBALCELLULAR LIGHT VEHICLE PRODUCTION MOBILE SUBSCRIPTIONS (PER 100 PEOPLE) 90 80 70 60 50 40 30 20 10 0

1965

1970

1975

1980

1985

1990

1995

Source: World Bank

Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Center

2000

2005

2010

2015

139

VIEW FROM THE TOP

MEXSAT TO INCLUDE MEXICAN TECH, PROFESSIONALS FRANCISCO MENDIETA General Director of the Mexican Space Agency (AEM)

140

Q: How does the government support the space industry

While this can be done with fiber optic cables, they would

to boost economic development?

take years to be installed, are prohibitively expensive and

A: The sector receives constant support from the federal

operations are complex. A satellite can provide immediate

government. The Mexsat system provides support to

access. In areas with other communication alternatives,

telecommunications across Mexico and its seas, the south

such as fiber optics, satellites act as support and backup.

of the US and part of Central America. It consists of two satellites, which are Bicentenario, for fixed service, and

Q: To what extent will the Mexsat satellite incorporate

Morelos III, for mobile service. In 2017, a bid for a third

Mexican manufacturing?

Mexsat satellite will take place under the direction of the

A: The Mexican satellite industry has evolved. We

Deputy Minister of Communications. The new satellite

expect larger participation for the newest bid from local

will address the growing demand for good quality, rapid

technicians, operators and companies, both for space

telecommunications at a reasonable cost, social networks

vehicles and ground operations. The AEM is surveying

and uploading and downloading data.

companies with capabilities in mechanics, materials, software and orbital studies for the space sector. The

Smaller satellites can fully orbit the Earth once every 90 minutes and ensure greater broadband width

tender for the satellite will include Mexican companies and professionals from the beginning. The Mexsat satelliteâ&#x20AC;&#x2122;s complexity means it will take at least three years to manufacture. After it is built, the satellite will enter a one-year commissioning period, during which it is placed in orbit to test all its systems. After being cleared for orbit the satellite will begin normal operations.

The emergence of Big Data has increased the requirements for communication and information processing, leading

Q: What will differentiate the new unit from existing

countries to require better communication systems.

Mexican satellites?

Industry 4.0 has connected most equipment in

A: Large satellites such as Morelos III are orbiting the Earth

manufacturing plants wirelessly, sometimes through Wi-

in a fixed orbit 36,000km away, delaying communication

Fi, Wimax or Bluetooth for short distances. Satellites can

with the planet by 250ms. Smaller satellites are 100 times

be a good solution for countries that are developing land

closer so transmission is faster. These satellites need less

infrastructure but need an integral, short-term solution

power and do not need to be in a determined orbit, a

that guarantees access to broadband, and which can be

significant advantage as fixed orbital positions are hotly

deployed quickly with low risk.

contested among satellite operators. Smaller satellites can fully orbit the Earth once every 90 minutes and

Emerging economies like Mexico invest in satellites

having a network of hundreds of them ensures constant

for fast, economical and reliable infrastructure and

communication with greater broadband width, and fewer

telecommunications support. Most space projects have no

delays due to disconnections.

crew and are instead used to relay information. Satellites and antennae technology have a significant number of

The main advantage of networks of small satellites is

applications, including television transmissions that track

that they are more accessible for economies like Mexico.

disaster areas to measure the effects of global warming.

An investment in these technologies will strengthen

These technologies also communicate with remote areas.

integration across Mexicoâ&#x20AC;&#x2122;s territory.

Q: What are the objectives for Mexico’s space industry

developing similar centers in other states, such as Yucatan

and how does the AEM support those?

where we can take advantage of the state’s strengths and

A: The aerospace sector brought FDI into Mexico to create

focus on imaging, information networks and data storage.

a strong manufacturing base. Gradually, this investment

This center will support telecommunications as well as

moved toward the generation of engineering and R&D

fishing, disaster prevention and agriculture. We are also

operations. A similar situation is occurring in the space

discussing the possibility of building centers in Jalisco,

industry as the country now aims to design and build

Hidalgo and Baja California.

its own satellites instead of just buying and operating them. The long-term objective is to incorporate Mexican

Q: What are your main objectives as the head of the

technology, professionals and manufacturers into every

Global Partnership on Space Technology Applications

Mexican satellite. The Mexsat program will also permit

for Disaster Risk Reduction (GP-STAR)?

faster access to the technology of small satellites, as

A: We are proud to be leading this UN initiative, it fits

thousands are required every year so there is significant

perfectly with AEM’s mission to use the strengths of the

interest from major players.

space sector to support social needs. GP-STAR is part of the UN’s Platform for Space-based Information for Disaster

The AEM maintains close communication with major

Management and Emergency Response (UN-SPIDER) and

aerospace and technology clusters, including Queretaro,

manages risks during natural disasters. The UN’s role in

Chihuahua, Sonora, Baja California, Nuevo Leon and Jalisco,

these situations is to organize many different players’

all of which showed significant interest in developing

efforts to save lives. The agreement requires all countries

satellite technology. To promote the sector, we need to

with satellites to provide their images and connectivity to

develop alliances with research centers, the industry and

the affected country free of charge, providing a network

the government. There used to many reservations about

of support to any country in the world affected by natural

entering the sector and it was believed that Mexico would

or man-made disasters, such as avalanches, tsunamis

produce and sell at most two satellites a year. But now,

or volcano eruptions. Disasters are worsened by global

demand is in the thousands of units, creating a backlog

warming, which is also documented from space and 50

nearly as big as that for commercial aircraft. Mexico is

percent of global warming studies are performed by

already strong both in aeronautics and information

satellites.

technology, and satellites rely on both. Q: What are the AEM’s main priorities for the space Q: How is the AEM promoting Mexico’s technology

sector’s development?

development to address the needs of the space sector?

A: Globally, the space industry represents between

A: Our goal is to develop a network of Regional Centers

US$400 billion and US$500 billion but it is an extremely

of Space Development for specific R&D, such as a center

broad industry, so we adjusted our goals to address the

we created in alliance with the Autonomous University of

country’s primary needs. The National Development Plan

Zacatecas (UAZ), funded through the state government

for the space sector focuses on three main areas: natural

and CONACYT. These centers target development of space

disaster management, telecommunications and GPS.

technology to facilitate Mexico’s introduction to Space 3.0,

Further on, the country could develop other areas such

a trend in the sector similar to Industry 4.0. The goal is to

as solar cells as demand grows.

research small, economically accessible satellites. Our focus remains on initiatives to develop human capital One of the main challenges in generating a full network

through local universities and alliances with international

is managing thousands of small satellites simultaneously,

agencies. For instance, we have programs with NASA

but this can be done through signal managing strategies

and Japan’s government to train Mexican scientists and

such as Code Division Multiple Access (CDMA). The

develop technology in Mexico. Our close relationship with

center in Zacatecas will study this technology and will be

foreign space agencies, including NASA and ESA, has

instrumental in allowing Mexican technology to position

led companies from all over the world to see Mexico as

itself globally. This technology is not yet essential but

an entry point to large markets both in the US and Latin

will be in a few years as more satellites require broader

America.

frequency use. We are also developing a center in the State of Mexico

The AEM represents the emerging Mexican space industry

that will start managing service integration for satellites in

and engages heavily in sector promotion through events.

2018. When our satellite network is launched, this center

The agency is a decentralized division of the Ministry of

will receive and process data from other satellites. We are

Transportation (SCT) and is funded by the federal government

141

INFOGRAPHIC

SPACE COMMUNICATIONS: THE HISTORY OF MEXICAN SATELLITES Since the space race began in 1957 when Sputnik 1 was launched, the importance of placing increasingly advanced satellites in orbit for scientific and telecommunication purposes has become increasingly apparent. In the last 32 years and surpassing several obstacles, 15 Mexican Eutelsat 115 West B (SATMEX 7) Boeing BSS702SP

satellites have been deployed into orbit to address the three are currently operational.

Aug 2016

These satellites were first owned and operated by the Mexican government but the entrance of the private sector into the telecoms market has enabled companies to acquire, operate and even launch their own satellites. Launched by

Operator

NASA

SCT (Walter C Buchanan Space Command Center)

Polyot International Launch Services SpaceX Lockheed Martin Launch Services

SCT (TELECOMM), later Satmex

Satmex, later Eutelsat Americas

C, L & Ku (Mexico & South US Coverage)

Eutelsat Americas

Ku (Mexico, Central and South America & part of Antarctica)

Dec 2012

SATMEX 5 (Morelos 2R, Eutelsat 115 West A) Hughes Aircraft Co. HS-601HP Faced a malfunction in its main propulsion system in 2010 but remained operative

Aug 2009 May 2006 Oct 2000 Dec 1998 Jun 1997

Non-applicable

L & Ku (Mexico)

Mar 2013

Satmex, later Eutelsat Americas

C & Ku (Mexico Coverage)

C & Ku (America coverage)

Jan 2014

Jul 2010

SCT (TELECOMM MexSat)

C & Ku (Mexico, Central America & US)

Mar 2015

Sep 2011

Bands

MexSat 3 (Bicentenario) Orbital Sciences Corporation GEOStar 2 (Star 2.4)

May 2015

UNAM team at Plesetsk, Russia

QuetzSat

Ku (Mexico, Central America & US)

Oct 2015

UNAMSAT B (UNAMSAT 2, Oscar 30) PUIDE-UNAM UNAMSAT-1 Twin of UNAMSAT-1, replaced it after its destruction

Sep 1996 Status (September 2017)

Mar 1995

Decomissioned after fuel reserves depleted

Oct 1994

Decomissioned due to malfunction

Nov 1993

Destroyed during launching Inoperative due to malfunction

Nov 1989 Nov 1985 Jun 1985

Solidaridad I (SATMEX 3) Hughes Aircraft Co. HS-601

Operative

*Plan de órbita 2.0 is the road map created by ProMéxico, AEM and scholars from various areas to develop Mexico's aerospace industry through projects that boost innovation and competitiveness in the industry's value chain.

Sources: AEM, Boeing, Eutelsat Americas, SpaceX, Telecomm, space. skyrocket.de, UNAM, El Financiero, CONACYT, La Jornada, El Universal, International Launch Services, NASA, ProMéxico, Animal Político, El Economista, SSL, Lockheed Martin, México Aeroespacial, Sky-brokers, Arianespace, SCT

Morelos I (SATMEX 1) Hughes Aircraft Co. HS-376 First Mexican satellite provided data transmission services and TV, radio and telephone signal Aug 1997

Arianespace

Jun 2016

Mar 1994

142

Launch date

Morelos II (SATMEX 2) Hughes Aircraft Co. HS-376 Rodolfo Neri Vela took part in the mission to place this satellite in orbit

Aug 2000

country's growing connectivity needs, although only

Mexico achieves a renowned role in the development of pieces, products and services for the space market and has a market share of 1 percent

2026

Mexico develops the necessary space infrastructure to increase connectivity in Latin America by 25 percent

Eutelsat 117 West B (SATMEX 9) Boeing BSS702SP Last satellite that belonged to Satmex

MexSat 2 (Morelos III) BSS-702HP-GEM Twin of MexSat 1 Provides mobile communication and vehicle localization services and has integrated early warning systems to prevent harm during natural disasters

2035

PLAN DE Ă&#x201C;RBITA 2.0*

2036

Mexico caters to the needs of the public and private space markets and is among the three global leaders with a share of 40 percent of these markets

Mexico guarantees its access to space by strengthening its ability to preserve and strengthen orbital resources and their radio spectrum and establishes two more orbital positions

Boeing finishes transfering the operation of MexSat to Mexican government

143 SATMEX 8 (Eutelsat 117 West A) Space Systems / Loral (SSL) - SSL 1300E

QuetzSat 1 Space Systems Loral (SSL) SSL 1300 Designed specifically to be used for satellite television signal, it is used by Dish MĂŠxico

MexSat 1 (Centenario) Boeing BSS-702HP-GEM

Destroyed during launching

Creation of the Mexican Space Agency, a decentralized organism of SCT in charge of using space science and technology to promote innovation and development of Mexico's space sector

Creation of the Mexican Space Agency, an organism tasked with promoting Mexico's aerospace innovation and development SCT is tasked with implementing a new public satellite system for national security purposes

Boeing concludes acquisition of Hughes

Creation of Satmex after TELECOMM is privatized. 75 percent is owned by Principia and Loral Space & Communications and 25 percent by the Mexican federal government

UNAMSAT 1 (Oscar 30) PUIDE-UNAM UNAMSAT-1

It was intended for the study of meteorite impact trajectories in the athmosphere but failed to deploy from its rocket

Creation of TELECOMM, a decentralized organism of SCT in charge of operating the Morelos Satellite System

2031

2030

2028

2027

2021

February 2016

November 2013

June 2004

2026

SATMEX 6 (Eutelsat 113 West A) Space Systems / Loral (SSL) SSL 1300X Occupied the orbit of Solidaridad II after its decomission. Covers North and South America, video and data communication services

Solidaridad II (SATMEX 4) Hughes Aircraft Co. HS-601 Limited to L-band for government national security communications after 2008

Decomission date

VIEW FROM THE TOP

BUDGET, AUTONOMY RESTRAINING MEXICO’S SPACE PROGRAM RODOLFO NERI First Mexican Astronaut

144

Q: What was the value of that shuttle mission for the

on Mexican soil just as we assemble aircraft. This should

country?

happen through the investment of companies that already

A: Sending a Mexican to space taught us a lot. The mission

have a solid presence in Mexico’s aeronautics industry.

required experiments designed by Mexican scientists working in Mexican institutions, but these scientists did

Today, the Mexican aerospace industry is a trendy topic

not know what to research in space or how to perform

in the media and government, but Mexico only has an

experiments in microgravity. This opportunity was a trigger

aeronautics industry and not a space sector. It is necessary

for the local scientific community to generate experiments

for SCT and AEM to start thinking about the next generation

that could be performed inside the cabin of a space shuttle.

of satellites and to demand that their manufacturers invest in

There were many challenges to design these experiments,

Mexico and generate both knowledge and human resources

including budget, a short time frame and meeting NASA’s

so that at least 5 percent of the satellite’s components are

requirements for energy consumption, weight, volume and

made in Mexico. But this process must be planned years

safety. Our scientific community learned a lot from the

in advance as it requires building facilities and reaching

experiments that were chosen and from the logistics and

agreements with these companies. This would bring Mexico

protocols that were developed to conduct them.

national prestige, motivate younger generations, strengthen research centers and support the entry of companies

Q: How has the space industry changed since your mission?

that look forward to taking advantage of Mexican human

A: Telecommunications services in Mexico have seen

resources and prevent the exodus of local talent.

great change during the past 32 years and the Morelos satellites have been essential to this process as they allowed

Q: What are the main challenges in educating and training

companies and government agencies to install their own

space professionals in Mexico?

satellite networks. These networks increased the speed

A: The main challenge is convincing prospective students

of trade and banking processes and gave educational

that they will find a job. If Mexico lacks an aerospace

television a wider reach. It was a fruitful and valuable

industry, aerospace engineering students will not see

investment. But in terms of Mexico’s space industry, nothing

a future in Mexico and will emigrate for work and to

has changed. Although there have been newer generations

continue studying. Although we feel proud that there are

of satellites financed by both the public and private sectors,

Mexicans working on space projects in Europe and the US,

they have only included imported technology.

it is a mistake to allow talent to leave. We need to invest in research centers and support universities that offer

Close to 35 years ago, the country hired Hughes to build

aerospace programs.

the first Mexican satellites and the country made the mistake of not including any Mexican technology due to

Aerospace engineering programs in Mexico have existed

the lack of appropriate planning. Although Mexico has a

for less than 10 years. In some states, universities that

solid aeronautics industry, the country still needs to lay

offer these programs have created hybrid academic

the foundations for a real aerospace industry. We need to

curriculums that focus on aeronautics, with only a little

be able to generate or at least assemble space technology

taste of aerospace. There is no academic institution in Mexico City offering an undergraduate degree in aerospace engineering. IPN offers an undergraduate

Rodolfo Neri Vela is the only Mexican to go to space. He flew

degree in aeronautical engineering and plans to offer a

aboard the US shuttle Atlantis STS-61-B mission in 1985. He has

master’s degree in aerospace engineering. I have proposed

collaborated in the design of ESA’s International Space Station

the creation of an aerospace engineering career at UNAM

and promoted the creation of the Mexican Space Agency (AEM)

that will hopefully start soon.

Q: What is AEM’s role in the development of space technology and training? A: Unfortunately, AEM has no ongoing projects. The budget for this dependency is insufficient as it barely reaches about MX$100 million (US$5.5 million) per year. There was an initiative some years ago to develop a remote sensing satellite to monitor Mexico’s territory and detect wildfires. But these kinds of projects usually remain in the planning stage. For instance, the Orbit Plan developed by AEM is not much more than a document whose content nobody remembers. AEM needs a higher budget to invest in projects that can be concluded. As long as we lack a tangible project that is the responsibility of AEM and that is given the appropriate followup, Mexico will not advance in space technology. The lack of results, experience and credibility will make it difficult for foreign space agencies to sign the collaboration agreements that would allow Mexico to participate in a space mission of any kind. Q: What does AEM need to better promote the advance of Mexico’s space industry? A: AEM needs to be autonomous. It requires more resources to plant seed investments and it needs to work with academic institutions to lay the foundations of a real aerospace industry in Mexico. It also needs to start working with the governments of states that have consolidated aeronautic clusters to develop aerospace projects that ensure ROIs for the government. AEM needs an annual budget of at least around US$100 million to work properly, so the agency cannot really do much today. Space agencies internationally operate under much larger budgets than AEM. For instance, France assigns at least €2.3 billion a year to its space agency CNES. Spain provides around €140 million for its space projects. And Brazil’s space budget is on the order of US$100 million. When AEM was created, Congress decided it should be part of SCT because this ministry used to operate Mexico’s satellites. But the main function and mindset of SCT is not to develop technology or advance scientific research, but to build roads and bridges and assign radio frequencies. So SCT has not given AEM its due importance. Q: How important are new players like SpaceX in the aerospace market? A: Today, NASA counts on Russia to send its astronauts to space. But the entrance of companies like SpaceX and Boeing to the market will pull prices down and even make it more affordable for Mexicans to go into space. It was SpaceX that placed the last Mexican satellite in orbit. Elon Musk is doing admirable work. His new project to send a cargo mission to Mars is ambitious. SpaceX will provide the capsule and send payloads to Mars while NASA will support the project by granting access to the Deep Space Network in exchange for all the data gathered during these missions. But there is uncertainty on whether this project will become a reality.

VIEW FROM THE TOP

SAFETY, CONNECTIVITY GO HAND IN HAND ANTONIO QUINTANILLA President and Director General of Thales Mexico

146

Q: How important is connectivity for the airline industry?

traffic control authorities at Mexico’s SENEAM (Services

A: Connectivity is all the rage in the industry. Even in the

for Navigation in Mexican Air Space). We have been the

avionics sector that has traditionally been more reserved

main provider of air traffic control systems to the civil

in this regard because of its critical nature, connectivity

aviation authorities in Mexico since then. There are four

is increasingly important. Thales has been involved in

Air Traffic Control Centers (ACC) in the country and Thales

the aviation connectivity business for a good number of

has provided systems to all of them so all have a common

years. Passengers are coming to expect similar levels of

system operating with common software. The company has

connectivity while on an airplane as in their homes. Not only

also provided 21 of the 26 radars for air traffic control (ATC).

is connectivity important for the passenger who wants be

These radars constitute 80 percent of the civilian radar

able to interact with the open world during a flight, but it

systems in Mexico. Thales has the bulk of the navigational

becomes and operational enhancement tool for the crew

aids market in Latin America and is one of the main ATC

to maintain connection with ground crews to streamline

systems suppliers worldwide. Today, two out of three

operations and reduce turnaround times.

aircraft in the world either lands or takes off with the help of a Thales system.

This is a similar use of connectivity that is envisaged in smart cities, where governments can control energy consumption

Q: How would you describe the level of Mexico’s connected

and traffic flows and monitor security through cameras.

infrastructure in comparison to the rest of the Americas?

For these systems to work, governments need data that is

A: Mexico is hungry for innovative technologies. As both

integrated, analyzed and presented in an accessible format.

private companies and public-sector customers are keen

In the avionics sector, pilots, crews and passengers want to

to adopt the latest solutions, Mexico has top-of-the-line

be more connected as technologies evolve.

technology implemented throughout the country and is a world leader in ATC systems. Thales’ strategy for the

Q: How is Thales contributing to aircraft connectivity?

Americas includes providing total onboard connectivity

A: Our connected electronic flight bag (EFB) devices offer

through satellites. The company has signed an agreement

services to pilots and airline operations centers, enabling

with satellite operator and manufacturer SES and broadband

them to share information for mission planning and

operator Hughes to provide telecommunications coverage

operations. In addition, EFBs equipped with open world

over the Americas via satellite. This service should start

technologies can offer pilots additional data and services

operating by the end of 2018. The company also signed

like real-time weather monitoring during a flight. This future

an agreement with SES for the construction of the new

cockpit entails a more intuitive human-machine interface

Ka band High-Throughput Satellite (Ka-HTS) that will be

(HMI) that provides the pilot with the right information at

launched in 2020 to provide coverage to a large part of

the right time and displayed in a way that allows them to

North America, South America, the Caribbean and the

reach a decision easily. Thales is also a world leader in in-

Atlantic. Once this system is operative, all flights from the

flight entertainment (IFE) systems and we are deploying

US to South America will have total connectivity to Europe.

systems that are fully connected. Today, passengers can play games, listen to music, watch movies and live stream

Q: What is Thales Alenia Space’s value proposition in its

television as well as shop online through their IFE systems

bid to build the support satellite for Morelos III? A: That depends on the path the client wishes to follow.

Q: How is Thales addressing the technological development

SCT is looking for a leasing agreement with an operator

of aviation in Mexico?

rather than a satellite manufacturer. Thales can provide

A: Thales started working in Mexico in 1965 when we

whatever capacity SCT needs, but we need to partner

provided the first civil air traffic control radar to the air

with a satellite operator. We can work together with any

satellite service provider to offer customers the right

be integrated to manage this input. Finding the relevant

hardware to put in space. Thales is the number one payload

information that needs to be presented to the user through

manufacturer worldwide as it builds the satellites and their

the exploitation and exploration of data has become an

onboard electronics and also defines the bands in which the

increasingly complex challenge. The acquisition of Guavus

satellite will operate. Thales can meet any expectation for

is important for us to overcome this challenge.

this L-band satellite by working together with the Mexican government’s operator of choice.

Implementing cybersecurity in systems is also a particularly relevant trend in the avionics segment and the acquisition

Q: Beyond its production of security and transportation

of Vormetric enables Thales to improve in this segment.

systems, in which segments would Thales like to work?

The consequences of someone fiddling with an airplane’s

A: Thales is interested in doing more in avionics, particularly

or a control center’s critical systems can be dramatic if the

products related to IFE systems. This is not a decision that

appropriate security measures are not in place. We are thus

has been taken, though. Thales is developing software

actively integrating cybersecurity solutions into new and

and installing urban security systems in Mexico. In the

some existing products as customers are more aware of the

security industry, Thales together with its technological

risks entailed by hackers intruding into their systems. The

partner Telmex implemented one of the largest urban

company is gaining more experience in data processing

security systems in the world in Mexico City. We placed

and cybersecurity both from its regular operations and its

15,000 cameras around the city and built the C5 command

mergers and acquisitions.

center and five smaller command centers called C2s. We created another two mobile C2s that are used at concerts

Q: How can the avionics sector take advantage of Big Data?

and events. In this industry, Thales is looking to offer video

A: Integrating Big Data analysis into the aircraft enables

analytics services in Mexico City. In the transportation

a better analysis of passenger engagement and to

sector, Thales provides tolling systems for CAPUFE and

personalize the experience passengers have in the air.

concessionaries that operate highways and tolling systems,

Being able to perform this analysis in real time and provide

ticketing systems for several Metrobús lines and signaling

comprehensive information is helpful for the airlines to

and communication systems for the Mexico-Toluca train.

monitor passenger behavior and to win the loyalty of the users. In this sense, when NAICM is completed Thales and

Q: What are Thales’ most important contributions to the

its solutions will be valuable.

aerospace industry? A: Over 360 (ATC and ACC) Thales TopSky solutions, 7,000

Q: How is Thales planning to further contribute to NAICM’s

navigational aids and 700 surveillance radars have been

development?

implemented worldwide and are operated by 16,000 air

A: Thales wants to maintain its position as ATC systems

traffic operators. The most important airports where Thales’

supplier to NAICM authorities. The company will continue

systems are being used are AICM, Bangkok International

introducing navigational aids, NAICM’s ACC and radars.

Airport and Cairo International Airport. Also, Thales has

We have started working on a value proposition for

been awarded the UK Ministry of Defense’s Marshall Project

NAICM regarding the airport’s security perimeter, its

for a UK-side airfield air traffic management transformation

operational control centers, internal communications

project and Australia’s OneSky project for joint civil and

systems, biometric security systems for restricted areas,

military air traffic management.

check-in kiosks for passengers and anything related to the communications systems inside NAICM’s terminal.

In Latin America, the company has delivered over 170 radars,

We are aware that NAICM is not only about air traffic

25 ACCs and several navigational aids. Approximately 70

control, but also about land operations. Thales wants to

percent of all radars operating in Brazil were manufactured

take part in any future train and bus line projects that go

by Thales. We provide Embraer with navigation and GPS

to and from the airport. There are many opportunities for

systems for their KC-390 military jet and have a significant

the company to take part in the development of NAICM.

IFE activity in Chile, especially for LATAM Airlines’ Boeing

This constitutes a key priority for the company as the

767 aircraft. In Mexico, Thales’ systems are used to control

call for tenders will come out at the end of 2017 and the

landings and take-offs at AICM and other Mexican airports.

beginning of 2018.

Q: What role will the acquisitions of Guavus and Vormetric play in Thales’ long-term strategy?

Thales Mexico is the Mexican subsidiary of Thales Group, a

A: The acquisition of Guavus is mostly related to Big Data,

French-based electronics company that develops solutions for

data mining and artificial-intelligence solutions. The more

the aerospace, defense and ground transportation industries,

systems evolve, the more sensory information needs to

including air traffic management systems

147

INSIGHT

AEROSPACE, TECHNOLOGY EVOLVING TOGETHER JAVIER MARTÍNEZ CEO of inDeplo

148

Cost optimization is crucial for any process, be it administration

InDeplo’s telecommunication and process optimization

or production, and understanding how a process functions can

capabilities can be applied in a variety of industries,

help clients obtain better returns, says Javier Martínez, CEO of

helping Martínez build the company’s name not only in

engineering-solutions integrator inDeplo. “By understanding

infrastructure but in other productive sectors, including

the needs of the client and analyzing operating performance,

aerospace. InDeplo has built its portfolio to adapt to

we can transform fixed costs into variable expenses that result

the needs of different industries and has established

in lower investments,” he says.

partnerships with other companies to optimize its own operations in areas that are not part of its core business.

As leader of inDeplo, Martínez is focused on helping potential

According to Martínez, logistics providers such as Estafeta

clients understand how they can implement engineering and

and FedEx have helped inDeplo strengthen its portfolio to

IT solutions to track and analyze information deriving from

offer a more rounded solution to its clients. “We are not

production and administrative processes. The company offers

experts in logistics and we do not want to compete with

a variety of services for clients looking to optimize their

these companies,” he says. “They offer us their services so

operations. Through mobile and Cloud applications, inDeplo

we can complement our tracking and process optimization

provides technologies to boost productivity while maintaining

capabilities so clients can be sure their operations will be

costs and resource consumption at a minimum. Its Business

efficient and transparent.”

Process Outsourcing (BPO) solution allows the company to outsource technical and administrative staff to support

Although inDeplo is constantly innovating its

the client during its optimization process. For companies

telecommunications solutions, Martínez sees challenges for

wanting to build their operations using an engineering and IT

their implementation mainly related to infrastructure. “4G

approach right from the start, inDeplo provides site surveying

technology requires the installation of only one radiofrequency

and engineering layout services to plan the electrical and

tower in an area of 1-3km to function properly. 5G, on the

electromechanical installation for a new plant or office.

contrary, requires approximately 40 towers in a 1km2 area,” he says. “Communication cells have lower coverage and

“Thanks to our solutions and tools developed in-house, we can

more bandwidth capacity, which means we need to install

help our clients track any key performance indicator to gain

more equipment to ensure a constant signal.” The problem,

greater visibility on how their processes are evolving,” says

however, is that although more equipment is needed, clients

Martínez. The company, an end-to-end telecommunications

expect reduced costs. “InDeplo and every company in

provider founded in 2011, is a partner to the four biggest

the telecommunications sector must come up with cost-

companies in the telecoms sector: Nokia, CISCO, Ericsson

optimization strategies,” Martínez says. “This process must

and Huawei. Additionally, InDeplo is collaborating in “Red

be radical; it cannot be a gradual change.”

Compartida and working on supervising the installation of this new network, which according to the Ministry

Since launching operations six years ago, with a short

of Communications and Transportation, is the biggest

internal crisis in 2014, the company has maintained steady

telecommunications project in Mexico and probably the most

sales growth of 10 percent year-on-year. Martínez says the

challenged project in the world,” he says. With an investment

projection for 2017 is the same, although the company is now

of over US$7 billion, it is expected to improve coverage in

setting its sights beyond the country’s borders. “We want to

regions with limited access to broadband services, to increase

grow in Mexico and internationally, mainly in Latin and South

the competiveness in the market and finally to provide a

America,” he says. “Companies like Nokia and Huawei have

better service to the final customer. “All companies involved in

regional strategies for Mexico and Latin America, which means

the shared-network project have a goal of reaching 92 percent

that we must strive to offer that same level of flexibility to

of Mexico’s population in the next five years,” Martínez says.

support our clients.”

VIEW FROM THE TOP

RESILIENCE, RESEARCH ADD TO AEROSPACE PROWESS GUNTHER BARAJAS Vice President Mexico of Dassault Systèmes

Q: What factors have spurred Dassault Systèmes’ growth

Q: How is Dassault Systèmes’ supporting the incorporation

in the Mexican aerospace industry?

of Industry 4.0 practices in Mexico?

A: 2016 was a year of substantial growth for Dassault

A: Fully incorporating Industry 4.0 practices into Mexican

Systèmes as we increased our sales by over 20 percent

manufacturing is a complex process that requires much

compared to 2015. It was a year of opportunities, seeing

more than improving local infrastructure, but is extremely

many projects in the aerospace and oil and gas sectors come

beneficial for the sector. Industry 4.0 permeates the entire

to fruition. In 2016, we focused on aerospace projects as

design and manufacturing process. It permits the generation

this sector has substantial momentum. Mexico’s aerospace

of comprehensive digital models that can be tested for

sector keeps growing and our software is used by most

weakness under pressure, corrosion and many other

companies in this industry as a design, simulation and

problems, to be perfected as necessary before spending

manufacturing tool. In 2016, we got closer to existing and

on prototypes. Moreover, it allows the simulation of a

potential clients to teach them how to increase efficiency in

part’s entire manufacturing process, to identify potential

the projects they manage with our products. Our three most

bottlenecks and complications for operators. All these

important projects in 2016 were with Safran, the Mexican

processes can be done before making the physical model.

Institute of Petroleum (IMP) and GE.

If this entire process is used for a US$300 million plane, it can save at least that amount of money by removing the

Q: What new educational initiatives is Dassault Systèmes

need to build prototypes for testing.

implementing? A: We are now developing an interesting project with one of

Through our platform, local companies can immediately

Mexico’s largest public universities. For this project, FEMIA

contact their suppliers and clients to make modifications

analyzed the profile of an aerospace student and compared

instantaneously. This generates a collaborative international

that to what companies need from a graduate in this sector.

environment with experts at all steps of the supply chain,

We helped the university to align their programs to the

facilitating efficient processes. Additive manufacturing

industry’s needs, which can facilitate the integration of these

involves much more than 3D printing. Its real value is

professionals into the workforce. An aerospace graduate

applied by the designer and this is how Mexican SMEs can

must be well-acquainted with additive manufacturing,

contribute to a global industry.

compound management, advanced 3D design tools and knowledge of advanced simulation techniques, including

Q: Some aerospace companies cite uncertainty permeating

topology, straining and fluids. We provide this university

Mexico. What is your opinion on the sector’s future?

with our 3DEXPERIENCE platform for students to practice

A: I am very optimistic. Our plans for Mexico remain

on, incorporating complete aerospace solutions.

unaffected by external factors, in fact we expect more growth during this year than in 2016. We will focus on

In Mexico, Dassault Systèmes is developing strong human

providing excellent services. Our division in Mexico is

capital. This is an ideal time for foreign companies to come

gaining attention globally due to our good results. Mexico is

to Mexico, as the country has developed the expertise, talent

more than a growing manufacturing region as its possibility

and infrastructure necessary to be an attractive investment

to supply added value to clients is not in doubt.

destination for the industry. We now have 18 PLM Competency Centers (CC-PLM), which are training centers developed at technical universities. The education level at these centers

Dassault Systèmes investigates technology, research and

is so high that they even impressed our US offices, leading

software services and is present in 140 countries. The company’s

to students from California and Arizona receiving training in

3DEXPERIENCE equips engineers with technology to define,

Tijuana. We expect to eventually have one in every state.

communicate and predict how their designs will perform

149

150

Robot Alema / Latécoère Sonora

INSIGHT

FROM DREAM TO FLIGHT AND BEYOND JOSÉ TORRES Aerospace PLM Manager at Tata Technologies

The aerospace industry is emerging as a perfect example

number of OEMs and Tier 1 suppliers has increased, the

of growth, foreign investment attraction, and job creation

development of Tier 2 and 3 suppliers has not kept the same

in Mexico, despite it being a relatively young market. The

pace. “I believe in the coming months and years ahead,

country is quickly improving its aerospace manufacturing

you’ll start to see more Tier 2 and 3 suppliers establish

capabilities and driving success, including an average export

themselves in Mexico,” says Torres. “Those suppliers

growth of 20 percent between 2013-2015, job creation at

are going to have needs for software, training, process

63,000 as of 2016 and up to US$6 billion in direct foreign

development, certification support, MRO and much more,

investment flows in 2015 alone. With a strong presence

and when they do, we want to help make them successful

in Mexico and access to aerospace, aviation and defense

by leveraging our 28 years of expertise.”

experts across the globe, Tata Technologies is among those

“

moving the industry forward.

Tata Technologies’ key areas of expertise include aero structures, aero interiors, aero systems and aftermarket

Suppliers are going to have needs for software, training, process development, certification support, MRO and much, much more”

services. The company provides unique access to the Tata

Founded in 1989, Tata Technologies is a global provider

true partner for our clients. We like to take the time to

of comprehensive services for the aerospace industry. The

understand the companies’ business challenges, objectives

company assists clients by focusing on five key elements of

and ultimately what they want to accomplish. This allows

the aerospace engineering process: premarket, concept and

us to formulate a well-tailored plan that is specific to the

feasibility studies; industrialization; manufacturing support;

client and gives us a clear picture of the resources and

test and certification; and sales and aftermarket service.

requirements we need to bring to the table,” says Torres.

Ecosystem wherein Tata companies have been able to achieve global quality and cost benchmarks with a strategic focus on increasing indigenous production development and transfer of technology in the aviation sector. Tata Technologies has partnered with several leading aerospace and defense companies globally to help them foster innovation, address major business challenges and thrive in the market. “We have been able to become a

Each element includes a variety of components covering everything from concept to creation and validation.

In one instance, Tata Technologies saved a company 40 percent in implementation costs by providing

“Since Tata Technologies joined FEMIA in 2007, we have

comprehensive solutions for MRO. The client had challenges

been steadily developing relationships with key players

designing a maintenance fixture that would give them a

in the aero industry and are helping them realize better

reduced stripping cycle time as well as validating horizontal

products through innovative processes,” says Jose Torres,

stripping. Tata Technologies was able to design the fixture

Aerospace PLM Manager at Tata Technologies. “We have

for the new engine, complete finite element analysis to

been able to train a more specialized workforce that serves

evaluate its effectiveness and provide support during the

the aero industry in Mexico.”

manufacturing and commissioning processes. “Our clients have a variety of needs, and we make it easier to partner

While the rapid growth of Mexico’s aerospace industry has

with us by providing end-to-end solutions. We create long-

contributed to job creation and economic growth, it has

term partnerships because our offerings are so extensive

simultaneously created a gap in the supply chain. As the

and we’re dedicated to client success,” says Torres.

151

INSIGHT

EMPOWER USERS TO MAKE ALMOST ANYTHING SERGIO MANCINAS Director of FabLab Chihuahua

152

While technology seems to evolve at the speed of

have a great relationship with Chihuahua’s aerospace

light to facilitate manufacturing and reduce costs and

cluster, which has allowed us to contact more local

production times, state-of-the-art equipment is not always

companies. We have been able to showcase our capabilities

commercially viable. To equip a single workshop can require

to companies with which we had no previous relationship,

the acquisition of equipment that can push tabs upwards

including Arnprior and L-3 Crestview.”

of hundreds of thousands of dollars. 2016 was a good year for FabLab Chihuahua as the Responding to this problem a decade ago, an MIT professor

company secured one of its largest projects with TIGHITCO

developed a concept for a small self-contained laboratory

Aerospace to manufacture 14 stainless steel parts, which

for the local community. This initiative, called Fabrication

Mancinas plans to begin manufacturing in late 2017. The

Laboratory or Fab Lab for short, quickly expanded all over

company has many more projects in the pipeline, among

the world in a network that now includes over 30 countries.

them implementing configuration management systems and

Mexico has eight branches spread across its territory.

other support services for TIGHITCO and other companies. Configuration management comprehensively involves

The accessible laboratories offer a do-it-yourself approach

steps from designing a part to the creation of a model,

to empower individuals to “make (almost) anything,”

the specification of materials and special requirements

aimed at stimulating entrepreneurship. “Our objective is

such as finishing. FabLab Chihuahua expects this project

to support SMEs to generate high added-value products

to be a good investment that will also help local aerospace

and services using cutting-edge technology,” says Sergio

companies, big and small. “Configuration management is

Mancinas, Director of FabLab Chihuahua. This laboratory is

an extremely time-consuming process due to the analysis

growing quickly and making plans toward achieving self-

of large amounts of data. Major companies might not have

sustainability. It now incorporates a ROMER Absolute Arm,

the equipment or the time to process vast quantities of

a high-speed LVD Pullmax 520 Punch Press, a Press Brake

information themselves,” says Mancinas. The laboratory

LVD Machine and a Vertical Machine Center 3+2 Axis DMU

is also launching reverse-engineering services, analyzing

50 Ecoline. It also provides design and product development

finished pieces to develop optimized ways to build

services, and has worked for several aerospace companies

something similar and ideally enhance it, for aerospace and

in the state, including Zodiac Aerospace, Fokker, TIGHITCO,

automotive companies that may not have the capacity to

Soisa Aerospace and Kaman Aerospace.

do this on their own.

FabLab Chihuahua plans to continue growing alongside

“We have not yet broken even financially but we hope to

Chihuahua’s industry while also supporting student

balance our books by the end of 2017. To reach this goal

initiatives. Fab Labs act as an educational platform and

we will also need to increase sales so we will focus on

all laboratories are connected through MIT’s network to a

Chihuahua’s aerospace and automotive companies,” says

broad community of innovators and researchers. Individual

Mancinas. The state is home to a total of 93 companies in

Fab Labs support local student projects and universities.

the automotive, aerospace and electric-component sectors,

“We have an agreement with the Monterrey Institute of

of which 60 percent are involved in manufacturing metal.

Technology and Higher Education (ITESM) to train their

FabLab Chihuahua sees a bright future for the aerospace

students, for whom we run workshops on manufacturing

sector. “Mexico has great opportunities in this current

processes and new technologies,” says Mancinas.

economic climate as aerospace companies will increasingly look to reduce costs, encouraging more local suppliers to set

To boost its profile in the aerospace industry, FabLab

up shop. Mexico will attract a larger number of companies as

Chihuahua connected with the state’s sector cluster. “We

we have the necessary know-how to grab this opportunity.”

VIEW FROM THE TOP

A SMARTER TRANSFORMATION OSCAR LAMBERT Vice President Mexico and Central America, Energy Business of Schneider Electric

Q: What main energy and automation trends have you

every manufacturing sector. Manufacturers are investing

observed in Mexican industry and what is Schneider

in sustainability as it is closely linked to energy efficiency.

Electricâ&#x20AC;&#x2122;s contribution?

Global trends push energy efficiency forward but to do so

A: Schneider Electric is seeing an increased integration

companies need to improve their IT strategy and upgrade

of solutions that allow manufacturers to execute their

their data center software.

sustainability strategies in Mexico. We are helping to transform facilities into smarter factories, having identified

Q: What new opportunities will Schneider Electric develop

a need to develop adequate IT strategies that increase

as a result of the Energy Reform?

capacity for data processing, storage and communications.

A: The implementation of strategies that would reduce

Increased connectivity will reduce the need for technicians

energy costs in the country will lead companies to be

to perform diagnostics and many problems will be solved

more competitive long-term. Allowing competition will

remotely. Based on these trends, Schneider Electric is

generate more options for companies, lowering prices and

developing end-to-end solutions to help our customers

operational costs. Mexico is in the midst of a transition

face their challenges successfully.

toward the goal of generating 35 percent of energy through renewable sources by 2024. This initiative will also simplify

Q: How can Schneider Electric help companies reach their

certifications and improve companies brand image.

sustainable practice goals? A: A company with an annual energy bill in excess of US$1

We see an interesting scenario ahead. At Schneider Electric,

billion, with several facilities and a large supply-chain

we see opportunities in the oil and gas sector, and the

footprint, can have a substantial impact on all sustainability

electrical distribution grid. We noted that 35 percent of

features. We offer these companies the opportunity to save

pipelines are being opened to the private industry, as well

up to 30 percent on their electricity bill. Savings go beyond

as logistics and transportation. Our SCADA system already

monetary values since they also reduce the environmental

manages the current national pipeline network and has been

impact. Our solutions also limit blackouts, which can

recognized for its reliability. As the energy sector increases

severely damage productivity.

distribution networks with the use of renewable energies, Schneider Electric sees opportunities to continue advancing

We can help customers achieve most of their sustainability

towards the transformation of the current grid into a first-

goals and make production eco-friendly with specific

class smart grid.

solutions, such as WAGES metering and solutions for data collection, energy and building management and renewable

Deepwater hydrocarbon exploration, drilling and extraction

energy, just to name a few. Building a smart ecosystem of

projects opened up investment opportunities. New players

Schneider Electric Sustainability solutions can save companies

in Mexico should look for suppliers with both local and

almost a third on costs, depending on the company.

international experience, global best practices as well as excellent project administration. We can assure this with our

Q: What would you suggest to companies to increase

70 years of experience in the country and our successful

energy efficiency in their manufacturing processes?

global operations.

A: Connectivity has significant potential to increase efficiency in manufacturing plants with the Internet of Things. Information collected is analyzed, and the results

Schneider Electric is a French multinational that creates

are used for process optimization to make plants more

connected technology and solutions to manage energy

efficient. Today, all our electrical distribution products

safely and efficiently, with a proven commitment to

include these features and can be used by companies in

sustainable development

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VIEW FROM THE TOP

UPDATE, ADAPT: THE STRATEGY FOR IMPLEMENTING INDUSTRY 4.0 BERND NOACK General Manager of FESTO Mexico

154

Q: What is FESTO doing to incorporate Industry 4.0

their syllabi and study programs. It is unlikely that what

practices into its products?

students are learning today will be exactly useful in 10 years.

A: The concept of Industry 4.0 has not yet been fully

We must adapt and generate new abilities.

established in the industry. It is a concept that will continue developing hand in hand with technology in the

In 10 years, universities will probably have evolved

coming years. In this sense, FESTO is working intensively

drastically. Some predict colleges and teachers eventually

with research centers, universities and clients to identify

will disappear but I believe their role will only transform.

the industry’s needs and to generate the adequate

We will always need a guide or a mentor to help students

technologies. The implementation of Industry 4.0 requires

in the learning process but professors have stopped being

capital and collaboration, with which FESTO can help. We

students’ sole source of knowledge. Industry 4.0 topics are

want to participate in the robotics and self-diagnostic

priorities alongside virtual and enhanced reality systems.

arenas, as well as technology for technical teaching and

Our manufacturing cells allow students to learn with hands-

software development.

on experience of handling these systems.

Q: How close is FESTO to meeting its goal of doubling

Q: How will Festo’s new service center assist its Mexican

sales by 2020?

manufacturing centers?

A: We are on our way. I am convinced that the Mexican

A: Our regional support service center in Mason, Ohio,

market will continue growing. An important opportunity

will support our Mexican sites with a training area that

area is to support machinery manufacturers. Unfortunately,

implements a dual-education system, combining theory

in Mexico we import most of the machinery used in every

with practice. In Mexico, we work together with the German

industry. Around 80 percent of the machines used in

Chamber of Commerce and the Mexican Employers’

industries such as pharma are imported. At FESTO, we

Confederation (COPARMEX) to implement this dual-

believe we could have an important impact developing

system in Mexico. We try to convince the industry that

Mexican manufacturers and substituting imports by raising

the implementation of these practices will generate the

local technology standards.

technical skills and knowledge required for the industry.

Q: How difficult has it been to find qualified human capital

Q: How can FESTO contribute to manufacturing chain

for Industry 4.0 practices?

development?

A: Unfortunately, Mexico suffers from a lack of qualified

A: We are working heavily on developing and strengthening

labor and the best solution is a dual-education system. The

our distribution channel, so that companies can offer the

challenge is not for big corporations that can generate their

same service clients would get directly from us. We have

own training centers, such as Siemens, Volkswagen or GM,

limited resources so we want to focus them on clients with

but for SMEs, which cumulatively generate thousands of

whom we see the most potential. FESTO works on offering

jobs. We can find the human capital to work with Industry

solutions that generate an adequate return on investment.

4.0 but the country is not ready to cater to its future needs. All industry players must work with universities to adapt

SMEs must become aware of the necessity of investing in technology. Depending on the industry, technology investment can reduce costs by 15-20 percent and in some

FESTO is a global manufacturer of pneumatic and electrical

cases, up to 30 percent. This is why it is so important for

automation technology. Created in the Germany, the company

SMEs to have available capital to invest in new technology

has over 80 years supporting manufacturing practices in many

to remain competitive, and why the government must offer

sectors

financing schemes with competitive interest rates.

VIEW FROM THE TOP

DEVELOPOING BIG DATA SOLUTIONS FOR MANUFACTURING COMPANIES GUSTAVO MOYA CEO and Research Director of Ixaya

Q: What advantages do Ixaya’s solutions offer to clients?

created, which evidently blocks the company’s development

A: Ixaya adds value by managing both software and

strategy. I am not completely against this idea because I

hardware solutions, while linking manufacturing operations

believe technology should be access-free. Source code

with business intelligence. Other companies focus on

should be protected by copyright but not the idea in itself.

equipment specialized in certain activities, which means adapting to the local market may turn out to be an expensive

Another obstacle startups face in Mexico is getting funds

process. In contrast, we can modify our programmable

and investors. When a company in the US fails to generate

logic controllers (PLC) and equipment to operate just

funding, it pivots and creates a new product from the

as the client requires, obtaining only the most relevant

original idea. This leads to what is now called a “unicorn”

information regarding each process. The company has 11

company, listed in the stock market and valued at more

years of experience working on complementary systems

than US$1 billion. But launching an initial public offering

for manufacturing and logistics operations.

in Mexico is expensive and even though there are a few financial structures like stock market promotion companies

Q: How can Ixaya support its clients in business intelligence

(SAPI), it is complicated for startups to participate in

activities?

the Mexican stock market. Funding is more traditionally

A: Many companies see business intelligence as static

managed in this country and companies depend on the

reports without any added value. However, the benefit of

government or a bank trusting in their idea. The only other

business intelligence is to mix previous data to generate

option is to get funding by selling your products but during

new information that can help your operations. Ixaya

the development phase, this is difficult. After 11 years in

merges all the metadata generated by ERP software and

the market, we know it takes us around four years to start

consolidates it for the final user. Big Data is an important

selling any new idea we generate.

area of opportunity for many companies that did not know how to take advantage of the information they were

Q: What are Ixaya’s investment needs and how have you

generating.

promoted investment from external parties? A: We have not requested external investment as we operate

The future of manufacturing is for all equipment to

as a stock corporation with variable capital. But some of our

be integrated, transferring relevant data to the rest of

new business lines act as an SAPI and we are analyzing the

the supply chain. Communication between clients and

possibility of bringing in investors. We have always operated

suppliers allows the process to be automatically adjusted.

with our own capital, having initially commercialized our

Data collection and process integration ensure effective

products to SMEs. The growth we saw in that sector allowed

resource management. Technology integration is also a

us to finance our entry to other markets. Our financing

good strategy to prevent future problems and its constant

schemes with SMEs also gave us the experience needed

monitoring leads to productive maintenance and an

to negotiate with automotive companies. These players

effective decision-making process.

normally ask for a 90-day interest-free loan. Since we offered our previous customers up to 60 months of credit,

Q: What challenges do you see in being a technology

we shifted to this market with ease.

developing company in Mexico? A: The most common barrier for software companies in Mexico is patent generation. Software cannot be patented

Ixaya is a 12-year-old company that researches and develops

here since the Mexican Institute for Industrial Property

software solutions for many sectors, often incorporating biometric

does not consider these products an invention. Without

data and following Lean Six Sigma principles. The company aims

protection, other players can simply copy what you have

to become a software leader for the aerospace sector

155

VIEW FROM THE TOP

VERSATILE, PROGRAMMABLE AND UNIVERSAL SOLUTIONS FOR MANUFACTURING MANUEL SORDO General Manager LATAM of Universal Robots

156

Q: What strategies have led Universal Robots to stand out

Q: How did Universal Robots consider the clients’ view

in the competitive robotics market?

of collaborative robots and operator safety issues during

A: Innovation has allowed Universal Robots to gather

development?

approximately 80 percent of the global market share

A: We knew operator safety concerns would be one of our

in collaborative robots. Our goal has been to define the

main obstacles to enter the market. Every safety standard

different aspects that make up a collaborative robot and

in place was related to traditional robotic applications, so

so far, the largest names in robotics have not been able to

there was no precedent set for our offering. New standards

compete with us in our specialty. The gap has narrowed

had to be created and even now there are still grey areas.

over the years but we are planning a new product launch for the end of 2017 that will once again put us well ahead

When we acquire new clients, we always recommend they

of the competition.

perform a safety analysis of their operations to determine if collaborative applications are the best way to go. We

Q: What advantages can collaborative robots offer over

have not encountered any obstacles to companies adapting

traditional automation units?

to our solutions and many have helped us promote our

A: If we compare traditional industrial robots from 40

equipment’s advantages.

years ago with the machines of today, we find few physical differences. Programming and versatility have evolved

Q: How can Universal Robots compete on total cost of

but the technology has remained practically unchanged.

ownership of the equipment?

Advanced programming also requires a high technical

A: Our robots are designed to be maintenance-free. The

aptitude, resulting in complex equipment that cannot

equipment can run continuously for 35,000 hours and

be used by everyone. Additionally, these robots require

in case of any repairs, the system is based on modular

large investments in installation of protective cages to

architecture that allows corrections to be made in a

isolate them from the rest of the production line. Robotic

matter of minutes. Our robots are versatile so users can

manufacturing cells are highly inflexible, so companies

relocate them to any new area they desire. Being truly

cannot easily relocate them to other production areas.

universal means countless companies in the market that manufacture accessories could use them for diverse

Although collaborative robots do not have the same load

production applications. The company’s goal is to imitate

capacity as their industrial counterparts, their advantages are

a human arm’s abilities and offer our clients a high level of

numerous. These units do not require cages or other types of

customization with its flexibility.

protection equipment. They occupy a small area and the user can relocate them throughout the plant to complete different

Q: What opportunities exist for Universal Robots to target

tasks. The robots have several sensors that detect human

growing numbers of Mexican suppliers?

operators and slow the unit down if a person comes in close

A: The only way for companies to participate in advanced

contact. This does not collapse the entire production line,

manufacturing is by investing in automation. Our challenge

however, as operators need only press a couple of buttons

is to promote our solutions among Mexican SMEs.

for the robot to resume its task.

Unfortunately, a US$100,000 investment can be daunting, but this would buy a small traditional robot with a working space of 0.5m and the necessary infrastructure from some

Based in Denmark, Universal Robots manufactures small,

competitors. A Universal Robots solution with similar

collaborative robotic arms that are finding use in many economic

capabilities represents an investment of only US$25,000.

sectors. The company has 80 percent of the global market share

This is much more accessible and companies usually see

in collaborative robots

returns in just three months.

INSIGHT

SATELLITES FOSTER GROUND CONNECTIVITY ALEJANDRO ATHIE Business Development Director of StarGo

Technology has the power to disrupt in the most unexpected

and governmental institutions,” says Athie. “Our participation

ways. Two decades after the world was transformed by the

in the Bicentennial Project allowed us to provide internet

emergence of the internet, Mexico is getting ready to enjoy

connection to 5,062 remote locations in the country.”

the changes that national, widespread access will create. What once seemed far-fetched – connecting to the internet from

The Bicentennial Project is embedded in the federal

the innermost locations of the country – is now a realistic goal,

government’s Mexico Connected strategy, which

thanks to the magic of satellites and technology.

aims to provide universal access to broadcasting and telecommunications services. This is achieved through the

Alejandro Athie, Business Development Director of

implementation of broadband internet services for difficult-

StarGo, Mexico, believes the key to growth lies in the

to-reach locations. In 2011, the government connected a total

heavens. His company is among those going forward with

of 6,960 public locations to the internet. By the end of 2015,

the implementation of telecommunications via satellite.

this number had jumped to over 101,000 locations. At sites

“Five years ago, we had between 1,200 and 1,500 clients

that accommodated installation, the service has worked

connected. Today, we have around 9,000 clients connected

without fail. “By contract, StarGo assures 99.5 percent of

via satellite,” he says.

service availability,” says Athie. This means that severe climate conditions are no longer an impediment to receiving the

The hunt for experience and market share to complement

service.

its technology led StarGo to Pegaso Banda Ancha, a former division of Grupo Pegaso, in 2016. “We had the experience

A key advantage is also network security. “When it comes

and the commercial reach and StarGo had the technology,

to telecom services, clients must invest heavily on security

so they bought us and now we are part of the StarGroup,”

equipment and to encrypt their information to protect

says Athie. “I think it is an interesting combination. StarGo

themselves from hackers. However, when it comes to satellite

has also acquired Ka band frequency, which will allow us to

services, clients do not have to make any other investment

provide satellite internet with wider broadband and in a more

on security equipment,” says Athie. “The data combination

economical manner.”

needed to access the satellite is of great magnitude and provides every customer with an encryption process that

Satellite services are by far more expensive than those provided

makes additional security measures unnecessary.”

by traditional carriers but Athie says the implementation of the Ka spectrum prices (a frequency that allows for higher

Mexico’s telecoms industry has grown by leaps and bounds

bandwith communication with reduced costs) will allow

and the country is overcoming its past constraints in terms

StarGo to compete to an extent with land carriers. “Our

of technology. “The real challenges are convincing clients

service is still more expensive than land services. However,

to try our services, convincing them that we offer a solid

there are higher end packages where traditional carriers

technology and reaching their target price,” says Athie. StarGo

have become way to expensive and relatively inefficient. We

is confident that its new satellite technology will allow the

believe that the bounties of the Ka spectrum will permit us to

company to increase its market share in the next two years.

compete in this particular segment.”

“We believe our market share in the satellite internet market ranges between 25-28 percent. But the merger of StarGo and

While the company has high expectations for the Ka band and

Pegaso Banda Ancha gives us the possibility to more than

its impact on market share, its successful market penetration

double our number of users,” says Athie.

until now is in part thanks to the telecommunications projects fostered by the current federal administration. “Five years

“The satellite market will offer the country new opportunities.

ago, we started focusing on providing services to corporate

Satellites know no barriers and can cross any frontier.”

157

RESEARCH SPOTLIGHT

CIDETEQ IS CERTIFIED BY BOMBARDIER FOR ITS AEROSPACE ACTIVITIES Although companies usually prefer to send their components to countries like India, China and the US for testing, aerospace companies are finding a competitive alternative in CIDETEQ. “Sending a component all the way to India or China usually means delaying production for close to three weeks,” says Gabriel Siade, Director General of CIDETEQ. “We can provide results in about 24 hours.” CIDETEQ has 97 certified processes that include water, food, residue, metallurgy and chemical applications. The center has AS 9100 and ISO 9001 certifications, and is also certified by Bombardier for its aerospace activities. Within this sector, CIDETEQ is already collaborating with companies such as Safran and Bombardier in the development of advanced materials and processes. With Safran, CIDETEQ developed a traceability system for landing component manufacturing that involves not only component data but also operation parameters for all processes during the part’s treatment. CIDETEQ has even applied its knowledge in water-treatment solutions to support Safran in the making of an electro-coagulation and electrooxidation reactor for water-treatment applications.

80 percent of CIDETEQ’s graduates are employed in research centers, universities and private companies CIDETEQ’s collaboration with Bombardier led to the formulation of a hard-anodizing process that did not require hexavalent chrome. This solution is used in bonding applications that are normally corrosion and stress points that can cause failures. The center works with aerospace companies regardless of their position in the production chain, developing these and other surface treatment solutions including chroming, anodizing and plasma treatment through chemical vapor deposition, high-velocity oxygen fuel or high-speed thermal projection. CIDETEQ also participates in the fuel sector with biodiesel and bio jet fuel solutions, working in collaboration with other companies and R&D centers as part of a joint effort established by CONACYT.

159

Manufacturing harnesses / LatĂŠcoĂ¨re

HUMAN CAPITAL & RESEARCH

Among the main concerns of foreign aerospace companies arriving in Mexico is the question of personnel: Will they be able to hire sufficient, qualified human capital? Several entities have made an effort to supply the appropriate talent, as demonstrated by the creation of Mexicoâ&#x20AC;&#x2122;s first and only aeronautics university after Bombardierâ&#x20AC;&#x2122;s arrival to the state of Queretaro. But as the industry grows, the need for qualified technicians and engineers will only increase. This is already causing problems in areas where companies are strong but the labor force not much so. In the north of the country, local plant owners state that there is high competition for aerospace technicians and engineers leading companies to poach them from each other. Educational institutions are fully aware of this problem and are focusing on the development of human capital in larger numbers.

This chapter reviews the measures being implemented to train and educate aerospace professionals at all levels of education, from technicians to postgraduate studies. The section will also feature the efforts of Mexican research centers and the latest technologies and developments they are generating. Many research centers also provide services to the private industry and this chapter will showcase them and their potential revenue generation.

161

CHAPTER 7: HUMAN CAPITAL & RESEARCH 164

ANALYSIS: The Dilemma of the Poached Employee

166

VIEW FROM THE TOP: Jorge Gutiérrez, UNAQ

167

INSIGHT: Pedro Mar, UTG

168

VIEW FROM THE TOP: Aaron Olivas, CENALTEC

169

INSIGHT: Enrique Luján, INADET

170

INSIGHT: Gabriel Siade, CIDETEQ

172

ROUNDTABLE: How Would You Describe the Capabilities of Recent Graduates?

174

VIEW FROM THE TOP: Ricardo Iñurria, Out Helping

175

VIEW FROM THE TOP: Felipe Rubio, CENTA and CIDESI

176

VIEW FROM THE TOP: Gabriel Aparicio, Kelly Services

178

INSIGHT: Víctor Hernández, ASTECA

179

INSIGHT: Gregorio García, EAE

180

RESEARCH SPOTLIGHT: UNAQ

163

ANALYSIS

THE DILEMMA OF THE POACHED EMPLOYEE There is a significant talent gap in the aerospace industry, as more jobs are created than can be filled by the existing talent pool. This is leading to a growing problem: poaching of valuable employees. A similar problem is affecting aviation as pilots are leaving the country in seach of better wages As Mexico’s aerospace sector maintains its rapid pace

educational conditions that would capture the attention

of growth, it is becoming increasingly difficult to meet

of important aerospace companies,” says Gutiérrez.

industry’s stringent talent requirements. With supply and demand out of whack, poaching among companies for top

The greatest areas of need are those in specialized niches.

human resources is a dilemma searching for a solution.

“Within the aerospace sector, mechanics and electronics specializations are the most in demand, as well as

164

“One of the larger problems (aerospace) companies face

professionals focused on industrial and aeronautics

is acquiring qualified professionals. As a result, there

engineering. In this sector, quality is crucial, which

is strong competition for them, with some companies

means that candidates must be extremely responsible

poaching employees from each other and offering

and dedicated to their job,” says Aparicio. While many

inflated salaries that diminish competitiveness,” says

universities are training the engineers of tomorrow,

Juan Carlos Corral, Director General of ITP Mexico and

local aerospace companies seem more concerned with

President of Queretaro Aerocluster.

attracting — and retaining — technicians. “With more companies arriving in Mexico, demand for labor is on

Rather than ease demand, the government is taking steps

the rise but a lack of technicians has led companies to

to promote the creation of even more jobs. Among Pro-

steal employees from each other,” says Richard Rubin,

Aéreo’s goals is the generation of 110,000 direct aerospace

CEO and Co-owner of Javid LLC.

jobs. The sector, which has grown 15 percent annually, employs 50,000 individuals now, according to FEMIA. This

Training centers such as CONALEP are developing

suggests the problem could get worse before it gets better.

study programs to produce the technicians the industry requires. UNAQ also trains aerospace technicians. “Our

“Mexico faces a challenging situation in terms of

goal is to develop the best workforce in Mexico, from

(aerospace) human capital development and education.

technicians to engineers and researchers. We want

Almost 50 percent of all new graduates are not prepared

to be a key player that develops competencies and

to address the industry’s needs. As a result, people who

supports the industry’s technological development,”

know they have the right skills and training are always

says Gutiérrez. The university hosts 10 laboratories for

looking for the company that offers the best deal and

aerodynamics, avionics, chemical treatments, electronics,

the most attractive compensation plan,” says Gabriel

material resistance, thermal machines and nondestructive

Aparicio, Country Manager of Kelly Services.

testing and eight workshops for the study of engines, electricity and batteries, thermal processes and welding

Many institutions have incorporated curricula designed

and metrology. By 2016, the university had trained over

exclusively for the aerospace sector, such as Nuevo Leon

7,000 technicians and generated almost 1,000 associate

Autonomous University (UANL), National Polytechnic

bachelor’s and master’s degrees.

Institute (IPN), Guaymas Technological University (UTG), Chihuahua Polytechnic University (UPC), Baja

Training the necessary personnel might be a challenge,

California Autonomous University (UABC) and Chihuahua

the end result is a potential powerhouse for the Mexican

Technological University (UTC). However, the most

economy. “During the next two decades, global demand

prominent example of the efforts to supply qualified

will require over 37,000 new aircraft. Mexico has a 10-year

personnel to the aerospace sector comes in the shape of

window of opportunity to fully enter the aerospace global

UNAQ, the only Mexican university that focuses exclusively

value chain. If we do not create a foundation to support

on the aerospace industry. This university was established

local industry, we might miss it,” says Gutiérrez.

as part of Queretaro’s commitment to encourage the Canadian company Bombardier Aerospace to establish

R&D POTENTIAL

operations in the state, explains Jorge Gutiérrez, the

While many companies see Mexico as a low-cost labor

university’s Rector. “UNAQ was built to create the

market, others see much more potential, for instance in

the generation of R&D. According to ProMéxico, there

pilots. The Mexican Association of Aviation Pilots (ASPA)

are 11 research centers across the country with aerospace

estimates that every year 300 pilots leave Mexico looking

capabilities.

for better wages in Asia and the Middle East. Pilots are ready to move as they can aspire to salaries ranging

Local universities and research centers are also investing

from US$12,000 to US$16,000 per month outside of

in technology “Alongside SEDENA, UNAQ is developing

Mexico, while in the country the average monthly salary

technology for unmanned aerial vehicles (UAV) and

is MX$21,296 (US$1,149). Furthermore, the association

composite-based materials to shield helicopters. UNAQ

says that Mexico does have the capabilities to train the

has also developed simulators for pilot training alongside

increasing demand for pilots as the costs of training are

the Mexican Air Force and is developing tooling and

too expensive, up to MX$1 million (US$50,000) for a two-

other capabilities for manufacturers of landing gears and

year program.

engines. The university, with financing from the Mexican Space Agency (AEM), also participates in research of

Mexico has hundreds of pilot schools but training is a slow

nano, micro and pico satellites, launchers and embedded

process and it is not keeping up with industry demand,

systems design for navigation,” says Gutiérrez.

explains Victor Hernández, Director General and CEO of ASTECA, a Mexican school for pilots, operators and flight

Research centers, such as CIDETEQ and CIDESI, are

attendants. He further explains that while the largest school

developing projects for the sector. Yet, all these efforts

in Mexico trains about 200 students every six months, most

might not be enough, unless the private sector takes

train only four to six pilots during that period.

a greater role. “While some projects can take a short

industry. “Located in Queretaro, the National Center of Aeronautics Technologies (CENTA) will operate

as a consortium integrated with eight centers with complementary capabilities, enabling access to more than 70 collaborating laboratories across the country and

22,000

research center focused exclusively on the aerospace

Africa

front burner, which can be seen in the generation of a

22,000

Efforts to power Mexican aerospace R&D remain on the

100

CIS

country invested only 0.57 percent.

51,000

percent of GDP should go toward research, in 2016 the

150

Asia Pacific

the current presidential administration mandated that 1

Latin America

says Gabriel Siade, Director General of CIDETEQ. While

58,000

200

Middle East

the government. In Mexico, it is the other way around,”

104,000

research is funded by private institutions and the rest by

Europe

250

112,000

institutions. In most developed countries, 70 percent of

AUTO PARTS PRODUCTION PER YEAR IN MEXICO NEW PILOTS REQUIRED BY REGION (2016-2035)

North America

Mexico needs greater research participation from private

248,000

time, true innovation takes years and years. Furthermore,

Source: Boeing Source: INA

to qualified personnel and equipment for any program.

The aviation industry is cyclical and the current growth

CENTA began operations in July 2017 but its official

period is expected to continue until 2020. “Pilot demand

inauguration will be in late November 2017, after new

will continue until that year,” says Hernández. “Our only

equipment is incorporated,” says Felipe Rubio, Leader

concern is that the rate at which they are being produced

of the CENTA project.

may lower standards. Approximately 30 percent of licensed pilots are rejected by airlines because they are

WHERE ARE THE PILOTS?

unable to pass the recruitment tests.”

If the number of passengers and aircraft multiplies, the number of pilots should also increase. Boeing estimates

The lack of pilots will eventually become a problem, which

that to keep up with the sector’s growth, a total of

some are already taking steps to address. For instance,

617,000 commercial pilots will be needed globally from

UNAQ is planning to launch a Pilot College to address the

now to 2035, of which 51,000 will be needed in Latin

demand. This comes right after the university launched

America.

a training program for flight attendants, who are also in high demand. The proposal for the Pilot College will

Demand for pilots is already high. Boeing explains that

be presented to local authorities in 2018, with a launch

some regions have relied heavily on recruiting foreign

date of 2019.

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VIEW FROM THE TOP

MEXICAN AEROSPACE INDUSTRY 2.0 BEGINS JORGE GUTIÉRREZ Rector of UNAQ

166

Q: What opportunities does Mexico offer the aerospace

will become a hub for industry knowledge, programs

sector and what needs to be done in the short-term to

and competencies and will support high schools and

develop those?

research centers. To date, the university has trained over

A: Mexico plays a key role in North America’s aerospace

7,000 technicians and graduated almost 1,000 associate

supply chain and its relevance will grow as more OEMs seek

bachelor’s and master’s degrees. Today, UNAQ has

to reinforce their manufacturing in competitive countries.

approximately 1,400 students from across Mexico and

During the next two decades, global demand will require

some from outside the country. We are also creating a new

over 37,000 new aircraft. Mexico has a 10-year window of

master’s degree in air transport industry management.

opportunity to fully enter the aerospace global value chain. If we do not create a foundation to support local industry

Q: What R&D projects is the university supporting?

we might miss it.

A: Alongside SEDENA, the university is working on technology for unmanned aerial vehicles (UAV) and

Q: How would you describe the evolution of Mexico’s

composite-based materials to shield helicopters. UNAQ

aerospace sector?

has also developed simulators for pilot training alongside

A: During the 1920s, Mexico was able to design and build

the Mexican Air Force and is focusing on tooling and

aircraft. While this capacity has been lost, the country has

other capabilities for manufacturers of landing gears and

maintained a small, limited aerospace sector ever since. This

engines. With financing from the Mexican Space Agency

period can be referred to as the Mexican Aerospace Industry

(AEM), the university also participates in research of

0.0. This lasted until the arrival of Bombardier in Queretaro

nano, micro and pico satellites, launchers and embedded

in 2006, which led to drastic changes in the sector and

systems design for navigation. Additionally, UNAQ

led the Mexican government to establish public policies to

supports entrepreneurs. One of our goals as an institution

encourage the industry’s growth. The introduction of this

is to incubate startups. We provide technical assistance

OEM can be considered the start of the Mexican Aerospace

to several companies incubated in the university, some of

Industry 1.0. Now, we are entering the Mexican Aerospace

which were created by graduates of our master’s program

Industry 2.0. From this point on, the goal is to generate

in engineering.

a larger number of Mexican companies, to manufacture pieces with higher added value and to develop a strong

Q: What new programs is UNAQ developing to address

military segment. At this point, 90 percent of aerospace

the needs of the sector?

companies manufacturing in Mexico are foreign.

A: The growth of the aerospace sector led us to widen the number of our training programs according to the needs

Q: What role is UNAQ playing in the development of the

of the sector. Today, we are developing training programs

local aerospace industry?

for process and product engineering. We incorporated

A: Our goal is to train the best workforce in Mexico, from

a master’s program that supports high-end products

technicians to engineers and researchers. We want to be

and processes for manufacturing and design of new

a key player that focuses on competencies and supports

components. The construction of NAICM is expected to be a

the industry’s technological development. The university

significant opportunity for Mexico’s aviation sector because it will centralize many activities, including air traffic control and operations for the aviation industry. This also represents

UNAQ is the only specialized university for the aerospace sector

an opportunity for us and we will develop training programs

in Mexico. The Queretaro state government created the university

for flight crews, pilots and technicians. In 2017, we will

as part of its commitment to Bombardier. UNAQ educates

launch a training program for pilots. ICAO recently said

technicians, professionals, engineers and researchers

that 1 million new pilots will be needed by 2030.

INSIGHT

EDUCATIONAL MODEL UNDERPINS TECH SKILLS PEDRO MAR Rector of Guaymas Technological University (UTG)

Guaymas Technological University (UTG) not only saw a

keep up. “It is not easy to catch up with the industry because

niche in the aerospace industry, it acted to fill the gap. The

the investment in a business it is not the same. The industry

result is an educational model for aerospace technicians now

is in a constant state of change and we need to catch up.

used by 114 schools belonging to a nationwide network of

That is a challenge in education but when the industry and

technological universities.

universities are allied they can work together and avoid a lag

“

on the educational side.”

“Sonora has eight important aerospace manufacturers that need trained professionals. We created a curriculum to train advanced technicians in aeronautics, focused on precision machining,” says Pedro Mar, UTG’s Rector. The UTG program is the result of a joint initiative between the university and Maquilas Tetakawi, a shelter for foreign businesses interested in manufacturing. The presence of sufficient human capital is vital to attracting investment to the state, especially among foreign companies that Mar says are becoming more demanding. “It is the first thing a company looks for when it considers settling in Sonora.”

The school must provide the latest technology laboratories for students so they will be ready for the working world. We do not use outdated machines”

The university’s collaboration with the industry works both

Mar says that universities need to adapt their programs to

ways. UTG trains professionals for local companies and in

the needs of the sector, opening or closing specific curricula

turn receives donations of training equipment. For instance,

depending on demand. UTG has an advantage in that “UTG

a local manufacturer of turbine parts recently donated a

is a new university furnished with high-tech equipment,”

machine that will allow students to practice, Mar says. “The

he says. The university will continue to expand its facilities

link with the industry is important. If manufacturers donate

and to acquire new equipment. For instance, Mar says that

their unused machines, university graduates will have the

in 2017, Sonora’s government will invest MX$19 million in

requisite knowledge when they enter the workforce, allowing

various laboratory equipment, including 3D printers, electro-

companies to save on training.”

pneumatic and hydraulic equipment, programmable logic controllers (PLC), microcontrollers and production systems.

Among the key in-demand skills Mar has identified in the

To keep up with the industry’s needs the university is also

sector is an advanced level of English proficiency. To address

preparing classes in areas that include decision-making in

this issue, the university now includes the language in its

operations and computer design and developing exchange

aerospace program. “Only 21 colleges in the country have

programs with Canada. Furthermore, the university will

this bilingual model,” says Mar. Other skills required by the

introduce renewable-energy practices to take advantage of

aerospace sector include knowledge of state-of-the-art

Sonora’s abundant irradiance. UTG received a donation worth

machining processes. “The school must provide laboratories

MX$6 million for the installation of 50 solar panels, which will

equipped with the latest technologies so students will be

allow the university to become sustainable.

ready for the working world,” he says. “We do not teach with old machines; if we did that, graduates would be equipped

By mid-2017 UTG had enrolled approximately 500 students.

with obsolete knowledge.”

Mar is expecting this number to rise to 1,200 by the end of the year so UTG is investing to expand its facilities. “We

Because the aerospace industry must always be at the

can increase our capacity and support more companies.

forefront of technology, it makes it harder for universities to

Supporting education supports Sonora’s economy,” says Mar.

167

VIEW FROM THE TOP

COLLABORATION SPURS SPECIFIC TALENT DEVELOPMENT AARON OLIVAS Director of CENALTEC Chihuahua Campus

168

Q: How does CENALTEC support the development of

lean manufacturing, for instance. Companies also require

Chihuahua’s manufacturing capabilities?

employees who can correctly interpret design blueprints,

A: CENALTEC has four divisions. The first works with

an essential skill for machining.

manufacturers, the second with academic institutions, the third with the general public and the fourth with foundations.

The center adapts its capabilities to the needs of local

Approximately, 60 percent of our training programs are

companies by creating training programs tailored

provided to academic institutions, 30 percent to local

exclusively to each specific company. For the aerospace

businesses and the remainder is available to the general

sector, CENALTEC provides training in aerostructures

public. We develop programs in partnership with local

assembly, welding, mechanical maintenance, CNC

universities so that students can receive their theoretical

machining, metrology and plastics transformation, including

education at their university and come to CENALTEC to

extrusion and injection. The center also trains in design using

learn how to use the required equipment. Many academic

CATIA, NX, SolidWorks, AutoCAD and Mastercam software.

institutions do not have the necessary equipment so they

Course demand varies according to the industry’s needs.

send their students to us. The center works with Chihuahua

For instance, not too long ago aerostructures was extremely

Technological Institute (ITCh), Chihuahua Autonomous

popular. In 2017, our courses covered aerostructures,

University (UACh) and Chihuahua Polytechnic University

dimensioning, CNC machining and automation. We also

(UPTc), among many others.

provide training in the 5S methodology (sort, set in order, shine, standardize and sustain).

CENALTEC trains students to enter the workforce so its courses are designed to be 20 percent theoretical and

Q: What are the main challenges the state is facing in terms

80 percent practical. Our collaboration with universities

of human capital?

results in fully rounded professionals who can easily join

A: Chihuahua’s capabilities in advanced manufacturing have

companies in the manufacturing sector. We also receive

progressed rapidly but to continue growing the state needs

individual students interested in learning conventional

more software training, especially in LabVIEW. We are not

machining and welding.

providing training for this software but we are developing these capabilities. While there is sufficient human capital in

Q: How does CENALTEC’s collaboration with Chihuahua’s

the city, many employees are no longer willing to continue

manufacturing companies address human capital needs?

working as operators because they want skilled and better-

A: It is extremely important that our instructors remain up to

payed jobs. CENALTEC supports companies that require

date on the latest technologies and processes so they can

nonqualified labor by providing essential training.

provide the training programs that companies need. The center’s close relationship with the state’s manufacturing

Q: Which programs is CENALTEC developing alongside

companies allows it to fully understand their human capital

local aerospace companies?

requirements. We want to grow alongside these companies.

A: CENALTEC Chihuahua works with Tighitco, Zodiac

Due to this collaboration, the center recognized a growing

Aerospace and Fokker. We will soon begin working with

need for training in electro-mechanic maintenance and

Bombardier. The center is approaching the local aerospace cluster to become part of the decision-making process, which will give us a better idea of the training programs

CENALTEC was founded through a state government initiative

that are required and the kind of infrastructure we need

to support the local manufacturing industry. It is part of

to develop. A close relationship with the companies in the

INADET’s network and specializes in metalwork, welding,

cluster will allow us to improve our training courses by

plastic injection and aircraft assemblage

directly addressing their needs.

INSIGHT

TRAINING WHEELS FOR COMPANIES, TRAINING FOR PROFESSIONALS ENRIQUE LUJÁN Director General of the Institute for the Promotion of Technology Development (INADET)

Enrique Luján, Director General of the Institute for the

Cenaltec Juárez and Cenaltec Chihuahua, specialize in

Promotion of Technology Development (INADET), says the

producing qualified personnel for turbine and aero structure

creation and consolidation of micro, small and medium-

manufacturing. At the same time, Cenaltec Cuauhtemoc

sized companies requires vision, dedicated teams and

and Parral, produce an average of 15,000 qualified people

money. INADET supplies the financial training wheels. Since

per year. Demand for human resources is highest in

2006, the institute has trained more than 65,000 people

manufacturing, mechatronics, high-precision machining and

in different skills that are most urgently needed by the

plastics injection. “The range of aircraft structures covered

Mexican industry. The institute aspires to improve quality

at our centers reaches from helicopters to large airplanes.

of production and quality of life for more people every year.

We have been strategic partners for the public and private sectors to attract investment to the industry and provide

“We set ourselves a challenge: to reach out to 100-120

schools with our 80 percent practical, 20 percent theory

companies in the next five years, to help them economically

training,” says Luján.

and to provide them with a talented workforce," Luján says. To date, the institute has ticked off 25 companies every year

In the struggle for survival, those who succeed do so by

toward this goal, to which it offers grants and subsidies to

best adapting to their environment. This is taken to heart

support their survival and growth. These small companies

by INADET’s directorial team, which switches tactics when

more than survive, have flourished as the grants have

necessary to cater to changing industry demands. The

allowed them to improve processes and to technically equip

ability to react to the environment is only possible through

their facilities to the standards required by the industry.

the government, academia and private-sector triple-helix. In this case, training centers, cluster representatives,

To access the grants, micro and small companies must

companies and the manufacturing council INDEX must offer

have spent at least a year trying on their own. Having

the winning elements to boost industry growth.

proved their commitment to enter the industry, INADET can step in, analyze and determine the best way to

The Institute’s collaboration with public entities includes

allocate funds. Luján is sensitive to the needs of the

ProMéxico, which led to the development of the Road Map

industry and of individual players to make the selection

that focuses on advanced manufacturing. “I personally

process accessible. Areas identified as priorities for support

authorized new experts’ participation for the plan published

include electronics, automotive and aerospace industries.

in 2012,” says Luján, “and our enthusiasm and commitment

“These strong economic sectors have helped Chihuahua

to the industry will intensify as we face the effect of foreign

to reign in the aerospace sector. We generated so much

forces on domestic operations.” For aerospace, a ProMéxico

expertise in technology that in 2006, the High Technology

priority sector, Chihuahua is cited by the organization as

Training Center (Cenaltec) of the State of Chihuahua was

being a high-technology state with a clear vocation for

established.” Subsequently, the metal mechanics industry, as

precision-machined products.

well as plastics and aero structures companies, contributed to the state’s critical development.

Inspired by a sound foundation of gifted team members, successful graduates and advanced equipment, Luján

Strategic human resources development depends on

lingers on the idea of offering consultancy services.

government intervention and private enterprise support.

INADET could evolve from a training center into a talent

This partnership afforded Chihuahua’s aero cluster with

development consultancy to promote workers’ professional

assembly and aero structure technician and engineer

growth after they leave the facilities. This would of course

training, from the basics to precision machining in plastics,

support technology development and Mexican aerospace

composites and aluminum. INADET’s training centers,

industry growth.

169

INSIGHT

OPPORTUNITY FOR RESEARCH CENTERS TO FILL SUPPLY GAP GABRIEL SIADE Director General of the Research and Development Center for Electrochemistry (CIDETEQ)

Queretaro’s aerospace sector requires a stronger supply value network to continue developing. R&D centers have a

170

CIDETEQ’S RESEARCH LINES Bioelectrochemistry

huge opportunity to help prop up the supply chain with a

Biomimetic membranes

range of services, from training much-needed professionals to

Specific biointeractions

providing technological support, says Gabriel Siade, General

Electrochemically assisted process for the removal of contaminants

Director of the R&D Center for Electrochemistry (CIDETEQ).

Energy-converting electrochemical micro-dispositives

“By 2020 the global aerospace sector is expected to grow

Corrosion

to US$300 billion,” says Siade. Sensing an opportunity,

Organic and inorganic anti-corrosion coatings and corrosion inhibitors

Queretaro began heavily investing in the aerospace sector

Corrosion maps

over a decade ago and that investment has paid off. “For

Conversion coatings

this year, Queretaro had 51 aerospace companies and

Organic and inorganic physical barriers

five public and three private research centers,” he says.

Electrodeposits

CIDETEQ complements Queretaro’s manufacturing sector

Electrodeposits in aqueous phase and in nonaqueous solvents

by providing a series of services with capabilities unique to the institution. It trains highly qualified professionals,

Chemical deposits of metals, alloys, semiconductos and composites

supports local companies by delivering water-treatment

Sol-gel deposits

plants and collaborates with major businesses such as

Adsorption process study

Safran and Bombardier on the development of their

Design and study of additives and alloys

research programs.

Alternative Energy

The center works closely with most manufacturing industries in Queretaro. Starting with the metal-mechanics

Physicochemical and biological technologies for soil contaminated by organic or inorganic matter Biorremediation Electroremediation of soil

segment, it easily transitioned to automotive and is now

Nanotechnology

turning its attention to aerospace. “The aerospace industry

Electrochemical sensors for pollutants and metabolites

is the fastest-growing in Queretaro,” says Siade. The

Biofunctional materials and interphases

services it offers aerospace companies include chemical

Nanostructured materials

analysis, aluminum anodizing and corrosion and surface

Modified electrodes with nanomaterials with metallic, semiconductive and magnetic properties

characterization, all in line with the sector’s strict standards. “For safety reasons, this industry is extremely stringent in terms of testing. Our tests comply with Bombardier’s and Safran’s requirements and we also provide tests to other

Nanostructured materials with catalytic capabilities Functionalized surfaces Waste Treatment

suppliers,” says Siade. “CIDETEQ can perform unique

Physicochemical and biological technologies for soils contaminated with organic and inorganic matter

services in Mexico. For instance, the center has equipment

Biorremediation

that can quickly go from -70°C to room temperature,

Soil electroremediation

which allows us to measure the behavior of parts in

Water Treatment

extreme conditions at an altitude of 10,000m.” CIDETEQ,

Advanced oxidation nd electrochemical processes

along with six other research centers, is also part of the

Adsorption and development of adsorption materials

Center of Aeronautic Technology’s (CENTA) technological council. This project will allow optimization of resources and infrastructure for the benefit of a particular sector, in this case for aerospace.

Biorreactors Physicochemical and biological treatments of effluents Electrochemical purification Source: CIDETEQ

In addition to testing and other services, CIDETEQ prioritizes

Safran’s landing gears’ facility is extremely different from the

education and has four post-graduate programs: two

one we built for Safran Aircraft Engine Services. For instance,

master’s and two Ph.D programs. “We have 125 students

the first is designed to recycle cadmium, an extremely

and we do not want to acquire any more until we increase

expensive metal,” says Siade. The main advantages of

our infrastructure and capabilities. Having a small number

these water-treatment plants are that they allow water to

of students allows us to guarantee the high quality of their

be reused within the plant or it can be safely released into

research projects,” Siade says. It has also allowed the center

the environment, unlike previous measures that required

to maintain its high standards. In 2016, the center won five

the permanent storage of residue. “For a company the size

Catedras CONACYT, which are highly contested teaching

of Safran, storing these residues would cost approximately

positions among research centers and academic institutions

MX$5 million (US$26,000) per year. The new plant allows

in the country. Over 80 percent of CIDETEQ’s graduates

the possibility to entirely eliminate this cost.”

are employed in research centers, universities and private companies, he adds.

While the benefits of R&D for the development of Mexico’s manufacturing sector might seem evident, the

CIDETEQ’s students and researchers are involved in many

country still has miles to go. “Major research advances

different projects, including material treatments to increase

come from countries where there is research continuity.

hardness, film deposition to change the materials’ hardness

Mexico’s research support programs must start over

and resistance to impact, transformation of organic waste

every six years because of presidential elections, which

into energy and water treatment through biological means

is a setback,” says Siade. CONACYT is launching a

and through purification systems. Mexican research centers

proposal to break these six-year cycles and expand them

can support the country’s supply chain if not major OEMs,

to eight years. “While some projects can take a short

Siade says. “It would be hard for Mexican research centers

time, true innovation takes years and years. Furthermore,

to innovate in materials for major OEMs, which are backed

Mexico needs greater research participation from private

by many scientists and years of research. Where Mexican

institutions. In most developed countries, 70 percent of

research centers can participate is in the research and

research is funded by private institutions and the rest by

development of smaller parts, such as small systems and

the government. In Mexico, it is the other way around.”

harnesses. The research in Mexico can help suppliers and

The current administration has mandated that 1 percent

maintenance centers.”

of GDP should go toward research but in 2016 the country invested only 0.57 percent.

One of the center’s main strengths, Siade says, is the design of water-treatment plants for private companies. CIDETEQ

CONACYT’s budget was also decreased by 27 percent in

designed such a plant for Safran Aircraft Engine Services

May 2017, which hit most projects, with the exception of

America, which required a MX$9.9 million (US$52,000)

scholarships and the National Researcher System (SNI). “This

investment. It can recover up to 95 percent of residual water.

limited the number of projects we could initiate in 2017,” says

To design these plants, CIDETEQ does a comprehensive

Siade. However, the center has a strategy to turn this around.

analysis of the processes and technical characteristics of

“As an R&D center, we are able to increase our service

each company. “The existing water-treatment plant for

offering to the private sector and generate resources.”

171

ROUNDTABLE

HOW WOULD YOU DESCRIBE THE CAPABILITIES OF RECENT GRADUATES?

As the aviation and aerospace sectors keep growing, they will need more qualified employees, from technicians to pilots and flight assistants. While these professionals are in high demand, they are in short supply. Local aerospace companies complain of employee poaching by their competitors, while the Mexican Association of Aviation Pilots (ASPA) estimates that every year 300 pilots leave Mexico looking for better wages. To ensure the continuous growth of both sectors, solutions to train and retain these personnel must become a priority.

Our engineering team evaluates each client’s needs to determine the appropriate

172

compressor and system for them. Kaeser Compresores prides itself on its customer service. Our 24-hour support, 365 days a year as an important factor in our success. If a machine breaks down, we can temporarily substitute it so production is not affected. The main benefits we provide customers is access to our large inventory and excellent

ÁNGEL DE LOPE General Manager of Kaeser Compresores de México

personnel. As the state continues growing, it will have to address a lack of sufficient personnel. Personnel retention as well as adjusting to new generational needs is of extreme importance as the more facilities you have the less qualified workers are available. There is a fight for good personnel. New facilities are hiring engineers at 15 percent higher salaries or more than their current employees.

We do not see enough personnel coming into the industry. Becoming a pilot or entering many technical professions is an expensive undertaking. These are mainly male-driven despite the UN’s interest in boosting the number of women in professional endeavors, but we are working to raise awareness and address these issues better in the years ahead. As part of our 60th anniversary we plan to create 60 positions by the end of 2017 for under-privileged women who demonstrate the

MELVIN CINTRON Regional Director of International Civil Aviation Organization (ICAO)

talent to shine in aerospace. Our main aim is to promote engineering programs and technical universities to create opportunities through scholarships and grants. We expect globalization and worldwide purchasing power to lead to higher demand for skilled aviation personnel, and to exacerbate infrastructure deficiencies.

Previously, we did not have aerospace engineering majors at universities, but now we do. Companies have been proactive in transmitting their needs to local schools and there are even corporations that have designed complete courses so universities can train their future employees. Companies pay to integrate these programs so they do not have to worry about new hires not having the proper knowledge to participate in their operations. What we are now doing as a cluster is helping companies identify

VÍCTOR HIDALGO President of Aerospace Alliance of Baja California

the common needs of all industry players. In this way, one company does not have to pay to have skilled talent available and instead of training 10 people we can train 100. At the same time, having a common talent development strategy could help minimize talent wars in the state.

Human capital is another challenge: although we have tremendous talent in Mexico where young people of working age are abundant, we must understand the type of people we need to train to perform well in the industry. The development of local research needs to implement the correct strategies to promote aerospace skills and guide people into those degrees. Mexico has been successful, not because cheap labor, but because its human capital is very competitive and anxious to learn. Companies install manufacturing facilities

BENITO GRITZEWSKY Director General at HEMAQ

in Mexico that cannot be replicated to the same standards anywhere in the world due to Mexican labor. Many multinationals know this, Mexican workforce is interested and willing to learn, perform and continuously question how to improve processes.

In terms of volume, there is high demand for maintenance technicians and operators.

173

We recruit engineers, accounting and HR staff, though at lower volumes. Out Helping also facilitates internships. In Queretaro, the aerospace sector is our second largest segment in terms of the number of people we recruit or outsource to clients, running in the thousands over the past 10 years. Alongside the Cluster and UNAQ, we are creating awareness of the sector among younger people who are still three or more years away from choosing their career path. We constantly research which companies are expanding in the state and which new

RICARDO IÑURRIA Regional Director Queretaro of Out Helping

companies are coming. Companies are becoming increasingly aware of the importance of training, promoting and properly compensating their people to retain them.

The second challenge we face is ensuring we have the appropriate human capital on hand. For the Mexican aerospace sector to grow it is imperative that companies leading its growth can hire qualified employees as soon as they open facilities. We are working on developing more “soft” infrastructure for mid and long-term opportunities, namely the impending need for more human capital. It takes four and a half years to train an engineer so we need to plan in advance for human resources. We collect information regarding the needs of our members and work together with

LUIS LIZCANO Director General of FEMIA

universities and government agencies at the state and federal level so they can train quality human capital in a timely manner. One of the goals of ProAéreo 2012-2020 was to provide jobs to 120,000 individuals and reach US$12 billion in exports.

The challenge of acquiring human capital and suppliers is the first hurdle faced by aerospace companies in Mexico. One of the state’s greatest strengths is our triple helix model, targeted at providing qualified individuals for emerging aerospace companies. Through this model, we have managed to close the gap between the classroom and the facility, which was a first for education in Mexico. We had found in some cases that academic curricula did not match the needs of the industry. Local universities were generating a significant number of engineers but overlooking qualified and specialized technicians, which aerospace manufacturing companies need in high numbers. Newly arriving international entities would often need to make large investments to train the necessary personnel.

RENE ESPINOSA President of Chihuahua Aerospace Cluster

VIEW FROM THE TOP

WORKING ELBOW TO ELBOW WITH MANUFACTURERS RICARDO IÑURRIA Regional Director Queretaro of Out Helping

174

Q: How does Out Helping support aerospace companies in

A: In terms of candidates with previous working experience,

Queretaro?

we look for those who have held long-term jobs because

A: Out Helping has over 17 years of experience in HR and

projects in the aerospace sector often last longer than in

operates in many different sectors, including aerospace,

other sectors. In these cases, we differentiate between those

automotive, IT and food and beverages. The company started

who can make enduring commitments versus those who want

long before Queretaro became an attractive FDI destination for

immediate results. The ability to work on long-term projects

the aerospace industry. Bombardier’s entrance to Queretaro

is something that aerospace companies are looking for and

was followed by more aerospace companies. By 2007, we

will help employees be successful in the field. In aerospace,

had partnered with these companies and with academic

English as a second language is highly valuable as well.

institutions to create a division focused exclusively on the aerospace industry. The presence of HR companies supports

Q: How is Queretaro’s aerospace industry evolving and what

existing manufacturers in the state and foreign players looking

capabilities are arising in the state?

to establish their operations. We work with most of the major

A: It started by manufacturing electrical harnesses and now

aerospace companies, including Bombardier, Safran, Airbus

produces and assembles increasingly complex aeronautical

and Aernnova.

structures. For the past 10 years we have seen the introduction of many technologies to the state, such as carbon fiber. The

Q: Out Helping has been in Queretaro from the outset of

sector’s goal has been to one day fully assemble an aircraft

the industry. How does it contribute to shaping the sector?

in the state that can take off from Queretaro International

A: We work closely with the Queretaro Aerospace Cluster,

Airport. The industry is extremely dynamic. The state can

participating on a commission that is addressing human talent

attract many more segments, such as avionics, and existing

availability in the state. Within the cluster, we work hand in

areas have room to continue growing. MRO services with

hand with manufacturers, which allows us to be fully aware of

TechOps Mexico is a good example. Companies like ours must

their requirements. With this knowledge, we can go into the

remain alert to the changes in the market and the areas that

market and find qualified professionals.

are growing and that will require more personnel.

Alongside the cluster and UNAQ, we are creating awareness

Q: What advantages does membership in the American

of the sector among younger people who are still three

Staffing Association provide to Out Helping?

or more years away from choosing their career path. We

A: We have been a member of the American Staffing

constantly research which companies are expanding in the

Association for several years. Belonging to the association

state and which new companies are coming. We also pay

allows foreign companies that are just starting to consider

close attention to other segments of the aerospace industry

coming to Mexico to identify us as a reliable Mexican HR

beyond manufacturing, such as MROs for which we are hiring

partner. While they might not know us, these companies

more individuals.

might feel more comfortable approaching us and discussing business opportunities due to this alliance.

Q: What differentiates an aerospace candidate from that in another sector?

Q: How can companies attract and retain talent? A: Companies are becoming increasingly aware of the importance of training, promoting and properly compensating

Out Helping is a Mexican human resources company that

their people to retain them. If there is a lag in one of these

specializes in the automotive and aerospace sectors. It

three areas, the organization might run into trouble. Even if

provides custom-made solutions and has collaborated with

the compensation is great, employees will leave if they do not

hundreds of companies to attract and manage human talent

feel they are growing professionally.

VIEW FROM THE TOP

THE BIRTH OF AEROSPACE R&D IN MEXICO FELIPE RUBIO Leader of the National Center of Aeronautics Technologies (CENTA) Project and Deputy Director for the Center for Engineering and Industrial Development (CIDESI)

Q: CENTA will be the country’s first research center focused

We have a collaboration agreement with several Mexican

exclusively on aerospace. What will be its main capabilities

universities and we are starting to talk with foreign schools

and what is the role of CIDESI in its development?

to support our activities.

A: CONACYT created a research network with 27 centers

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and 100 secondary venues, many of which have come into

Q: How is CENTA collaborating with the government and

being at the behest of researchers or local governments.

the private sector to support technology development?

CIDESI, a research center that is part of the CONACYT

A: We recently started a high-technology business-

network and is focused on composites used in the

incubation program with the objective of linking research

aerospace industry, conceived and incubated CENTA

and business centers as fast as possible. CENTA is

as a spin-off project. Located in Queretaro, CENTA will

collaborating with a company that manufactures light

operate as a consortium integrated with eight centers

sports aircraft. This company has access to CONACYT’s

with complementary capabilities, enabling access to more

laboratories and researchers who can help with material

than 70 collaborating laboratories all over the country and

development processes, testing, mold design, manufacturing

to qualified personnel and equipment for any demanding

and everything else needed for its production process. We

program. CENTA began operations in July 2017 but its

also help this company with the aeronautical optimization

official inauguration will be in late November 2017 after new

of its airplanes through models and simulation.

equipment is incorporated. The center needs to have the capabilities to manufacture components without the need

Q: Why is it important to promote research in the

to send them abroad for treatments and then return them to

aerospace sector?

be completed, as this reduces the state’s competitiveness.

A: Research and development are inherent to the

This is why the center is important and will allow us to

improvement of any sector and for companies to gain a

contribute to future projects.

relevant position in the market. Knowledge generation and application must be part of the production chain; if

Q: What initiatives is CENTA developing to become part

we only focus on technology applications, shortly it will be

of the industry supply chain?

impossible for Mexico to compete globally. Research without

A: Aerospace is a high-tech sector that operates at a slow

practical applications will only be published in scientific

pace as the development of an engine, for example, can

articles and conferences. CONACYT states that there must

take over 10 years. The capacity of Mexican researchers has

be collaboration between universities and research centers

been one of the main motivators for foreign investment for

with businesses to generate real applications.

the past 30 years. Mexicans’ ability to learn new processes and to contribute to them are part of the reason why OEMs

Research is also fundamental to the creation of a bedrock

ended up establishing here. We require certifications and

for Industry 4.0 integration and to optimize passengers’

accreditations, which will allow us to provide direct services

safety during flights. It can also result in benefit such as

and contribute to the aerospace supply chain. The center

reduced fuel use and the overall costs of an airplane, less

will handle simulation, thermal treatments, structural

emissions, maintenance optimization and the extension of

tests, tomography and nondestructive analysis with new

components’ useful lifetime.

equipment that will be incorporated to our laboratories by September 2017. CENTA is a research center in Queretaro focused exclusively

Since its conception, we thought CENTA could help other

on the aerospace sector. It offers aerospace certifications and

states, including Nuevo Leon, Chihuahua, Sonora and Baja

R&D services and aims to be a link between manufacturers and

California, each specializing in different aircraft components.

suppliers

VIEW FROM THE TOP

WHAT COMPANIES WANT FROM THEIR TALENT GABRIEL APARICIO Country Manager of Kelly Services

176

Q: What added value can a global company like Kelly

constant information and material exchange between

Services provide the local market?

Mexico and the US, along with strong teamwork and the

A: We just celebrated our 71st anniversary and we have

ability to learn quickly. We have also found that companies

been present in Mexico for 27 years. This has allowed us to

look for people who can solve complex problems, have a

understand Mexico’s human capital and integrate global

critical mind, creativity and adaptability.

best practices into our local operations. Our mission is to connect talent with work, and our vision is to become

Q: What is your opinion regarding new graduates and their

the best company at doing this. Kelly Services’ clients can

technical capabilities?

be sure we will always work with their best interests in

A: Our experience in talent sourcing helps us identify

mind, following strategies that comply with the country’s

specialized talent according to what the client is looking for.

regulations. Our service-oriented approach is a key part of

However, when companies do not require such specialized

our strategy that is based on the ARRIVE methodology:

people, our suggestion is to always go for new graduates,

analyze, review, refine, introduce, validate and execute.

either from university or technical institutions. These people

We analyze the conditions of the company, review the

are eager to learn and participate in the industry.

company’s needs, refine the potential solution we can offer, introduce it to the client, validate and execute it. The

Having said that, Mexico faces a challenging situation in

process follows a continuous improvement and is supported

terms of human capital development and education. Almost

by standard operating processes and quarterly revisions.

50 percent of all new graduates are not prepared to address the industry’s needs. As a result, people who know they

Q: What are the most pressing human capital needs for

have the right skills and training are always looking for the

aerospace companies in Mexico?

company that offers the best deal and the most attractive

A: Mexico’s economic growth has been supported by FDI

compensation plan. Corporations prefer to grow talent in-

in six main industries: electronics, plastics, chemical, oil and

house but they are not afraid to look for capable people

gas, automotive and aerospace. Thriving FDI has provoked

in other companies or even in other industries. In this

a change in Mexico’s talent landscape, growing demand

environment, it is crucial for companies to know how to

and leading companies to search for specialization. Kelly

best retain their people.

Services works across six industries: automotive, aerospace, healthcare, advanced technology, financing and oil and

Q: What would be Kelly Services’ advice to universities and

gas. Our responsibility is to map talent regardless of the

technical schools to improve the academic preparation of

industry in order to ensure availability to our clients. At

Mexican talent?

the moment, most companies are demanding engineering

A: Innovation and generation of scientific knowledge

directors, project directors, plant managers, quality and

are two key economic drivers, both of which are closely

service managers. Human resources is also a popular area

linked to the quality of a country’s human talent. Mexico

in terms of talent, as companies look for the best way to

needs to stop being a country with access to technology

retain their people.

and innovation, and become a region that generates knowledge and added value. The government, academia

Within the aerospace sector, mechanics and electronics

and the private sector must work together to develop high-

specializations are the most in demand, as well as

level researchers, scientists and engineers who also have a

professionals focused on industrial and aeronautics

performance-oriented vision.

engineering. In this sector, quality is crucial, which means that candidates must be extremely responsible and

All three branches must learn to identify new types of

dedicated to their job. English is also a must due to the

leadership and conduct people to an environment of

177

Pilot Training / EAE School

innovation and knowledge generation. At the same time, the

has developed significantly thanks to Mexicoâ&#x20AC;&#x2122;s privileged

government, academia and the industry need to understand

geographic position and we expect it to keep growing. There

that work conditions have changed and they must embrace

are over 270 companies employing more than 45,000 people.

flexibility as a standard for the new generation of workers.

The challenge for the country is to ensure that the level of

Establishing training and career development plans should

specialization the sector requires can be met with local talent.

also be a priority for companies. Schools and universities only plant the seed for knowledge; companies are the

Companies should not look for skilled people abroad.

ones that help people specialize. Right now, there is a

However, the only way for this not to happen is to improve

gap between what academia can teach and the level of

the national education system. The number of engineering

innovation companies manage, especially considering the

and science graduates must be congruent with the needs of

growing Industry 4.0 trend. Therefore, companies must

companies. Meanwhile, academic plans must be developed

share their knowledge through professional practices and

in line with the industryâ&#x20AC;&#x2122;s requirements, not only in the main

multidisciplinary training.

aerospace clusters but across the country. If companies need workers in Baja California, then talent should come

Q: What are your expectations for the aerospace sector in

from Baja California universities.

Mexico? A: The Mexican automotive industry is currently established within a polygon delimited by Baja California Norte,

Kelly Services was founded in 1946. It offers flexible talent

Tamaulipas, Puebla and Jalisco. The aerospace sector is inside

administration services to companies of all sizes across the

that area, clustered mainly in Baja California Norte, Chihuahua,

automotive, aerospace, healthcare, advanced technology,

Nuevo Leon, El Bajio and State of Mexico. The industry

financing and oil and gas sectors

INSIGHT

DISRUPTING CURRENT PRACTICES TO PROVIDE BETTER EDUCATION VÍCTOR HERNÁNDEZ Director General and CEO of ASTECA

178

Mexico has hundreds of pilot schools but training is a slow

appropriate training. “The current perception is that the

process and it is not keeping up with industry demand. The

best training is provided by schools in the US but this is

largest school in Mexico trains about 200 students every

not the case. Mexico has great training programs,” says

six months, but most train only four to six pilots during

Hernández. The company also provides courses in Central

that period. “This rate is not fast enough,” says Víctor

and Latin America and is the only Mexican member of the

Hernández, Director General and CEO of ASTECA.

Flight School Association of North America.

Outdated regulations that industry players have struggled

ASTECA has three business units. The first and oldest unit

to update are the main barriers to speeding up this process.

tailors courses for airline employees. This area generates

Local school ASTECA decided that collaboration with the

classes for specific processes or aircraft, such as the Airbus

industry and its regulators was the only way to overcome

A320. “We provide integral solutions, including several key

these hurdles. The aviation industry is cyclical and the

aspects that regulators ask for and that airlines sometimes

current growth period is expected to continue until 2020

did not even know were necessary,” says Hernández. This is

when the market will begin to contract. “Pilot demand will

ASTECA’s greatest source of income. The company works

continue until that year,” says Hernández. “Our only concern

with international, regional and executive airlines, including

is that the rate at which they are being produced may lower

Aeroméxico, Volaris, Viva Aerobus, TAR Aerolíneas,

standards.” To ensure safety, pilot recruitment standards

Aerolíneas Ejecutivas and Redwings. “We have worked with

are kept high. “Approximately 30 percent of licensed pilots

every commercial airline in Mexico that has operated since

are rejected by airlines because they are unable to pass the

2000,” he adds.

recruitment tests.” The school has also developed courses for MRO service The DGAC reported that passenger numbers in Mexico rose

providers, such as Qet Tech Aerospace, HMC, Aviation

11 percent in 2016. Numbers for 2017 show that this trend

Technical Services and Gol Aviation. This area has even

will continue. By February 2017, the country had registered

generated training courses for SEDENA and the Mexican

22.7 million air passengers, a 24 percent increase over the

presidency. The second business area, developed in 2011 to

same period in the previous year. This rise is reflected

address the growing demand for pilots, provides complete

throughout the sector. “In the short term, pilot demand

training programs for pilots, flight attendants and operations

will continue growing alongside aviation,” says Hernández.

officials. These courses are operated independently of the

Mexico has about 180 aviation schools and more are created

airlines and can be accessed by the general public. The final

every year. Of these schools, over 100 are in Mexico City, 16

unit offers courses for freelance pilots who are interested

in Guadalajara and six in Monterrey. ASTECA has branches

in keeping their skills up to date.

in Mexico City and Monterrey. Hernández is not focusing on quantity but on quality. “We are disruptors of the sector,”

ASTECA has also introduced new concepts to Mexico,

he says. “Our goal is to spearhead the industry with the

including online courses, and was the first to use the Cirrus

latest advances. To design our courses, we participate in

SR20 for training. This airplane’s large cabin is similar to that

specialized conferences and training courses worldwide,

of a commercial jet, which is an advantage for pilots and

mainly in the US, which allows us to keep up to date on

preferred by commercial airlines. Introducing this model

the sector’s needs.”

has not been easy and Hernández says the government was reluctant to approve the use of new technology.

Many countries in Latin America lack training capabilities,

“Regulatory authorities were reluctant to certify the Cirrus

with the exception of Brazil, Chile and Argentina. This forces

SR20 because there was no precedent in other schools.

pilots from other countries to travel abroad to acquire

They called the aircraft ‘too modern.’”

INSIGHT

DECENT WAGES TO HANG ON TO PILOTS GREGORIO GARCÍA Director General of Entrenamiento Aéreo Especializado (EAE)

Pilot supply must match airplane supply. The backlog in

International Civil Aviation Organization (ICAO), with whom

orders that all airplane manufacturers expect to operate

García works closely, and shares visions. ICAO can choose

under at least facilitates planning. Companies can see more

students with potential, who truly need the grant. These

than predictions of passenger demand, aircraft are being

students receive the course free of charge, medical exams,

made to order so airlines can plot routes and services

licensing costs and uniform all paid for by EAE. If all 180

confidently in the aerospace industry.

aviation schools in Mexico did the same the country could boost graduate numbers by 900 per year.

Schools and training centers can also foresee needs for specific skillsets. As ICAO’s long-term traffic forecast for

But free courses alone will still not be enough to fill all

passenger and cargo expects traffic to grow 4.6 percent

pilot, technician and engineer positions in the long-term.

annually up to 2032, demand for pilots, technicians,

The impending global talent deficiency could be alleviated

mechanics and flight attendants will also grow. The National

by encouraging diversity in schools. Both ICAO’s Regional

Polytechnic Institute (IPN) called for more aeronautical

Director Melvin Cintron and García agree on the benefits of

professionals in 2017, as did the Director General of

shifting the male-driven profession to welcome women. “We

Entrenamiento Aéreo Especializado (EAE), Gregorio García,

need to get the word out that women can also be mechanics

who leads a discerning training center for aeronautical

and pilots. New technology and automation minimizes

specialists-to-be. The center trains commercial and private

the amount of lifting involved so no one is impeded from

pilots as well as flight attendants, operations officials and

entering aeronautical jobs,” affirms García. “In the future EAE

maintenance technicians.

sees women as integral parts of the industry.”

Today, García sees countries like China happily absorbing

The majority of EAE's students have a job within six-

Mexico’s “brain drain” as talent moves abroad looking for

eight months of leaving EAE. “Companies need to closely

better money. The gap between study costs and salaries

supervise the exams they apply,” says García, diagnosing the

is broad in Mexico, as the Association of Aviator Pilots

problem of airlines rejecting graduates. Aside from being a

(ASPA) reports trainees may pay anything up to MX$1 million

waste of time and money for many aspiring professionals,

(US$50,000) to learn to fly an aircraft and if pay is better

this could worsen the brain drain. Before graduating as

elsewhere, pilots will transfer to non-Mexican airlines. ASPA

pilots, students are examined by three entities in Mexico: an

thinks the reason Mexico lacks pilots is because there is no

experienced retired pilot on behalf of the General Direction of

public university to provide training, since MX$700,000-

Civil Aviation (DGAC), a pilot from the Aviator Pilot College

MX$1 million (US$35,000-US$50,000) in just two years is

and another from the Instruction and Training Center of Civil

beyond most young person’s spending power. It is perhaps

Aviation (CIAAC), “so I cannot fathom why someone would

for this reason that most of EAE’s students are either working

fail a company’s entrance exams,” says García.

for an airline and receiving periodic update courses, or sons and daughters of aeronautical professionals. “Our costs

EAE is conscious of the need for specialized personnel

are still lower than any other institution, and by the end of

in Mexico and around the world. “We are therefore doing

2017 we hope to have successfully negotiated student loans

our best to effectively train as many people as possible, to

for students that cannot pay fees off the bat,” says García.

the highest standards possible.” García’s company is using

Applicants only need to have completed high school to be

television, radio and print to call for more people, especially

channeled toward the banks for financial support.

women, to apply and enter the sector. The training center in Mexico City with the company’s three campus, the newest

The school also offers five grants per year to underprivileged

of which is in Monterrey, is on stand-by to prepare the

youngsters. EAE’s grants are put in the hands of the

aviation professionals of the future.

179

RESEARCH SPOTLIGHT

180

UNAQ: UNDERPINNIG QUERETARO’S AEROSPACE INDUSTRY The Aeronautics University of Queretaro (UNAQ) is a public academic institution and training center focused on the formation of professionals and researchers for the blooming aeronautics sector in the state of Queretaro. It was created as part of the agreement between the state government and Bombardier Aerospace for the company to establish in the state. UNAQ is the only university in Mexico that focuses completely on aerospace studies. The university has the installed capacity to train 1,195 students per term. UNAQ’s academic offer includes a technical degree in aeronautics manufacturing with a focus on precision machining and two others for aircraft maintenance centered on either avionics or gliders and engines. It also offers undergraduate engineering degrees in the areas of aeronautical manufacturing and mechanical design and aircraft electronics and control systems as well as graduate degrees in aerospace engineering and engineering sciences. UNAQ is strategically located inside the Queretaro Intercontinental Airport, 45km from state capital, Santiago de Queretaro. It has 11 workshops for machining, composite materials, electric assemblies, structural assemblies and other technical areas, and eight aircraft that are used as laboratories. The Mexican-French campus for aeronautical studies — a project between UNAQ and CONALEP Aeronáutico — educates and trains technicians studying at both institutions. The program is supported by the Mexican and French governments, aeronautical companies and international aeronautical authorities. This project includes 15 laboratories related to coordinate-measuring machines, parts storage, aircraft systems, electricity and batteries, avionics, material resistance, thermic machines, engines, thermic processes and welding, penetrating liquids, chemical treatments, electronics, surface treatments, aerodynamics and metallography. “To date, the university has trained over 7,000 technicians and almost 1,000 engineers and master’s degree holders,” according to Jorge Gutiérrez, Rector of UNAQ. Students who graduate from UNAQ usually work for local companies, such as Bombardier, Eurocopter, Aernnova, Tremec, ITP, Grupo Safran and TechOps. The university is involved in joint-aerospace projects, including a UAV and a composite materials project with SEDENA, flight simulators for pilot training with the Mexican Air Force, a femtosatellite with MxSpace through Thumbsat and research on nano, micro and picosatellites, launchers and navigation systems with AEM.

181

Zodiac Aerospace Manufacturing plant

INFRASTRUCTURE

Mexican manufacturing has grown steadily during the last two years and the expanding sector needs support from several entities to operate optimally. Top of the list is access to efficient and sustainable facilities, which can in turn be used as a tool to attract new companies and foreign direct investment into Mexican industries. There is no doubt that the aerospace sector, among many other manufacturing industries, is growing fast and strong in the country. But this can also pose a problem as there is a lack of available real estate to host new companies interested in coming to Mexico or for the companies already operational here to expand their facilities. Nonetheless, major real estate developers are considering the construction of more plants, especially in locations in high demand such as El Bajio and northern Mexico.

This chapter will analyze market opportunities for industrial real estate developers and their efforts to adapt to market needs. It will also focus on those, such as hangar developers, which play an essential role in the airport ecosystem responsible for ensuring that aircraft are kept safe while stored.

183

CHAPTER 8: INFRASTRUCTURE 185

186

VIEW FROM THE TOP: Alberto Chretin, Terrafina

188

VIEW FROM THE TOP: Luis Lara, American Industries

189

VIEW FROM THE TOP: Richard Rubin, Javid LLC

Wendee Molina, Javid LLC

190

ROUNDTABLE: How Much of a Challenge is the Lack of Real Estate for Your Operations?

191

INSIGHT: Ossie Díaz, TACNA

192

PLANT SPOTLIGHT: Safran's SAMES REP

195

VIEW FROM THE TOP: Salvador Magaña, PARQMEX Industrial Development

196

VIEW FROM THE TOP: Claudia Ávila, AMPIP

198

PLANT SPOTLIGHT: Bombardier Queretaro Plant

VIEW FROM THE TOP

FIBRAS NOW THE BACKBONE OF SUPPLY CHAIN ALBERTO CHRETIN Director General of Terrafina

186

Q: What role should Fibras play in the development of more

A: Terrafina is acquiring more property portfolios with a

sustainable cities and industrial infrastructure in Mexico?

priority on location, connectivity, insured infrastructure

A: Fibras play an important role in the construction of

and other characteristics that help assure their successful

sustainable buildings because they provide developers

development, including efficiency and lower operational

with more opportunities to increase their activities. Fibras

costs. Our occupancy rates continue to rise; from the US

close the value generation cycle of industrial infrastructure

elections to the first quarter of 2017 we signed 25 new

developments. Developers must invest in infrastructure, land

contracts and we keep acquiring more properties.

acquisition, building construction and promotion and must also attract investment. By financing these, Fibras create

Approximately 57 percent of Terrafina’s properties are

investment opportunities for industrial developers and allow

located in the north of Mexico, 25 percent in El Bajio and

smaller investors to invest in real estate. Historically, real

the remainder are located close to Mexico City. All of these

estate investment could only be transacted with extremely

regions have strong potential for growth in manufacturing.

large sums. With the issuance of CBFIs, Fibras make real

I do not believe that new areas will arise in the short term.

estate investment available to a wider segment of the

Due to our profile, we are not interested in locations in the

population, giving them access to profitable, stabilized cash

south, such as Chiapas or Guerrero, because our focus is on

flows with interesting returns adjusted to risk.

manufacturing for exports. About 75 percent of our lessees belong in this last sector and approximately 96 percent of

Approximately US$300 million was raised by Terrafina’s issue of capital in July 2017

our leasing contracts are valued in dollars. For that reason, we prioritize properties with stable cash flows in dollars. Terrafina operates in 32 cities across Mexico, including Chihuahua, Hermosillo, Ciudad Juarez, Reynosa, Monterrey, Saltillo, Ramos Arizpe and in the Bajio region. Q: What role will Fibras play in the development of Mexico’s manufacturing sectors? A: Fibras are a financing instrument for many real estate

The government’s goal in modifying the Mexican income tax

developers, many of which are investing in industrial

law for the introduction of structured instruments, such as

development as they represent the closest exit to market of

Fibras and CKDs, into the public market was to support the

their investment. In Mexico, industrial developers have been

development of real estate. Fibras have greatly supported

instrumental for the attraction of manufacturing FDI especially

industrial developers by allowing them to speed up projects,

in locations such as Queretaro, Sonora and Chihuahua.

especially in the industrial sector. Fibras have created an

Developers, such as American Industries, have truly supported

important instrument to attract investment and allow

the development of the aerospace sector. Companies such

property managers and developers to continue increasing

as Fokker Beechcraft, Bell Helicopter and Textron came to

their activities and to build more. The development of

Chihuahua due to the efforts of industrial developers, the role

sustainable portfolios will depend on how the market values

of Fibras is to support them in this process by acquiring the

them. All of Terrafina’s buildings comply with environmental

property, thus providing them with the cash flow necessary

regulations and some are green buildings.

to build more industrial parks at a much faster pace.

Q: What types of industrial portfolios does Terrafina target

Q: Considering that the vast majority of your contracts

and which areas do you believe have the best growth

are valued in dollars, how does a fluctuating exchange

potential?

rate affect Terrafina?

A: Because our assets are valued in dollars, we are

Our lessees are lobbying in the US for an appropriate

protected against fluctuations in the exchange rate, which

renegotiation of NAFTA but are convinced that maquila

sets Terrafina apart from other Fibras. For instance, during

operations will continue in Mexico no matter what happens

our July 2017 capital raising, which garnered approximately

with the agreement because these practices are now an

US$300 million, about 40 percent of our investors were

integral part of the country’s economy. Furthermore, ending

AFORES and the remainder were US institutional investors.

these manufacturing practices would impact the US the most

The exchange rate does have an impact on our operations

as over 80 percent of the components manufactured by our

but it is positive because the competitiveness of our lessees

lessees require raw materials from the US. Limiting these

increases if the peso weakens.

companies would hurt their counterparts north of the border.

Q: There are currently 11 Fibras within the market and

Mexico’s government is already fighting for a deal

experts believe that there will be more than 40 by 2050.

that benefits Mexican companies. The government is

How will Terrafina differentiate itself?

invested in the generation of more high-quality jobs and

A: Terrafina has one of the largest and the best industrial

it acknowledges the importance of manufacturing to the

portfolios in Mexico because it is spread across many

development of Mexico’s economy. The areas that Mexican

locations and has a diverse range of lessees from many

negotiators have targeted include telecommunications and

sectors, including electronics, medical devices, logistics,

e-commerce, while US negotiators seem more concerned

automotive and aerospace.

with improving Mexico’s export infrastructure and the improvement of IP protections.

We focus mostly on industrial real estate for maquila exports, which involves solid companies with long-term

Q: How has Terrafina’s relationship with PGIM impacted

growth strategies. These companies are also influencing

its success in the market and what new partnerships are

the sector by allying with academia to modify study

required to reach its goals?

programs for the aerospace industry. As a result of this

A: Without a doubt, Terrafina has the best corporate

collaboration, for instance, study programs place a greater

governance of all Fibras thanks to having PGIM as an

emphasis on traceability in parts manufacturing, an area

external adviser. In 2013, PGIM had a 19 million ft2 portfolio

that is extremely relevant to the industry. These companies

in two closed funds, which the company brought to

are also investing in certifying local companies and thus

Terrafina. When Terrafina was launched as an independent

developing the industry and increasing the added value

firm, PGIM, formerly Prudential Real Estate Investors, stayed

of Mexican products. For instance, one of our lessees

as an external adviser for real estate, portfolio management,

manufactures fuselages for the Cessna 400, which is

compliance, treasury and capital markets.

completely made of composites. Our collaboration with PGIM has allowed us to double There is a strong connection between Mexican

our portfolio in less than five years. We have distributed

manufacturers creating a stable business environment for

almost US$300 million dollars to our shareholders and also

all manufacturing sectors, including aerospace. Terrafina

enjoyed a successful capital-raising campaign that was 2.5

works closely with property managers such as American

times oversubscribed, meaning that while we raised US$300

Industries, Intermex, O’Donnell, RMC Real Estate and

million we had orders for US$750 million. Terrafina had a

Amistad Real Estate, to develop solutions that meet their

dividend yield of 10.3 percent during the first quarter of 2017

real estate needs.

and 7.1 percent in the second quarter due to dilution. Our strategy is fully aligned with the interests of our investors

Q: Considering that Terrafina’s lessees are mostly from

and has allowed us to become leaders in acquisitions.

exporting companies, how will the renegotiation of NAFTA

We bought American Industries’ portfolio in 2013, which

impact them?

included 84 excellently located properties totaling 11 million

A: The export model maquilas operate under existed long

ft2 for US$600 million. We also bought 45 properties

before NAFTA but the agreement modified the way maquilas

representing almost 6 million ft2, including new buildings

operate in Mexico. Maquilas used to face several restrictions

for the automotive, medical and aerospace industries, from

in terms of location and sales in Mexico, as they were

Intermex. This growth was due to our synergy with PGIM.

forced to import equipment and raw materials and export 100 percent of the products they manufactured. NAFTA allowed maquilas in Mexico to supply to each other and to

Terrafina is a real estate trust focused on industrial property

be supplied to by Mexican companies, generating a synergy

development for many different manufacturing sectors.

in the manufacturing sector and convenient conditions for

It is dedicated to the acquisition, development, lease and

the introduction of more foreign manufacturers.

management of industrial real estate properties

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VIEW FROM THE TOP

SHELTER RESTRUCTURES AS IT AWAITS NAFTA OUTCOME LUIS LARA Chairman of the Board and CEO for American Industries

188

Q: American Industries is present across Mexico. In which

they are brought in and trained, the employees can choose

regions do you expect the most growth?

to stay or move on because they will have the skills that

A: El Bajio is growing at an accelerated pace thanks to the

are in demand. This model is beneficial for Mexico’s overall

investments made by the automotive industry five to six

economy because we are moving potential employees from

years ago. This trend is expected to continue regardless

areas of high unemployment to locations that need them.

of what happens with NAFTA and any taxes that might be imposed as a result of the treaty’s renegotiation. The

Q: What are the main areas that must be addressed to

aerospace industry was enjoying rapid growth in Mexico but

continue developing Chihuahua’s manufacturing sector?

the uncertain environment generated by the US president

A: Similar to the treaties concerning air travel between

has slowed the sector. Companies already operating here

Mexico and the US and Canada, it is necessary to generate

are in a wait-and-see mode regarding new investments

treaties for aerospace manufacturing. The aerospace

as NAFTA and other agreements are renegotiated. In the

industry must be considered a special niche in NAFTA due

meantime, they will continue operating normally.

to the impact of this treaty on the local industry. At this point, the climate of uncertainty between Mexico and the

Q: What role will shelters play in Mexico’s economic

US is impacting business growth and investment in Mexico.

development? A: Shelters are facilitators. We promote companies

Companies already operating in Mexico have encountered

to successfully do business in Mexico by solving any

little to no trouble since the US election and most seem

problem they might face on local soil. The main challenges

confident that problems will be solved for the best.

manufacturing companies now face is a lack of qualified

However, industry promotors such as American Industries

employees. The manufacturing sector in Chihuahua, for

are concerned because President Trump’s comments have

instance, has grown and evolved. The state’s manufacturing

led to a reduction in potential investments. His comments

capacities are excellent but the industry has slowed due

have generated negative consequences for Mexico’s

to issues with the US. If this situation had not arisen local

economy, investment and manufacturing.

companies would have run short of qualified personnel. This is an issue that Chihuahua must address.

Q: What initiatives is American Industries promoting to ensure growth for both Chihuahua and the rest of Mexico?

To help solve this problem, we are replicating a Chinese

A: We are also working to improve connectivity to and from

model wherein workers from states with high unemployment

Chihuahua. Aeroméxico is reducing its flights to many cities

are relocated to regions where personnel are in demand.

because the airline is trying to focus on long-haul routes.

We have implemented a pilot project in Ciudad Juarez,

However, the airline removed the Chihuahua service without

relocating trained workers from southern states such as

prior notice, heavily impacting flyers who depended on

Veracruz, Hidalgo and Chiapas. Given this program, I can

these routes. Luckily, the aviation market is no longer a

guarantee that all companies within American Industries’

monopoly, so newer airlines are able to take these flights.

shelter will have a sufficient number of workers. Chihuahua is in constant need of nonskilled professionals and once

Due to the current situation with the US, many of our projects are on hold and we will use the time to restructure. We are reorganizing the company to increase efficiencies in

American Industries is a shelter based in Chihuahua and has

the regions we operate. We are investing in human capital

offices in Queretaro, Guanajuato, Nuevo Leon and Jalisco.

by providing our employees with management training and

It offers a comprehensive service, from site selection to

acquiring the necessary investment to finance more parks

management of personnel and operations

and industrial developments.

VIEW FROM THE TOP

GO LEAN TO OPTIMIZE PRACTICES, INCREASE COMPETITIVENESS Richard Rubin CEO and Co-owner of Javid LLC

Wendee Molina Vice President of Operations for Javid LLC

Q: How would you describe Javid LLC’s growth during 2016

WM: We are investing in training alongside universities such

and in which areas is the company investing to continue

as Tec de Monterrey. Within Javid LLC we also support

expanding?

community-development projects and we are committed

RR: Javid LLC now has 26 companies in its shelter program,

to providing our female employees equal pay. Fifty percent

eight of which were incorporated during the past few years,

of Javid LLC executives are female and almost 60 percent

including Dormakaba, Edwards Vacuum Pumps, Shade USA

of our employees are women.

and PEI-Genesis. Our goal is to incorporate at least three more by the end of 2017 and to raise our headcount to

Q: Javid LLC shelters many US companies. How is

3,000 employees. With more companies arriving in Mexico,

the strained US-Mexico relationship impacting your

demand for labor is on the rise but a lack of technicians

operations?

has led companies to steal employees from each other. As

RR: The beginning of 2017 might have been slightly slower

a result, we are investing in lean manufacturing practices.

as Mexico’s relationship with the US cooled but since then I have received many calls from companies interested in

WM: Competitive labor costs are among the key reasons

coming into the country. Mexico and the US have a strong

companies are coming to Mexico. If businesses are forced

trade relationship and negative rhetoric cannot impede

to increase salaries to retain or attract employees, they risk

that. The maquila sector is the largest industry in Mexico

losing their competitiveness. Lean manufacturing practices

and many companies are choosing the country over

will increase a company’s overall efficiency without the

destinations such as China, Malaysia or Singapore. We

need to hire more employees. Javid LLC is adding lean

expect that Sonora’s manufacturing sector will continue

manufacturing practices, supervisor training and leadership

to grow because Mexico is simply a better bet.

to its administration, finance, environmental compliance and IT services.

Q: What are Javid LLC’s growth expectations in the short and long terms?

Q: How can Mexican companies benefit from lean

RR: Continuous improvement is our long-term plan. We will

manufacturing?

never stop growing as we will never be satisfied. Without

WM: Lean manufacturing improves on-time delivery and

change, companies will not be around very long. We are

quality, which can represent a 10 to 20 percent cost reduction

fully aware that we have to change to meet the demands of

during the first two years. Subsequent improvements in

new customers and to help them become more successful.

production lines can reduce operational costs up to 3 percent during the following two years. We are implementing these

WM: This year we plan to expand our operations in Nogales

practices in some of the companies Javid LLC manages and

and we are considering opening offices in other cities in

many of these are already seeing the benefits. We are also

Sonora, such as San Luis Rio Colorado, Agua Prieta or

implementing strategies to develop qualified human capital,

Hermosillo, which are locations our clients are interested

which is the most important resource a company can have.

in. Within the next three years we will incorporate more companies and increase our presence in Sonora through

Q: What other projects is the company developing to

community outreach programs.

support local companies and employees? RR: We believe in the capabilities of Mexican engineers and technicians so very few of our employees are foreign.

Javid LLC is a 34-year-old shelter with clients from many

Americans have the wrong impression of Mexico. Thirty years

different industries, including aerospace, machining, harness

ago, Mexico’s manufacturing sector was “plug-and-play,”

cables, electronics, injection molding and automotive. The

now it involves design, engineering and customer service.

company is now investing in lean manufacturing

189

ROUNDTABLE

HOW MUCH OF A CHALLENGE IS THE LACK OF REAL ESTATE FOR YOUR OPERATIONS?

Mexico’s aerospace sector is growing unabated as more and more companies enter the country, generating employment and introducing new technologies. It is possible, however, to have too much of a good thing. The large number of companies arriving is saturating existing industrial parks, especially at popular export areas near the border, such as Baja California, Sonora and Chihuahua. For that reason, it might be the appropriate time for a bet on more industrial real estate.

Coast Aluminum’s growth reflects that of the expanding industrial sector in the state. 190

Baja California is growing very fast and the state now lacks available real estate for new companies or for enlarging existing businesses. We are trying to expand our plant but it is impossible as there is no room. Industrial real estate is scooped up as soon as it is built and most industrial parks are already full. It is extremely hard to find real estate. To solve this, we are restructuring our offices in Baja California to

GENARO MANILLA Director General of Coast Aluminum

maximize inventory in the available space, while also taking advantage of its facilities north of the border. We have the advantage of having a 200,000ft2 plant in Los Angeles, which allows us to quickly supply to Baja California and to avoid excess inventory. We are fully aware of what local clients need so we can keep an efficient inventory and still supply them in 24 hours.

Companies in California are trying to compete with China so they are finding themselves needing to move their operations to a cheaper zone to remain competitive. These companies are now looking to other options to reduce their costs and coming to Mexico is a good alternative. But the state is not ready for them due to a lack of labor and industrial real estate. There is 2.3 percent vacancy for industrial buildings that is leading existing developers to invest in the construction

OSSIE DÍAZ Operations Director of TACNA

of more industrial real estate. To address this, TACNA plans to expand its existing real estate and even to build its own industrial park. We currently own 70,000ft2 next to our main offices and we plan to continue building industrial facilities. We lease approximately 3.1 million ft2 in many buildings spread throughout the state for 35 companies in different manufacturing sectors.

Terrafina is acquiring more property portfolios with a priority on location, connectivity, insured infrastructure and other characteristics that help assure their successful development, including efficiency and lower operational costs. Our occupancy rates continue to rise; from the US elections to the first quarter of 2017 we signed 25 new contracts, and we keep acquiring more properties. Approximately 57 percent of Terrafina’s properties are located in the north of Mexico, 25 percent in El Bajio and the

ALBERTO CHRETIN Director General of Terrafina

remainder are located close to Mexico City. All of these regions have strong potential for growth in manufacturing. I do not believe that new areas will arise in the short term. About 75 percent of our lessees belong in this last sector and approximately 96 percent of our leasing contracts are valued in dollars.

INSIGHT

OPPORTUNITIES ARE COMING. CAN BAJA CALIFORNIA SEIZE THEM? OSSIE DÍAZ Operations Director of TACNA

Is Baja California having too much of a good thing? The

medical equipment to retail products. In its industrial park,

state is growing at an accelerated pace, with an increasing

TACNA plans to incorporate all types of companies but

number of companies investing in existing facilities or

will focus on foreign entities. The park does not yet have

opening new ones, says Ossie Díaz, Operations Director

a specific location or launch date, but Díaz says that it will

of TACNA. This is posing a problem, he says, because the

be built “sooner rather than later; maybe we will begin

state cannot easily accommodate them.

building in 2019.” The first challenge, he says, will be to find an appropriate land parcel on which to build the park.

Baja California is among the leading recipients of FDI

The company is closely working with its clients to identify

in Mexico. With US$1.47 billion, it was the sixth-largest

and address their needs. “We are planning to build mostly

recipient of FDI in 2016, according to the Ministry of

150,000ft2 buildings, which can be divided for clients that

Economy, and is expected to receive US$2.7 billion in 2017,

need less space.”

according to the Ministry of Sustainable Development of Tijuana, which says that most of this investment will be

A lack of workforce is another hurdle that must be

comming from expansions and new companies.

overcome. To address this, TACNA implemented an initiative to incorporate into the local workforce Haitians who had

Salary increases, to be applied in California in 2018, and US

recently arrived to the state. Thanks to this program,

federal reforms aimed at curtailing illegal immigration are

area Haitians received a work visa and quickly took up

among the factors forcing companies to look at relocating

employment in TACNA’s companies. “As soon as they

to the state, says Díaz. “Companies in California are trying

acquire a visa we provide them a job. They are excellent

to compete with China so they are finding themselves

workers who only want to support their families. They also

needing to move their operations to a cheaper zone to

have very low turnover,” Díaz says.

remain competitive,” says Díaz. “These companies are now looking to other options to reduce their costs and coming

Additionally, the shelter supported a state program to

to Mexico is a good alternative.” However, he says the state

train individuals having only a high-school education

is not ready for them due to a lack of labor and industrial

as technicians for machining or molding to support the

real estate. “There is 2.3 percent vacancy for industrial

aerospace sector. “Baja California spends 50 percent of its

buildings,” says Díaz.

budget on education, which translates into generations of many technicians and engineers. The state can generate the

TACNA has elaborated an ambitious strategy to expand its

necessary human capital and the technological capabilities

existing real estate and even to build its own industrial park.

to continue supporting the sector.”

The shelter currently owns 70,000ft2 next to its main offices where it plans to continue building industrial facilities. The

One area of opportunity for TACNA as the state grows

shelter leases approximately 3.1 million ft2 in many buildings

is contract manufacturing, for which there is a pressing

spread throughout the state for 35 companies in different

need as many expanding companies cannot increase

manufacturing sectors. Over the past five years, TACNA has

production in their existing facilities due to internal

grown more than 250 percent and by 2017 the company

policies that force them to look for subcontractors. “This

had over 5,000 employees. The shelter is now present in

is an advantage for us as we are the only shelter in the

Tecate, Tijuana and Ensenada and plans to expand into

state with the capabilities for contract manufacturing,”

Mexicali.

explains Díaz. TACNA has a versatile manufacturing plant which produces silicon hoses and car dashes, but the

TACNA works with many different maquiladoras, which

company's manufacturing services can be offered to

make everything from gun grips to sporting goods, from

many industries.

191

PLANT SPOTLIGHT

192

2,000

LEAP engine units production per year

SAFRAN SAMES REP PLANT Safran’s new 10,000m2 SAMES Rep plant in Queretaro adds to the company’s previous six production, maintenance and engineering locations, generated throughout the company’s 21 years as part of the Mexican aerospace industry. With over 5,400 employees throughout the republic, Safran Group is the largest employer in the Mexican aerospace industry. This new plant repairs highpressure turbine rings and supports and low-pressure turbine guide vanes. Safran is also developing another plant to enhance the ongoing production of 3D-woven composite blades for CFM’s LEAP engine. Daniel Parfait, President of Safran Mexico, says the company plans to increase its total LEAP engine production to 2,000 units a year to fulfill the orders of Boeing, Airbus and Comac. Safran produces composite 3D-woven fan blades for the LEAP engine in Queretaro and expects to produce 800 blades in 2017 and grow its production to 20,000 units by 2021. This plant is projected to generate 500 jobs in the state.

Safran is the biggest employer in the Mexican aerospace industry with almost 5,700 employees The first Safran Group plant in Mexico is located in Chihuahua. This facility is also the largest aircraft wiring center in the world. Ninety-five percent of the wiring for the Boeing 787 Dreamliner is both designed and produced there, alongside 75 percent of the wiring for the Airbus A380. But Safran does not only focus on airplanes, the company also provides support services for a fleet of about 600 helicopter turbine engines in 15 countries in Latin America and the Caribbean. As part of its commitment to foster collaborative research, Safran is a key partner of UNAM and UTEQ and signed a letter of intent with CONACYT to develop joint R&D projects and a collaboration agreement with CINVESTAV. The company also takes part in the Mexprotec cooperation program, which offers Mexican technicians the opportunity to earn a vocational degree at a technological institute in France, including a four-month internship at one of the Safran Group companies. Safran Group is also a founding member of the Queretaro Aerocluster as part of its drive to develop research and education initiatives for the benefit of the aerospace industry in Queretaro and Mexico.

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Painting Room / Airbus

VIEW FROM THE TOP

INCLUSIVE APPROACH ALLOWS SPECIFIC SUPPORT SALVADOR MAGAÑA CEO of PARQMEX Industrial Development

Q: What proportion of your business does aerospace

a culture that we have seen reflected in the aerospace

represent and what is your strategy to further penetrate

industry and resonates well with our own beliefs and values.

this sector?

We look forward to working together as a team with the

A: Northern Mexico and the Bajio region host important

presidents of the aeroclusters to support the industry’s

aerospace companies, especially in Queretaro and more

consolidation.

recently Guanajuato. The industry began to take off after 2007 and after 10 years there are more than 80 companies

Q: As the real estate sector is so dependent on domestic

in Mexico, representing 35 percent local capital and 65

and foreign investment, how have your projections been

percent foreign investment. In the last 10 years, Mexico

affected by US politics?

went from 10th place to sixth in aerospace exports to the

A: There might be some uncertainty regarding the change

US, generating over US$7 billion in revenue, according to

in the US administration but Mexico’s supply chain is so

FEMIA.

integrated into the global market that it will remain a strong manufacturing platform. The peso’s depreciation will result

The aerospace industry will continue to grow, given global

in more savings for international players. This, added to

economic expansion. We expect the aerospace industry

commercial partnerships with more than 40 countries, only

to be an important part of our business and future growth.

boosts the opportunities for manufacturing and logistics

Therefore, we are working hard, preparing and learning

companies.

more about the industry and its needs and participating in industry events. Q: What specific services do you offer aerospace companies to support the industry’s consolidation? A: PARQMEX is focused on customer service and quick turnaround leasing. PARQMEX takes an inclusive approach

35:65 ratio of domestic and foreign capital investment in Mexican aerospace

to leasing operations and works with tenants to structure attractive and competitive leases to support specific

When we made the decision to focus on the Bajio region, we

requirements.

detected enormous investments coming not only from the US but also from Europe and Asia. These companies have a

Every time we develop an industrial cluster, we first

long-term commitment to Mexico thanks to our free-trade

consider logistically advantaged industrial locations that

agreements with many countries. Real estate is a long-term

offer immediate proximity to major transportation systems

investment and we do not see the country changing its

and available workforce. Our customer service is another

status as a manufacturer anytime soon. Mexico is stable

differentiator through which our development, leasing and

economically and politically, allowing for free exchange of

property-management teams customize and build facilities

monetary resources. The country understands the need

to meet our tenants’ unique needs, time requirements and

for competitiveness, and investment will come based on

budgets. We ensure efficiency, quick answers and tenant

economic decisions.

satisfaction across everything we do. We also make sure to always incorporate environmentally friendly features into our clusters, seeking energy and water efficiency.

PARQMEX is the industrial development arm of ALIGNMEX Real Estate Capital. It develops distribution warehouses and

At PARQMEX, we have a philosophy of teamwork and open

light manufacturing facilities in Mexico for lease to corporate

communication, looking to improve on our ideas. This is

tenants, with a focus on markets with high barriers to entry

195

VIEW FROM THE TOP

ASSOCIATION HELPS MAKE PARKS ATTRACTIVE TO FOREIGN ENTITIES CLAUDIA ÁVILA Executive Director of The Mexican Association of Industrial Parks (AMPIP)

Q: What type of companies are affiliated with AMPIP and

parks. Having this certification attracts foreign companies

what are the benefits of being part of the association?

that ask for a park’s administration to provide environmental

A: AMPIP’s members are mostly developers and suppliers.

protection evidence.

Among the developers are construction companies, such as 196

Copachisa, Grumesa or Crocsa, and the suppliers include input

In terms of security, potential tenants look for parks with

producers such as CEMEX or Kingspan. AMPIP helps parks

international security standards, such as the Authorized

achieve certifications that make them attractive to foreign

Economic Operator (AEO) Program. Led by the World

companies. AMPIP’s program to promote international best

Customs Organization (WCO), this certification is part of a

practices in industrial parks helps our members be prepared

new international trend among countries, to avoid possible

for new trends in the market. Our alliance with the Commercial

terrorist and other kind of risks, along global value chains.

Real Estate Development Association (NAIOP), an equivalent

As a part of the production chains, every industry should

US organization, helps us be aware of future trends coming

create its own criteria, based on the AEO basic standards.

to Mexico. Companies in the US must engage in certain

In Mexico, for instance, some automakers require suppliers

environmental protection practices that are not obligatory in

to be certified under the AEO Program, so that the final car

Mexico yet, so we are preparing for the moment they become

is free of safety risks and trading it can be easier. Due to this

compulsory. AMPIP also encourages its members to meet

new market demand, the AMPIP, together with the Mexican

the Mexican Standard for Industrial Parks, which provides

Customs’ Authority, the SAT, created the AEO Program for

evidence of compliance with general public regulations. This

Industrial Parks, starting in May 2016.

makes them attractive to companies because this standard is similar to that in the US.

Q: What main challenges is the industrial real estate market facing in Mexico? A: Our main challenge is the ability to attract potential clients for the leasing of our industrial buildings. The industrial real estate market is directly linked to FDI inflows and demand in the US market because of the North American interdependency. Demand for our spaces is directly related

AMPIP’s industrial parks host 2,500 domestic and foreign companies which generate 1.7 million direct jobs

to the country’s attractiveness, so geopolitical uncertainty

AMPIP created the Green Industrial Park Recognition based

Before building an industrial park, investors perform

on PROFEPA’s National Program for Environmental Audit.

feasibility studies that can take up to one year because

This recognition works as a stepping stone to PROFEPA’s in

of their complexity. If a development is deemed feasible,

terms of regulation compliance. It contemplates the correct

the land is acquired, the construction and environmental

management of solid waste, as well as energy and water

permits are requested, the location is urbanized and then

consumption saving. AMPIP works closely with PROFEPA

the development is built. AMPIP represents large industrial

and with the German agency for international cooperation,

developers targeting multinational companies that look for

GIZ, to implement environmental protection and sustainability

state-of-the-art, class A buildings. Developing these buildings

practices and detect opportunities for sustainability within

poses hurdles: they are expensive to build because of the

has a huge negative impact on this market in spite of the availability of other key factors like labor and vicinity to trade routes. Investors place great importance on market certainty, especially when developing industrial parks, which entail huge, long-term and high-risk investments.

materials they require, there is no guarantee a company will

Q: What role does the public sector play in the development

lease the building when it is finished and finding finance for

of industrial parks in Mexico?

these projects is difficult since commercial banks find them

A: AMPIP makes alliances with state governments in order to

very risky. Developers now partner with investment funds

ease the process of land acquisition and permit facilitation.

for financing rather than looking for loans, which results in

Many governments are interested in having industrial parks

a more balanced risk allocation.

because they attract companies that create jobs in their regions but these developments require a high level of

Q: What commercial models do developers use to meet

specialization that few people have. AMPIP encourages state

demand?

governments to find a partner and build these parks together.

A: Build-to-suit and speculative-buildings are the two main

Since building such a development takes several years, project

models developers use for building industrial facilities.

continuity between administrations is usually jeopardized.

In markets like Costa Rica or Panama the demand is less

AMPIP is fostering a new model among governments. They

intense, so developers can build to suit the needs of the client

put land in a trust and facilitate the permits while investors

upon arrival. In Mexico, the demand for industrial spaces is

assume part of the risk and build the urbanization and

intense and competition is tougher. Therefore, developers

developments. This way both companies and governments

use the speculative buildings model to offer companies a

win without getting in each other’s way. 197

finished building upon arrival. Q: What are AMPIP’s priorities in the short term? Q: What are the key factors that influence the size and

A: We want ProMéxico to list industrial parks as one of

location of an industrial park?

Mexico’s attractive strengths besides competitive labor and

A: Due to economies of scale, AMPIP’s members focus on

a number of FTAs. The standard for industrial parks in Mexico

huge developments, which is more cost-effective. It is too

is very similar to that of the US or Canada, which makes them

costly for a developer to invest US$1 million in a power

attractive. In spite of uncertainty at the beginning of 2017,

station, urbanization project or water management facility if

investment is still flowing in and our members are seeing their

they supply a single building. However, if this station supplies

businesses grow. Some have reported breaking records.

20-100 buildings, the overall costs are reduced for the developer. The costs of labor and other inputs are relatively similar, whether it is a 1,000m2 or a 10,000m2 development. It just makes more sense to go big. Building an industrial park in any random location is not feasible and several factors must be considered: proximity to

STATES WHERE AMPIP HAS AVAILABLE REAL ESTATE 1

Aguascalientes

Baja California

Chihuahua

Mexico City

Coahuila

Durango

and even some amenities related to life quality for foreign

State of Mexico

investors, including bilingual schools for their children, health

Guanajuato

services and golf courses. Transportation infrastructure is

Hidalgo

important when planning an industrial park, yet this depends

Jalisco

on the kind of transportation that tenants would prefer.

Nuevo Leon

Although large quantities of semi-completed goods pass

Puebla

trade routes, levels of urbanization, availability of skilled labor

through the ports, they are not processed near the ports. About 80 percent of manufactured materials in Mexico are transported through land-based logistics channels, mostly targeting the US.

Queretaro

Quintana Roo

San Luis Potosi

Sinaloa

Sonora

Tamaulipas

Tlaxcala

instead of leasing their own facility?

Veracruz

A: Industrial parks offer a series of services that mitigate their

Zacatecas

Q: Why do companies look for space in industrial parks

risks in spite of it being costlier. A multinational company

Source: AMPIP

arriving to Mexico cannot take relatively simple risks like water or power shortages or a workers’ strike. An industrial park is a neighborhood protected and serviced by the park’s

AMPIP, founded in 1986, represents owners, investors and

central administration where tenants are not isolated. Since

managers of parks and industrial buildings to local authorities.

the park’s administration takes care of security, utilities and

The organization also promotes best practices in infrastructure,

maintenance, tenants only have to worry about production.

logistics and sustainability

PLANT SPOTLIGHT

BOMBARDIER QUERETARO PLANT Installed in 2006, the Bombardier Aerospace plant in Queretaro designs, manufactures, assembles and machines aircraft components. All Bombardier Aerospaceâ&#x20AC;&#x2122;s aircraft employ electrical components, composites, aerostructures or sheet metal made in this plant to some extent. In little more than a decade, Bombardier Aerospace has become the OEM with the largest presence in Mexico. Bombardier Aerospace is the engine that helped the aerospace industry in Queretaro take flight. Not only did it bring along some of its aerospace industry suppliers, but the demand for Tier 2 and 3 suppliers has grown in the region. The company was also influential in the arrival of the likes of Safran, Meggitt and A.E. Petsche to Queretaro. As these companies generate demand, local companies interested in becoming their suppliers invest and acquire industry certifications. Bombardier Aerospace alone has a direct relationship with 10 local suppliers that procure a variety of products and support the company.

US$500 million has been invested in the development of the Bombardier Queretaro facilities B o m b a rd i e r Ae ro s p a ce a l s o h a s co l l a b o ra t i o n agreements with several regional academic institutions in Queretaro. For instance, the company collaborates in the development of study plans with UNAQ and the Technological University of San Juan del Rio and has programs for internships, thesis projects and recruitments with UVM, IPN, ITQ, UAQ and ITESM. A total US$500 million has been invested in the construction and equipping of the productive facilities of Bombardier Aerospace in Queretaro. The four production plants total an area of 20.2ha and employ about 2,000 workers. Bombardier works closely with FEMIA to develop a network of national suppliers throughout Mexico that will enable both Bombardier Aerospace and the industry to grow. As the global demand for business and commercial jets grows and the need to connect Mexico and Latin America via airplane increases, the sky is the limit for Queretaroâ&#x20AC;&#x2122;s aerospace sector.

199

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CARGO & LOGISTICS

Air cargo is an essential part of a globalized economy. As global value chains become more complex, the transportation of parts for processing across countries and continents becomes increasingly prevalent. Air cargo in Mexico rose 12 percent in 2016 and many players have great expectations for the sector as Mexico strengthens its manufacturing industry. Mexico is already ahead of the curve in comparison to the rest of Latin America thanks to its strong manufacturing capabilities, which are often dedicated to high-value products that are destined for export. As the manufacture of high added-value products, such as aerospace components and pharmaceuticals, continues unabated in Mexico, the need for air cargo will increase in turn. Many logistics operators are already developing specific products for different manufacturing industries, including aerospace, promising to deliver better and more efficient solutions to meet the specific needs of every link in the supply chain.

Local industry is generating specialized, unique logistics solutions to differentiate itself and capture a market niche. This chapter will evaluate the major trends that are defining cargo and logistics companies in the country.

201

CHAPTER 9: CARGO & LOGISTICS 204

ANALYSIS: Flying Ahead of the Pack

206

VIEW FROM THE TOP: Marcela Pérez, UPS

208

VIEW FROM THE TOP: Enrique Valera, DB Schenker

Kaizad Dalal, DB Schenker

210

VIEW FROM THE TOP: Jorge Torres, FedEx Express México

212

VIEW FROM THE TOP: Luis Alvarado, AeroUnion

214

AIRCRAFT SPOTLIGHT: Boeing 777

216

VIEW FROM THE TOP: Alejandro Raya, DHL Supply Chain México

217

VIEW FROM THE TOP: Vitor Bocci, Kuehne+Nagel

218

VIEW FROM THE TOP: Eduardo Alba, Expeditors

219

VIEW FROM THE TOP: Erik Meade, Panalpina

220

INSIGHT: Augusto Iturralde, Amerijet Interrnational

221

VIEW FROM THE TOP: Diego Martínez, Dylo

222

VIEW FROM THE TOP: Piotr Zaleski, Hellmann Mexico

223

Honorio Rodríguez, Hellmann Mexico

VIEW FROM THE TOP: José Eric Delgado, SICAMSA

203

ANALYSIS

FLYING AHEAD OF THE PACK A strong number of export orders resulting from the increase in world trade and the growing popularity of e-commerce is strengthening air cargo at a global level. Mexico is ahead of the curve thanks to its growing manufacturing industry Air cargo is becoming indispensable to modern life, if it is not already. It speeds up communications, permits

HISTORICAL GROWTH RATES AND FORECAST FOR AIR CARGO

the transportation of perishable goods and delicate

2005-2015 (percentage)

e-commerce, allowing these companies to offer express

World

2.0

4.2

delivery services. As manufacturing spreads across

Asia-North America

1.9

4.6 4.6

medicines across continents and is a key solution for

continents through the generation of global supply chains,

204

Forecast 2015-2035 (percentage)

Region

air transportation has also become an essential tool for

Europe-Asia

2.1

the timely transportation of parts and components for

Intra-Asia

2.1

5.5

Europe-North America

0.4

2.4

Intra-North America

-1.4

2.2

According to IATA, air cargo represents 35 percent of global trade by value, although it is only 1 percent of

Domestic China

7.6

6.2

trade by volume. Globally, the sector has been mostly

Latin AmericaEurope

3.3

3.8

five years preceding 2016. In its World Air Cargo Forecast,

Latin AmericaNorth America

0.7

4.3

Boeing says an underperforming world economy had

Africa-Europe

0.4

3.8

been behind the slow pace. A slowdown in any country’s

South Asia-Europe

3.5

5.0

economy expands into its manufacturing, which results

Middle EastEurope

3.6

3.9

Intra-Europe

1.6

2.2

everything from cellphones to airplanes themselves.

stagnant, showing only 2 percent annual growth over the

in less trade. But there is reason for optimism. In 2016, growth nearly

Source: Boeing

doubled, according to IATA, expanding 3.8 percent in

In fact, while its growth projection from Latin America

freight ton kilometers (FTKs) in comparison to the year

to Europe is only of 0.5 percentage points by 2035,

before. Freight capacity also widened, up 5.3 percent

its expectation for growth between Latin America and

on year. The association forecasts that air cargo will

North America is 3.6 percentage points for that same

represent US$5.5 trillion in 2017.

period, the largest expected growth in percentage points

54.9 million tons of goods were delivered via air cargo in 2016

worldwide. Growth in air cargo will translate to changes in airlines’ fleets. Boeing, expects that by 2035 the worldwide freighter fleet will increase by 70 percent from the current 1,770 aircraft to 3,010. While many of these aircraft will

IATA cites several factors for the upward turn, including

be conversions from commercial passenger aircraft, it

strong export orders as world trade rises, and the growing

will also be necessary to build 930 new freighters worth

popularity of e-commerce, which greatly depends on air

US$270 billion.

cargo for fast deliveries. The latter might not seem too relevant, but it should not be underestimated as it is

MEXICO LEADS REGION

expected to reach US$3.5 trillion by 2019. Furthermore,

Mexico is ahead of the curve in air cargo. “Globally, air

the association says that high-value cargo, such as

freight expanded by 1 or 2 percent in 2016 but Mexico grew

pharmaceuticals, are a significant source of income for

by almost 12 percent,” says Vitor Bocci, Vice President of

the sector, representing US$12 billion in 2016, a figure that

Airfreight at Kuehne+Nagel. During those six months, a

is expected to climb to US$16.7 billion by 2020.

total of 55,327 tons were transported in comparison to 2015’s 49,378. Kuehne+Nagel reports that the main cargo

In the coming years, Boeing expects that developing

distributor during this period was Aeroméxico with a total

economies to expand faster than developed markets.

of 19,264 tons of cargo transported between its main

DISTRIBUTION OF THE REGIONAL SUSTAINABLE CARGO TRANSPORTED BY MEXICAN AIRLINES DEVELOPMENT FUND 2 DURING THE FIRST HALF OF 2017 (tons)

In that sense, NAICM will bring about great growth opportunities both for cargo and passenger airlines. Yet, this should be a joint effort. “In terms of cargo, the

36.6% Aeroméxico 18.8% Estafeta 15.6% Interjet 13.8% Volaris 10.1% Mas Air 4% Aerounión 1% Aeromar 0.1% Aéreo Calafia

to ensure the project is a success from its design to its implementation. Today, that is not the case and I think there are still opportunities to develop Mexican airport infrastructure to the standards of similar aviation hubs in the world,” says Alvarado. Among the reasons Mexico is ahead of the curve in air cargo is its strong manufacturing capabilities, which are

Source: DGAC. *Data for Aeroméxico for both 11% Mazapil 2%are Sahuaripa Aeroméxico and Aeroméxico Connect

9% Cananea

government must work together with the private sector

often for high-value products that are destined for export.

2% Morelos

7% Nacozari de Garcia 2% Eduardo Neri airline and Aeroméxico Connect. Air cargo represents 9 5% Fresnillo 2% Aquila percent of an airline’s revenue, according to IATA. 4% Ocampo 2% Alamos 4% Caborca 1% Chinipas Boeing, which classifies Mexico as part of Central 2% Sierra Mojada 47% other America, says that Mexico will drive the region’s “air trade Source: CGM, Ministry of Economy 1 With figures to March of 2015

“Most of the aerospace companies in this region are part of the IMMEX program, which means that imports and exports are crucial activities for them,” Kaizad Dalal (KD), Branch Manager Queretaro and Founder of Aerospace 205

Division of DB Schenker Mexico.

with North America with a growth of 5.3 percent per year

While this has been a strong advantage so far, challenges

during the next 20 years, exceeding the rates of the other

ahead include a suddenly shaky relationship with the

Latin America subregions.”

country’s largest export destination: the US. “NAFTA is without a doubt one of the most important free trade

Despite its performance, Mexico’s air cargo segment will

agreements in the world. An update is certainly in order

face many of the same challenges as other commercial

but the conditions are tricky. The US president has openly

airlines. For instance, limited infrastructure in the country’s

stated that the agreement has not been favorable to the

capital and main economic and logistics hub. AICM’s

US and a negative outcome could have implications,” says

saturation represents a problem for all airlines and greatly

Alvarado. However, this should not be a reason for fear-

limits the transportation of goods. “Managing time slots

With 46 free trade agreements, the country could look

in AICM is very complex. Each day, the airport receives

at other export destinations. “Thanks to the uncertainty

national and international flights carrying both passengers

created by President Trump, many clients are now looking

and cargo, and for cargo airlines it is difficult to compete

to diversify their operations into Asia and other regions.

for time slots when passengers are waiting to disembark.

Once a NAFTA compromise is reached, we expect clients

Operators are doing a good job in managing slots but

to grow their operations between Mexico and the US while

the space is simply not enough,” says Luis Alvarado,

maintaining a strong focus on other regions,” says Alvarado.

Director General of AeroUnion. This can be troublesome if the goods are perishable and have to be dropped at

Once infrastructure challenges are addressed air cargo will

neighboring airports to be later transported by road.

be in a perfect position to take off.

GLOBAL LIGHT VEHICLE PRODUCTION AVERAGE ANNUAL GROWTH (2015-2035) 600 500 400 300 200 100 0

2005

——High 4.9%

2010

——Base 4.2%

2015

2020

2025

——Low 2.3%

Source: Boeing

Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Center

2030

2035

VIEW FROM THE TOP

ALIGNING TO TRENDS MEANS BUILDING OWN INFRASTRUCTURE MARCELA PĂ&#x2030;REZ Manager of Industrial Manufacturing and Aerospace at UPS

Q: What key trends in the air transportation market has

the demand for airplanes also increases. For UPS, this

UPS identified?

translates into an increasing need to transport aircraft

A: About 53 million tons of airborne cargo were carried

pieces and related goods.

in 2016, according to IATA, representing about 35 percent 206

of global trade. UPS has aligned itself to the key trends

The growing demand for cargo transportation is also

in the air transportation market, which required the

due to new manufacturing models. Companies used to

creation of its own infrastructure and airline division. In

manufacture in one country and send finished goods

a continuously reconfiguring, globalized world, countries

to consumer countries. But today manufacturing is

attempt to enter new markets and increase their presence

more complex as companies are based in one country,

in those where they already are, as goods and the way

manufacture in a second, while goods come from a third,

they are consumed change. UPS takes advantage of its

the assembly is done in a fourth and the target market

global presence to help its clients achieve their objectives

is a fifth. This increasing complexity provides challenges

and gain international recognition.

for UPS, especially as most of its clients work under the just-in-time and zero-inventory schemes. UPS offers

Everybody wants deliveries made as quickly as possible

guaranteed services. Our clients can trust that they will

in the logistics market. This has a bearing on whether a

receive their products at a specific time. There are several

client decides to fly their goods instead of sending them

Key Performance Indicators (KPIs) the company follows

by boat or by terrestrial means. Companies that position

so that every step of this process is properly structured

themselves in the market are those that can produce and

and measured. We cannot fail to meet our delivery

deliver to clients the fastest. UPS helps its customers with

agreements because that would entail both operational

guaranteed services that ensure a timely delivery.

problems and bad KPI results. Q: How does UPS differentiate itself from other air logistics companies? A: UPS has direct representation in over 220 countries and territories instead of virtual offices or outsourced

53 million tons of air cargo in 2016, representing 35 percent of global trade

services. Also, UPS invests US$1 billion in technology per year and has a pool of developers focused on coming up with new solutions to add value to its clientsâ&#x20AC;&#x2122; processes. UPS has developed digital platforms where clients can track a package, container or shipment without having to depend on less-advanced communications via email.

Q: What are the main drivers behind the acceleration of

In terms of trade documentation, UPS offers customs

the air cargo market?

services alongside its shipping solutions. Having UPS do

A: The air cargo transportation sector remained stagnant

both the transportation and customs clearing both in

for several years until late 2016 but demand is now on

Mexico and in the destination of the shipment is easier

the rise, according to IATA. Technological advances

for clients. Also, paying attention to aerospace customers

have a significant impact on how trade is carried out.

and their behavior enables us to increase our presence in

For instance, demand for national flights in countries

the areas where we are needed.

like India and China is growing at a double-digit rate as a consequence of the increasing need to move goods

Q: How has UPS adapted to cater to the e-commerce

much quicker. As the demand for national flights rises,

trend and what are its expectations for this area?

TOTAL TITLEAIR CARGO TRANSPORTED IN AND OUT OF MEXICO (tons)

300

730,321

654,985

617,012

610,096

652,926

639,645

515,220

571,564

635,777

608,834

561,502

497,005

488,202

400

459,214

500

502,069

600

599,764

700

695,052

800

200 100 0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2011

2012 2013 2014 2015 2016

Source:DGAC

A: E-commerce is not a new thing for UPS Global. This is

Worldwide Express Freight is a service for palletized cargo that

an advantage for UPS in México because the company can

crosses borders. It is a guaranteed service in which shipped

benefit from the experience and technology previously

pallets are treated as a regular package. UPS can offer next-

acquired or developed for other countries. The main

day delivery for shipments between Mexico and the US and

challenge is adapting solutions to Mexico as the country

two-day delivery for shipments between Mexico and Europe

has its own specific infrastructure and consumer habits.

and Asia. In 2016, UPS entered more areas offering import/

Several UPS clients that used to stick to traditional

export services because manufacturing services require

distribution channels are starting to open their own

these kinds of solutions. The second service, UPS Expedited

online stores. Their new B2B and B2C trade brings new

Ground Freight is a hybrid terrestrial service. All the transport

challenges and opportunities for UPS. Another important

operations take place on the ground but customs clearance

challenge is that clients are rarely at home today as shifts

takes place in the internal airports of each country. It is hybrid

are longer and everybody in the household works. For that

because it receives the customs treatment usually applied

reason, UPS invested in the development of a personalized

to aerial shipping. This mix makes the clearance process

system called UPS My Choice that enables recipients of

much faster than doing it through the border. Several UPS

packages and shipping to choose an address and delivery

aerospace clients, particularly those based in Chihuahua,

time to receive their goods. In terms of infrastructure,

Tijuana and Monterrey, have benefited from this model

UPS announced an increase in its number of shipping

because they can use the terrestrial infrastructure to move

centers to more than 70. These centers add up to more

their goods faster and at a good price.

than 700 access points in Mexico. In addition, we recently closed an agreement with MercadoLibre that will help this

Q: How will the renegotiations of NAFTA affect air logistics

e-commerce company with customer satisfaction.

companies like UPS? A: UPS is pure commerce. We have 237 “brown tail” airplanes,

Q: What technologies does UPS plan to introduce to the

420 charters and 1,090 daily international flights. In Mexico,

logistics sector?

UPS has three brown tail airplanes flying from Monday to

A: We are introducing more alternative-fuel vehicles into

Friday to UPS’ global hub in Louisville, Kentucky, and charters

Mexico and other countries to reduce our environmental

in several Mexican airports. Our more than 25 years in the

impact. UPS is also implementing 3D printers in some of

Mexican market have taught us that trade and the free

its shipping centers so clients can bring in digital storage

exchange of goods boost economic growth. The US is

devices and print and send their designs. Delivery drones

our main driver as 80 percent of our goods in Mexico is

are still in the beta phase. Several tests are being carried

destined to this market. Therefore, UPS has assigned a

out in the US, specifically for humanitarian deliveries of

group of people to work directly with the Congress in

medicine. But because there are no regulations on these

Washington and other authorities to generate an agenda

devices, issues of privacy still need to be addressed.

that benefits all parties involved.

Q: What specific services has UPS designed for aircraft parts manufacturers and maquiladoras in Mexico?

UPS is an international logistics company with presence in over

A: There are two services that have been well-received in

220 countries and territories. It provides shipping and customs

manufacturing, specifically for industrial manufacturing and

clearance services. UPS has been in Mexico for 25 years and

the retail, high-tech and automotive industries. First, the UPS

has 700 shipping centers throughout the country

207

VIEW FROM THE TOP

CENTRALIZATION DOES NOT LIMIT REGIONAL EXPANSION Enrique Valera CEO of DB Schenker Mexico

Kaizad Dalal Branch Manager Queretaro and Founder of Aerospace Division of DB Schenker Mexico

Q: What is Mexico’s role in DB Schenker’s global network

This transformation also triggered a change in mindset within

and what are your expectations regarding the company’s

DB Schenker Mexico and it has led to significant growth to

development?

700 employees from the previous 220 we had in 2014.

EV: We are part of the Americas region, which includes 208

all operations from Canada to Argentina and Chile. Across

Our new structure has also helped us approach new

the entire region, Mexico is the third-strongest participant

clients. Within the aerospace sector, the opening of our

in terms of bottom-line results, after the US and Canada.

Queretaro branch was a milestone to connect with potential collaborators, supported by the reinforcement of our

If we analyze DB Schenker’s results on a global scale, the

operations in land transport in Mexico and the NAFTA region.

strongest regions are Europe and Asia. The Americas represent only 20 percent of the company’s bottom-line

Q: What are the main strengths of DB Schenker’s

numbers, with Mexico contributing 5 percent. We hold 3

operations in Queretaro and how are you supporting the

percent of the air freight market, between 2 and 3 percent

local production chain?

of the sea freight market and less than 1 percent in land

KD: We have a dedicated team that works directly with

transportation. Five years ago, Mexico’s participation in

our clients in the aerospace sector and is available 24/7

our global operations was less than 1 percent, which shows

to address any concerns companies may have. We started

our significant growth and the important role we play in

this division in 2004 and we were among the first logistics

the company’s international strategy. Furthermore, in the

providers to target this segment with a specialized service.

past three years, DB Schenker Mexico has doubled its top-

After DB Schenker acquired BAX Global, we had an

line results and we expect that by 2018, the country will

aircraft fleet at our disposal. We put one of these planes

generate approximately US$200 million in revenue.

in Queretaro to support Bombardier’s operations, which had also just arrived to the state in 2004. This strategy has

US$200 million: DB Schenker’s expected revenue for 2018 in Mexico

paid off and today most companies in the sector know DB Schenker and its operations. The aerospace industry has its own language and we have formed a team with experience in MRO, OEM and airline activities to understand what our customers need. This specialization is what has allowed us to grow in this market. In addition, we have established a daily roundtrip service

Q: What changed in the last five years that allowed DB

between QRO and MEX airport to serve our customers with

Schenker to grow from 1 percent to 5 percent participation

a fast and competitive service.

in the company’s global operations? EV: DB Schenker Mexico has always been a profitable

Q: What are the company’s plans to establish another

organization. We focus on logistics services, mainly on

division in Sonora or Chihuahua?

air and ocean imports and exports. That being said, we

KD: Our goal is to have a centralized operation for the

are also strong contenders in contract logistics services,

whole country. We already have a 24/7 AOG-Desk (Aircraft

land transport, as well as in Air and Ocean products. Our

on Ground) based in Queretaro with an entire team around

performance for the past 20 years has been positive and

it. We still have room for growth in our operations and to

stable, although our growth has been slow. We turned that

support other aerospace clusters we must first strengthen

around over the last five years with structural changes to

our position in the country. We also need to establish

our sales organization and also by opening new locations.

new commercial relationships with clients in the north of

TOTAL CARGO TRANSPORTED DURING 2017 (millions of tons)

However, we cannot plan anything without knowing what

AUTO PARTS PRODUCTION PER YEAR IN MEXICO

60 53,222,140

55,121,655

53,592,322

50,103,466

50,214,680

42,168,596

44,128,226

95,154,313

Q: What are the main challenges DB Schenker faces to

50 40

continue growing? KD: Our main challenge is understanding our clients’ needs, particularly in the north where we are looking to grow our footprint. Most of the aerospace companies in this region are part of the IMMEX program, which means that imports

and exports are crucial activities for them. Most of our competitors are already targeting the region, so our job

10 0

will happen with the project.

is to identify what added value we can offer to potential customers. Our sea freight services to Ensenada are a clear Jan

Feb

International

Mar

Apr

May

June

July

Aug

National

example of the benefits we can bring to companies. This is a service that most clients are looking for but few logistics providers offer.

Source: DGAC Source: INA

We analyzed the demands from customers in Tijuana and

Mexico before thinking about opening a new branch. We

Chihuahua, and we came up with specialized services to ship

already work with Zodiac and other companies based in

components not only to the US but to Europe as well. We also

the north but we can still manage their operations from

give clients more options to move their shipments through

Queretaro and through our team based in the Mexico City

ports like Altamira, instead of using ports in the US. This made

International Airport.

processes more efficient and reduced transport times.

EV: Growing our client base in the north of the country is

Q: How much did your air freight operations grow during

among our priorities to sustain continuous growth and for

the first half of 2017?

that, we will lean on our offices in the US. We have two

EV: Compared to our 2016 results, our operations increased

projects currently in the pipeline. The first is with Zodiac in

by 18 percent. We expect this number to be maintained till

Tijuana and Chihuahua, and the second is with Embraer in

the end of 2017 but our forecast for 2018 is to grow at least

Chihuahua. We are competing in the tenders to win these two

20 percent. In past years, we have been growing faster than

projects and we expect the results to be announced soon.

the market and gaining market share. We expect this trend to continue for the coming years, while maintaining a stable

Q: Why should an aerospace manufacturing company

profit margin.

choose DB Schenker as its main logistics provider? KD: The main reason is that we are the most specialized

Q: What are DB Schenker’s priorities for 2018?

company in aerospace logistics in Mexico. We are

EV: We are driven by our budgets and our previous results.

pioneers in the sector and a benchmark in solutions for

Besides our 20 percent growth expectations in our bottom-

these companies. Our CEO in Germany has outlined a

line numbers, we also expect a 16-17 percent increase in our

global strategy called Primus that states DB Schenker’s

top-line figures. This means that we have to be innovative

goal of becoming a leader in the logistics sector and the

and conscious about our costs and investments, enabling us

fastest-growing freight-forwarder by 2020. To reach that

to be very aggressive in the pricing structure we establish

objective, everyone from our top managers to our ground-

for our customers.

floor operators must be aligned to a performance-driven and service-oriented operation. Although there are still

KD: Our human capital is also a top priority for the company.

areas of improvement, our success shows that we are on

Globally, almost 40 percent of our expenses are related to

track. Clients are always looking to team up with the best

training, career planning, labor turnover minimization and

and we consider ourselves that.

other similar activities. We do not own any assets, so the best resource we can offer clients is our people.

Q: How will NAICM affect your operations? EV: We must first have the certainty of the timeframe in which the project will be concluded. Today, we have

DB Schenker is the logistics and transportation branch of

offices close to Mexico City International Airport and

Deutsche Bahn. The company has air, sea and land freight

also in the customs area to supervise our clients’ imports

operations, along with contract logistics and special operations

and exports. Whenever the airport moves, we will move.

based on the client and industry

209

VIEW FROM THE TOP

TOO MUCH DEMAND, NOT ENOUGH AVAILABILITY JORGE TORRES President of FedEx Express México

Q: What are the main challenges the logistics and air

among North American companies participating in the air

cargo sectors face globally?

cargo segment. We expect that the growth in ecommerce

A: Demand for freight ton kilometer (FTK) grew 10.4

and the development expectations for SMEs will continue

percent in the first half of 2017 in comparison to 2016,

to boost our operations.

according to IATA. Furthermore, the air cargo segment 210

presented the largest growth rate after the global

Q: What hurdles must cargo airlines in Mexico beat in

financial crisis of 2008, representing almost three times

terms of local infrastructure, customs and regulations?

the 3.9 percent the industry had grown for the past five

A: Lack of infrastructure is definitely one of the main

years. In comparison, during the first half of 2017, the

challenges for the industry. Cargo concentration has

available freight ton kilometer (AFTK) increased by 3.6

generated delays and saturation in the country’s main

percent when compared to the same period in 2016.

airports including AICM, Guadalajara and Cancun. For this

Only in June 2017, cargo needs increased 11 percent while

reason, many companies have opted for the acquisition

capacity grew by 5.2 percent. This growth is in line with

of a fleet with an increased cargo capacity. According to

the boost in global trade, which has resulted in exports

information from IATA, cargo volume is expected to reach

reaching their maximum level in six years. However, we

55.78 million tons globally by the end of 2017, growing

think growth might now have reached its peak.

from the 53.9 million tons registered in 2016. Only in Latin America, growth is expected to reach 4.8 percent.

The inventory rotation rate is no longer falling, meaning that companies no longer have an urgent need to

Regarding customs and regulations, there are many

replenish their stock, which in turn diminishes demand

hurdles Mexico must address. Digital customs would

for air cargo. That being said, we still have an optimistic

simplify operations following optimal security standards

view on the industry and expectations for healthy growth

for efficient trade. Similarly, homologation of standards

in demand of 8 percent for 3Q17. Demand continues to

across the country’s customs agencies would offer more

surpass cargo capacity, which puts a strain on all airlines.

clarity and security to all companies. Learning to take

North American players alone registered an annual FTK

advantage of all of Mexico’s free-trade agreements would

growth rate of 12.7 percent but only 3 percent in AFTK.

also boost commercial activities for companies with

The 9.3 percent increase registered in FTK in June

international operations.

boosted these results mainly because of the deceleration observed during 2016.

Q: What has been Mexico’s role in FedEx’s global strategy and what have been your main achievements in this market?

Logistics companies now face the challenge of meeting

A: Mexico is a key market for FedEx both regionally and

the market’s demands. To manage that, they need

globally. So much so, that the country is now among the

to create collaborative operative models that ease

10 most important countries for the company; a significant

commercial fluxes among regions while meeting current

achievement considering FedEx’s participation in over 220

expectations in terms of precision, speed and effectivity

countries and territories. Our goal and commitment to

toward the client. Digitalization will be a prerequisite for

Mexico is to keep offering solutions that contribute to its

success and the winning players will be the ones that

economic and competitive development.

know how to make the best out of all new technologies such as data analysis, process automation and the

Investment is also key in our development strategy in the

Internet of Things. According to data from DGAC, FedEx

country. In 2016, we inaugurated our Logistics Center, which

Express México manages a total of 42,543 tons in regular

required an investment of over US$20 million. Meanwhile, in

international cargo, which puts the company as a leader

2017 we celebrated the start of operations in our new service

station in Morelia, Michoacan. We are constantly growing our

check their account or simply keep track of a shipment. The

points of shipment network and we currently have over 1,300

company also implemented its Electronic Trade Solutions

points throughout the country.

service in key Latin American markets including Mexico to help clients transfer all necessary documents for customs

Q: What advantages can FedEx Express offer to the Mexican

operations from Mexico to over 80 other countries.

market, considering it is the biggest cargo airline in terms of tonnage?

Q: What strategies has FedEx implemented to increase its

A: We have a complete service portfolio in Mexico that

participation in the Mexican market?

combines national and international services as a logistics

A: Alliances and acquisitions like the one of Multipack have

operator. We have over 6,000 employees throughout the

been fundamental in the development of FedEx’s presence

country, operating in 84 service stations, a national hub, our

in Mexico. We also have alliances with the Corporate Mexican

national Logistics Center, plus 44 regional centers and 1,300

Council for Foreign Trade, Investment and Technology

points of shipment. Our clients also enjoy the availability of

(COMCE), the National Entrepreneur Institute (INADEM) and

1,500 vehicles and 10 daily international flights departing

many state governments. We sign collaboration agreements

from Guadalajara, Toluca, Monterrey, Queretaro and Merida.

with these institutions to ensure the economic development

This infrastructure allows us to offer support, access,

of SMEs in states like Chiapas, Michoacan and Guanajuato

flexibility and coverage to our clients, along with the best

through preferential rates and personalized training. We have

transit, collection and delivery times.

analyzed the Mexican market for 27 years with the goal of identifying the country’s main needs and logistics challenges.

Q: What led you to open a new service station in Morelia?

This has helped us strengthen our value proposition and

A: We want to support the growth and development of large

adapt our pricing strategy in favor of our clients and their

companies and SMEs across the country. For this reason, we

own growth plans.

invest in infrastructure that helps us to be closer to our clients so they can have access to our entire solutions portfolio. The new station in Morelia will improve our transit times in shipments to Michoacan and it will allow us to handle 50 percent more cargo volume in an efficient way. Q: What technological innovations has FedEx implemented

FedEx Express México manages a total of 42,543 tons in regular international cargo

to improve its logistics practices? A: Data availability is one of the pillars for efficient logistics operations. FedEx connects its clients with the company’s

We want to have our clients as our main priority and that is

inner systems so they can have access to information related

why we recently created our Customer Experience division,

to their shipments, estimated times of arrival and merchandise

currently in charge of analyzing, evaluating and caring for

descriptions including weight and volume. Integration with

each and every one of our interactions with our clients. We

our clients helps us plan weight and balance in our aircraft,

are already reaping the benefits of this new venture and we

prepare for customs paperwork and speed up delivery times

expect to grow our market participation with more of these

in international shipments. Tracking is fundamental in our

initiatives.

operation, from the moment the package is collected to its final delivery. FedEx was a pioneer in shipment tracking in

Q: What are FedEx’s growth expectations for the Mexican

the 90s. Since then, clients have been able to know the exact

market in 2018?

location of their shipment through a private data network

A: Our main objective for 2018 is to keep growing hand in

interconnected to each one of our cargo operators.

hand with our clients. Our latest investments will help us have a stronger presence in the market and even though there are

Nowadays, FedEx’s website is a complete platform of logistics

definite areas of opportunity for the logistics sector to develop

solutions that helps clients create, monitor, control and manage

in Mexico, our operative strategy coupled with a strong and

shipments. It includes an online database called Global Trade

competitive portfolio will open the doors to a prosperous

Manager with paperwork and documentation necessary to

future for FedEx and its clients.

export and import cargo to and from 58 countries. Moreover, we implemented a virtual assistant service in 2016 to offer an enhanced experience to all our customers. This feature

FedEx Express provides logistics and transportation services

uses machine learning processes to guide clients through

in more than 220 countries and territories through 375 airports.

the website and help them find the right tool or piece of

The company says it is connected to more than 99 percent of

information to make their international logistics process easier,

the global GDP

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VIEW FROM THE TOP

NEW ADMINISTRATION AND A STRONG DEVELOPMENT PLAN LUIS ALVARADO Director General of AeroUnion

212

Q: What strategies are you implementing as the new

become more profitable. However, we have seen that there

Director General of AeroUnion?

are some areas we need to strengthen, or in some cases

A: I was appointed General Director in May 2017. The

develop, for our strategy to be sustainable in 2018. The

company needed a short-term strategy with operational

company had a good balance before the growth strategy

continuity as one of the main goals. AeroUnion’s human

kicked in. Now that we have seen its potential, we must

capital, low cost and high-profit business model and the

regain or redefine our new operational balance to ensure

needs of our customers served as pillars as we designed

sustainability.

the management transition strategy. The pillars for sustainable growth include areas like safety, In December 2016, the company had acquired two

security, quality, technology and people. I would like to

additional A300-600 aircraft. With more airplanes on

have a special focus on technology. In the past, AeroUnion

hand we developed a commercial strategy that required

overcame a lack of technology by providing specially

increasing our operations from 2016 by approximately

personalized services to our customers. As we grow, we

20 percent. The market’s response has been outstanding

need to find ways in which technology can help us to do

and our numbers have seen similar growth in revenue. We

more with the same, without losing our special touch with

expect to end 2017 with the best results AeroUnion has ever

customers.

seen and have a positive outlook for 2018. Q: What are your plans regarding fleet management and Q: How is the company working to meet sustainable

aircraft acquisition?

growth objectives?

A: We are looking at that. We have three Airbus A300-

A: We are transitioning from a family-owned business model

200s, two A300-600s and two B767-200s. Having three

to a corporate business model. My intention is to maintain

different types of aircraft entails certain challenges

AeroUnion’s core as a low-cost cargo carrier with high

regarding maintenance and administration, including the

profitability and to strengthen our presence in our current

crew necessary to man the plane. Our goal is to simplify

local markets while we look to increase our fleet utilization.

our operations and reduce the diversity of our fleet. The time frame for this will depend on the availability of new

We will focus on strengthening our presence where we

aircraft in the market and the investment we are willing

currently operate. We will continue our strategy to increase

to make in the short and medium terms. Having two

our number of operations in those markets with the quality

different aircrafts is surely sustainable but three is no

service we are known for. We will also look at other risk-

longer feasible.

controlled objectives when exploring new markets. Q: How do you expect time-slot management to improve Q: What are AeroUnion’s priorities in terms of investment

with the inauguration of NAICM?

in its new sustainable growth plan?

A: Managing time slots in the Mexico City International

A: AeroUnion’s potential has been proven these past

Airport is very complex. Each day, the airport receives

few months. We have increased our operations and have

national and international flights carrying both passengers and cargo, and for cargo airlines it is difficult to compete for time slots when passengers are waiting to disembark.

AeroUnion is a Mexican cargo airline founded in 1999 with

AICM authorities are doing a good job in managing slots

its main base in the Mexico City International Airport. The US

but capacity is simply not enough. We have experienced

government also granted the company permission to operate

difficulties while trying to grow our operations and it is one

as a cargo airline between 2000 and 2001

of the main areas of opportunity for the Mexico City airport.

With NAICM, there will be considerable development

A: AeroUnion offers an excellent connection point with

opportunities and the country should bet on a long-term

Asian airlines through Los Angeles and Chicago, and we

strategy to grow its aviation industry. In terms of cargo, the

have inter-airline relationships with many players and

government must work together with the private sector

general sales agents in several countries. For the moment,

to ensure the project is a success from its design to its

our strategy will be oriented toward being a strong

implementation. It is my personal opinion that there are still

connection point for Asian airlines that want to target

opportunities to develop Mexican airport infrastructure to

the Mexican market from the US. We will not fly to Asia

the standards of aviation hubs around the world.

directly but we want to offer a very competitive product to Asia via Los Angeles with our inter-airline partners.

Q: How will the NAFTA renegotiation impact your MexicoUS operations?

Q: What new relationships is AeroUnion establishing with

A: NAFTA is without a doubt one of the most important

national and international companies?

free-trade agreements in the world. An update is certainly

A: We have reached an agreement with CargoLogicAir

in order but the conditions are tricky. The US president

that will allow us to target the European market, a

has openly stated that the agreement has not been

previously unexplored region for AeroUnion. Even though

favorable to the US and a negative outcome could have

these flights will be operated directly by CargoLogicAir,

implications on our operations, albeit not significant. We

this relationship will diversify our current operations.

are still confident that negotiations will lead to a better

That being said, we will always prioritize the flights we

trade relationship. Furthermore, thanks to the uncertainty

manage directly.

created by Presidentâ&#x20AC;&#x2122;s Trump remarks, many customers are now looking to diversify their business into nontraditional

We also have an alliance with Avianca, which has invested

destinations in Asia and other regions. Once a NAFTA

in AeroUnion. In a joint strategy since December 2016, we

compromise is reached, we expect customers to grow their

started flights to Miami and that has opened the Merida

operations between Mexico and the US while maintaining

market to us, creating opportunities to transport fish

a strong focus on other regions.

between these two cities. Having a plane in Miami also allows us to have charter operations to Central and South

Q: How is AeroUnion targeting the expanding opportunities

America and countries such as Costa Rica, Guatemala

in the Asian market?

and Colombia.

213

AIRCRAFT SPOTLIGHT

BOEING 777 According to Boeing, the cargo market is increasingly demanding larger airplanes, which will hold 65 percent of the market share as demand for cargo services continues to grow in the next 20 years. The company expects that by 2035, 3,010 freighters will be in service, which would represent an increase of 70 percent compared to the 1,770 registered in 2015. With a range of 15,843km in its 777-200LR version and 13,649km in the 777-300ER model, the Boeing 777 family has one of the longest ranges in the industry. Similarly, the 777 has the longest range in Boeingâ&#x20AC;&#x2122;s freighter family, which is why it is one of the most commonly used aircraft for cargo operations. Considering a Maximum Take Off Weight of 347,810kg and payload of 102 tons, the 777 Freighter can travel nonstop from New York to Buenos Aires, a distance of over 8,527km.

The Boeing 777 Freight has a total available cargo volume of 652.7m3 The 777 Freighter features a twin GE90-115BL configuration that delivers similar performance to aircraft with three and four engines, resulting in the lowest trip cost offered by any large freighter. The plane also features a structure of advanced alloys and composites that was 100-percent digitally designed to enhanced its aerodynamics. This results in a 16 percent reduction in carbon emissions and 16 percent more fuel efficiency when compared to the Boeing 747-400F. The 777 Freighter has a Maximum Zero Fuel Weight of 248,110kg, fuel capacity of 181,280L and cruise speed of Mach 0.84. Its total payload accounts for 102 tons with a total available cargo volume of 652.7m3 divided among a main deck of 518.2m3 with 22 pallets of 19.5m3, four of 17.8m3 and one of 17.4m3, a forward lower hold of 70.5m3 and an afterward lower hold of 47m3. The lower holds are divided in ten 11.8m3 pallets and bulk space of 17m3. The aircraft also includes a supernumerary area with four 122cm seats with footrests and power outlets, two overhead stowage units with a total of four bins with a capacity for eight rollaboard suitcases, a bathroom similar to the one on the 777 passenger jet, a changing room and a two-bed bunk area for the crew that is completely light and noise-isolated from the seating area.

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VIEW FROM THE TOP

TECHNOLOGY THE BEST INVESTMENT IN LOGISTICS ALEJANDRO RAYA Senior Director of Operations for the Engineering, Manufacturing, Energy and Aerospace sector at DHL Supply Chain MĂŠxico

216

Q: How is DHL innovating distribution processes and what

service and a guarantee regarding the efficiency of logistics

new technologies has it developed to improve logistics?

operations. Operative models in the logistics sector must

A: Mexico has great opportunities for growth as the country is

be flexible and scalable as they should combine standard

at the forefront of investment. It is in a strategic location and

processes, structures and functions throughout the supply

is a pillar for logistics in Latin America. We are continuously

chain. An efficient logistics model becomes a competitive

working to provide logistics solutions that improve the

advantage in such a complex industry.

supply chain in all industrial sectors. DHL has a permanent program for the development of new technologies and

In the case of Mexico, an emerging market, logistics has

innovations that permit the efficient use of the supply chain

become a catalyst that supports the fast and dynamic

in terms of security, resource optimization and aftersales.

growth of products and services from engineering and

This allows us to provide quality services and close attention

manufacturing.

to our clients. Q: DHL is an innovator in the use of robots and drones for Our innovation center in Bonn, Germany, keeps us at the

logistics, what are the benefits of these new technologies?

forefront of logistics and helps companies to achieve their

A: New technologies are impacting logistics practices in

objectives.

many sectors. With the use of new technological tools, we look for ways to optimize the use of resources and to

Q: How is the growth of online commerce influencing DHLâ&#x20AC;&#x2122;s

improve the integral services we offer. From our Innovation

growth and technological developments?

Center, we develop solutions for the logistics industry

A: After Brazil, Mexico is the second-largest market for

and analyze the potential of emerging technologies, such

e-commerce in Latin America. For that reason, we have

as the use of drones, augmented reality, 3D printing and

a division completely dedicated to this area called DHL

collaborative robots.

eCommerce. It focuses on speeding up logistics operations in developing markets and identifying new opportunities that

In 2016, DHL introduced a report on intelligence named

will allow companies to grow by basing their services on

Trend Radar, which proposes several solutions for the

flexibility and personalization. Companies should also focus

supply chain. The first is the use of augmented reality and

on vertical and multichannel integrations through a logistics

the Internet of Things, which are two of the trends that DHL

operator that can provide technological support and can

leads in terms of specific applications to support processes

grow alongside the needs of its clients and the market.

among the supply chain and packaging. The second is called Vision Picking, an augmented reality program that

Q: DHL has a specific solution for the aviation and aerospace

improves the process of order collection in warehouses

sector. What are its main advantages?

through the use of Vuzix M100 glasses and Google glasses.

A: The development of the supply chain for the aerospace

The incorporation of this technology has allowed us to

sector in Mexico is of the utmost. Clients of large,

improve productivity by 25 percent. The third is the use of

multinational aerospace companies require logistics

robots, such as EffiBOT, which are auxiliary tools within a

providers that can offer them a fast response, a solid

warehouse, and the use of autonomous vehicles to collect packages. The final solution is the use of third-generation drones, such as Parcelcopter 3.0, designed to facilitate the

DHL Supply Chain - is a branch of Deutsche Post DHL. It provides

delivery of packages in hard-to-access areas. Furthermore,

logistics solutions supporting the supply chain in an array of. DHL

in Mexico we have a Drone Surveillance Program that

Supply Chain designs logistics operations from initial consultancy

surveils the surroundings of our warehouses from the

services to last-mile delivery and reverse logistics

outside and supports inventory control inside.

VIEW FROM THE TOP

DIGITALIZATION AT HEART OF EVOLUTION VITOR BOCCI Vice President of Airfreight at Kuehne+Nagel

Q: What areas is Kuehne+Nagel prioritizing as it looks to

as perishables, pharma, automotive and aerospace. We

the future and how will these impact customers?

expected to transport 52,000 tons by 2020 but our most

A: Kuehne+Nagel has over 125 years of history and while

recent data shows we can expect to reach this milestone

we are proud of our past, we are aware that we have to

by 2018.

evolve to continue growing. Therefore, the hottest topic for Kuehne+Nagel is digitalization. We are creating partnerships

Q: What were the main drivers of Mexico’s accelerated

to develop solutions for digital applications, visibility and

growth in comparison to global trends?

quotations, which will make our processes much faster.

A: Perishables are the main drivers for growth in air freight-

Customers can get a quote and make a booking in less than

related exports. Last year, Mexico experienced a boom

three minutes on our web solution, called KNFreightNet.

in avocado exports, which greatly helped the air freight

Air freight is always urgent, but there are varying levels

market. Another area that is supporting cargo exports is the

of urgency so we can use KN Express, KN Expert and KN

growing Mexican manufacturing sector, mainly automotive.

Extend to estimate arrival times and provide the speed of

Kuehne+Nagel is especially interested in supporting

service that suits clients’ needs.

manufacturing companies in the aerospace industry, which requires a specialized service. Aerospace components

Q: How important are Kuehne+Nagel’s Mexico operations

cannot just be placed in an airplane for transport. They

to its global position?

require specific processes for packaging plus land and air

A: Kuehne+Nagel’s Mexican offices turn 50 years old in

transportation. Furthermore, the process is different for

2017. Mexico is among our Top 10 countries for year-on-year

each individual aircraft part to be shipped. To support the

growth. We see encouraging trends in the country even

sector, we introduced the product Supply the Sky, which

after considering the macroeconomic situation. We grew by

comprises a series of services for the entire supply chain

11.5 percent in the Mexican airfreight export market in 2016

including KN Engine Chain.

and now we hold 9.5 percent share for Mexican exports. This market is extremely competitive. Unlike other countries

Q: What are Kuehne+Nagel’s expectations for the Mexican

where one company monopolizes the market, the top three

market considering the economic and political climate?

logistic companies in Mexico have a similar market share.

A: In the first quarter of 2017, the Mexican export market slowed in comparison to the same period in 2016.

Globally, air freight expanded by 1 or 2 percent in 2016 but

Today, market expectations are positive and we expect

Mexico grew by almost 14 percent, according to IATA. Last

Kuehne+Nagel to grow at least 7 percent in 2017. We

year, we moved over 40,000 tons of imports and exports

expect that the Mexican market will grow at a faster pace

in the country. Of this total, aerospace represented a

than the global average. The country’s aerospace sector

single-digit share. While this may seem like a small figure,

exported US$7.5 billion in 2016 and the sector expects

it is representative of the industry’s year-on-year growth

to export US$12 billion by 2020. Kuehne+Nagel still has

and demand for specialized solutions. The aerospace

room for growth in the local aerospace industry and we

manufacturing industry is one of Kuehne+Nagel’s key focus

expect to grow our export tonnage in aerospace by 40

areas not only in Mexico but around the world.

percent in 2017.

Q: What growth strategy is Kuehne+Nagel implementing in the country?

Kuehne+Nagel is one of the largest logistics companies

A: Our strategy, called Mexico 2020, is to provide industry

in the world and the largest in air freight in Mexico. The

solutions to all market sectors but especially focused

company is over 125 years old and celebrated 50 years in

on industries that demand specialized solutions, such

Mexico in 2017

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VIEW FROM THE TOP

SINGLE PLATFORM ENSURES CLEAR SHIPPING STRATEGY EDUARDO ALBA District Manager of Expeditors

Q: How much of an impact does the Mexican aerospace

consuming cargo changes. Old infrastructure, such as the

market have on Expeditors’ worldwide operations?

Mexico City airport with its limited customs holding areas,

A: After 21 years in Mexico these operations have become

also make it more difficult for companies that manage

the fastest growing of all Expeditors’ facilities around the

airfreight.

world. The airfreight market is growing in Mexico, especially 218

compared to the rest of Latin America. Expeditors’

Q: What are the main competitive advantages you offer

market share is below 5 percent, so there are enormous

to clients?

opportunities for us to grow in this segment.

A: Our main advantage is the organic growth of our systems and staff. The fact that we have not sold, bought,

Our market penetration in Mexico is similar to our share

or merged with other companies has allowed us to have

in the rest of the world. Expeditors’ relationships with

a single platform. This also ensures a clear strategy for

aerospace companies in the US are more established than

human resources. We hire mainly from Mexican schools and

those in Mexico. We are only beginning to make waves

almost never from the competition. The company offers

in the aerospace industry. Being a service integrator and

an internship program, in-house training that motivates

wanting to provide flexible and varied services to our

our employees, and a very low turnover rate. Our staffing

customers, we developed strong partnerships with a wide

strategy creates stability within the company, which is as

variety of companies. We have excellent relationships with

important as client retention for a company to prosper.

airlines, trucking companies and warehouses. Q: What solutions have you created for other manufacturing Q: How do you capitalize on your global network?

industries?

A: We have a number of different solutions for all industries,

A: Although airfreight is our strongest sector, we consider

but our core solutions include our single platform and

ourselves to be logistics integrators. The more our business

business solutions department. We have a single system for

solutions department can integrate different areas for the

all the different branches. When customers do business with

customers, the stronger our solutions will be. We manage

us, they work with one single system no matter where they

a lot of airfreight for the automotive industry, and we have

are in the world. The platform is electronically integrated,

new technological tools to help with reliable tracking.

which allows us to have a wide variety of different measurement tools for customers. The single platform is

The shipping methods that clients prefer depend on

reliable and provides real-time information for tracking from

their budgets and the industry’s needs. The contract

all branches with access.

manufacturing industry produces high-value products with short shelf lives, while the healthcare industry moves

Q: What are the main challenges you face in Mexican

expensive products that often require temperature control.

industry?

Automotive has production constraints so companies need

A: Infrastructure problems are the main challenge, especially

to move products quickly. All these industries need a fast

for airfreight. The limitation of direct international flights

airfreight service.

from most Mexican cities results in expensive and timeQ: What are your expectations for the rest of the year? A: We have very high expectations. Our own growth in the Expeditors offers end-to-end logistics solutions. Its 16,000

past five to six years has been rapid, and there are still

long-term industry experts support a comprehensive suite of

industries and markets we intend to penetrate. We expect

global services, managing and tracking logistics activities at a

2017 to be a big year for Expeditors in Queretaro and we

part or vehicle identification number (VIN) level

hope to gain more business in the Bajio region.

VIEW FROM THE TOP

THE SECRET TO SUCCESS? A BOEING 747 ERIK MEADE Country Managing Director Mexico of Panalpina

Q: What role does Mexico play in Panalpina’s global

player can provide. When airports are saturated, we still

strategy?

offer the possibility of moving that 30 percent.

A: Mexico is a main market for Panalpina in the Americas, even ahead of Canada and Brazil. Our local operation is one

Q: What other benefits does having the Boeing 747-8

of the biggest in the company’s international network and

provide?

Mexico is ranked among the top 10 countries in terms of

A: Companies may experience several incidents during the

importance. In the local market, IATA in Mexico positions

manufacturing process and this plane allows us to address

us as the second most important company and when we

our clients’ emergencies so they can avoid any production

add our charter operations, we come up as the biggest

stops. With this aircraft, we do not have to depend on other

forwarder in terms of air freight volume in the country. We

airlines nor do we have to compete with other forwarders for

are banking on development within the aftermarket but

cargo space. Our Boeing 747-8 has been attractive for both

the Tier 1 and Tier 2 segments offer the biggest growth

imports and exports. Our clients enjoy the flexibility we offer.

opportunities for Panalpina. Q: Aside from its added value in air freight, what can Q: What advantages can Panalpina offer over other

Panalpina offer to clients?

international players in the logistics sector?

A: On top of our air freight and charter services, we also

A: Panalpina offers a service that no other logistics

offer buyer's consolidation services and maritime logistics.

company can provide in the Mexican market. We control

Our buyer's consolidation service is for companies that have

a Boeing 747-8 that travels twice a week to Mexico City

a supplier network distributed across Europe and Asia. We

after departing from Stansted, UK and passing through

manage shipments from different countries and consolidate

Luxembourg and Huntsville, Alabama. The plane has 140

them into one big shipment to avoid extra costs for the

tons of cargo capacity, is environmentally friendly and

client. Panalpina also offers consolidated logistics services

can be configured to accommodate our clients’ space and

including warehousing, distribution, packing, order picking

volume needs.

and an overall end-to-end logistics chain.

With a layover in Huntsville, we are the only company

Q: What areas of opportunity do you see in Mexico’s logistics

that can target the entire US Midwest. Panalpina chose to

infrastructure?

control this route and use secondary airports to offer its

A: A future advantage we see is the availability of a new and

clients more flexibility, instead of larger cities with saturated

larger airport in Mexico City. Saturation at the current airport

airports. This flight is part of the Panalpina Charter Network,

is a serious problem for us because the airport prioritizes

which offers an efficient cargo solution controlled by our

passengers over cargo. The government should incentivize the

customers’ needs at similar prices to what other carriers

construction of more airports throughout the country, mostly

might offer.

because the issue directly relates to Mexico’s competitiveness. The Bajio region is growing but some locations would benefit

We have the added advantage of acting as both a forwarder

greatly from better air connectivity. This could boost supply

and carrier. Managing our own plane allows us to compete

chain development and minimize added logistics costs.

with airlines and carriers, while our remaining services match those of international logistics players. We manage 70 percent of our operational capacity as forwarders and

Panalpina offers logistic solutions specializing in intercontinental

we negotiate with the same airlines in the same way as

air and sea freight. The Panalpina Group operates a global

other forwarders in the market. But we can offer our clients

network with some 500 offices in more than 70 countries and it

an additional 30 percent cargo capacity that no other

works with partner companies in over 90 countries

219

INSIGHT

GREAT EXPECTATIONS FOR AIR-PHARMA CERTIFICATIONS AUGUSTO ITURRALDE Mexico and Central America Director of Amerijet International

220

After a period of stagnation, the air cargo sector is poised

When enumerating the key challenges to tackle in the

to grow thanks to a strong global economy that is boosting

global and Latin American cargo sectors, Iturralde identifies

international trade, according to Augusto Iturralde, Director

disruptive technologies in the form of drone deliveries and

of Mexico and Central America at Amerijet International

3D printing that cuts the need to ship goods as the main

Airlines. The cargo airline wants to take advantage of this

issues. To counter these, “Amerijet Airlines exceeds its

positive trend by improving its services for pharmaceutical

costumers’ expectations based on a high-quality service,”

deliveries.

he says. On the growth of e-commerce and the ensuing need to improve service levels and increase capacity to keep

“The increasing demand in the pharmaceutical and other

up with demand, Iturralde points out that manufacturers

sectors has enabled us to focus our efforts on offering

and retailers increasingly seek to reach their consumers as

a better service in this industry,” says Iturralde. “Hence

quickly and cost-effectively as possible. He underlines how

our concentration in getting the IATA CEIV Pharma

global supply chains now must provide end-to-end track

certification.” According to IATA, this certification is aimed

and trace options and ensure reliable delivery times and

at reducing product losses due to temperature deviations

smooth cross-border operations. “Amerijet International is

during air transportation operations. Being the first all-

now running personal shipments and other products that

cargo airline in the US to obtain this certification, Amerijet

meet some needs of the e-commerce industry, but these

expects to further penetrate the pharmaceutical markets

kinds of services are limited because of customs regulations

in the countries where it is already present.

in some countries we operate.”

IATA says that high-value cargo, such as pharmaceuticals,

New trends are reshaping the logistics market as trade

represented US$12 billion in 2016, a number that is expected

increases and e-commerce becomes more popular. Iturralde

to increase to US$16.7 billion by 2020. To guarantee its

says competition with new players and other transportation

share of the lucrative market, Amerijet International

is a key phenomenon to watch as freight forwarders offer

has recognized the need to update its processes and

more air-sea, air-road or air-rail products to ensure flexibility

infrastructure in Mexico. Still, the company is outperforming

in price and shipment time.

itself in terms of sales in comparison to 2015. “Globally speaking, we grew 1 percent more in 2016 than in 2015.”

Amerijet International supports the development of the manufacturing sector in Mexico by being flexible. “We are

Amerijet International specializes in the transportation of

in the position to adapt our itineraries to our customers’

hazardous materials, oversize cargo transportation, live

needs and have even changed aircraft to handle urgent

animals and products for the oil, aerospace and automotive

operations,” says Iturralde. He says Amerijet International

industry. The airlines’ main routes are to Central and South

noticed an economic upturn between July and November

America and the Caribbean. Between 2016 and 2017, the

that was boosted by Hanjin’s bankruptcy, but a positive

company’s regularly transported freight grew from 9,396 to

global trade and advantageous economic environment have

9,431 tons. And in 2016, the company accumulated a total

played a key role in promoting this development.”

2,844 flight hours in Mexico, according to DGAC. Amerijet International employs 750 workers in Mexico, has a fleet of

Going forward, the company wants to develop new

six aircraft and has 90 inter-airline contracts, according to

routes out of Mexico to airports in Queretaro, El Bajio

CANAERO. In Mexico, this airline operates out of AICM, Merida

and Monterrey. It also wants to strengthen its presence in

International Airport and Cancun International Airport and

Guadalajara, El Bajio and Campeche, says Iturralde. Amerijet

has offices in Guadalajara International Airport, Queretaro

International is also updating its fleet by changing two

Intercontinental Airport and Monterrey International Airport.

Boeing 767-200s for a couple of Boeing 767-300s.

VIEW FROM THE TOP

DIVERSIFICATION KEEPS YOUNG COMPANY ON GROWTH PATH DIEGO MARTÍNEZ Commercial Director of Dylo

Q: What are Dylo’s competitive advantages in the logistics

Q: What are your expectations for the rest of the year?

market?

A: From December 2017, we will develop other initiatives

A: Dylo is still a young company in its third year of

to make us more competitive, starting with our own

operations, in which we grew 120 percent in revenue.

Food Grade Isotank fleet focused on the juice industry

We expect the same growth in 2017 after having

in Mexico. We are also opening new offices in many points

diversified. Dylo is the exclusive Mexican representative

of the country, including Queretaro and Tijuana, at the

of the Aerospace Logistics Group (ALG), which groups

end of 2017.

companies specially created to provide logistics solutions to the aerospace and aviation industry. This global network

In 2017, we expect to double our growth over 2016’s figures

has great experience and a broad service platform for

and 2018 will bring about more challenges as new offices

companies that require expedited services in their day to

open. We are launching the Cherry Project in 2017 that will

day operation.

focus on creating unique experiences for every individual client. We expect the project will help develop a strong

Q: Which products and industries most require air freight

committed relationship with our customers.

from Dylo? A: The aerospace, pharma and perishables industries regularly require air freight. We approximately 2 million

Dylo , is a 3-year-old, Mexican logistics company that provides

kilos of perishables every six months. Because of this we

specific solutions for the aerospace, automotive, oil and gas,

have exclusive allocation programs with airlines to ensure

chemicals and perishables industries, among others. The

capacity and lead time.

company is the only Mexican member of ALG

Warehouse / DHL

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VIEW FROM THE TOP

CLIENT PROXIMITY HELPS CREATE GROWTH

Piotr Zaleski President and CEO of Hellmann Mexico

222

Honorio Rodríguez Automotive Logistics Manager of Hellmann Mexico

Q: What drove Hellmann’s growth in 2016?

these services crucial for clients to remain competitive.

PZ: Depending on our line of business, we are growing

We are analyzing how our clients’ distribution centers

between 10 and 15 percent year-on-year, which is above

are spread across the country and based on that, we are

the logistics industry’s average of approximately 5 percent.

creating the best solutions for the company together with

Service has been a priority for Hellmann and has been the

the heads of our sea and air transportation departments

cornerstone of our growth. Unlike other companies that

and Honorio Rodríguez. This helps us minimize waste

focus on building their commercial presence first, we

in the supply chain, which is where we see the biggest

seek to be as close to our clients as possible so we open

opportunity in the Mexican network.

offices wherever we are needed. We prefer to not offer our services when we know we cannot comply with clients’

Q: What do you see as the main obstacles for Mexico to

requirements and we have found they value this honesty.

grow as a logistics hub?

There is nothing worse than failing a project and having a

PZ: Road and rail infrastructure are reaching their peak.

negative reputation preceding you.

Meanwhile, sea and air transport providers are not normally aligned to the needs of the market, causing situations of

Our staff is also a huge part of our success. Our talent

over or under-capacity that have to be addressed. Ports

turnover per year is less than 1 percent, which gives

and customs offices are also critical factors that cannot be

clients confidence in how things are run at our company.

overlooked. Mexican ports are among the most expensive

Companies always deal with the same person and they are

in the world. All customs offices have different points of

certain their cases see continuity. At Hellmann, we always

view and bureaucracy is increasing costs radically. The only

try to develop our own talent first, before hiring someone

way for Mexico to compete with other logistics hubs is to

new to fill a high-level position.

integrate customs agencies into the supply chain.

Q: What are Hellmann’s plans to offer added value to

Investment in logistics infrastructure and human capital

clients?

development is vital for Mexico’s growth. Talent will be

HR: In Mexico, 40 percent of our operations are managed

Mexico’s tool to compete with more advanced economies

through sea freight, 40 percent with air freight and the

and companies can contribute by helping young people

remaining 20 percent is divided between road freight and

reach their full potential.

intermodal services. We have enough in road, rail, sea and air transportation and we also offer sequencing and

Q: How have Hellmann’s operations in Mexico impacted

distribution solutions. Now, we are trying to bring all that

your client-attraction strategies?

knowledge to Mexico and work directly with several OEMs

HR: We are selective with our clients because we think we

in the country.

can offer a better service if we remain specialized. Many of our existing contracts have been sealed thanks to referrals

PZ: Having developed our sea and air freight services, it is

from our existing network.

time to bring our warehousing and distribution operations to Mexico. Challenges regarding local infrastructure make

PZ: As a family company, we are flexible enough to transform our operations locally and globally. We react quickly, which has proven to be a clear advantage. But not

Hellmann Worldwide Logistics is a family company based in

all companies match Hellmann’s philosophy and just as we

Germany, which provides air, road and sea freight, contract

choose our providers, we choose which companies we can

logistics and customs brokerage services and specialized

cater to. The only way to have a healthy client portfolio is to

sollutions for many sectors

have a mixture of big, medium and small clients. Moreover,

clients that move one container per month are just as

added costs for clients. This has forced us to limit this

important as those moving 100 containers in that same

solution to the export market. With Sky Angel, however,

period. Rather than just numbers, clients are faces that we

we have had more success in national freight. The biggest

recognize each day.

security risks are in the last stretch of the cargo’s journey. We presented this product in 2017 and are gradually

Q: How is Hellmann innovating in technology?

overcoming the fact that prevention culture is not that

HR: Our real-time, end-to-end cargo monitoring system for

common in Mexico.

sea, air and road transportation, Hellmann Smart Visibility, is gaining ground in the market thanks to its security

Q: How do you see developments in the relationship

advantages. We have also created a variation on this

between Mexico and the US impacting logistics operations?

platform called Sky Angel, which connects cargo directly

HR: Due to our German origins, our biggest market

with the police force. The original platform allowed clients

opportunity is in logistics operations from Europe, Asia and

to know where the cargo was and how the operator was

South America. But what we have seen from the US-Mexico

performing. This new version sends an alert to authorities,

relationship was more fear and uncertainty than an actual

shortening the time of response in case of any eventuality

negative impact to general operations. Companies also

and increasing the recovery rate of stolen containers.

have many markets to develop other than the US. Although the US remains one of Mexico’s biggest clients, companies

The original Smart Visibility add-on is a growing technology

are taking advantage of Mexico’s other trade relationships.

advantage and we keep working to improve it. Customs

The only clients that remain more cautious are those that

cannot release the system as part of the cargo, representing

supply predominantly to OEMs in the US.

VIEW FROM THE TOP

CUSTOMIZED SOLUTIONS FOR MEXICO’S LOGISTICS CHALLENGES JOSÉ ERIC DELGADO Director General of Sicamsa

Q: How is Sicamsa dealing with the challenges of

not only offer services within Mexico but if a client needs

conducting logistics operations for the pharma and health

to move a product to Canada or Brazil, we can do it.

industries in Mexico? A: The main problem is the lack of logistics regulations

Q: Given the range of services, to what extent do you

for the transportation of laboratory samples and other

incorporate client requests into your offering?

types of materials. Shippers are often unaware of the

A: Due to our dedication to providing 24-hour delivery

logistical complexities involved and delivery companies

schedules, we must provide a custom-made operation for

can be blamed for various problems. We are facing these

each client. This means that if one of our clients cancels

problems through internal rules and by training our staff.

the order, we cannot charge the other more or decide not

The samples we transport can be essential to a patient’s

to go to this location at this time, as many other logistics

health so our mission is to deliver them in the right way

companies that operate with consolidated purchases must

and as quickly as possible.

do. We adapt our infrastructure to client needs but we need a commitment in return because a fleet of reserve vehicles

Q: How do you cover the whole country and reach your

can become expensive.

clients in 24 hours with so many logistical obstacles? A: We have contingency plans prepared for every situation. We also have a hangar in Nuevo Laredo with four jets and

Sicamsa is a Mexican logistics company focused on the

two pistol-engine planes, one of which is a cargo plane, and

pharmaceutical sector. The group is made up of three

we are introducing a seven-ton aircraft for a new project in

companies in charge of transport, logistics and storage of

which we guarantee our clients zero loss of products. We

medical devices, drugs and biological material

223

Bombardier C Series

COMMERCIAL AIRLINES

Aviation is a strong contributor to the global economy, facilitating trade across cities, countries and continents and boosting market access. Global air travel has grown an average of 5 percent annually since 1980. Mexicoâ&#x20AC;&#x2122;s aviation industry is developing at an accelerated pace. In 2016, Mexican domestic aviation rose 15.6 percent due to a stable economy that has kept purchasing power stable. The sector is expected to continue expanding, led mainly by low-cost carriers (LLC) that are forcing the market to reshape and specialize. LLCs are making aviation more affordable for a greater number of Mexicans. Furthermore, the introduction of BASA is expected to provide opportunities to Mexican airlines to expand their operations into the US and vice versa.

Focusing exclusively on commercial airlines, this chapter will compile and analyze trends and opportunities within the Mexican aviation market. This section will explore emerging passenger and technology trends, and the efforts of many players to enhance and support air connectivity.

225

CHAPTER 10: COMMERCIAL AIRLINES 228

ANALYSIS: No Limit in Sight as Airline Industry Soars

230

VIEW FROM THE TOP: Eduardo Iglesias, ALTA

232

VIEW FROM THE TOP: Rodrigo Vásquez, TAR Aerolíneas 227

234

INFOGRAPHIC: Commercial Aviation

236

VIEW FROM THE TOP: Rolf Meyer, United Airlines

238

VIEW FROM THE TOP: Dirk van Nieuwkerk, Lufthansa

240

VIEW FROM THE TOP: Miguel Cardona, Avianca

242

VIEW FROM THE TOP: Vincent Etchebehere, Air France-KLM

244

VIEW FROM THE TOP: Mauro Arredondo, Copa Airlines

245

VIEW FROM THE TOP: Hector Iriarte, LATAM Airlines Group

246

INSIGHT: Jorge Badía, Magnicharters

247

VIEW FROM THE TOP: Miguel Lei, SITA

Uriel Torres, SITA

248

INSIGHT: Rafael Briendl, KAYAK

249

INSIGHT: Octavio Hernández, Discover the World

250

INSIGHT: Carlos Olvera, QAEC

ANALYSIS

NO LIMIT IN SIGHT AS AIRLINE INDUSTRY SOARS A significant percent of the world’s economy relies on aviation — 3.5 percent to be exact, according to IATA. The sector supports 63 million livelihoods worldwide. Globally, it has grown continuously since the 2009 financial crisis and shows no signs of stopping Just in 2016, almost 3.7 billion passengers took to the skies, a

Among the main market drivers at a global level are low-cost

6.7 percent increase over the previous year. The importance

carriers (LLC). ICAO explains that LLCs have played a major

of aviation in today’s world cannot be understated. “Aviation

role in the expansion of aviation over the past quarter century

brings people together, transports vital medicines to patients

and the organization expects these players to continue having

in need and facilitates the exchange of experiences and ideas,”

an influential role going forward. LCCs have achieved success

says Alexandre de Juniac, Director General and CEO of IATA.

by identifying what prospective passengers are willing to pay for and developing different payment methods based on

228

The industry’s growth is such that companies must find ways

that. These carriers also greatly save on costs by maximizing

to accommodate the increase in passengers and transported

operational efficiency, usually by utilizing a single type of

goods. “Every day, 9.8 million passengers take 104,000

aircraft, which simplifies maintenance as well as pilot and

flights around the world, while goods valuing US$18.6 billion

flight attendant training.

are carried globally in air cargo. This volume of activity is projected to double over the next 20 years and the increasing

The sector is also evolving thanks to the introduction of

demand for flights has pushed companies to their limits, with

new technologies demanded by the passengers themselves.

many now struggling to supply seats and cargo space,” says

“Passengers are expecting similar levels of connectivity while

Melvin Cintron, Regional Director of ICAO.

on an airplane as in their homes,” says Antonio Quintanilla, President and Director General of Thales Mexico. Passengers

IATA says the aviation sector reported revenues of US$705

can now control an increasing number of details from their

billion for total net profits of US$34.8 billion in 2016. The

cellphones, from check-in to baggage tracking. “We expect

association also reported that revenue passenger miles (RPM)

technology to facilitate further improvements for passengers

grew by 6.3 percent in comparison to 2015, and passenger

and to usher in changes at airports as well that could speed

load factor reached 80.5 percent.

up security processes and allow boarding with automated access gates,” says Gutierrez. Although the sector is growing,

“Airlines have made major efforts to make flying more

not all regions are doing so at the same rate. IATA reports

affordable. Thus, a much greater number of passengers are

that North American airlines earned about four times more

traveling today than 10 or 20 years ago. The average roundtrip

per passenger than Asia-Pacific and European airlines. Latin

ticket price has fallen 64 percent since 1996 and this has

American and Middle East carriers barely broke even, while

democratized air travel,” says Cuitláhuac Gutiérrez, Country

African carriers reported losses. However, Gutiérrez expects

Manager of IATA Mexico.

Latin America to keep flourishing. “In Latin America, air travel

TITLE GROWTH OF AVIATION IN MEXICO AND LATIN AMERICA (in operations) 18

15.6%

15.2% 14

11.5% 9.4%

11.2%

9.6% 6

10%

7.8% 6%

4.8%

2 -2 -6

-5.8% 2011

——Mexico

2012

2013

2014

2015

2016

——Latin America

Source: World Bank

WTI Fuente: Secretaria de economia

BRENT

MME

is accessible for more people than ever and this is one of

“The sector has an enormous opportunity for growth and

the reasons why we expect the number of passengers in the

consolidation,” says Gutiérrez, who mentions that the biggest

region to double between 2015 and 2035,” he says.

threats hovering over the market are over-onerous taxation, high operating costs and the lack of a stable regulatory

MEXICO FLYING HIGH

framework. “Air transport needs smart regulation, efficient

Mexico appears to be in an even better position than the rest

operations and technology and, most importantly, the

of Latin America. According to the World Bank, the number

adoption of best international practices to maximize the

of flights in Mexico is expanding at a much faster clip than

benefits of the sector,” he adds. “The biggest challenge airlines

elsewhere in the region. In 2016, Mexican domestic aviation

face in Mexico is the country’s aviation policies. Legislation

grew 15.6 percent due to a stable economy that underpinned

mandating free checked bags, nonsequential coupon use

the purchasing power of Mexican citizens. In the previous year,

and free ticket cancellations up to 24 hours before the flight

Mexican domestic aviation similarly grew 15.2 percent. In that

prevent the airlines from maintaining competitive prices or

year, domestic aviation in Latin America increased just 4.8

even being able to service some routes.”

percent.

OUTSIDE INFLUENCES “In Mexico, the aviation industry contributes positively to

Not all challenges are internal, however. The depreciation of

the national economy, generating more than 1 million direct

the peso against the dollar damages the competitiveness of

and indirect jobs and contributes 2.9 percent to the national

the Mexican aviation industry against other countries. These

GDP. This represents more than US$35 billion annually and

issues make it more difficult for airlines to reduce costs and

reflects the importance of aviation for Mexico,” says Gutierrez.

to invest in technologies that help them compete against

In 2016, 82.7 million passengers flew on commercial airlines,

other transportation means and foreign airlines that operate

10.7 percent more than in 2015, according to DGAC. National

under better regulatory conditions, explains Allard. Another

airlines saw passenger growth of 13.4 percent to reach 53.6

challenge is the cost of jet fuel. According to IATA, Latin

million passengers, while international carriers grew 6 percent

America pays the highest prices for jet fuel, Mexico chief

to reach 29.1 million passengers to and from Mexico.

among them. While the world average is US$1.408 per gallon, the region pays US$1.457. Yet, at AICM, airlines pay US$1.72

As they were globally, LCCs were also important players

per gallon. Prices in the country have risen due to a slowdown

locally. “Low-cost flights have grown exponentially, making it

in production at national oil giant PEMEX that has led to a

possible for many people to travel by plane and leading airlines

spike in imports, according to El Financiero. Now, Mexico

to make significant changes,” says Miguel Peláez, Director

imports 45.6 percent of its jet fuel. For a Mexican airline, jet

General of DGAC. According to DGAC, LCCs Viva Aerobus and

fuel represents an average of 29.1 percent of operational costs.

Volaris move almost 50 percent of Mexico’s passengers for local destinations. A short study by El Financiero indicates that

The accumulated challenges, however, are not enough to

these two airlines have the lowest ticket costs of all Mexican

diminish the positives that are bolstering Mexico’s aviation

airlines. “The domestic market has been consolidating for the

sector. “Mexican airlines are entering a new era through joint

past years as airlines identified and segmented their products

cooperation models,. We are likely to see additional strategic

according to the needs of passengers,” says Sergio Allard,

alliances that will drive potential consolidations or mergers in

President of CANAERO.

the future,” says Allard.

COMBINED MARKET SHARE OF LLCS VIVA AEROBUS AND VOLARIS TITLE 50

45.9 41.6

29.2

29.8

2011

2012

35.6

35.7

36.8

2013

2014

2015

21.4 20

15.7

16.2

2008

2009

2007

2010

2016

Source: El Financiero. (Data for January of every year)

WTI Fuente: Secretaria de economia

BRENT

MME

2017

229

VIEW FROM THE TOP

SAFETY IS THE NO. 1 PRIORITY EDUARDO IGLESIAS Former Executive Director of ALTA

230

Q: What is ALTA’s role in the development of aviation in Latin

Q: What measures has the Mexican government taken to

America?

encourage civil aviation and collaborate with ALTA?

A: While airlines compete for market share, there are topics

A: Mexico’s regulations are evolving. State policies to promote

which concern them all. ALTA is a platform for all Latin

the sector must go beyond six-year presidential periods.

American and Caribbean airlines to discuss these topics and

The country started by eliminating the visa requirement for

to share processes, including safety, maintenance, credit card

Colombians. This led Mexico-Colombia air traffic to increase

fraud, training and consumer regulations. We created a group

by over 40 percent. This move was later copied by the

that unites aircraft manufacturers, operators and regulators

Dominican Republic as it lost its competitive advantage.

to address safety issues periodically.

Good governmental policies increase air traffic, lower fares and stimulate economic growth.

One of the main priorities for our airlines is safety. Ten years ago, Latin America competed with Africa as one of the most

We are also working with Navigation Services for Mexican

unsafe regions for aviation. Following a concerted effort by

Airspace (SENEAM) to generate an appropriate air space

local airlines, Latin America is now one of the safest regions

management design that will satisfy existing and future

with zero fatal accidents by our airlines over several years.

demand. This is particularly challenging in light of the

The industry has grown and changed enormously, doubling

construction of a new airport in Mexico City, because its six

in passengers and aircraft. From having the oldest fleet in

runways will make it necessary to redesign Mexico City’s air

the world, Latin America now has one of the most modern.

space and that of neighboring cities.

This fleet renewal has also brought about maintenance process updates.

Q: What major aviation trends stand out in Latin America? A: Consolidation, low-cost carriers, partnerships, alliances

Q: How does ALTA promote the unification of regulations

and progress on the environmental front are all key trends

across Latin America?

in Latin American and Caribbean aviation. The consolidation

A: One of ALTA’s priorities is to generate a single set of

of major players, the arrival and growth of low-cost airlines

efficient regulations. We are incentivizing governments to

and the generation of international partnerships stood out in

analyze the entire region before making decisions and to

2016 and 2017. Aviation follows economies of scale. Airlines

consider ICAO’s recommendations. Sadly, many are making

have fixed costs per airplane so to optimize spending, we

decisions based on local needs and interests. This generates

must increase the number of hours our aircraft are flying

complexity and additional costs for operators.

and the number of passengers and cargo per flight. The region will continue to see strong passenger growth in the

MRO services require several operating permits from the

next decade that requires a significant influx of new ideas,

government where the workshop is based, the Federal

outside-the-box solutions and investments to accommodate

Aviation Administration (FAA), the European Aviation

these additional travelers.

Safety Agency (EASA) and the client airline’s home country. Service providers therefore spend a lot of time

Latin America needs to strengthen its MRO service offering.

generating and submitting paperwork. In an ideal scenario,

Mexicana MRO and the aerospace cluster in Queretaro in

these workshops would only need permits from a single

particular are strengthening Mexico’s capabilities for these

country to work legally for all airlines operating in Latin

services. Aeroman in El Salvador and Coopesa in Costa Rica

America. Large connection hubs, such as Singapore

are helping boost Latin American MRO growth. We have

and Dubai, have followed this principle of simplification

sufficient talent available for these service providers to

by generating clear policies for operations, crews and

expand significantly if we ensure proper training and support

consumers.

strategies. The training process of an aviation mechanic

can take several years but it opens doors to economic development and opportunities for all involved. Airshow / Dassault Aviation

Q: How is aviation contributing to economic development in Latin America? A: Aviation is a vital engine driving economic connectivity, growth and development in communities throughout the region. In many countries, 80 percent of tourists arrive by airplane but in Latin America, aviation was historically perceived as a luxury product. This is still true if evaluated in terms of taxes but aviation is the public transport system of the 21st century. It is the backbone of tourism and an essential tool for commerce. In 2015, the regionâ&#x20AC;&#x2122;s air transport industry generated 800,000 direct jobs and over 5 million indirect jobs. Without aviation, many communities would be unconnected, vaccines and medicines would not reach patients and governments would not have communication with part of their population. 231

Q: What challenges are Latin American airlines facing? A: The lack of harmonized regulations across the region is challenging. Latin America is home to approximately 600 million people and treating every country as an entirely separate market is costly and inefficient in such a globalized industry. The regionâ&#x20AC;&#x2122;s consumer regulations are extremely complicated, costly, inefficient and lag behind other areas of the world. There are over 45 different consumer regulations in our region while the European Union has a single regulation for roughly the same number of people. The aviation sector in Latin America began with small, often state-owned airlines. Many of these have merged into bigger conglomerates Unfortunately, these international companies are still operating under differing and outdated local regulations. Airlines also face high and excessive airport charges. Airlines have lowered average fares in the region by 3040 percent, and doubled or even tripled the number of domestic and international passengers. But airport taxes and fees continue to rise. We lower fares, incorporate new technologies, increase productivity, lower fuel consumption and lower costs, but taxes and fees are raised again. This is unsustainable and in some airports, passengers pay more in airport charges than for the flight itself. This is disproportionate when operating an airport is not as risky or complex as running an airline. The net effect is decreased competitiveness.

ALTA is an association originating in Colombia that addresses common airline needs across Latin America. It has 20 full members, which are Latin American Airlines, 11 associate members and 45 affiliate members

VIEW FROM THE TOP

CONNECTIVITY FOR THE BUSINESS TRAVELER RODRIGO VÁSQUEZ Director General of TAR Aerolíneas

Q: What are the main challenges for TAR Aerolíneas’

a month later, we flew our first international charter

growth and how is the company addressing them?

between San Diego and Queretaro.

A: In 2017, TAR Aerolíneas entered its fourth year of We are also looking for new market opportunities. We

all movements well in advance. Our goal is to double our

work alongside the Government of Queretaro to promote

fleet, which now comprises 10 aircraft, within the next five

the state and became an official sponsor of Queretaro’s

years. One of the challenges is finding pilots to fly these

Congress Center. This is an initiative from the state’s

new aircraft. Our pace of growth is limited by a lack of

government to attract business events and we are aiding

pilots. Pilots from many existing schools in the country

that effort.

receive a rudimentary education and lack practice in the type of cabins we use, called glass cockpits. Before flying

Q: How has regional connectivity grown in Mexico and

in one, a pilot must have at least 1,500 practice flight

how will TAR Aerolíneas stand out amid increasing

hours but graduates from pilot schools often have much

competition?

less. This makes it necessary for us to train them after

A: There is significant interest in Mexico for greater

we hire them.

regional connectivity — from us, other airlines and governments — that will lead to the development of

To solve this, we are developing a training center for

even more routes. We do not compete with national or

pilots and flight attendants in conjunction with UNAQ,

international airlines, we complement their services. For

called TAR Aerolíneas Training Center (CATA). In the first

instance, Queretaro allocates slots to Aeroméxico, Volaris,

half of 2017 we acquired DGAC’s certification to become a

Viva Aerobus, United Airlines and American Airlines, from

training center and we are now looking for more partners

many national and international destinations.

to train staff who could be integrated into TAR’s crew or other airlines. The common denominator for all partners

We complement these airlines by transporting their

will be the use of the Embraer ERJ 145. This training

passengers to locations within the Bajio region not

center will be ready by 2018. In partnership with UNAQ

covered by any other airline, which improves national

and the state government, we are also planning to bring

connectivity. Eighty percent of the passengers on these

flight simulators to Queretaro for training purposes.

routes are business travelers.

Q: How has TAR Aerolíneas’ strategy changed to reflect

BUDGET ADJUSTMENT PLAN (MX$ billion) TAR AEROLÍNEAS' PASSENGERS

routes to market needs. We now know with certainty the number of flights required for specific routes, allowing us to increase scheduling efficiency. For instance, we are now flying four times a day from Queretaro to Monterrey,

600 500 400 300

three times to Guadalajara and three to Toluca, among many other routes. This facilitates same-day return trips.

200 100

In 2017, we acquired international permits and specifically received FAA approval to fly to the US in April, creating an opening for us to adapt to demand in Mexico. Just

369,704

structure showed we could improve by aligning our

700

613,938

A: In 2016, a comprehensive analysis of our flight

290,051

market needs and ensure continued growth?

97,158

232

operations. We are at the stage where we need to plan

2014

Source: DGAC

2015

2016

2017

What differentiates TAR Aerolíneas is our aircraft. Our business model is different to airlines based in a specific location — Mexico City in most cases. The 50-seater ERJ 145 Embraer jets are best for hour-long trips so we use them to create circuits across the country. These circuits

TAR Aerolíneas had the best on-time performance out of all Mexican airlines in 2016

visit several cities before returning to the final airport,

We are also working with US customs to allow Mexican

instead of the standard return flight airlines tend to offer.

travelers to “cross the border” in Queretaro, filling in the

They are developed in close collaboration with Mexican

necessary paperwork in the state instead of when they

airport groups and state governments that convey the

arrive to the US. This would make the customs process

region’s specific connectivity requirements. For instance,

easier and faster for them.

we have a base in Merida to address the needs of the Yucatan Peninsula. Even though our main offices are in

Q: What specific products has TAR Aerolíneas created

Queretaro, only 25 percent of our airplane seats come

for business travelers?

to the state.

A: Business travelers are mostly concerned with flight schedules and punctuality. We have developed internal

Q: What are the main conditions to consider when

processes that guarantee these two aspects. In 2016,

implementing this circuit model?

TAR Aerolíneas had the best on-time performance of all

A: Flexibility is important. Mexico is an extremely

Mexican airlines. Moreover, we offer a full flight service,

large country with wide variations in geography and

which means we do not charge for extras, and we do not

demography from north to south, which is reflected in

oversell our flights.

demand for seats. While we have to use the same core aircraft to meet all requirements, we must tailor services

We also created Star Club, an added-value service

to the state’s demographic characteristics. We work

program for our business travelers that offers perks such

under a high-utilization scheme because each of our

as in-flight alcoholic beverages. Our goal is to continue

aircraft is a business in itself.

improving standards for business travelers.

Q: How influential was TAR Aerolíneas to the growth of

Q: What are the next steps in TAR Aerolíneas growth

Queretaro’s Intercontinental Airport (AIQ)?

strategy?

A: TAR accounts for approximately 28 percent of all

A: For the past three years, our focus was on route

passenger traffic at AIQ. We have been working closely

expansion. 2017 has been a challenging year so we are

with the airport to bring more opportunities to the

pausing to decide how to incorporate some of our new

region. We are also in close talks with the government

ideas.

to promote the state and in April 2017 we created a circuit from Queretaro to Chihuahua followed by Ciudad Juarez,

We are focusing on compliance with national standards

which meets the requirements of Tier 1 automotive

and looking for more business partners. We are working on

companies. Through these strategies, TAR has helped to

increasing the standards of our operational performance

create new business opportunities in the region.

to meet IATA safety requirements, especially now that we can fly international routes, which may lead to code-

Automotive companies coming to Queretaro will analyze

sharing agreements. Our plan for 2017 is to increase our

connectivity when deciding whether to bring their

routes and create synergies with other airlines. In 2018, we

business to the state so we want to offer them useful

will work with Mundo Maya in Cancun. We are looking for

routes. Four years ago, when TAR Aerolíneas was created,

partners that can use seats on our flights as part of their

we operated a single daily flight from Queretaro to

strategy, such as hotels and business providers. Many

Monterrey. Now there are 10 different routes every day.

companies in Yucatan are serving European travelers so we can complement their travel services by increasing

The real challenge is to promote AIQ’s unique advantages.

connectivity. At TAR Aerolíneas we are mostly concerned

This airport has a different mission to any other in Mexico.

with keeping our passengers satisfied and if we continue

Thanks to its central location not far from Mexico City,

to do so, we will keep growing.

it is possible to make AIQ a true connectivity hub for the country. Mexico City is an international entry point into the country and a connection gateway but

TAR Aerolíneas is a Mexican airline created four years ago

it is now saturated. Queretaro can become an efficient

in Queretaro. The company focuses on regional connectivity

connectivity hub by allowing passengers to change

through its fleet of 10 Embraer ERJ 145 jets and offers circuit

flights in just 20 minutes thanks to its efficient terminal.

flight routes around the country

233

INFOGRAPHIC

COMMERCIAL AVIATION A rise in tourism and lower oil prices have pushed forward

Mexico is in an even better position in terms of civil

the growth of commercial aviation across countries and

aviation. In 2016, 82.7 million passengers flew with

continents. Globally, the sector has been on a rise since

commercial airlines, 10.7 percent more than in 2015,

the 2009 crisis and shows no sign of slowing down. In

according to DGAC. National airlines grew by 13.4 percent

2016, almost 3.7 billion passengers flew all over the world,

to reach 53.6 million passengers in 2016. International

a 6.7 percent increase over the previous year. Just in Latin

carriers grew 6 percent, hitting 29.1 million passengers

America, 256 million passengers flew in the same year.

flying to and from Mexico.

AEROSPACE INDUSTRY WORLDWIDE

178

airlines

• 255.8 million passengers

• 173 million passengers

• 2,036 aircraft

• 1,210 aircraft

• 2.6 milllion flights

• 1.01 million flights

• 78% seat occupancy rate LATIN AMERICA/ CARIBBEAN

NORTH AMERICA

• 326.8 billion RPK

• 78% seat occupancy rate • 555.2 billion RPK

MIDDLE EAST

• 5.2 million jobs

• 2.4 million jobs

175 airlines

387

• 841.8 million passengers

• 873.4 million passengers

• 7,971 aircraft

• 6,586 aircraft

• 10.7 million flights

• 7.6 million flights

airlines

• 83% seat occupancy rate

• 81% seat occupancy rate

EUROPE

• 1.5 billion RPK

• 1,682 billion RPK

• 7.6 million jobs

• 11.9 million jobs

244

359

airlines

M VEHICLES SOLD PER

airlines

• 76.6 million passengers

• 1.1 billion passengers

• 1,305 aircraft

• 6,957 aircraft

• 1.03 million flights

• 9.9 million flights

• 69% seat occupancy rate

AFRICA

• 78% seat occupancy rate

ASIA-PACIFIC

• 143.4 billion RPK

• 1,949 billion RPK

• 6.8 million jobs

• 28.8 million jobs

4.3%

Asia-Pacific

projected global growth 3.6%

Africa

4.7%

5.1%

5.4%

YEARLY GROWTH ESTIMATE (2014-2034)

3 2

Middle East

Latin America/ Caribbean

Europe

2.7%

234

North America

GLOBAL FIGURES • 1,402 commercial airlines • Near 34.8 million flights • 52,964 routes • 26,065 commercial aircraft

Over 3.57 billion passengers

3,883 airports

PASSENGER TRAFFIC BETWEEN MEXICO AND THE WORLD

North America:

Europe:

82 destinations

27 destinations

Asia: 2 destinations

2,200 daily flights transport 220,000 passengers to international destinations

Latin America:

In 2016, the Most Passengers Came From:

21 destinations

Country

No. Passengers

27.4 million

Canada

3.2 million

Panama

1.1 million

Colombia

1.1 million

Spain

900,362

Cuba

767,197

Peru

697,876

689,283

France

503,866

Costa Rica

421,725

Germany

404,446

Guatemala

396,467

Brazil

321,261

Argentina

311,592

The Netherlands

298,873

CANAERO REPORTED A STRONG 2016 FOR THE INDUSTRY:

New bilateral agreement (BASA) between Mexico and US

Mexican commercial airlines boosted Mexican airlines bought 43

planes

new

277,355

El Salvador

182,106

Japan

101,792

Italy

87,643

Ecuador

71,719

China

58,265

Belgium

51,457

Honduras

42,991

52 airports

Venezuela

19,900

that provided

Puerto Rico

18,359

57 airlines for international destinations

service for 800

Belize DISTRIBUTION OF7,672 THE REGIONAL routes SUSTAINABLE DEVELOPMENT FUND 2

350 national and 450 international

aircraft to 360

17 million tourists arrived

The industry

by plane to

represented destinations 2.9% of GDP DISTRIBUTION OFMexico THE REGIONAL SUSTAINABLE DEVELOPMENT FUND 2

79.8% US 8.1% Europe 4.4% CA/Caribbean 4.0% South America 3.6% Canada 0.2% Asia

2005

number of

13.6 percent

grew

82 million passengers and 873,000 tons of cargo in 2016

Eight airlines for national destinations

Chile

National fleet

69.8% US 7.9% Canada 7.6% Europe 7.2% South America 7.0% CA/Caribbean 0.4% Asia

2015

A reduction traffic has been offset by Canada and Latin opportunity for growth 11% America; Mazapil Asia is still the 2%golden Sahuaripa 11% Mazapil in Mexico-US 2% Sahuaripa 9% Cananea

2% Morelos

9% Cananea

2% Morelos

7% Nacozari de Garcia

2% Eduardo Neri

7% Nacozari de Garcia

2% Eduardo Neri

5% Fresnillo

2% Aquila

5% Fresnillo

2% Aquila

4% Ocampo

2% Alamos

4% Ocampo

2% Alamos

4% Caborca

1% Chinipas

4% Caborca

1% Chinipas

Sources: CANAERO. DGAC. PWC. ATAG, Aviation Beyond Borders, 2016

235

VIEW FROM THE TOP

BUSINESS DESTINATIONS OPEN OPPORTUNITY ROLF MEYER Managing Director, Mexico and Latin America Sales of United Airlines

236

Q: How big a factor is Mexico in United Airlines’ long-term

Q: What are your growth expectations for flights between

sales strategy?

the US and Mexico in the long term?

A: Mexico is United Airlines’ second-biggest market in

A: The entire Latin American market continues to grow,

terms of operations outside the US. We operate flights to

not just Mexico. Of the 20 most important cities in Latin

64 destinations in Latin America and the Caribbean with

America, only 43 percent have a direct flight services,

an average of 1,000 flights a week. Of these, 550 are to

while 100 percent of the important European cities have

Mexico. Mexico City is the only destination connected with

these kinds of connections. The aviation industry in Latin

all seven hubs in the US: Houston, Denver, San Francisco,

America will grow more than in the rest of the world. The

Los Angeles, Chicago, Newark and New York.

average growth of this industry in Latin America is 4.6 percent, while growth in the Mexican market is expected

United Airlines continuously analyzes its routes to

to be 4.7 percent. The agreement between the American

determine when to increase capacity. When we notice

and Mexican governments provides more options for

growth in demand in a market, we either schedule more

flight destinations. Before this agreement existed, only

flights for this destination or use a larger aircraft. For

two foreign airlines were allowed to fly to the same

instance, five years ago we started flying seven times a day

destination. Lifting this limitation will boost competition

from Monterrey to Houston. As demand grew we added

and provide customers with a greater number of options

five more flights for a total of 12 daily flights in this route

to choose from.

and one in the Monterrey-Chicago route. Shortly after, we started to operate 14 weekly flights. United flew 70-seat

Q: What are United Airlines’ most important alliances

CRJ-700 airplanes in this market but as demand grew, we

and what does it look for in a partner?

replaced these aircraft with the 76-seat Embraer E-175.

A: United Airlines is a founding member of Star Alliance.

This measure meant an increase of almost 10 percent in

But the company also has separate agreements with

the number of available seats per flight.

various airlines. We have a codeshare and frequent-flyer agreement with Aeromar that helps us take passengers

Q: What are the most important routes for United in

to some destinations where we do not fly. Before this

Mexico?

partnership, United Airlines had an average of 40

A: Cancun is our busiest airport outside the US. During

codeshare flights to 16 cities operated by Aeromar. Now,

peak season, we operate up to 40 daily flights. In Mexico

we have increased it to 74 codeshare flights to 20 cities.

City, we have up to 16 flights a day and all our operations

Partnering with these kinds of companies increases the

are mainline flights. In Queretaro, we fly three daily flights

number of destinations offered and the frequency of

using 76-seat ERJ175 aircraft and in Leon we grew from

operations and makes air tariffs more competitive. Among

a daily flight to Los Angeles and four to Houston to four

Latin American companies, we also have codeshare and

flights to Houston and two to Los Angeles. Last year,

frequent-flyer program agreements with both Copa

United added a new flight to the Aguascalientes-Houston

Airlines and Avianca.

and San Luis Potosi-Houston routes. This was done largely to further connect the automotive industry as air traffic

We have joint ventures with Lufthansa and Air Canada.

between Europe, Asia and the US related to this sector

Passengers flying on any United Airlines, Air Canada or

has grown. United Airlines used to partially operate its

Lufthansa flight departing from any country from Canada

mainline flights using Airbus A319s, Boeing 737s and other

to Panama and going to Europe, the Middle East, Africa

large aircraft while operating a few flights using 76-seater

or India can interchange flights between these three

regional jets. Now, all United Airlines’ flights are mainline

airlines at the same tariff, connect between each lines’

and jets are used in other destinations.

flights and have their luggage dispatched to their final

destination. This means a passenger flying from Mexico

demand for certain services depends largely on the kind

to Europe will find a better price connecting between

of passenger at hand. But all passengers regardless of the

these companies’ flights. United Airlines also has a joint

type want to reach their destination safely and to wait the

venture with Japan’s ANA for all flights over the Pacific

minimal time possible.

to Asia. This provides passengers with more options and Q: How is United Airlines facing the saturation of AICM

destinations when choosing a flight.

and what does it expect from NAICM? Q: What technology and aircraft is United Airlines

A: The number of slots at AICM is limited but United

interested in having in its fleet?

Airlines is fine with the number of slots it holds. Replacing

A: We are replacing our fleet, both wide-and narrow body

smaller aircraft with bigger planes has enabled the airline

aircraft. We are retiring our Boeing 747s and introducing

to increase and even double capacity. For instance,

more efficient and newer planes. Also, our 50-seat planes

changing from 75-seat aircraft to 146-seat planes almost

are being replaced with new Embraer E-175s. United also

doubles the number of available seats per flight. Also,

has several Boeing 737-900s and has placed an order for

increasing the number of operations and destinations

Boeing 737-MAX, Boeing 787-10, Boeing 777-300ER and

from cities close to Mexico City, such as Puebla and

Airbus A350 aircraft. All these new planes produce less

Queretaro, reduces the need for customers who live there

environmental and noise pollution and have a greater

having to fly from Mexico City.

flight range. Although the Boeing 747 is an iconic plane, its four engines make it much more expensive to operate

NAICM’s capacity will be valuable for the country as AICM

than newer aircraft. In terms of technology, we are

is saturated and there are companies that want to fly to

innovating in many of the planes we are refurbishing by

Mexico City but are unable to. NAICM will bring in more

introducing slim line seats but no screens. Passengers

companies and more people, generating a trickle-down

can connect to onboard internet and access to inflight

economic effect that will result in investment that benefits

entertainment (IFE) system from their own devices. Also,

both Mexico City and the country. Its three air strips per

all planes with 70 and more seats

terminal will enable more simultaneous

have satellite onboard Wi-Fi. In terms

take-offs and landings, permitting more

of boarding passes, United Airlines has an app in which passengers can check in and scan their boarding pass, get notifications in their email

550

United Airlines’ flights arrive to Mexico every week

or phone in case there is a delay or a gate change, as well as track their checked luggage.

flights to more destinations. Q: What are United Airlines’ growth expectations in terms of cargo and passengers for 2017 and 2018? A: Several industries in Mexico are growing,

including automotive, technology, pharmaceutical, aeronautics and petrochemistry. Since growth is not

Q: What are your plans to implement the Polaris

focalized in a single industry, there are many opportunities

business-class service in Mexico?

for this to continue. United Airlines flies to all the business

A: United Airlines invested over 12,000 hours in the

centers in which these industries are concentrated but we

development of this business-class product. All the

have limited cargo operations in some places because we

seats in this class are bed-like and have direct access to

only fly smaller aircraft to and from these destinations. As

the aisle so that passengers do not have to climb over

a result, we hire the services of a local company to move

each other to reach the aisle. We are not operating this

cargo by truck to airports where United Airlines works

type of aircraft to Mexico, but passengers connecting

with larger aircraft. This enables us to boost the demand

from Mexico at any of our hubs and who are flying

for cargo transportation by plane. In terms of passengers,

intercontinental routes will experience this product as

United Airlines operated 1.6 million flights worldwide

well as the Polaris lounges where available.

and transported over 143 million passengers in 2016. We expect the number of flights United Airlines operates in

Q: What are passengers looking for when choosing United

Mexico to grow beyond the current 550 flights a week as

Airlines?

investments continue to arrive to Mexico.

A: First of all, our network. Most United Airlines’ passengers are business travelers as 80 percent of our routes are to the main worldwide business centers. With the on-board

United Airlines is a US-based airline with over 339 destinations

Satellite WIFI, business passengers appreciate being able

in 50 countries that transported 143 million passengers in

to connect anywhere they are so they can solve problems

2016. In Mexico, it operates 550 flights per week. It has a total

before arriving to their destination. In other segments,

operating fleet of 475 aircraft of various sizes and brands

237

VIEW FROM THE TOP

INNOVATION, RENOVATION BEDROCK FOR GROWTH DIRK VAN NIEUWKERK Director General Mexico and Central America of Lufthansa

238

Q: What would you highlight as the main competitive

Q: What impact will the bidding for Air Berlin have on

advantages that have allowed Lufthansa to achieve positive

Lufthansa’s operations?

results?

A: This is still an ongoing negotiation. Lufthansa is bidding

A: The Lufthansa Group is the leading aviation conglomerate

for part of Air Berlin and we have already leased 38 airplanes

in the world. We had a turnover of €32 billion (US$38

from Air Berlin to enlarge our Eurowings division. The airline

billion) in 2016 and combining our different airlines we

business grows 5 percent on average every year. There is a

currently have 674 operational aircraft that result in over 1

need for mobility but leisure is growing significantly more

million flights annually. We serve 308 destinations in over

than business flights. Eurowings targets leisure traffic and we

103 countries and only in 2016 we transported 110 million

had suffered some limitations in our available aircraft. With

passengers.

the leasing of Air Berlin’s equipment, we have managed to grow our capacity and the bidding for the airline is the next

Lufthansa’ strategy is based on three pillars. The first is

step in our strategy.

oriented to our hub airlines: Lufthansa, SWISS and Austrian Airlines. These are our premium carriers that cater to both

Q: How have you innovated to offer the best options to the

business and leisure travelers. Regarding point-to-point traffic,

customer?

Eurowings and Germanwings offer flights within Europe as

A: Innovation is a key part of our strategy, not only regarding

well as other long-haul options. Finally, our service-oriented

our fleet but also our on-board products and services. We

line is comprised by Lufthansa Technik, Lufthansa Cargo, LSG

recently introduced a new class called Premium Economy

Sky Chefs, Lufthansa Systems, Lufthansa Flight Training and

and we have invested significantly in renewing our services

Lufthansa Consulting.

in all our available classes: First Class, Business, Premium Economy and Economy. This includes new upgraded seats,

In addition to our core values of safety, reliability and quality,

upgraded entertainment systems, wireless internet access and

our main competitive advantage against other airlines

a new signature restaurant service for our Business class. New

is our people. This is closely related to the way German

products require new processes as well but we have received

companies work and how much they invest on their human

positive feedback from our passengers, both private and

capital. Lufthansa’s employees are distinguished by their

corporate. As another example of innovation, we have stopped

attitude and high level of proficiency, and now our business

distributing printed newspapers and magazines. Clients can

approach is based fully on the customer with our Nonstop

now download different titles from our e-journal platform,

you strategy. Customization and individualization have

which helps us reduce weight and thus fuel consumption.

become a key part of our business and the human factor

This year we are also focusing on digitalization and between

plays a crucial role in that.

now and 2020, we will invest €500 million (US$596 million) in digitalization, customization and other innovation projects.

We had a very successful first half in 2017 and we had our best year ever in our Mexican operations. We have also been

Q: How do these innovations impact the prices of Lufthansa

voted by SKYTRAX as Europe’s best airline. This market

flights?

research company surveys over 18 million passengers in

A: Our investments are not directly related to an increase in

116 countries. Our investments in technology, digitalization

fares. We live in a competitive environment and prices must be

and customization have paid off and these recognitions let

aligned with what the market expects from us. There are times

us know that customers appreciate our products and our

when our prices can go up but that relates more to demand

strategy. Our goal now is to be recognized as a five-star airline

and how sold out our flights are. In the service industry, you

not only in First Class but across all our services and to be a

need to invest and offer clients the best products, which have

premium alternative among hub airlines.

to be combined with profitable routes. That does not translate

to a cost-based pricing approach. The market is dynamic and

Q: What opportunities do you expect NAICM to deliver?

we must strive to be the best airline not only in Europe but

A: Before setting new targets for the country we need to

around the world.

know when the new airport will be finalized. We understand that infrastructure projects tend to have delays even in

Q: What plans does the company have to renovate its fleet?

countries like Germany. However, it is true that AICM has

A: We have a strong renovation plan that will be completed

no more slots to offer. The infrastructure is saturated and

by 2025. We have over 180 plane orders valued at €33 billion

modernizing it would require an added investment that is

euro at list price. In 2017 the Lufthansa Group will receive

not likely to come once the new airport is inaugurated.

40 new planes. Having new aircraft allows us to reduce our

However, while construction is underway, the government

carbon footprint and implement more efficient processes,

must ensure that the old airport keeps its service level and

while offering the latest technology to our passengers.

that there are no budget cuts that would hinder current

We have already received our fifth Airbus A350, SWISS is

operations. Our growth would demand more flights and

employing Bombardier C Series planes and we are getting

larger planes but under the current circumstances, that is

the new Airbus A320neo.

challenging.

Q: How has Lufthansa’s offering grown in number of flights

My hope is that NAICM will be a state-of-the-art facility

and what further opportunities do you see in Mexico?

that operates 24/7 and has shorter connecting times for

A: Lufthansa has been in Mexico for 51 years and we have

passengers. The infrastructure must also be able to support

grown continuously from our initial operations, when we

larger aircraft such as the Boeing 747 and Airbus A380

had two weekly flights stopping in Montreal. In April 2014,

airplanes, while operation is handled digitally through

we added our second flight to Munich,

electronic boarding passes, immigration

which now operates along our flight to

kiosks and all other services offered in

Frankfurt. Outside Germany we have destinations such as Vienna and Zurich, which makes us a multihub company and allows us to offer different choices to our passengers. Our schedule is complementary and clients can arrange

110 million passengers were transported by Lufthansa in 2016

their flights based on their needs. The market needs that kind of mobility and

a first-world airport. The entire project must also be cost efficient and so far, we have not seen a clear business model. Therefore, we are still waiting to have more information to plan our own operations. Our expectation is that regardless of the Mexican presidential elections in 2018, there will be continuity in this project and

there are many German companies with operations in

that the new people in charge will help us have certainty

Mexico that benefit from this offering. We think an effective

through constructive dialogue.

connection between Mexico and Germany will be more important than ever because of the commercial relationship

Q: What are your growth projections for Lufthansa’s

between both countries. Almost 80 percent of all Mexican

operations in Mexico?

exports go to the US, which means that some business

A: According to the growth forecast for Mexico’s economy

opportunities with other countries might have been

of 2-2.5 percent in 2017, the aviation sector would grow by

missed. Private passengers have also found a competitive

3-5 percent, given the need for mobility not only to the US

and comfortable option in Lufthansa and because of that

and Latin America but to Europe and Asia. We want to grow

we have a very loyal customer base. Mexico is a young

over the market and thanks to our extra flight to Munich we

country with a strong cultural and historical relationship

have increased our capacity. One day we would like to have

with Germany that will be beneficial for new generations.

that flight daily but the restrictions in terms of infrastructure make that impossible at the moment. In the meantime, we

We have supported tourism growth to Mexico and now we

are planning to include one more flight to Cancun to keep

have two weekly Lufthansa flights to Cancun from Germany,

supporting tourism and we expect to keep growing in the

Eurowings has also two flights per week to Cancun and

Latin America and Caribbean region. Leisure travel is growing

Edelweiss, a subsidiary of SWISS, has two more. Our increased

much more than business operations in Europe and we want

capacity has not only favored European tourists but also

to participate in that development.

supported the Mexican economy with more tourism cashflow. However, we have not limited our presence only to Mexico. Our different airlines have grown their footprint in the Latin

Deutsche Lufthansa , generally known as Lufthansa, is a German

American market and the Caribbean as well. These countries

company and the biggest airline in Europe. The company

have shown strong signs of growth and our strategy is to take

serves 308 destinations in over 103 countries, transporting

advantage of that and keep expanding our presence.

over 110 million passengers

239

VIEW FROM THE TOP

COMPLEMENTARY NETWORKS FOR UNIQUE CONNECTIVITY MIGUEL CARDONA Commercial Director for Mexico at Avianca

240

Q: To what extent has the appointment of Hernán Rincón

indicates a daily flight would be well-received by the market.

as CEO shifted Avianca’s focus?

We can capitalize on this maturing market of visitors from

A: Hernán Rincón, with previous experience in Microsoft,

Peru. Our supply will always respond to demand especially

unsurprisingly brought a special interest in using technology

from capital cities such as Mexico City, Lima and Buenos

to boost market competitiveness. Technology can simplify

Aires. We are also expectant of traffic increasing from Brazil

traveling, such that we became one of the first airlines

following its economic recovery.

to invest in chatbots and Rincón wants the company to become a technology company that flies. Our automatic

Q: How do you evaluate your growth considering results

enquiry service, a chatbot nicknamed Carla, provides

based on inbound and outbound traffic?

customer service and information to passengers via social

A: We take both inbound and outbound travel into account,

networks. Carla’s immediate responses to passengers’

to get an accurate evaluation of each market’s potential.

issues has generated a solid trend of customers adopting

We do not prioritize one direction but are holistic and

the chatbot technology and using our Avianca app.

interconnected between different airports. Avianca’s whole team works toward one goal rather than prioritizing just

Avianca has become more technological as promised

flights from Mexico at these headquarters. We transported

by Rincón when he entered the company. He aims to

772,000 people within Latin America in 2016, representing 3

implement efficient processes that save time and improve

percent growth over 2015, despite new competition for our

Avianca’s service. Cloud computing is also helping us work

routes. Competitors entered the market connecting Lima,

internally more harmoniously in real time and connectivity

Cancun and Bogota but we sustained our performance,

is a fundamental feature of his strategy.

and even built on it. New market entrants, rather than taking business from us, stimulated demand and we both

Q: To what regions and strategies do you contribute your

benefited.

success as an airline in the Americas? A: Mexico is a key market in which Avianca has grown

Q: How will your corporate strategy further increase your

steadily during the last five years. We are capitalizing on

business in Mexico?

this improved brand positioning. Both our operations in

A: Promoting Mexico in Colombia and vice versa stimulates

the capital city and Cancun look healthy but the latter

a desire to travel to these locations. Increasing connectivity

is expanding following increased demand from Latin

through our hubs also gains us access to new markets. In

American vacationers visiting Mexico. This has led to two

the second half of 2016 this meant opening unexplored

more carriers, Copa Airlines and Interjet, now offering the

routes to connect domestic markets in Mexico and Central

Cancun to Bogota route as well as Avianca and LATAM

America with South America and Europe, such as a Bogota-

Airlines. Since we have acquired new corporate accounts

Cusco-Peru route, and a daily service started in March 2017

in Mexico, we are adding services with premium feeders

connecting Madrid and Bogota. A stimulus for this was the

like the Boeing 787 Dreamliner that served on the Bogota

removal of the need for a visa for Colombians to travel to

to Mexico route throughout the third quarter of 2016.

Spain. The new daily flight we have put in place from Mexico

This aircraft is expected to return to the same premium

and Santiago de Chile to Bogota takes advantage of our

route and consolidate our optimism of our development

connectivity in Bogota and appeals to corporate travelers.

as a carrier. All airlines face the bottleneck of existing facilities Certain routes need to be consolidated such as Cancun to

through the region, like AICM. We remain positive about

Lima, which started a year and a half ago. Operating four

the huge potential that the new airport will offer in 2020.

times a week year-round at load factors above 90 percent

This scenario is repeated in many other countries where

our service growth and that of the industry together are already stretching key airports’ capacity like Bogota or Lima. Airlines are being flexible deploying larger aircraft where it is commercially and financially viable and taking

Avianca’s Cancun to Lima flight operates at 90 percent load rate

advantage of every possible opportunity for red-eye flights to keep growing.

We are planning and executing initiatives to remain relevant in pricing. We have also emphasized our brand

Q: What differentiates Avianca from competitors in terms

leverage and product attributes in our communications

of passenger experience?

to help passengers see the differentiated value they get

A: For both long and short-haul flights, all our Airbus jets

from flying with us. We have the fleet capacity to serve

offer personal inflight entertainment systems. Avianca is

each market with the utmost flexibility. While some of our

also advancing in terms of renewals, including our next

competitors offer a single high-density fleet configuration,

flagship aircraft, the Boeing 787 Dreamliner. We have 10

we can change from 48-68 seats in our ATRs to our 120-198

units in our fleet already and expect to replace the rest to

seats Airbus family.

this standard in the coming years. Mexico is one of the leading countries in regulations. Aside from ease of using our service thanks to increased

We may find countries with more limited services or

technology and our prices, our flexibility is not competed.

governmental complications, such as Venezuela, which

Our multi-hub strategy relies on our location in El Salvador

makes operating in their countries too difficult for airlines.

which provides this unusual connection between the

This damages economies as we are more than travel

Caribbean, Peru and Colombia. It also means we can offer

companies. Airlines move business travelers and tourists

corporate flyers the possibility of returning via different

but our close complement is cargo. Taking advantage

airports to better plan their business trips. Our corporate

of carrying cargo in the bellies of our passenger planes

program Preferencia is a priority to promote in Mexico,

makes our business profitable and stimulates countries’

which helps companies use their budgets effectively. No

economies. We schedule flights for Avianca Cargo and our

other carrier in the region offers connectivity from Canada

sister company AeroUnion, the combination of which is

to Argentina.

crucial to penetrate the North American market.

Though customization we offer a growing array of ancillary

Q: What other alliances are on the horizon to boost

services to help travelers create tailored trips. Services like

Avianca’s market participation?

additional baggage, unaccompanied minors and preferred

A: The airline has a strong connectivity worldwide thanks

seating assignment with a fee for promotional fares have

to its membership in Star Alliance. The airline also holds

been added to our customer service list. Before the latter

several code-sharing agreements that provide increased

feature existed, our passengers had to wait until 24 hours

options to its passengers. Outside of direct alliances with

before their flights to check in and choose seats. This

other airlines, we signed several cooperation agreements

new feature eases travelers’ minds on high-season flights

at the end of 2016 with land transportation companies.

while opening the alternative to secure coveted seats like

National Express, a bus company in the UK, as well as

emergency exits or the first row behind business class with

an alliance with Great Western Railway help us reach 12

more legroom.

destinations each by connecting our flight to London with other cities by bus or train.

Q: What challenges specific to the region do you face and hope to receive support to overcome?

As a multinational company, we are always open to

A: One of the biggest challenges to our business model

exploring cooperation schemes that suit our business

and strategy is the low-cost airlines phenomenon. These

model and communicate Latin America’s singularity and

companies have become a powerful reality in the region,

beauty. Agreements reached through our loyalty business

which we regard with respect and a highly analytical

unit Life Miles, for example, have built a solid network of

perspective to respond competitively. There are low-

nonairline partners like banks and hotels to enable travelers

cost airlines in practically every market we service in the

to create experiences to explore Latin America.

continent, including Gol Airlines and Viva Colombia. Their presence consistently pressures other airlines’ fares but we realize the phenomenon has stimulated higher demand

Avianca has been the national airline and flag carrier of

even for full-service carriers like Avianca. The strength of

Colombia since 1919, making it the world’s second-oldest

these players is determined by the market’s infrastructure

airline after KLM. It is headquartered in Bogota with its main

and economic development.

hub at El Dorado International Airport

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VIEW FROM THE TOP

BRIDGE BETWEEN MEXICO AND EUROPE VINCENT ETCHEBEHERE General Manager of Air France-KLM Mexico

Q: What market strategies is Air France-KLM following to

strategic this market is for the group. We have doubled the

excel in Mexico?

capacity of our lounge in Mexico City airport, and constantly

A: The Mexican market has been displaying solid

increase the quality of food, beverages and service.

development in the past 10 years. The Air France-KLM

242

group cannot expect to grow without considering Mexico

Q: What advantages does the Air France and KLM merger

as an important component in its investment strategy.

offer to its customers?

The growing demand for intercontinental flights led us to

A: Air France and KLM are two experienced airlines that

inaugurate the Airbus A380 on the route from Mexico City

constantly innovate in products and services to meet

to Paris. This development represents a milestone for the

clients’ needs. The merger can only bring benefits to our

aviation industry in Mexico. Never before has the world’s

customers as our route options have increased. We are now

largest aircraft been used on a route in Latin American

able to provide our Mexican clients with more scheduling

countries. The introduction of this travel route is the

and pricing options, as well as more travel experiences.

culmination of combined efforts from Air France-KLM and Airbus, as well as Mexican and French authorities.

The combination of our customer services will probably represent the lion’s share of advantages afforded by

The direct route between the Mexican and French capitals

our alliance. KLM has always stood out as an airline that

has proven to be a commercial success, exceeding our

constantly innovates in customer service. For instance, it

expectations. Demand for routes between Mexico and

provides the most answers to enquiries posed through

Europe has enjoyed a solid expansion, showing average

social media. Every week, KLM receives over 100,000

year-on-year growth rates of 6 percent. In April and May, Air

messages through its social networks. To provide adequate

France-KLM was responsible for almost 35 percent of the air

and immediate answers to every message, 250 analysts are

traffic between Mexico and Europe, which is an outstanding

responsible for providing assistance over social media with

market share for international airlines, becoming the No. 1

a response time of less than 30 minutes. Additionally, last

airline group traveling between Mexico and Europe. We

year KLM launched a project that involves a robot called

are proud to say that in less than six months our market

Spencer at Schiphol airport. Spencer helps passengers find

share has increased by almost 10 percentage points thanks

their departure gates and provides them with boarding

to the commercial success of the Airbus 380. Also, we

passes. Using robotics to improve passenger experience

increased our seat offer by 10 percent between Mexico

is part of a long-term strategy to offer exceptional service.

and Amsterdam through KLM to nine flights per week. KLM’s Mexico-Amsterdam route was one of the first to be

Improving operational services is also part of our combined

equipped with World Business Class seats.

benefits. Punctuality and client communication add value to our product. We are proud that KLM has recently been

To date, our market share in First Class cabin to Europe

recognized as the most punctual airline in the world. However,

exceeds 50 percent, placing Mexico among our top three

due to the very nature of our business, which depends

most important markets for first-class ticket sales, just

on weather conditions, disruptions can happen such as

behind the U.S. and France. The Airbus A380 Business cabin

cancellations and delays, even if they are very rare. To offer the

increased ticket sales by more than 100 percent. Now that

best service to our customers, our Air France-KLM Connect

our expectations have been surpassed, we have to make

service informs passengers of any possible disruption as well

this performance sustainable in the long term and we are

as alternative solutions. As many of our passengers have

confident that this is achievable in the Mexican market. In 2016,

connecting flights, we do everything we can to make sure

Air France-KLM available seat kilometres (ASK) increased

they can reach their final destination in the fastest and most

globally by 3 percent and 10 percent in Mexico, showing how

comfortable way.

Air France La Première seat

Q: What are the conditions in Mexico that could impact

Q: What are Air France-KLM operation plans in Mexico

Air France-KLM operations?

for 2017?

A: Even though several external elements are having an

A: Our priority for 2017 is to continue the successful trend

impact on the Mexican economy, we do not believe our

we witnessed in 2016. The acceptance of the Airbus A380

operations will be severely affected. For instance, the

has convinced us to add our new Air France inflight cabins

exchange rate between the Mexican peso and US dollar

named BEST, on the Boeing 777 we will operate between

concerns us because it affects the purchasing power of

Paris and Mexico from October 2017 to April 2018.

our Mexican clients. The Airbus A380 cabin investment at the beginning of the However, regardless of the currency exchange situation,

year reinforced our leadership in travel comfort. The La

flights between Mexico and Europe continue to register

Premiere and Business cabins offer comfort and privacy

high demand and have not been affected. On the contrary,

for our travelers, with fully reclining seats, improving our

during the April-May period our company registered a 17

clients’ flying experience. Boeing’s BEST cabins will not

percent increase in demand for flights between Mexico

disappoint Mexican customers and will set us apart as the

and Europe.

best in the industry in terms of comfort. These cabins will comply with a standard that we call FFF. This means full

It is important to keep in mind that for our routes to grow

flat seats, full access with no middle-seat that can disturb

and become successful we need to guarantee a positive

aisle passengers and full privacy. We are excited to present

reception within the Mexican and the European markets.

this innovation to the Mexican market.

Depending on a single market to buy flight seats is not sustainable in the long run. Fortunately, our clients are not

Our goal is to become the most customer-oriented airline.

limited to a homogenous nationality profile. Tickets for

We will continue to work on passenger experience and

the Cancun to Paris route are mostly bought by European

punctuality, as well as new European routes for our Mexican

citizens, bringing a high volume of tourists to Riviera Maya

customers. KLM will launch in summer 2017 seven new

and contributing to the region’s economic growth. However,

routes in Europe (Gdansk, Graz, Porto, Malaga, Split, Cagliari

on flights linking Mexico City with Paris and Amsterdam

and Catania), which means more flying flexibility. We intend

enjoy more popularity among Mexican citizens. Mexicans

to become the preferred airline for intercontinental flights

buy more than half these seats.

between Mexico and Europe. Cancun is also proving to be an increasingly popular destination, especially during the

While it does not necessarily affect us directly, we follow

autumn and winter seasons, due to it being a destination

the progress of the Bilateral Aviation Safety Agreement

that combines leisure and culture.

(BASA) between Mexico and the US. As an airline group, we have a favourable position within these agreements. When the passenger flow between countries is favoured by

Air France-KLM is the result of a merger in 2004 between Air

governments, everyone benefits, particularly citizens and

France and KLM, both members of the SkyTeam airline alliance.

the aviation industry. An agreement of this nature highlights

The two airlines rely on two major hubs, Amsterdam Airport

the potential the Mexican market has to continue growing.

Schiphol and Paris–Charles de Gaulle Airport

243

VIEW FROM THE TOP

REGION'S MOST PUNCTUAL AIRLINE WORKS TO CONNECT MEXICO MAURO ARREDONDO General Manager of Copa Airlines

244

Q: What is the most important contribution Copa Airlines

another order for 15 MAX 10 airplanes. This year has seen

has made to the aviation industry in Mexico?

Copa Airlines consolidate in Mexico because the country

A: Connecting Mexico with the rest of Latin America is widely

absorbed some of Copa Airlines’ previous growth. We grew

valued in the air travel market. We fly to every capital city in

from four to five frequencies to Mexico City and now operate

Latin America except Bolivia, where we fly to Santa Cruz de

six daily frequencies to Cancun. Internationally, Copa Airlines

la Sierra. Connecting to Panama is also valued because of the

announced two new destinations that will be inaugurated

country’s strategical position in the middle of the continent.

before the end of 2017: Mendoza-Panama in November

Copa Airlines’ vision is to connect people from North America

and Denver-Panama in December. We adapt to our clients’

to South America and vice versa through Panama. Mexican

needs and constantly receive input on passenger experience

clients prize Copa Airlines’ business proposal in this sense.

while addressing market trends to implement appropriate strategies.

Q: What impact does Mexico have on Copa Airlines’ revenues? A: Mexico is the second most-important economy in Latin

Q: What are Copa Airlines’ strategies to become more

America, so the country is a key market for Copa Airlines.

attractive to Mexican customers?

Our presence in Mexico is not limited to Mexico City; we also

A: We understand that one of the main differentiators in the

offer direct flights to and from Guadalajara, Monterrey and

airline business is service quality. Copa Airlines adds value to

Cancun. Having destinations in these four cities enables Copa

a passenger’s investment in a ticket through good service

Airlines to cater to the needs of both Mexican business and

so passengers understand the return they receive for their

pleasure travelers who can travel straight from Monterrey or

investment. For instance, Copa Airlines has been recognized

Guadalajara to Panama.

for the fourth consecutive year as Latin America’s most punctual airline by FlightStats and by OAG as the second-

Q: How has the Mexican market evolved throughout 2016

most punctual airline worldwide. In terms of travel experience,

and 2017?

our passengers that have connections in Panama can do so in

A: Demand for air travel is directly linked to economic

an hour at the Hub of the Americas airport because they do

success. As GDP grows, so does demand, which favors the

not need to go through migration or customs processes and

whole industry. We have noticed that entry constraints have

their luggage is documented from the point of departure to

relaxed and passenger exchanges between Mexico and Peru

the destination point.

and Mexico and Colombia are on the rise. But the existing connectivity in itself boosts the demand for air travel.

Q: What is Copa Airlines providing in terms of passenger service?

Q: How is Copa Airlines growing its presence in the Mexican

A: Our onboard service has been recognized by SKYTRAX

market?

as the best in Central America and the Caribbean. We offer

A: Copa Airlines has enjoyed significant growth in Latin

complete onboard services, including courtesy meals and

America and we have a long-term strategic plan to continue

both alcoholic and non-alcoholic beverages. In 2015, Copa

boosting capacity. In 2015, Copa Airlines placed an order for

Airlines launched its ConnectMiles frequent flyer program.

61 Boeing 737 MAX 8 and MAX 9s and in 2017 we placed

These miles can be accumulated and redeemed with any Star Alliance member airline. We have code-share agreements that enable members of Star Alliance to provide a seamless travel

Copa Airlines is a Panama-based carrier with destinations that

experience. Being able to organize a trip with a single itinerary,

reach most of the Americas through the Hub of the Americas

use a single ticket and check-in luggage from the point of

airport in Panama. It has been recognized as the most punctual

origin to the destination are key advantages that passengers

airline in Latin America and is part of the Star Alliance

enjoy when flying with airline members of Star Alliance.

VIEW FROM THE TOP

LATIN AMERICA ‘AMBASSADOR’ LAUNCHES BUSINESS MODEL HECTOR IRIARTE Director General Mexico, Cuba and Central America of LATAM Airlines Group

Q: How has the global aviation market changed during the

the remaining four in 2017. The model will not turn LATAM

past year?

Airlines into a low-cost carrier but will allow us to compete

A: The aviation industry is always in transformation as

with them. On the other hand, we will maintain our existing

technologies and passenger preferences change quickly,

product for international, long-haul flights, which includes

pushing the sector to evolve. The World Economic Forum

a well-positioned loyalty program, a good entertainment

puts Latin America among the areas with the most growth

system and excellent business-class cabins. LATAM Airlines

potential for tourism. We have also seen trips within Latin

wants to strengthen its presence in the region. LAN and

America and to the region increase, a trend that we expect

TAM airlines merged operations in 2012, a significant feat

to continue through 2017. In 2016, LATAM Airlines grew by

as the fleet of both airlines surpassed 300 aircraft. With

4 percent in passengers globally and during the first half

US$69 million in revenues, LATAM's assets went into the

of 2017 our growth approached 6 percent. We expect to

black in 2016.

build on this and grow by 4-6 percent in passengers during 2017. The analysis of passenger travel patterns suggests that

Q: Which other alliances and routes is LATAM Airlines

Latin America is increasingly popular, as is Mexico. About

creating to improve connectivity?

80 percent of our ticket sales in Mexico are through travel

A: As part of the One World alliance, we work with 14

agencies, which have reported a decrease in flights to US

airlines across the world. Growing organically globally is

destinations such as New York and Las Vegas and a rise

expensive and risky, but both expenses and risks can be

in demand for destinations such as Peru and Argentina.

lowered through alliances. We will open a new route from

There is also growth potential for the region. In comparison

Lima to San Jose, Costa Rica, a destination that is growing

to the rest of the world, Latin America has a low rate of

in popularity at a global level due to its natural wonders and

passengers per capita. In Mexico, this number is 0.6. The US,

tourism infrastructure. Another route is Santiago-Melbourne,

by comparison, has the highest rate on the continent at 2.4.

which will also be the longest route for LATAM Airlines. The route will use a wide-body aircraft as it involves a strong

Q: How is LATAM Airlines’ business model changing in

cargo component.

response to market trends? A: LATAM Airlines is different from other carriers because

Q: How is LATAM Airlines strengthening its position in

it is associated with the entire region, not just one country.

Mexico?

LATAM Airlines has operations in six countries; Chile, Brazil,

A: From Mexico, we fly to three of our main hubs, Santiago,

Peru, Argentina, Colombia and Ecuador, from where it flies

Sao Paulo and Lima. More important than the number of

to four continents. This global ambassador to Latin America

flights we offer is the connectivity from those hubs, which

also offers domestic flights within those six countries that

has grown significantly. Our goal is to improve overall

represent 77 percent of our total passengers.

connectivity within and outside the region. Our search for ways to improve connectivity for travelers outside

In 2017, we successfully launched a new product to meet

of Mexico City and Cancun led us to arrange an alliance

emerging passenger needs. Customers are interested in

with Interjet. This alliance will facilitate connections with

flexible trips and access to new technologies, as well as more

Latin America.

cost-effective options. This new sales model is exclusive to domestic flights in Chile, Brazil, Peru, Argentina, Colombia and Ecuador and includes disaggregated tariffs, allowing

LATAM Airlines calls itself the ambassador airline to Latin

clients to pay for only what they need. This model is being

America and is headquartered both in Brazil and Chile. It is the

launched gradually throughout these six countries. We

largest airline in Latin America and the 10th-largest in the world.

started in Chile followed by Peru and expect to incorporate

In Mexico, it flies to Cancun and Mexico City

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INSIGHT

GROW LOCALLY TO WEATHER FOREIGN PRESSURES JORGE BADÍA Operations Director of Magnicharters

Mexicans welcomed the year 2017 with a rough start,

to travel to destinations they could not before. But new

which resulted in many challenges for both citizens and the

foreign airlines will not be able to fly to Mexico City until

economy. A weakening peso and higher gas prices put a

NAICM is finished.”

particular pall over aviation. Magnicharters felt the heat but

246

a renovation strategy is expected to help the local airline

Magnicharters is not deterred by these challenges. To face

come out on top. Jorge Badía, the company’s Operations

them, the company is fortifying its focus on local destinations

Director, says the new landscape will lead to growth of the

and is increasingly looking toward Central and South

local and regional markets.

America. The airline is developing more domestic routes and routes south of Mexico, and inaugurated a direct flight to

“Raising ticket prices will lead to a reorganization of the

Punta Cana in July. “The advantage of operating solely within

market. Those who traveled internationally will travel

Latin America, besides potentially lower prices, is a similar

locally, many who used to travel in business and first

culture throughout and a shared language,” says Badía.

class will travel in economy,” says Jorge Badía, Operations Director of Magnicharters. “This reorganization will

As the company implements its consolidation plan, it will

extend to national and international routes, as a strong

renovate its entire fleet and reduce operational costs to

dollar discourages Mexican passengers from traveling

boost efficiency. “Our own reorganization will comprise

further afield, and will promote domestic travel to other

many steps, as we must eliminate superfluous costs and

destinations in Latin America.”

common errors. For instance, a 10-minute delay incurs extra costs from the extended use of the airport’s infrastructure

In January, the exchange rate surpassed MX$20 per dollar

and delays other flights, but the cost in public perception is

and gasoline prices shot up due to the removal of government

even higher.” Optimizing flights is to everyone’s benefit, as

subsidies in what Mexicans called the gazolinazo. The rise

a delay at Mexico City’s airport is felt by every arriving or

in fuel prices can impact airlines as jet fuel represents an

departing flight and carried on to other airports.

average of 30 percent of operational costs. Furthermore, while Mexican airlines charge passengers in pesos all services

The airline uses travel agents as its main sales force, a

and parts are valued in dollars. The dollar-peso exchange

remarkable concept in an era where most companies are

rate will bring about higher prices for airlines, which will

betting on search platforms to increase their online sales.

eventually be reflected in the cost of tickets.

Now, the company is analyzing its marketing strategy to increase its online presence without changing its existing

Mexican airlines face another challenge: the Bilateral

alliance with travel agents. “Online sales are quickly gaining

Aviation Safety Agreement (BASA) between Mexico and

strength but in my opinion Mexicans still prefer to use travel

the US. Ratified last year, this agreement was met with

agents,” says Badia, remarking that one-on-one interactions

mixed reception by local airlines. “Opening the market

allow for a closer and more fulfilling relationship with clients.

up to competition is a positive sign but the US greatly surpasses Mexico in number of aircraft,” says Badía. So

While Magnicharters kept a sustained operational rhythm in

far, international airlines dominate the global market.

2016, they did feel the effects of a slowdown in the sector.

According to the Ministry of Transportation (SCT), of the

“Although 2016 was hard, we are satisfied with our results

39.1 million passengers that flew internationally, 27.6 million

and we hope our new route offering will lead us to growth.”

flew with an international carrier. Allowing more airlines to

For 2017, Magnicharters will continue to prioritize customer

enter the market may make it harder for Mexican airlines

service through its vast travel agent network as it aims to

to compete but, according to Badía, “the full impact of

increase efficiency and generate more routes and products

BASA has not been apparent. Some airlines are now able

for its passengers.

VIEW FROM THE TOP

NEW TECHNOLOGY SOLUTIONS TO IMPROVE PASSENGER EXPERIENCE Miguel Lei Legal Representative and Corporate Relations Manager for Airlines and Governments of SITA

Uriel Torres Commercial and Corporate Relations Director for Airports in Mexico and Central America of SITA

Q: How does SITA specifically support airlines and airports?

matches their preferences. Passengers dislike switching

ML: SITA works with several airlines that in total service 85

between different service providers so it is of interest to

percent of Mexican passengers, including Interjet, Volaris

provide a seamless experience.

and Viva Aerobus. In March 2016, SITA became Aeroméxico’s technology partner to deploy telecommunication services

Q: How are airlines and airports incorporating new

internationally. In 2016 we focused on improving Mexico’s

technology into business practices to benefit passengers?

airport telecommunications infrastructure network to better

ML: Across the sector, there has been a push toward

track passenger needs and to offer more cross-selling

improving passenger experience across many areas. IATA

through those methods.

passed Resolution 753, which will come into effect in 2018. This will require airports to implement better luggage-

UT: SITA is part of the industry. The company is a member

tracking systems, involving closer suitcase tracking at all

of many aviation organizations like IATA, ACI and ICAO, and

times to be sent to passengers’ mobile phones. For airlines,

is in close contact with both airports and airlines. We bring

online platforms represent opportunities to bring in extra

them together to create value for the industry.

revenue, improve their operational efficiency and provide better passenger experiences. Aircraft are large data

Q: How do passenger demands both at airports and in-

centers that generate information for several indicators.

flight influence operators?

Collecting, processing and sharing this information allow

UT: Passenger needs are increasingly considered in

airlines and passengers to make real-time decisions to

airport operations, especially Wi-Fi as many people

anticipate disruptions, delays and damages. Years ago,

request a constant internet connection during their time

pilots were limited to weather information at the time

at the airport. Other needs vary widely depending on the

of take-off and they received no updates if the weather

passenger’s profile. For instance, elderly people tend to

changed at their destination. Now, they can access this

prefer interacting with a representative much more than

information continuously and use it to change their flight

a younger traveler. But the cross-generational trend away

paths. This allows them to improve the flight experience

from passengers interacting with other humans has led to

and optimize fuel use.

most of the process, from booking to flying, being done online. Passengers also want online connectivity during

UT: Airports are also providing more security and information

flights just as they do on land.

services to the final user. This benefits passengers and airports are using this technology to acquire revenue through

ML: We have noticed passengers expect a personalized

new means. One strategy is to use business intelligence to

service during their airport stay, which can be provided

streamline passenger flow and lead travelers to areas that

through mobile marketing. They also want more automated

might interest them. Modern passengers are connected

services and updated information about their destination

through mobile devices and motivated to publish their

and the activities they can do on arrival. We have the tools

actions and interests. Cellphone applications can track this

and technology to generate a larger number of services,

information and use it to lead passengers toward retail stores

articles and promotions to final users. Offers can even be

and other amenities of their interest.

personalized to a passenger’s personal preferences. The only obstacle we face is convincing service providers and sellers to participate in the model as different stakeholders,

SITA is an air transport IT and communications service provider.

including airlines and retailers, compete for passengers’

The company provides personalized technology solutions

attention. The challenge is to get all of them to collaborate

to airlines, airports, aircraft, ground handlers, air navigation

and provide a single experience for the passenger that

service providers and international organizations

247

INSIGHT

DREAM TRIP JUST A CLICK AWAY RAFAEL DRIENDL Country Manager Mexico at KAYAK

Mobile devices and traveling are becoming inseparable

further with its Price Prediction Tool, which lets users know

with time. Offering or integrating into a mobile application

if it is the best moment to buy a ticket or to wait.

is a must for tourism companies because users want all the information at their fingertips so they can plan their trip

Another option for people who just want to travel on a

almost entirely online, says Rafael Driendl, Country Manager

budget but without any specific date is available through

Mexico at KAYAK.

KAYAK’s Explore option, where users only choose the

248

origin of the trip, their budget and the number of stops The fare aggregator and travel metasearch engine operated

they are open to fly through. The website generates

by the Priceline Group has carved a niche with its user-

options around a date and compares the cheapest days

friendly mobile website and app. Users need only specify the

to fly or make a reservation. Reviewing and checking

date they would like to travel, how many persons will travel

hundreds of websites and thousands of hotels, the website

and if they need a flight, hotel or even a vehicle. “We do not

accumulates the different prices so that passengers can

focus on sales, we focus on user experience and providing

compare options. This removes the need to visit many

quality results in a cheap and fast way,” says Driendl. “We

websites to find the best option within budget. After

are also proud of providing international or local airlines and

only two years in Mexico, KAYAK is already becoming a

online travel agencies, as well as independent or big hotel

favorite for online trip planning because it is transparent

chains, the opportunity to promote their services in more

with consumers who are tired of searching and not finding

than 40 locales where KAYAK is available, generating more

what they need, and also being misled by taxes and extras

options to the users and spreading out travel content.” Driendl says that KAYAK’s platform in Mexico is already stacked with providers and options for customers. The company aims to provide exactly what they want quickly and without fuss. The possibility of saving up to 30 percent is the company’s value proposition. “We want more Mexicans to understand how KAYAK can help them without selling anything. We are their travel counselor. Far from overwhelming people with information, we want them to find the one that matters to them, demonstrating why it is so popular in other places in the world.”

“

not always being included in the initial price, Driendl says.

We offer many choices for when you want to go just to one place, so you can choose without looking at many webpages and choose the best option”

Since airlines now use Big Data to price tickets, the agencies

According to KAYAK’s Mobile Travel Report of 2017, the

catering to those buying them have started using the same

dollar’s gains on the peso affected Mexicans specifically

tools. Trillions of daily calculations help transform Big Data

in terms of trip destinations. Driendl says that Mexicans

into tangible revenue opportunities for airlines and for

are traveling much more inside the country and that about

companies like KAYAK to offer exactly what passengers are

40 percent of the searches for vacations are to places like

looking for. The Innovation Enterprise says this data helps

Cancun and Mexico City. For business trips, Mexico City,

commercial airlines improve services but travel search

Monterrey, Guadalajara and Tijuana are growing, according

engines can also notify anyone that signs up when it is

to KAYAK. The company also noted that the average price

cheapest to fly. To encourage potential travelers to return

of the most expensive domestic and international flights

and buy when tickets are cheapest, KAYAK allows users to

from Mexico cost MX$14,245 (US$754) and MX$29,722

save flight alerts for a specific destination or date, or go even

(US$1,574), respectively.

INSIGHT

MARKETING DREAMS, SELLING THE IMPOSSIBLE OCTAVIO HERNÁNDEZ General Director of Discover the World

To grow in a market, airlines build off previous experience

money that could be lost through miscommunications. One

or contract consultants to help them understand the local

of the latest locations added to the portfolio is southeastern

market. Specialists are on hand to incubate entrant companies

China, home to a language that is not as widely spoken in

or boost ticket sales but beforehand, they have to take the

Mexico as English, for example. Discover the World says

first step into the market. Airlines such as Etihad Airways, Gol

signing with Hong Kong-based Cathey Pacific is among its

Airlines, Liat, Icelandair, Singapore Airlines, Air Berlin and Air

latest achievements and Hernandez ticks off many major

New Zealand looked to Mexico as a business opportunity to

airlines among his client-base. “Another client we will take

create new air routes. To be sure there was interest in traveling

on is Gol Airlines. Philippine Airlines is renewing its contract

to Hong Kong, New Zealand or Iceland, they needed to test

with us to further increase its visibility in Mexico.”

the water in Mexico first. To reach new customers, companies need to invest in brand Discover the World took the reins to help both budding

recognition. The most successful promotional strategies

and established airlines enter the local market. Most of its

among budding airlines is directly targeting clients, which

clients are offline and until they start flying to Mexico, simply

can be expensive. A commercial space on television during

planting the idea in a traveler’s head that a certain country is a

prime time for one day can cost up to MX$300 million (US$16

potential vacation or business destination is difficult. Discover

million) but this is a sound investment say the marketing

the World’s General Director, Octavio Hernández, faces the

experts. Hernández’ team reaches out to final customers

challenge of selling tickets to places no one flies to, “selling

by marketing at soccer games and tennis matches among

the impossible,” in his words.

other important sports events. But if its experts perceive better probabilities of success with an advertisement at a

“We work in the local market to make it feasible for our

supermarket, the team adjusts tactics. “We also manage social

clients to compete with established commercial airlines,”

media campaigns through which one can reach hundreds of

says Hernández. The international sales and marketing

thousands of people,” he says. “Plus, we promote ourselves at

representatives of travel-related companies open up new

corporations that do business all around the world and need

markets that incubator companies may begin to explore

to travel frequently.” Cemex, Mexichem, América Móvil and

subsequently, but not until after Discover the World initially

Grupo Bimbo are the largest Mexican international companies

broaches the topic with travelers. Investing their time, energy

and Forbes Mexico says at least 60 percent of each company’s

and money in creating interest in unexplored destinations is a

operations are international. The need exists for corporate

unique task, “and when we accomplish that goal, usually our

travel accounts and the potential to reach new destinations

competitors try to follow in our footsteps,” Hernández says.

is huge, assuming the transport links are created. “Our promotion focuses on telling the public that the destination

While online platforms overtake traditional travel agencies,

our clients travel to is fantastic. Then we promote the airline

Discover the World does not see either as competition.

with a clear message that will invite people to travel.”

“We are not an airline so people often ask why they should purchase from us,” says Hernández. “Online platforms are

By 2017, the company had accumulated 25 years refining its

electronic sources that help clients book a trip but they are not

technique in Mexico, helping domestic and foreign carriers.

comparable with Discover the World. We need to fill seats but

Mexican airline Aeroméxico re-entered Bolivia in the first

never stop looking out for everyone’s best interests.” People

quarter of 2017 and chose Discover the World, which has

prefer to talk to a local representative rather than someone

65 offices around the world, to help it re-establish a sales

in an airline’s facilities abroad. Hernández’s team acts as that

presence in the country. Having created interest in a client’s

local representative, often working with new market entrants

destination, Discover the World’s databases and PR contacts

that have no office in Mexico. This saves travelers time and

in several cities help airlines spread the word.

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INSIGHT

LEASING: THE SECRET TO SUSTAINABILITY CARLOS OLVERA Quality Director at Quality Aeronautical Engineering Consultants (QAEC)

The golden clients of the aviation industry are greener

strengthen the offering. Lone consultants would struggle

than they give themselves credit for. Many airlines offset

to offer such a broad service, he says.

their carbon footprint with environmental actions and are

250

also in on the sharing-economy trend led by Uber, Cabify

QAEC is mobile and goes to clients when needed. For long-

and BlaBlaCar. The most important tool in the industry, the

term projects, it works in temporary facilities at the client’s

aircraft, should not be parked for long periods, unused or

site, especially phase-ins and outs at MRO workshops. “Our

undermaintained, says Carlos Olvera, Quality Director of

next trip will be to Abu Dhabi in synergy with AMROS-

Quality Aeronautical Engineering Consultants (QAEC).

Global, where Etihad Airways Engineering will receive us at their offices for the final check needed to lease two

The biggest airlines switch planes when one has higher

aircraft from Grupo LATAM to a new airline in Germany,”

demand than another, leasing them between themselves

says Olvera. This type of leasing is a natural balancing

and ensuring that this resource is not collecting dust in

act of resources ahead of expected demand fluctuations.

storage. “We are phasing aircraft into airlines’ operations

Economic complications in Brazil have caused demand

and work with financers, investors and lessors,” says Olvera.

to drop but LATAM has secured many new contracts and

The Mexican consultancy has reached out to clients around

wants to keep growing. The airline can lean on other aircraft

the world. Its international operations happen in synergy

owners to use their aircraft and profit from this.

with AMROS Global and in association with companies including Elix Aviation, Grupo LATAM, Air Berlin and Viva

While new planes are being manufactured to fill long

Aerobus. The company can offer quality insurance, audits

order lists from the likes of Mexican airline Volaris, which is

and certification support. MROs most frequently are looking

taking on several new Airbus units in 2017, and Aeroméxico,

to be certified by FAA and EASA or South American

which unveiled its Quetzalcóatl Boeing Dreamliner, airlines

authorities.

often phase in slightly older aircraft to stay competitive. Southwest swapped out some of its oldest models in 2016

Just like every part of the aviation industry, leasing is

to avoid “spending lavishly” since fuel costs were low

subject to strict controls. Nearly new aircraft must enter

enough to make the less-efficient, older Boeing 737 jetliners

and leave airlines’ fleets in adequate condition, with the

viable, as Bloomberg reported. Delta also raised its hand

correct technical records and onsite physical reviews. QAEC

for Gol Linhas Aereas Inteligentes’ unneeded 737s, and

has mastered the communication needed to help its clients

United Continental imported two dozen used Airbus A319s

incorporate and return airplanes safely. The customers that

from China. The reason for replacing very old planes with

most request these services are large airlines that want to

younger, but not new planes is primarily that maintenance

phase aircraft in and out of operations and lessors that want

practices have improved in recent years. The 5-year-old

to redeliver or deliver aircraft.

units that QAEC is helping its star client Viva Aerobus with are cheaper than new airplanes, and Viva Aerobus

“We compete with freelancers but recognize that

may look for more support from the consultancy when it

companies usually prefer the reliability that a company

phases out the oldest units, “especially if they want to save

can offer,” says Olvera. If one consultant is sick or a job

money during phase-outs,” says Olvera. The managers and

requires more than one expert, a consultancy can cater

directors at Viva Aerobus have given shining evaluations

to a greater variety of needs, especially when that firm

of the QAEC's team for having provided solutions and

has teams that specialize in inspections, legal matters

simplifying processes, he adds.

and technical records. Monitoring airworthiness also demands the highest quality inspections and maintenance,

Technology represents another area with which QAEC

and specialization within divisions of a company can

is adept. Certified Aviation Managers (CAM) evaluate

Fisrt flight of A350-1000 / Airbus

251

aircraft for incorporation into fleets. Their job can be time-

can provide them all the information necessary in advance

consuming if they need to check more than 20 boxes of

and documents ready to sign,” says Olvera.

records for a 5-year-old aircraft, so technology as usual simplifies laborious tasks. “New companies tend to ask us

In any other industry, working internationally would

to scan records and the Boeing 737s are 30 years old so

herald complicated dealings with authorities. While the

may need 150 boxes of data digitalized.” Olvera’s team not

International Civil Aviation Organization (ICAO) is pushing

only stores this digital information but organizes it into a

to homogenize standards, there are universal standards

user-friendly library for each aircraft to prove when a unit

in place that many airlines and MROs already observe.

is airworthy. Protecting these records maintains the price of

“Most contracts that lessors create are programmed for

the aircraft, Olvera explains. “If part of an aircraft’s records

FAA and EASA regulations, the latter of which is slightly

is lost, that unit’s value can be lowered by 70 percent.”

stricter. But in this instance, we are dealing with Brazilian registered planes, so we have to be aware of the Brazilian

QAEC saves lessors money in other ways, on top of

government’s regulations for aircraft,” says Olvera, an expert

protecting their true value. The team ensures aircraft are

in South American, Mexican, US and European regulations

returned in the same condition in which they were first

after 20 years in the industry.

rented, even after five or six years, and that lessors are protected by an aircraft retirement plan. Airlines can

The company is looking for greater exposure going

be sure they are taking on quality aircraft following the

forward and to increase their partnerships with airlines and

consultancy’s record review and physical inspections.

international companies like AMROS Global. Being flexible to travel and also bilingual helps Olvera and his associates

Olvera’s staff count sways between five and 15 consultants,

stand out, on top of their decades of experience and

depending on demand. Being a smaller team means

contacts in the industry. Going forward, “LATAM Airlines is

quality is easy to control and maintain but in the case of

one of my main targets, the biggest airline in Latin America

emergencies, QAEC is as flexible as airlines are when it

that competes with Avianca, Delta Airlines and other US

comes to “sharing” resources. “When Viva Aerobus was

companies,” he says. Olvera sees more potential with this

phasing out all their Boeing 737 airplanes at once, we posted

airline than with North American companies as the latter

10 records specialists at its facilities between October 2015

tend to choose local suppliers and advisers.

and March 2016 to help the airline with the six planes.” This requires complete trust and transparency between QAEC

To stay competitive, airlines must keep offering competitive

and the airline, as a successful phase-in or out demands total

prices and differentiating themselves as high service or low-

access to databases and filing cabinets. This trust permits the

cost airlines. QAEC will continue to help them to this end,

consultants to work independently of the airline’s team. “If I

keeping operative and administrative costs down. Their

have total access, then I have no need to bother our client’s

services will continue to adapt to changes in the industry,

personnel, such as engineers, technicians and managers, and

“solving almost all questions.”

Lufthansa first class lounge

EXECUTIVE AVIATION

Mobility conditions, security concerns and efficient time management have been factors that have boosted the development of Mexican executive aviation. The country can boast the second-largest aircraft fleet in the world, after the US. Executive aviation is increasingly being considered a tool for corporate travelers and models of aircraft ownership are changing. While the sector has faced its own challenges due to fluctuations in the US dollar-peso exchange rate and the high cost of jet fuel, it is confident that demand will continue to be strong, especially as an increasing number of businesses realize the advantages of executive aviation and its use as a business tool. Mexico has approximately 300 private aviation companies, most of them with only a few aircraft, and the sector is expected to continue growing especially with the introduction of newer and more sophisticated aircraft, which is of the utmost importance for an industry that prides itself on its exclusivity.

Individuals, companies and governments are beginning to explore the use of executive aviation as a mobility solution and a leisure activity. Featuring the views of executive aviation companies, this section will cover the main challenges the sector faces, including rising dollar costs.

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CHAPTER 11: EXECUTIVE AVIATION 256

INSIGHT: Humberto Lobo, ASESA

257

VIEW FROM THE TOP: José Zepeda, Transportes Aéreos Pegaso

258

INSIGHT: María Hinojosa, Eolo

259

INSIGHT: Manuel Girault, Universal Aviation Mexico

260

INSIGHT: Juan José Simón, SAE

261

INSIGHT: Xavier Cabello, Avianet

262

INSIGHT: Bernardo Moreno, Redwings

263

VIEW FROM THE TOP: Alexis Javkin, Aerolíneas Ejecutivas

264

VIEW FROM THE TOP: Jorge López, Aeroélica

265

INSIGHT: René Barquet, AeroRent

255

INSIGHT

ENERGY REFORM HELPS LIFT HELICOPTER SEGMENT HUMBERTO LOBO Director General of ASESA

The oil and gas sector is the main market for commercial

CFE. Lobo says the company focuses mostly on operations

helicopter operators, so the downturn in the fossil fuels

for the oil and gas sector but is diversifying into executive

industry has heavily hit helicopter sales. Fortunately, both

aviation and energy, renewing and improving its services to

sectors are expected to recover, says Humberto Lobo,

remain competitive. “The oil and gas sector has been facing

Director General of Aeroservicios Especializados (ASESA),

a crisis for some time, but this forced players in the industry

and local helicopter operators are now investing to prepare

to re-evaluate their differentiating value propositions,”

for an upturn.

he says. “During this period ASESA’s team focused on

256

improving itself, becoming more cost-effective, enhancing But the drop in oil prices has had consequences far beyond

productivity by improving our processes and services.”

the oil and gas sector. An often-unconsidered victim has been aviation. Operations in oil and gas represented over

The Energy Reform is one reason business looks brighter

a fourth of all commercial operations worldwide in 2015 for

for Mexican helicopter operators. “The Reform will see

AugustaWestland. At its peak, in 2013, annual helicopter

new players enter the sector so it is an opportunity for us

sales surpassed US$6 billion, leading major manufacturers

to attract new clients.” Many foreign players are showing

to develop and launch new models targeting this sector,

significant interest in Mexican operations, including BP,

such as Airbus Helicopter’s H175. The Teal Group expects

Chevron, Citla Energy, Repsol and Shell. But working with

sales to fall to US$4.95 billion in 2017. As the price for a

these companies will not be on autopilot. “The new players

barrel of oil weakened, so did all operations at oil platforms

have very specific certifications and training standards,

and with them the need to travel to and from platforms.

which we must meet to work with them.” ASESA has a ready

“2016 was a difficult year for all helicopter operators, mainly

fleet for both offshore missions and executive aviation for

due to the status of the offshore market,” says Lobo.

these potential clients, including Bell Helicopter’s 407, 429 and 412 models and an AgustaWestland AW139. “We have

ASESA, part of Grupo Lomex, works mainly in three sectors:

the largest helicopter fleet in Mexico, devised specifically to

fossil fuels, energy and executive aviation. With bases in

address the country’s needs. There is a specific helicopter

Mexico City, Monterrey and Carmen City, ASESA can readily

for each specific mission.” The AgustaWestland is a recent

access the entire country and provide services to offshore

acquisition, reflecting the company’s expectations for the oil

operators across the Gulf of Mexico. The company also has

and gas industry. “In 2016, we incorporated our first AW139,

maintenance workshops, hangars and FBOs that provide

which has a longer range and provides unique capabilities

administrative and other support services. With 40 years

to offshore clients.” This twin-engine helicopter has a

of experience, ASESA’s name is well-known in the sector

capacity for up to 15 passengers. Leonardo-Finmeccanica,

and the company prides itself on training 95 percent of

which acquired AgustaWestland in 2016, says the aircraft

helicopter pilots in Mexico.

surpasses other intermediate twin-engine helicopters in speed, capacity and passenger cabin space. In this last area,

The helicopter rental and servicing company attributes its

the OEM says the helicopter’s speed and range are ideal

longevity to its customer assistance, quality and personnel.

for offshore missions.

“We work very hard to be at the forefront of our customer’s minds by providing excellent services,” says Lobo. “We

ASESA is thus well-prepared to serve the increased number

always try to accommodate our client’s individual needs,

of clients arriving as a result of the Energy Reform and to

recognizing every client is different.” This strategy has

offset the slowing demand in oil and gas industry. But the

allowed ASESA to generate many loyal customers –

company is still looking to increase the number of units it

returnees represent over 90 percent of its client base. The

can offer. “We are analyzing a fleet expansion and expect

company has worked with big names such as PEMEX and

to acquire new aircraft in the next two years.”

VIEW FROM THE TOP

SHUTTLING THE INDUSTRY FROM A TO B JOSÉ ZEPEDA Operations Manager of Transportes Aéreos Pegaso

Q: What are Transportes Aéreos Pegaso’s specifics in terms

with three levels of expertise, each comprised of 250

of air bases, capacity and aircraft?

flight hours, including the operation of the newest aircraft

A: Transportes Aéreos Pegaso is a Mexican helicopter

technologies. For instance, the pilots operating the new

company. We recently diversified from solely operating in

EC175 model have a minimum of 6,000 hours of experience

the oil city of Ciudad del Carmen to include Villahermosa,

with our company. Pegaso also has a risk-management

Dos Bocas and Matamoros. We are in a position to cover

program to further improve the performance of our pilots.

other locations in the Gulf of Mexico, which we are still analyzing, particularly in the northern portion of the Gulf.

Q: What are the main concerns from oil and gas clients and

Our current northern locations supply deepwater projects

how does the company address them?

while our southern locations supply both deepwater and

A: Those are usually related to incident or accident

shallow-water projects. Our southern projects require small

statistics and probability. A fundamental component for

to medium-sized helicopters, while our northern projects

any helicopter or aviation company is its risk-mitigation

necessitate medium to heavy aircraft. The passenger

strategy. Pegaso is proud to have accumulated 140,000

capability of Pegaso’s fleet ranges from six to 16 passengers

flight hours without incident. Our last accident was in 2003.

and our models include Airbus Helicopters EC135, EC145,

Our success is largely due to the reliability of our Airbus

EC155 and the new H175. We choose our aircraft models

fleet, with smooth motors, fast engines and an important

in line with the new rules outlined by the International

comfort factor.

Association of Oil and Gas Producers (IOGP). Q: What factors influence the makeup of Pegaso’s fleet? Q: What kind of aircraft demand are you seeing at each

A: We have been operating these models for a long time.

location and what influences that?

When we first obtained them, we did so under a lease

A: We have eight helicopters in Ciudad del Carmen, two in

because we decided it was too early to integrate them

Dos Bocas, two in Villahermosa and four in Matamoros. Our

into our portfolio. Today, demand is changing, the market

onshore business in Toluca has been active with corporate

is evolving, especially in deepwaters, and I think the new

flights, provided by two helicopters. At the moment, our

aircraft that are now being developed will eventually be in

entire company fleet comprises 26 helicopters but this

high demand. The new Airbus helicopter is the AC160, for

year we are operating only 20. Our fleet size provides an

example, which will debut in 2019. We are excited about its

important comparative advantage because we can offer

eventual potential but right now we feel it is too early to

each client two aircraft, one main aircraft and a backup. Of

incorporate it into our portfolio since the aircraft is still in

the remaining six helicopters, some models are rotating

development. We are not opposed to the idea of integrating

through our maintenance cycle while others are stored at

this model in our fleet in the coming years but it is not our

our hangars in Ciudad del Carmen. These stored aircraft

primary concern at the moment. Also, integrating a new

help us respond quickly to unanticipated requests from our

model into a fleet takes between 18 to 24 months, so any

customers.

decision we make today will not come to fruition until that time. Our fleet strategy must be adapted to the evolution

Q: What is your strategy to ensure the best pilots are flying

of the oil market and its inherent risk factors.

with Transportes Aéreos Pegaso? A: Most of our staff are ex-military or ex-marine pilots with extensive training. Some of them instruct the remaining

Transportes Aéreos Pegaso offeres executive air transport

team members on the new standards, regulations and

services. In 1983, it won its first PEMEX contract to shuttle

required training, which is then incorporated into their

passengers and cargo to platforms on the Gulf of Mexico. It

everyday tasks. We have a training program for new pilots

has completed more than 1.1 million flight operations

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INSIGHT

FLYING IN SAFE HANDS MARÍA HINOJOSA Director General of Eolo

The executive aviation market in Toluca continues to grow,

demanding than Mexican regulations. For that reason, the

increasing competition and forcing businesses to adapt to

partnership has provided Eolo’s customers with a sense of

an increasingly demanding clientele, says Maria Hinojosa,

familiarity that has allowed the company to retain them

Director General of Mexican FBO Eolo Plus, which has

as frequent clients.

launched its own training center focused on air and ground safety to meet the new challenges.

To maintain the quality of its services, Eolo has completed a series of certifications, such as the International Standard

258

“The main challenge FBOs are facing is finding and

for Business Aircraft Operations (IS-BAO), WYVERN

retaining well-trained ground handling staff so they can

and WINGMAN. It is working to obtain the International

keep providing the level of services that their high-profile

Standard for Business Aircraft Handling (IS-BAH).

clients demand,” says Hinojosa. Eolo provides charter, hangar space, rental offices, catering and fueling services

Eolo also provides base fueling and ground handling

at Toluca International Airport. The FBO’s training center

services, which is in demand for international operations.

has been in the making since 2016, says Hinojosa. “We

“With recent changes such as the Energy Reform, Mexico

believe in education. This is what our country needs and

is gaining popularity as a business destination for many

must be implemented right now.”

companies worldwide,” says Hinojosa.

Eolo’s training program focuses on safety inside and outside

The FBO has faced several challenges in Mexico’s current

the cabin, with clear adherence to Mexican and International

economy. The peso-dollar exchange rate has dropped

regulation. In previous years, 100 percent of Eolo’s employee

around 15 percent since January 2017 although it is

training was outsourced but now 80 percent is done in-

up in comparison to the previous year. “Under these

house, says Hinojosa. One of the company’s future goals

circumstances, the most affected element of an FBO

is to provide these education services to other operators

is the sale of services in advance at a fixed rate,” says

and FBOs. The company sees this as a significant market

Hinojosa. The company mitigates this risk by pricing all its

opportunity. “Travel to the US has become more expensive

services in dollars. “We do not give fixed rates in advance.

and sometimes more difficult. As a result, many domestic

Sometimes you can get compensated by the exchange

operators, and even those from South America, prefer to

rate but this industry normally operates in US dollars,”

train their staff in Mexico,” she says.

says Hinojosa.

Beyond the training center, Eolo´s services evolved

Eolo is prioritizing security and good service over

and diversified in 2016 as the company bolstered its

fleet expansion and also has high expectations for the

international reputation. To become more attractive

company’s short-term growth at MMTO. Mexico is the

and increase its national and international market, Eolo

second-biggest country for private aviation in the world

allied with Jetex, an international handler and FBO chain.

after the US, according to Forbes, and 10 percent of these

“Jetex has an excellent reputation in the sector because

operations are clustered at MMTO, according to Milenio.

it seeks not just to comply with national and international regulations but to exceed in safety and quality. Working

“2016 was a very important year for Eolo,” says Hinojosa.

with Jetex is helping to boost Eolo’s business because

While the company grew thanks to its alliance with Jetex,

it has high standards and very strict policies. Its quality

“the main part of the success was the consolidation and

is reflected in the company’s customer service,” says

restructuring of the company.” Expectations for 2017 are

Hinojosa. She explains that sometimes customers are

for 10 percent growth in revenues. The FBO also plans

more familiar with international standards, which are more

to improve security, compliance, profitability and service.

INSIGHT

GETTING BIGGER, GETTING BETTER MANUEL GIRAULT General Manager of Universal Aviation Mexico

Demand for private aviation services at Toluca International

customers. “After October, tourism from the US will begin

Airport (AIT) is growing and clients are asking for more

to rise as more US citizens come to Mexico to escape winter.

and better services, according to Universal Aviation Mexico,

The high season for locations such as Los Cabos, Cancun,

which provides exclusive services ranging from aircraft

Puerto Vallarta and Acapulco is from November to May,”

storage to handling services and support.

he says.

“Toluca´s executive aviation sector will continue growing

As the aviation market gets stronger, the business

and improving,” says Manuel Girault, the company’s General

environment gets more difficult. “The sector needs more

Manager. According to Airports and Auxiliary Services

rules, laws and instructions. Airports and governments need

(ASA), AIT was among the top 10 airports for domestic

to adapt to new technologies that are affecting aircraft,”

flight growth in 2016. That year, the airport handled a total

says Girault. Universal Aviation adheres to international

of 9,066 flights according to DGAC. In just the first five

safety standards through the implementation of Safety

months of 2017, total flights numbered 8,671, showcasing

Management Systems (SMS), which require the adaptation

Toluca’s considerable growth. Of those flights, about 1,000

of existing procedures to address all security regulations.

were international trips from and to the US. The US Federal Aviation Administration (FAA) describes Universal Aviation Mexico, created through a partnership

SMS as products and services that integrate modern safety

with Avemex, is the local branch of Universal Weather and

risk-management practices into automated systems. The

Aviation, an international FBO network that operates in

goal, according to the agency, is to emphasize safety

80 countries. The FBO provides services such as aircraft

management as a fundamental business practice. A new

storage, customs and immigration coordination, fueling,

regulation that is expected in the near future is the mandatory

transportation, catering and general flight support. “Mexico

implementation of Automatic Dependent Surveillance-

plays an important role for the company,” says Girault. In

Broadcast (ADS-B) Out equipment in all Mexican airplanes

Toluca, the company has comprehensive services that

to make operations safer, says Girault. ADS-B Out-equipped

include hangars, comfortable pilot and passenger day-

aircraft transmit flight data continuously to track location

rooms and air-traffic services such as catering and fuel.

and altitude. The implementation of this equipment can be

“There are only a few operations of this size in the world,”

accomplished by imposing flying regulations but Girault

says Girault.

adds that these rules need to be faster and more dynamic.

While its only FBO in Mexico is located at Toluca, Universal

One of Universal Aviation Mexico’s top goals is to maintain

Aviation operates in more than 50 Mexican airports,

growth. The FBO wants develop a new, larger space to

servicing customers from Mexico and abroad. “Universal

accommodate more passengers and will build a hangar to

Aviation handles 30 percent of flights coming from the US

increase the company’s operational capacity. The plan calls

to the city,” says Girault. “Eighty percent of our customers

for 5,000m2 of space with a capacity for 12 to 15 planes

come from the US. They choose Universal Aviation

depending on their size. Construction will begin in October

Mexico for the quality service we offer. Our business

2017 and is expected to be completed in the first quarter

follows procedures used all over the world to ensure safe

of 2018. The hangar will be available to both national and

operations. We have high standards for customer service

foreign aircraft. Universal Aviation is also targeting growth

and provide personalized treatment to every client. Our

outside Toluca but this requires an analysis of existing air

goal is to make travel easy for customers,” says Girault. He

traffic to see which areas are the best fit for its services. The

expects the number of foreign clients to increase because

company is analyzing several locations, including Monterrey,

Mexico is a popular vacation destination for his foreign

Guadalajara, Cancun and Los Cabos.

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INSIGHT

FBO EXPANDS, RENOVATES TO BOOST CLIENT BASE JUAN JOSÉ SIMÓN Business Development and Innovation Manager of SAE

Location, location, location. That old real estate adage is also

season and on the client's needs. SAE’s fleet includes a Learjet

a key selling point when it comes to attracting and retaining

31, Learjet 60 and two Twin Commanders. Its latest acquisition,

clients in the private aviation segment, says Juan José Simón,

a Challenger 601, can accommodate 12 passengers. Its diverse

Operations Manager at Servicios Aéreos Estrella (SAE).

fleet allows SAE to provide tailored air taxi services to suit the needs of a variety of client profiles. To this end, SAE invested

260

“SAE provides a great location at Toluca International

in a new pilot zone as part of a wider renovation, which Simón

Airport (AIT). We have the largest FBO in Mexico and can

expects will make the FBO more attractive to pilots. The new

accommodate up to six simultaneous dispatches for all sizes

center will offer many amenities, including a new cafeteria,

of business aircraft. Our hangar is the closest to the airport’s

lounge, passenger area and more private offices.

immigration offices and authorities, which greatly facilitate expediting incoming and outgoing international flights,”

With an eye to future growth, SAE is focusing on exceeding

says Simón. SAE, which offers FBO, air taxi and maintenance

customer expectations and attracting a new portfolio of

among its services, expects to take advantage of its optimal

clients, both domestic and international. “Our main strategy is

location to attract more foreign customers. On average,

innovation in all the services we provide, striving for consistent

the company performs 40 daily operations, although it has

customer satisfaction. We are keeping a strong eye on

executed as many as 80 operations per day depending on the

changing market dynamics, so we can take proactive actions.”

INSIGHT

MONTERREY FBO FOCUSES ON PILOTS XAVIER CABELLO Director General of Avianet

Monterrey calls itself the industrial capital of Mexico, an

Due to the nature of its business, the shaky US-Mexico

important business center from which high-level executives

relationship heavily impacted Avianet. In 2017, the company

travel. Some prefer to travel by plane than driving

got off to a slow start as many businesses were uncertain of

three hours to the border and these customers expect

the policies that the US would take and how those policies

personalized attention and around-the-clock service.

would affect them. “For us, the impact of President Trump

Owner-pilots flying for pleasure expect the same service

taking office was noteworthy,” says Cabello. “In previous

as corporate passengers, however, and this is just the niche

years we usually received two aircraft per week, but this

that Avianet serves with its FBO.

year we had only received three in the first quarter of 2017. The situation began to turn around approaching the Easter

Avianet focuses on providing coordination services for

break with an influx of aircraft, which we believe also marks

aircraft and pilot crews rather than passengers whose

a turnaround for the industry.”

needs are catered to by other companies at the airport. “Our market niche is different to others in the sector as

Cabello also reports a reduction in traffic to the US border

most of our clients are owner-pilots who use the aircraft

from the beginning of the year, caused by unfavorable

mostly for pleasure trips,” says Xavier Cabello, Director

exchange rates for those buying dollars and fear surrounding

General of Avianet.

the treatment awaiting Mexican visitors to the US. ¨These claims are unfounded,¨ says Cabello. “As far as we have

Operating out of Del Norte International Airport (ADN),

seen, Mexicans are not treated poorly at the US border

the only airport dedicated exclusively to general aviation,

despite news and radio reports scaring off travelers. But the

offers advantages for private users. These include increased

effects of this perception ripple through the sector.” The

security and a complete service system for private aircraft,

exchange rate has also impacted the FBO’s maintenance

including air taxis, FBOs and MROs. The airport also

center. “We imported an engine at the beginning of the

constantly renovates its terminal, landing track, signage

year and import taxes amounted to MX$196,000. Importing

and control tower. Cabello has 45 years of experience in

the exact same engine in April saw import taxes of only

the sector and has seen the airport grow in both flights

MX$140,000.”

and hangars. Relationships between both countries are still strong, The FBO mostly works with small and medium-sized

fortunately. Cabello says investment will continue to

aircraft, like Pipers and Cessnas, which are popular in the

flow into the country. In fact, many private owners are

region as they are small enough to land on users’ estates

taking advantage of cross-border fluidity to streamline

in the city suburbs. Clients also use them to visit cities just

aircraft acquisition and handling. Many aircraft flying into

across the US border, including McAllen, San Antonio and

ADN operate with foreign registration plates, about 50

Brownsville. “Our clients are partisan to the Cessna 206,

percent of them in Cabello’s estimation. This is because

a versatile airplane that adapts to their operations,” says

Mexican aircraft operating under a US regulation fall into

Cabello.

a regulatory loophole. “Mexican regulations are the same as those in the US but the process here is convoluted,

The company’s clients include major corporations, such

slow and centralized in Mexico City, so it is often easier for

as Home Depot, Coca Cola and Johnson Controls. Avianet

aircraft owners to operate under US plates,” says Cabello.

also works closely with International Cargo and Corporate

He believes that the situation will change. “Most Mexican

Services (ICCS), this company has a partnership with

aircraft owners are willing to comply with regulations and

Air Routing International, one of the largest handling

only dislike the long and complex paperwork they have

companies for corporate aircraft in the world.

to provide,” he says.

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INSIGHT

SHARING ECONOMY KNOCKS, PRIVATE AVIATION ANSWERS BERNARDO MORENO CEO of Redwings

There is little doubt that the sharing economy has been a

many sectors. “The main challenge we faced in 2016 was

disruptive force across business sectors, influencing markets

the peso devaluation at the end of the year, which caused

from cars and houses to crowdfunding. Private aviation

a market contraction and a reduction in demand for our

expert Redwings believes the same principles can be applied

services,” says Moreno. While demand shrunk, the company’s

to air travel.

responsibilities remained constant. “We have several leases valued in dollars that we had to continue paying so our

“The sharing economy is growing so much that it is now 262

operational costs rose by 35 percent for the year.”

knocking on our door,” says Bernardo Moreno, CEO of Redwings, which also operates an FBO and a maintenance

To address this, Redwings is turning to novel ideas. Other

base in Queretaro. “It has altered the way we view

projects it is developing along similar principles include

transportation and housing during travel. We are expanding

a membership program for regional flights that will allow

the principles of the sharing economy into private aviation.”

individuals to use business aircraft to fly as much as they

The sharing economy is defined as the preference to pay

want within a set of business and leisure destinations. “In

for assets or services on demand instead of owning or

this model, clients do not buy a single aircraft but access

subscribing to long-term contracts.

an entire fleet,” says Moreno.

Redwings’ project takes the idea of fractional aircraft

The company also is strengthening other business divisions.

ownership one step further. In this model, several users share

“Considering the market’s behavior, we might increase

the costs of buying and operating an aircraft. Moreno’s goal

our focus on tourism. Helitour, our tourism arm, has

is to provide on-demand flights through an app the company

enjoyed significant growth because Mexicans are traveling

developed. “The private aviation market is changing,” says

much more within Mexico,” says Moreno. “We have been

Moreno. “It is now taking an entirely new shape.”

successful in promoting the brand and in increasing our market share for tourism in Mexico City.” The success of

Using the app, clients subscribe to a program that will allow

this product led Redwings to begin offering the service in

them to book a number of seats in a private aircraft flying

Queretaro in June and the company expects to include San

to a predetermined location. The program will launch with

Miguel de Allende, Guanajuato by the end of 2017. “Helitour

operations between Mexico City and Queretaro in July 2017.

was born from the need to fill unoccupied helicopter seats.

More flights will be opened depending on demand, Moreno

We have gradually increased our focus on this program and

says. “With this program, we are trying to democratize the

now we dedicate one helicopter exclusively to it.”

use of private jets,” he says. “We do not know the outlook of this new market. As a company, our goal is to innovate how

While the company has many projects in store, it is still

we market and sell our product.”

facing challenges. “The main problem the sector is facing is ‘pirate’ aviation services,” says Moreno, referring to

In an industry that ebbs and flows with economic fluctuations,

operators flying without the necessary certifications. “The

the ability to adapt can determine winners and losers.

regulatory authorities must make a stronger effort to

“Aviation is a very elastic industry. Once cashflow shrinks,

stop this practice for public safety,” he says. “The existing

the first thing that managers will cut is what they perceive

regulations are good but they are not properly enforced,

as a luxury, thus reducing or stopping the use of private

especially in the case of foreign aircraft.” Other challenges

aircraft,” says Moreno.

are political in nature. “The Mexican market will continue growing at least until the first quarter of 2018 when the

Since late 2016, Mexico’s economy has faced internal and

country’s presidential election campaign will be in full

external challenges that have caused a slowdown across

swing,” Moreno says.

VIEW FROM THE TOP

UBER FOR BUSINESSPEOPLE, A ONE-STOP SHOP FOR PRIVATE FLYERS ALEXIS JAVKIN Director of MexJet for Aerolíneas Ejecutivas

Q: What strengths help Aerolíneas Ejecutivas compete in

operates in US dollars. When the US dollar rose to MX$22,

the executive aviation market?

it affected our commercial costs. Many of our clients were

A: Aerolíneas Ejecutivas is the oldest private aviation

concerned and reduced expenses related to business trips.

company in Mexico. We cover everything in the business aviation sector, including FBOs, MRO services, aircraft

Q: How do you expect demand for Aerolíneas Ejecutivas’

sales and management of private aircraft. These business

services to evolve in the coming years?

units are autonomous and work as separate businesses,

A: It would be naive to think that the private airline business

each with its own executive management that reports

model will stay the same. Companies need to innovate,

directly to the General Manager of Aerolíneas Ejecutivas.

especially considering that customers want time flexibility,

This helps to set clear goals and development strategies

lower costs and more availability. Clients in Mexico are

according to each business.

changing their mindset from owning a plane to renting. This can provide many benefits but we must also understand that

We also advise on taxes, financing and regulatory matters

clients are not as loyal to one company as they were before.

for our customers. Aerolíneas Ejecutivas has three MROs in Mexico for private aircraft, two in Monterrey and one

Furthermore, a growing number of unregistered aircraft

in Toluca. MexJet, a business with 30 planes, is the third-

are permeating the market. If regulators do not limit this,

largest division within Aerolíneas Ejecutivas. The company

it will be very easy to have 4,000 private planes in Mexico

acts as an Uber for businessmen, allowing them to book a

but this will not generate positive competition. Clients will

flight through an app without worrying about maintenance

have two options: rent a cheap, unregistered aircraft that

and other expenses. Aerolíneas Ejecutivas provides one-

may not follow the safety regulations established by local

stop, comprehensive services. Our main advantage is our

authorities or rent from a serious professional company. The

experience. We are always ahead in security and certifications

government needs to intervene and establish rules so all

and we have set many industry standards.

companies can compete under the same conditions.

Q: What hurdles has Aerolíneas Ejecutivas faced and what

Q: What are your expectations for the private aviation

do you see as the main challenges for private aviation?

market in 2018, considering Mexico’s upcoming presidential

A: One of the biggest challenges is the use of N-plated

elections?

aircraft. These are US airplanes that are not regulated and are

A: We are forecasting 10 to 12 percent more flight hours

not supposed to operate in Mexico because they lack local

than in 2017, which illustrates our positive expectations for

certifications. The government should put strict regulations

the market and the company. We fly approximately 15,000

in place for these planes but they are normally allowed

hours per year, so it will not be easy to fly an additional 1,500

to fly, creating unfair competition for all private aviation

hours, which would mean flying five more aircraft. However,

companies. Almost anyone can get a plane in the US and

our participation in the market is growing, we have more

bring it to Mexico even if it is not registered, which is known

clients and we are working on better ways to take care of

as cabotage.

them. Our main goal is to grow at least 10 percent in revenue in 2017 in comparison with the previous year.

Q: How is the dollar-peso exchange rate affecting Aerolíneas Ejecutivas’ operations? A: Fluctuations in the dollar-peso exchange rate have

Aerolíneas Ejecutivas is a Mexican private executive aviation

mirrored the uncertainty in Mexico and are expected to affect

airline with almost 50 years in the market. Among its

the economy for the next two years. We expect this period

exclusive services, the airline has a subscription program

of instability to last until 2020. The private aviation industry

called MexJet

263

VIEW FROM THE TOP

PRIVATE PLANES CAN BE EFFECTIVE BUSINESS TOOLS JORGE LÓPEZ Cofounder and Sales Director of Aeroélica

Q: How does Aeroélica convince clients of the benefits of

on the market. In a few words, we offer our customers a

acquiring an aircraft rather than individual flights?

trustworthy company.

A: Business aviation benefits the economy worldwide in

264

several ways. It connects companies and individuals more

Q: Considering the high value of these products, how

efficiently, reducing travel time to areas with limited aviation

challenging is it to finance their acquisition in Mexico?

infrastructure and gives businessmen more schedule

A: Most transactions are often funded by a financial

flexibility. While business aircraft are described as luxury

institution. There are not many alternatives in Mexico as

products, they provide many benefits as business tools.

aircraft are considered to be high-risk assets. The market

As an example, a stop in Mexico City is required to be able

is constantly looking for sources to fund this multimillion-

to reach many locations within the country on commercial

dollar transaction, which most of the time ends up being

airlines, which is inefficient and time-consuming. The

financed by US financial institutions due to their competitive

flexibility acquired with a business aircraft cannot be

advantages. We believe this fact represent a business

matched by commercial aviation. This is one of the main

opportunity for Mexican financial institutions .

arguments that customer’s value during the decisionmaking process.

Q: What new projects is Aeroélica developing and how do these benefit clients?

Q: How does Aeroélica differentiate itself from other

A: Our expansion plan will be to promote and increase the

companies?

sales of the new TBM, as the aircraft has a lot of potential

A: Aeroélica was founded with a main goal in mind: to offer

in our region. Sales have been increasing annually, with

an effective and dependable platform to sell, acquire or trade

very positive feedback from current owners. Pre-owned

business aircraft. We are the Mexican TBM authorized dealer

aircraft sales is another priority because we aim to increase

for Daher, a French company with a century of experience in

our sales at a sustainable rate without compromising our

aerospace innovation that manufactures the fastest and most

level of service. The TBM co-ownership program is being

exciting single-engine turboprop, the TBM 930.

developed in Mexico by Aeroelica as one of our goals for 2017. Under the co-ownership model, a couple of users

One of our company’s most important differentiators

have access to a new aircraft at a fraction of the cost by

is a personalized and customized service. We bring key

making an equal investment and sharing the responsibility

topics to the table to support our customer’s decision

of owning and operating the aircraft. We are planning to

on whether or not they should buy or sell a business

continue focusing on our core line of business as TBM

aircraft. If our customer is acquiring an aircraft the main

dealers, pre-owned aircraft sales and acquisitions and our

points to consider are: the aircraft’s annual utilization,

co-ownership program as our strategy to consolidate and

most frequent routes, number of passengers on board,

expand our market share.

operating budget, acquisition budget and personal preferences. If our customer is selling an aircraft we

Q: What were Aeroélica’s results for 2016 and what is your

provide real-time market insight and our sales strategy

forecast for 2017?

focuses on maximizing value and minimizing aircraft time

A: 2016 was good in terms of sales as we sold two new TBM 930s and six pre-owned aircraft, very similar numbers to 2015. On the other hand, the first half of

Aeroélica is both a broker for used aircraft and the exclusive

2017 was challenging because we faced higher exchange

representative for the TBM 930 in Mexico, which is the

rates and a difficult foreign political environment, which

fastest single-engine turboprop. The company aims to be a

created uncertainty. In 2017, our goal is to achieve the

dependable platform to buy and sell aircraft

same results as 2016.

INSIGHT

A GOOD LANDING DESPITE THE TURBULENCE RENÉ BARQUET Director General and CEO of AeroRent

Despite a bumpy take-off at the beginning of the year, 2017 is

says. “This harms the market because nobody wins.” The

shaping up as a success for the aviation sector. That is good

main issue with this practice is that customers start asking

news for Mexican executive aviation and logistic services

for impossible prices and every player loses. Another market

company AeroRent, which expects a healthy landing itself

issue bearing down on airlines’ performance are increases in

after a tumultuous year.

international fuel prices. IATA considers this is a key hurdle on a global scale that is heavily hitting local airlines. According to

IATA expects demand for passenger services in Latin America

Barquet, “AeroRent has found it hard to compete on aircraft

to grow by 7.5 percent in 2017. But variations in the aviation

fuel tariffs.”

market and rising fuel prices have made it difficult for small companies in Mexico to harness this growth. AeroRent faced

AeroRent is implementing a number of strategies to grapple

these issues at the beginning of the year. “January was hard

with these issues and continue growing. First, Barquet says

for us,” says Rene Barquet, the company’s Director General

the company provides a more personal service that meets the

and CEO. “We rarely have an airplane parked longer than a

requirements of today’s customers, who want to be treated

week, but from Jan. 1-23 all our planes remained grounded.”

well, have quality catering onboard and expect punctuality.

Lower than usual demand for that time of year was followed

Delivering these elements can help overcome pricing

by a recovery, but only during July and August. The market

concerns. “We compete with a fair price and provide a better

bounced back in September. To address the issue and spur

service,” he says. “This is the only way to compete without

demand, AeroRent hiked its advertising outlay, followed up

being disloyal to other players in the sector.”

on clients and, on occasion, reduced its prices to motivate clients to fly, Barquet says.

Second, the company is increasing its advertising to reach potential foreign customers as a way to diversify its client

AeroRent offers a variety of transportation services,

base. “Executives of large companies usually are unaware that

including chartering, aircraft brokerage and helicopter tours,

there are jets for lease,” says Barquet. “AeroRent is increasing

but executive transportation is its main activity. Barquet

its international advertising to reach more foreign clients

identifies government workers and company executives

because, although 40 percent of the company’s flights are

as the company’s most common clients. “We specialize

international, we only have Mexican customers.”

in transporting clients to several destinations around the country in a single or a few days, which is what executive

Its third line of action is to expand into new market niches.

customers generally want when they are on a business trip,”

“We are interested in entering the market of commonly-

says Barquet. However, the company also offers charter

owned aircrafts,” says Barquet. “This model consists of

services for families traveling together or for groups visiting

selling memberships for a predetermined amount of flight

conventions or congresses. “We have experience in the

time. Customers acquire a number of flight hours per year

charter segment and have flown for various companies,” he

for five to 10 years. Companies such as Fly Across have had

says. “For instance, for Corona we flew a group of VIPs to

sensational results from this activity.”

Cancun for the Corona Sunsets Festival.” He finds, however, that demand in the charter segment – especially for moving

Before AeroRent can adopt this model, Barquet says the

groups to conventions – has fallen a bit.

company needs to grow, standardize and modernize its fleet, a part of which is co-owned and partially administered by other

Barquet expects AeroRent to close 2017 well as the company’s

companies, although the airline has some aircrafts of its own.

situation has improved alongside overall growth in demand.

The company has 10 airplanes and two helicopters, including

There are, however, several obstacles. “Among the challenges

a Gulfstream III, Learjet 25, 35 and 60, Hawker 700 and 800,

is airlines cutting their prices at the expense of profits,” he

and a Boeing 737 that is administered by Global Air.

265

TechOps Mexico hangar

MRO OPERATIONS

Maintenance, Repair and Overhaul (MRO) services are essential for optimal aircraft operation, which requires vigilant and strict maintenance operations throughout the craftâ&#x20AC;&#x2122;s entire lifespan. As aviation continues to flourish in Latin America, so will the need for MRO services. Mexicoâ&#x20AC;&#x2122;s central location, its established aerospace industry and young workforce puts it in a good position to widen its share of this US$68 billion market. The country is increasingly seen as a good location for MRO operations, mainly due to its proximity to the country with the largest aircraft fleet, the US. Many workshops are appearing across the Mexican map, a few of them very large, but also smaller and more specialized operations. However, this sector requires constant updating as aircraft technology continuously evolves.

This chapter will consider the current status of MRO service providers in Mexico and their efforts to capture an increasing share of the national and international markets. The main topics of discussion in this chapter are the business opportunities that MRO owners have found, their market outlook and how crossborder competition is affecting their business operations.

267

CHAPTER 12: MRO OPERATIONS 270

INSIGHT: Juan Simón, CIMA Aviación and SAE

271

VIEW FROM THE TOP: Marcos Rosales, Mexicana MRO Services

272

VIEW FROM THE TOP: Jess Losada, TechOps Mexico

274

INFOGRAPHIC: MRO Operations

276

INSIGHT: Ruth Gutiérrez, ASENSA

Carlos Díez, ASENSA

277

INSIGHT: Roberto Corral, Innocentro

278

MRO SPOTLIGHT: SAE

280

INSIGHT: Vladimir Hernández, HTMC

281

INSIGHT: Roberto Marcos, Monterrey Jet Center

282

MRO SPOTLIGHT: TechOps Mexico

269

INSIGHT

SPLITTING SERVICES TO BETTER HANDLE THE MARKET JUAN SIMÓN Director General of CIMA Aviación and SAE

Mexico’s rapidly growing private aircraft fleet has created

are modernizing our FBO facilities, having reorganized our

the need for a large number of companies to service

charter operations, as we are becoming more selective about

them. Toluca-based Servicios Aereos Estrella (SAE) sees

which aircraft we manage or operate.” The company is now

investing in MRO as a sure-fire strategy for growth in

building a third hangar for MRO operations, which Simón

the aviation industry and investing in diversification as a

says will be the most modern in Latin America.

safeguard to corporate survival, especially in the current economic climate. 270

With growth comes a need to diversify infrastructure and employees. “We can no longer gather our MRO, FBO, charter

To take full advantage of emerging opportunities, the

and fractional ownership operations under the same umbrella

company separated its MRO operations from its FBO and

as they all require different skills, personnel and facilities. We

chartered flights. The former now flies under new branding,

separated the company’s MRO services into CIMA Aviación,

as CIMA Aviación. “MRO services in Toluca will continue to

which began operations in June 2017.” CIMA Aviación stands

grow mainly due to the peso-dollar exchange rate,” says Juan

for Aeronautics Engineering and Maintenance Center (Centro

Simón, Director General of CIMA Aviación and SAE. “Mexican

de Ingeniería y Mantenimiento Aeronáutico) and services

aircraft owners are now thinking twice about sending their

Twin Commander, Piper and Bombardier aircraft, including

aircraft to the US for repair because the cost of labor is even

the Challenger and Learjet. SAE’s MRO has been authorized

more expensive once the exchange rate is accounted for. As

to attend to Bombardier aircraft for the past 20 years and

a result, this year CIMA is seeing more customers than in the

is part of the OEM’s Technical Council. CIMA Aviación will

past two or three.”

continue to have this participation. The MRO fully complies with DGAC, FAA, Safety Management Systems (SMS) and

Supply has risen to meet demand for service providers.

Bombardier safety and security manuals, says Simón, and

Mexico’s fleet surpassed five figures in 2016 with 10,081

it expects to obtain the IS-BAO certification in the last

registered aircraft, only 2,414 of which are for commercial

quarter of 2017. “Few companies in AIT comply with all

operations. An ever-expanding private aircraft fleet totaled

these requirements as most have only DGAC certifications,”

7,092 in 2016, almost 200 more than the previous year,

says Simón. “In professional installation and technicians,

according to DGAC. The remaining 575 aircraft are dedicated

we have no competition.” Furthermore, the company's

to governmental use

FAA certification allows it to work on US aircraft, and close relationships with MROs in the US, including Duncan Aviation

Having started operations over 25 years ago as an FBO,

and Dallas Airmotive.

SAE now incorporates MRO, charter and fractional aircraft ownership operations too. Simón says the company can

As Mexico’s economy and number of businesses continue

claim the largest FBO in Toluca International Airport (AIT),

to grow, it is to be expected that the number of private

a fleet of 14 charter aircraft and aircraft administration

aircraft will continue to increase. “Executive aviation helps

services. Its expansion in operations has been positive for the

businessmen to save time and improve their business. A

company. “2016 was a good year for SAE as a whole, though

private aircraft can visit four cities in one day, while it would

most of our profit comes from FBO operations,” says Simón.

take several in a commercial aircraft. Flying commercial

“Our FBO now operates approximately 50 aircraft and the

implies a significant amount of time spent in airports,” says

service center receives 60 aircraft for maintenance per year.”

Simón. “Furthermore, Mexican highways are not entirely safe, which is motivating people to fly more.” Considering

In a virtuous cycle, this growth has led to more investment,

these circumstances, Simón believes that executive aviation

including the relocation of the company’s maintenance

will only continue to grow. “Year after year, MROs in Mexico

facility within AIT and expanding its FBO operations. “We

become more competitive in comparison to the US.”

VIEW FROM THE TOP

MRO EYES HANGAR EXPANSION, WIDE BODIES FOR GROWTH MARCOS ROSALES Director General and CEO of Mexicana MRO Services

Q: What are Mexicana MROâ&#x20AC;&#x2122;s growth projections and

two years of seniority to work on an aircraft. In 2016,

expansion plans for 2017?

we reinforced our classroom training capacities and

A: Our main hangar will be expanded in the second half

increased our staff numbers, reiterating that on-the-job

of 2017 to add more production lines, with the capability

training for Mexicana MRO technicians should be at least

to serve narrow and wide-body planes. We feel secure

18 months.

in our growth, to the point where we have expanded our three traditional service lines of major maintenance,

UNAQ has also been working to improve its course

line maintenance and components. The company plans

content through an agreement with Mexicana MRO.

to begin managing structural conversions as part of our

Often, the university sends technicians to gain experience

2017-18 business plan.

at our hangar and to certify them. Our focus for 2017 is to train 250-300 new technicians to service the business

Mexicana MRO will likely close 2017 with 9.5 production

that we foresee for 2018.

lines, up from an average of 6.7 in 2016. Our growth is partly a reflection of three new clients that joined our

Q: Being an MRO located in North America, how alluring

portfolio. We also began to target the European market,

is the US market?

for which we hold the EASA certification.

A: We have two lessors in the US market but with competition so high, we will hold back from entering

Becoming the first MRO to join ALTA also helped raise

that market further. Despite increased traffic from the

our profile among new clients. The association invited us

US, most growth is happening in Latin America. Entering

to be speakers at its event in May 2017 in Cancun. These

the Latin American market is easier because it is covered

networking opportunities increase our visibility, which

by the same certifications. Leading global consultancy

supports our ongoing growth.

ICF has reported a trend of impressive growth in this market in the last two years and we are targeting it more

Q: What is Mexicana MRO doing to sustain the growth

directly. The company is also looking to Europe because

it is enjoying?

many wide-body planes arrive to Mexico from there. For

A: Growth implies more production and more training

the moment, we see more potential in the wide-body

because of the additional technicians required to handle

market, and European carriers could represent between

the increase in clients. We secured new certifications

10 and 15 percent of our business portfolio.

in 2017, for a total of 19, which should be enough for the time-being, unless we sign a new client that

Latin America represents 90-95 percent of our operations,

merits additional certifications. Some of our previous

of which 25 percent is in Mexico. Diversification could

certifications that were limited to painting have been

help us achieve sustainable growth. We work with several

expanded to incorporate maintenance and now cover

Mexican carriers and have eight operators throughout

Costa Rica, El Salvador and Panama.

Latin America that are regular clients. Mexicana MRO is becoming a reference point for Latin America and we are

In terms of training, we have relationships with several

close to becoming the top company in our sector.

schools but continue to train technicians onsite because we feel that graduates are arriving at our workshops without all the requisite qualifications. Many lack

Mexicana MRO Services provides maintenance for several

technique and practical experience because only a few

Airbus and Boeing aircraft. It offers clients an integrated

schools have access to several aircraft models. Our

maintenance service, within a total area of 1â&#x20AC;&#x2122;730,139ft2.

standards stipulate that technicians should ideally have

Mexicana MRO was the first MRO to join ALTA

271

VIEW FROM THE TOP

BACKBONE OF QUERETARO MRO BUILT ON EDUCATION, SAFETY JESS LOSADA CEO and COO of TechOps Mexico

272

Q: How has TechOps Mexico improved its capabilities?

In line with our customer focus, we are introducing the

A: We doubled our capacity thanks to changes to our

principles of KBKC for the first time in Latin America.

organizational structure in 2016. We completely renovated

KBKC dictates you know your customer, be proactive, keep

the way we operate to increase our efficiency. TOMX in

your promises and create value. To optimize operations,

Queretaro inhabits three hangars, which can accommodate

we created a central “brain” to coordinate all MRO lines,

12 aircraft simultaneously and 12 operation lines. We are

which saved thousands of man-hours per month. This

the biggest player in Central America after Aeroman in El

team is responsible for setting the strategies for every

Salvador and one of the largest in Latin America. 2016 was

other team. We have an interior workshop and are bringing

our best year in terms of financial results. Our teams are

many other capabilities such as paintwork. Eventually we

operating at full capacity but this facility was designed to

might even develop capabilities for low-volume, high-value

host an additional hangar. Once the fourth hangar is built,

manufacturing.

between 400 and 600 jobs will be created as part of our commitment to Queretaro. In return, the state will continue

Q: What changes were necessary to prepare the facility

to allocate funds to education and other incentives to

to incorporate projects from other airlines?

support human capital growth.

A: We have received many enquiries from airlines from the US and Canada, which have been impressed by our

As we are owned by Delta Airlines and Aeroméxico we had

capabilities. There is no other MRO like ours in Mexico,

a fixed number of projects in 2016. Having incorporated

the US or in Europe. Being only 3 years old, the facility’s

additional lines to support our existing operations, in the

design is modern and environmentally conscious. Solar

future we could incorporate third-party airlines. As an

panels over the parking lot supply 30 percent of our

incubator for new ideas for Delta Airlines, we became a

electricity costs. We have water-retention systems and

center of excellence for safety, which is our main priority.

a reverse osmosis water-filtration system. This system

Our security risk decreased from 1.7 percent to 0.7 percent

recycled 264,700 liters of water in 2016, which was used

last year. Safety and training our people are the backbone

to irrigate green areas.

of our operations. We have doctors and an ambulance on site 24 hours a day. Since 2015, incidents have been reduced

Our growth model is different to other MROs, as we base

by 60 percent and injuries by 33 percent. This has led to a

it on our experience working with manufacturers both

reduction of our insurance premium of several million pesos,

in aerospace and in sectors such as automotive and oil

which we are reinvesting in safety certifications.

and gas. We are also deeply involved with the aerospace cluster, sharing resources and best practices with other

Q: What strategies did TechOps Mexico implement to mitigate

members.

problems and take advantage of operational growth? A: We began building our facility in 2016 under the Six Sigma

Q: What challenges will TechOps Mexico face during the

three-year framework. We analyzed the areas that needed

construction of the new hangar and how do you plan to

improvement, doubling our workload to 12 lines. This was

overcome them?

a challenge but allowed us to determine further areas for

A: We could easily build the hangar in two years but it

improvement. A comprehensive plan was developed to

would require an increase in our workforce by 30 percent

sustain this growth and we added 200 people to our team.

and training that number of people in such a short time is

Today, we are focusing on our partnership with the cluster to

not feasible. For that reason, we are working with UNAQ

share best practices and incorporate the Six Sigma culture

and CONALEP to generate more training courses. We

into our operations. We are also investing in Dale Carnegie

employ 1,710 people, of whom 800 are technicians who

training to continue generating front-line leaders.

graduated from UNAQ and 95 from CONALEP. Our teams

plan to take on 90 interns in 2017 from local universities,

Last year, we provided leadership courses for almost 100

including UAQ, UTEC, ITESM and UNAQ. One of the main

supervisors, line leaders and managers to teach them

advantages of operating in Mexico is its working-age

crucial soft skills. Investing in our leaders has helped us

population. Our workforce’s average age is 32 years. But

transform our culture.

what differentiates the country most is the number of educated and skilled employees per capita. World Atlas

Q: How is the aero cluster implementing projects with

put the yearly number of engineering graduates at 113,944

local industry to train human capital?

at the end of 2016.

A: The cluster is surveying all its members to identify their needs. Queretaro needs to develop a list of

Many companies struggle to move products and components

core competencies, including standard work, lean

across borders due to blocks on textiles, for instance. This

manufacturing and safety principles to present to the

complicates our processes. For example, if we want to import

education sector. Once developed into a syllabus, UNAQ

fabrics for seatbelts we require a special clearance. If this

will train students accordingly for all companies in the

process were streamlined it would help TechOps Mexico’

cluster. UNAQ’s courses were initially designed for

operations run more smoothly and more efficiently.

manufacturers but have been modified over the years to address emerging industry needs. A new competencies list

Q: How are you contributing to human resources

will allow the cluster to pool funds effectively and invest

development for the aerospace industry?

more wisely in specialized training courses.

JL: A recent deal with GE Aviation will provide Six Sigma Black Belt support and Green Belt training for our

Q: What are TechOps Mexico’s long-term goals and plans

technicians. In exchange, we will install GE Aviation offices

to achieve them?

in our facilities so they can have a hand in engine runs and

A: Our Queretaro facilities can receive and maintain the Boeing

engine operations.

717, Boeing 737, Embraer ERJ-145, Embraer E170, Embraer E190, McDonnell Douglas 88 and McDonnell Douglas 89. We

One of our main tasks for 2016 was to develop our employees’

are certified by the FAA and DGAC. Our center registered 1.8

skills, so approximately 250 TechOps Mexico staff completed

million man-hours in 2016 and in 2018, our goal is to be known

professional courses in avionics, mechanics or aerostructures

as a world-class organization under Six Sigma, also increasing

at UNAQ. This helped many to be promoted internally, having

our services for the Boeing 737. We will also generate skills to

developed a strong skills base in aircraft care. Our goal is

receive the 757 and begin manufacturing parts.

to offer professional opportunities to all of our employees. Every employee in our facility was encouraged to sign up for the Green Belt course, not just engineers and technicians.

TechOps Mexico is an MRO service center jointly financed by Delta Airlines and Aeroméxico. TechOps is the third-largest

One of our company’s biggest cultural changes is investing

MRO provider in the world and this facility is the largest MRO

in our front-line leaders, who are heading up operations.

center in Latin America

Repair station / TechOps Mexico

273

INFOGRAPHIC

MRO OPERATIONS Industry growth and updates of the global aircraft fleet will

and special coatings, as well as new data collection

drive the commercial air transport MRO market.

and measurement tools designed to provide advanced prognostication capabilities.

New-generation aircraft, or those designed and built after 2000, are introducing better operating costs thanks to new

The use of composites and hybrid alloys in new-generation

technologies, which at the same time will require significant

aircraft is impacting airframe maintenance practices and

investment. These technologies include new construction

costs. Moreover, engines operating at higher temperatures

materials, such as carbon fiber composites, hybrid alloys

and pressures lead to more expensive shop visits.

Over the full 10-year period, the global air transport MRO market will grow on average 3.8%

EXPECTED TOTAL MRO EXPENDITURE GLOBALLY (billions) 2017

2022

2027

US$75.6

US$84.9

US$109.2

M VEHICLES SOLD PER

MRO EXPENDITURE BY REGION (US$ billions) 25

274

20 15 10 5 0

North America

2017 Projection

Western Europe

Asia Pacific

China

Middle East

Latin America

Eastern Europe

India

Africa

2027 Projection

10-YEAR GLOBAL COMMERCIAL AIR TRANSPORT MRO SUSTAINABLE DISTRIBUTION OF THE REGIONAL SUSTAINABLE DISTRIBUTION OF THE REGIONAL DEVELOPMENT FUND 2 DEVELOPMENT FUND 2 DEMAND GROWTH

2017-2027 FLEET GROWTH RATES BY REGION Region

2017-2022

2022-2027

Africa

0.5%

Asia Pacific

5.1%

3.4%

China

10.6%

7.3%

Eastern Europe

-0.8%

0.5%

India

11.9%

6.2%

2025

2015

US$96B

US$64.3B

11% Mazapil

2% Sahuaripa

40% Engine 9% Cananea 2% Morelos M VEHICLES SOLD PER 7% Nacozari de Garcia 2% Eduardo Neri Component 22% 5% Fresnillo 2% Aquila 17% Line 4% Ocampo 2% Alamos Airframe 4% 14% Caborca 1% Chinipas 2% Sierra Mojada 47% other 7% Modifications

11% Mazapil

2% Sahuaripa

41% Engine 9% Cananea 2% Morelos 7% Nacozari de Garcia 2% Eduardo Neri Component 22% 5% Fresnillo 2% Aquila 16% Line 4% Ocampo 2% Alamos Airframe 4% 13% Caborca 1% Chinipas 2% Sierra Mojada 47% other 8% Modifications

Latin America

2.8%

2.4%

Middle East

6.6%

4.5%

North America

0.9%

0.7%

Western Europe

3.2%

2.2%

Source: CGM, Ministry of Economy 1 With figures to March of 2015 Source: CGM, Ministry of Economy 1 With figures to March of 2015

2017-2027 AVERAGE AGE OF FLEET BY REGION 15 12 9 6 3 0

Africa

——2017-2022

Asia Pacific

China

——2022-2027

Eastern Europe

——2017-2027

India

Latin America

Middle East

North America

Western Europe

EXAMPLE OF AVERAGE PERCENTAGE OF SAVINGS IN KEY ACTIVITIES

XAMPLE OF AVERAGE PERCENTAGE OF SAVINGS KEY ACTIVITIES

2017-2027 MRO MARKET FORECAST BY MRO SEGMENT US$ (billions) 2027 2022

2017-2027 MRO MARKET FORECAST BY AIRCRAFT CLASS US$ (billions)

Line Component Engine Airframe

2027 2022

2017

2017 0

100 120

’17–’22 CAGR

’22–’27 CAGR

’17–’27 CAGR

3.5%

Turboprop

4.0%

Regional Jet

Line

Turboprop Regional Jet Wide-body Narrow-body

GLOBAL LIGHT VEHICLE Component 3.7% PRODUCTION 4.2%

100

120

’17–’22 CAGR

’22–’27 CAGR

’17–’27 CAGR

-0.5%

-1.3%

-0.9%

-1.1%

-0.2%

-0.6%

Engine

3.0%

6.9%

4.9%

Wide-body

2.4%

4.8%

3.6%

Airframe

-1.0%

3.9%

1.4%

Narrow-body

3.0%

6.4%

4.7%

10-YEAR MRO EXPENDITURE ON NEW TECHNOLOGY FOR A350 AND 787 AIRCRAFT 12

6 3 0

$9.7

$8.4

$0.5

2015

2016

$2.3

$1.6 2017

2018

$3.3

$4.4

$5.8

$11.1

$7.1

Over the next decade, MRO spending on new technology for Airbus A350 and Boeing 787 aircraft will double every three years.

2019

2020

2021

2022

2023

2024

2025

——$US Billions MEXICO’S TOP THREE

LATIN AMERICA MARKET WILL GROW •

This regional market is expected to grow 5.1 percent

Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Center

annually, from US$4.5 billion to US$7.3 billion, and

Mexicana MRO

Specialized in three aircraft families: Airbus A320 FAM

(A318, A319, A320 & A321)

will reach 7 percent of the global market share. •

MRO expenditure on widebodies will nearly double by 2025

B767-200/300 B737

Latin America MRO expenditure is 6% of the total market.

(B737CL & B737NG)

TechOps Mexico

Service for Aeroméxico aircraft: Boeing 737

10-YEAR GLOBAL LATIN AMERICAN MRO DEMAND GROWTH OF THE REGIONAL SUSTAINABLE DISTRIBUTION DISTRIBUTION OF THE REGIONAL SUSTAINABLE DEVELOPMENT FUND 2 DEVELOPMENT FUND 2

Embraer ERJ145 Embraer 170 Embraer 170

2015

2025

US$3.6B

US$6.3B

Interjet MRO Solutions

Service provided for

Airbus A318, A319, A320, A321 Boeing B737-200, 300, 400, 500, 700, 800 Superjet SSJ 100

11% Mazapil

2% Sahuaripa

36% Engine 9% Cananea 2% Morelos 7% 25% Nacozari de Garcia 2% Eduardo Neri Component 5% Fresnillo 2% Aquila 20% Line 4% Ocampo 2% Alamos 4% 13% Caborca 1% Chinipas Airframe 2% Sierra Mojada 47% other 6% Modifications

11% Mazapil

2% Sahuaripa

40% Engine 2% Morelos 9% Cananea 7% Nacozari de Garcia 2% Eduardo Neri 24% Component 5% Fresnillo 2% Aquila 17% Line 4% Ocampo 2% Alamos 12% Airframe 4% Caborca 1% Chinipas 2% Sierra Mojada 7% Modifications47% other

Source: CGM, Ministry of Economy 1 With figures to March of 2015 Source: CGM, Ministry of Economy 1 With figures to March of 2015

Source: Canaero, MRO Market Update & Industry Trends presentation (CCMA & Aircraft MRO Conference), Oliver Wyman Global Fleet & MRO Market Forecasts, ICF analysis

275

INSIGHT

CHASING THE ‘NOVEMBERS’

Ruth Gutiérrez General Manager of ASENSA

Carlos Díez Director General of ASENSA

Keeping up with technology and electronics in the

everything in aircraft. We are one of the top five shops in

MRO market is a challenge and certifications are a

Mexico, offering services for Piper, Cessna, Maule, Hawker

must if companies want to attract and retain clients,

Beechcraft and Robinson aircraft,” says Díez.

says Ruth Gutiérrez, General Manager of Aero Servicios

276

Especializados del Noreste (ASENSA), which has acquired

Gutiérrez says that keeping up with MRO services can be

the FAA 145 certification that allows shops based outside

an exciting challenge because aviation is dependent on

the US to fix US airplanes.

the value of the dollar, so any exchange-rate alteration

“

affects the Mexican market. This directly hits bottom lines.

The market slowed after the exchange rate jumped to MX$23 to the dollar at the beginning of 2017. This changed mid-year and the market grew again” Ruth Gutierrez General Manager of ASENSA

“The market slowed after the exchange rate jumped to MX$23 to the dollar at the beginning of 2017. This changed midyear, the market grew and we started to see customers requesting services again.” Fortunately, the company has diverse services, including pre-purchase inspections, storage and administration for aircraft. The company’s primary work is maintenance for corporations and aircraft owners, representing 80 percent of their business. Work can vary throughout the year, seeing peaks at times like Easter. The profile of ASENSA’s clients is varied because every company or plane owner uses transportation differently. Customers who fly frequently

“We need to adapt to a changing market,” adds Carlos

may visit the shop every 100 hours or less. There are many

Díez, Director General of ASENSA. The company covered

private aircraft owners in Mexico and the US, giving MROs

the 2020 requirements for the FAA 145 in Mexico up to

in Nuevo Leon an excellent opportunity to grow, to bring

Jan. 1, 2020, ensuring programs, systems and methods

equipment from the US and perform services.

of compliance are thoroughly reviewed and tested. The company also enjoys DGAC authorization. ASENSA’s main

ASENSA’s expectations for 2017 are positive. It aims to

business is with executives living in the US and traveling

launch a marketing campaign in the US to demonstrate

to Mexico for work. For that reason, 50 percent of the

that the country has experts that are qualified to address

airplanes Gutiérrez and Diez’s team see are registered

any inconvenience during a trip to Mexico, and that a visit

as “Novembers,” otherwise known as aircraft registered

to a repair shop in Mexico is much cheaper than in the US.

with US plates.

The FAA 145 certification is integral to attracting more Novembers to the workshop. The idea is that anyone flying

The main aircraft brands ASENSA specializes in are King

close to Monterrey, for instance Texas or the Southern US,

Air, Citation and Robinson, but the company also works

could make stop at ASENSA and save money.

with engines like Lycoming, Continental, Pratt & Whitney and Rolls-Royce. ASENSA also repairs and maintains

Another plan is to expand its services to other cities.

Hartzell and McCauley propellers. Since November 2016,

Díez and Gutiérrez are considering a location in the south

the company has been able to offer its services to American

of Mexico as a new strategy to secure US customers on

helicopters that arrive to Nuevo Leon. “Also, we invested

their way to South America. In the short-term, ASENSA

in technology like Garmin’s Aspen, a datalink transponder

will handle business jets as it has the personnel and

incorporating all the electronic parts of navigation and

infrastructure ready to implement these operations.

INSIGHT

INTERIOR EXPERT SEES SIGNIFICANT OPPORTUNITY IN MRO MARKET ROBERTO CORRAL Vice President and General Manager of Innocentro

With NAICM on the horizon, the aerospace industry in

retain them if we do not have sufficient volume to keep

Mexico is expecting the MRO market to take off, says

them busy at all times.”

Roberto Corral, Vice President and General Manager of Innocentro, which consults, engineers and manufactures

To get ahead of the game, Innocentro is investing in training.

aircraft and train interiors and component. He sees MRO

“We are collaborating with universities to ensure their

services as the company’s next growth opportunity,

curricula are up to par with the requirements of the sector.

especially in Queretaro and northern Mexico.

This has not been the case so far with most universities. We recently allied with UANL, which has a strong aeronautical

“This project has been on the back burner since 2011. Our

engineering department, to develop a internship prototype

analysis of MRO operations at Los Angeles airports showed

to compete initially in Europe for 2018,” says Corral. Most

the market is very segmented in the region. Large aircraft,

recent graduates have little experience in aerospace, as

used mostly by commercial airlines, are a good business for

most are trained for the metal-mechanic or the automotive

line maintenance, which requires close collaboration with

industries. “The aerospace industry as a whole is facing a

OEMs and to have their certified approval to work on their

potential lack of talent as most engineers and experts from

aircraft. Our goal is to become an in-shop line maintenance

the baby boomer generation have retired. We are working

supplier as an addition to our current interiors business. At

with the aerospace clusters and FEMIA to fill the need for

this point we plan to focus on all types of aircraft.” Corral acknowledges that the road to becoming an MRO might not be an easy one. “It is difficult to invest in an MRO without assured clients, especially for line maintenance. We are in conversations with several potential customers to make alliances with MROs in the US to take advantage of their experience,” he says. “We have been studying this project for the past six years. This segment requires many certifications and trust from clients.”

“

personnel in the sector for the next five, 10 and 20 years.”

Once NAICM is built the opportunities for MROs will skyrocket, especially since the airport will be able to receive more aircraft and of higher capacity”

The company sees the MRO market as a significant opportunity, especially in the long term. “Once NAICM is

Innocentro has one facility in the US and two in Mexico and

built the opportunities for MROs will skyrocket, especially

is leveraging its experience and increasing its mechanical

since the airport will have the capacity to receive more

and electrical capabilities. Interiors will continue to be the

aircraft.” The opportunity lies in the competitive offer

core of Innocentro’s business. The company has also won

available close to the US border and the technical

a shared Crystal Cabin Award for a trolley that is now used

and engineering talent the region has. “Unlike in other

by Lufthansa in its Airbus fleet.

countries, most airports in Mexico do not have the capabilities to provide line maintenance.” But while the

The company, which celebrated its 15-year anniversary in

country has varied talent, it is not always of the right kind.

2017, has enjoyed stellar growth but is being conservative

“Countries such as the US, Germany and Singapore have

in its expectations. “Innocentro will grow by 100 percent

the culture of working directly with MROs, but Mexico is

in sales in 2017.” Corral says. “Our forecast for 2018 will

still fairly new in such operations. MRO services require

be more modest. We have investments in the pipeline,

extremely skilled technicians and finding them will be a

we are continually analyzing how the market will behave

challenge in the country. It will be hard to acquire and

towards 2020.”

277

MRO SPOTLIGHT

SAE – THE PLEASURE OF FLYING Thanks to its strategic location in the Toluca International Airport (AIT) and its extensive infrastructure and fleet, Servicios Aéreos Estrella (SAE) can provide a variety of aviation services, including FBO operations, air taxi, aircraft maintenance, management and sheltering. SAE performs over 15,000 FBO operations per year and up to six simultaneous dispatches with a clear ramp for business aircraft of all sizes. Although SAE usually performs 40 operations a day, it has the capacity to perform twice as many. SAE has renewed and expanded its ramp equipment, particularly GPUs and gear to handle aircraft weighing up to 110,000lbs. Also, having a hangar next to the airport authority, immigration and customs ramp and offices enables SAE to expedite international flight operations. SAE’s managed fleet includes three Learjets, two Challengers, one Hawker, one Citation, two Turbo Commanders, one King Air 200 and one Augusta helicopter for its air taxi services. This gives the company flexibility to provide a broad range of missions depending on the needs of the client. SAE is authorized by DGAC and the FAA to provide maintenance to aircraft, which allows the company to service aircraft with either Mexican or American plates. SAE is the only Twin Commander authorized maintenance center in Mexico and an authorized service facility of Bombardier for the Learjet series. SAE’s three enclosed-roof hangars can house over 50 business aircraft. These hangars extend over 8,395m2 and SAE’s storage ramp has been expanded by 4,500m to ensure it has capacity to accommodate aircraft staying overnight without affecting operations in the main ramp. As part of its ongoing renovation, SAE invested in a new dispatch facility. This new facility will include a pilot lounge with full amenities to cater to the needs of crews and will be separated from the VIP passenger area. This investment enabled SAE to remodel its original FBO building and repurpose it to serve VIP passengers. “With an eye to future growth, SAE focuses on exceeding customer expectations and attracting a selected portfolio of clients, both domestic and international,” says Juan José Simón, Operations Manager of SAE. “We are keeping a close eye on changing market dynamics, so we can take proactive action to react and adapt and continue to serve customers.” In the face of its 30th anniversary celebration, SAE’s most important strategy is innovating in the services it provides and striving for consistent customer satisfaction.

279

INSIGHT

STRONG POTENTIAL FOR MAINTENANCE AT HOME AND ABROAD VLADIMIR HERNÁNDEZ Director General of HTMC

280

Due to its central location, Toluca is often hailed as the

While the potential MRO market is large, a few challenges

country’s home of executive aviation. The city has been

have to be faced before it can expand. “The country

good to the sector and the sector has been good to the

has attracted interest from potential MRO investors but

city. “Executive aviation has been a boon for Toluca’s entire

government regulations have been a barrier to their

aviation industry, including MROs,” says Vladimir Hernández,

implementation,” says Hernández. MROs face high import

Director General of HTMC, a local workshop specializing

costs that can push the price of a part up by 35 percent.

in inspections and wheel, brake and battery assembly. It

While logistics costs in Mexico are low, customs are slow

is an industry that offers great potential for maintenance

and expensive, Hernández says. “Delivery times are too

companies. “While Mexico’s private fleet is extensive, the

long. A part might stay in customs for two or more days.”

capabilities of Mexican maintenance workshops are much more limited.”

HTMC wants to start an alliance with local manufacturers and service providers who need similar stock. Such an

Hernández believes there are many opportunities for MRO

alliance could import in bulk at a more accessible cost. The

operators in the country. Furthermore, these companies

company could alternatively ally with larger distributors.

are not restricted to local operations. “A local MRO could

“As the only MRO in Mexico that specializes in wheels, we

also find an attractive market in Central America,” he says.

are trying to partner with a major wheel manufacturer to

Venezuela has the seventh-largest private aviation fleet

generate a comprehensive stock. This would streamline our

yet internal regulations block the country from providing

processes.” Toluca has approximately 60 MRO workshops

sufficient MRO services.

providing many different services, including engines, seats

“

A local MRO could also find an attractive market in Central America”

and accessories, and Hernández thinks it could also be beneficial for HTMC to collaborate with these companies. Competition from dominant foreign entities remains another hurdle. To meet this challenge, Mexican MROs need more governmental support. “It is hard for smaller companies to enter the sector, as most adjudications are discussed

HTMC is no stranger to overlooked market niches and

in private by large companies, leaving local players out of

Hernández says that having the flexibility to move into

negotiations.” While maintenance is more expensive north

new areas can provide dividends later on. “We noticed

of the border, delivery times are faster, says Hernández.

that few workshops in Mexico were handling brakes and wheels so we developed the skills to service them.” Since

Despite industry difficulties, HTMC is prevailing. “2016 was

filling that market gap, HTMC has secured a handful of

an excellent year for HTMC,” says Hernández. The company

clients in Central America, mainly in El Salvador, and the

grew 27 percent and expects to increase its capacity by

company, which operates throughout Mexico, is looking

20 to 25 percent in 2017. To do so the company began

toward Guatemala and Venezuela as potential markets. It

an expansion to accommodate its new laboratories and

collaborates with several airlines including Viva Aerobus,

weighing areas. HTMC is also is preparing, restructuring and

Aeroméxico and Magnicharters, private aviation companies

planning a system to process Flight Data Recorders (FDR)

including FlyMex and Across and other MROs such as Qet

and Voyage Data Recorders (VDR), commonly known as

Tech and Aerovics, but the company is in a constant lookout

black boxes. “There are only four airlines in Mexico capable

for more business opportunities. The team works mostly

of processing black boxes and they use this capacity

with Boeing 737 and SRJ 200 on the commercial aviation

entirely for their own fleet, so we can target the rest of the

side, and Learjet, Gulfstream and Hawker for executive jets.

market in Mexico.”

INSIGHT

AVIATION PREPARES FOR NEW AGE ROBERTO MARCOS Vice President of Monterrey Jet Center

It stands to reason that every technological advance that

US pilot owners, aware of the importance of this system and

improves safety should be embraced. Yet, Mexican aircraft

the deadline for its implementation, are actively installing it.

owners are dragging their feet to equip a surveillance

Mexico is behaving differently. “Very few have installed the

system that, due to its benefits, will soon become

system,” he adds, “as many are waiting to install it at the

mandatory. To help them, Mexican MRO Monterrey Jet

last minute. This will create problems down the line because

Center has incorporated capabilities to install this game-

the equipment takes 15 days to install and more to gain

changing system.

DGAC’s authorization.” Waiting too long could effectively ground some planes.

Radar technology has been directing air control operations at most airports since the 1950s. Over the past few years,

Marcos believes that the sector is fully aware that it will need

this technology has been gradually replaced by automatic

to install this system, but that one reason for postponing

dependent surveillance-broadcast (ADS–B). The FAA

its installation might be the significant investment needed.

indicates that this technology benefits pilots, passengers,

“Aircraft with an old system require extensive changes to

controllers, airports and airlines by facilitating precise

their cockpit, which can reach US$200,000,” says Marcos.

tracking of aircraft via satellite. Using this system, aircraft

“Owners of aircraft worth US$400,000 are unlikely to make

determine their own position using satellite technology and

this investment as they would prefer to sell it.” This situation

autonomously broadcast it to air traffic control and other

might lead to an increase in the sale of small aircraft, but

aircraft. While this technology is already implemented in

sellers might have trouble finding buyers who are willing to

Europe, Canada and Australia, both Mexico and the US will

pay both for the aircraft and for the ADS-B installation. As

not make it mandatory for most aircraft until 2020.

the use of this system becomes more widespread, aircraft that do not include it will find their flight possibilities limited.

Besides its advantages for pilots, passengers and airports, ADS-B is also a good business opportunity. “As aircraft

While attractive, the installation of the ADS-B system is not

will be unable to fly without being equipped with this

the only area that interests Monterrey Jet Center. The MRO

system, a large market for its installation will emerge,” says

is also analyzing other possibilities. Just in 2016 it signed a

Roberto Marcos, Vice President of Monterrey Jet Center.

partnership with Duncan Aviation to provide maintenance

The MRO, which specializes in Hawker aircraft, has almost

for the TFE731 engine and the MRO is looking for more.

40 years of experience providing aircraft maintenance.

“We plan to increase the number of services we provide

While maintenance is its core, the company also provides

to them,” says Marcos, “and we have similar partnerships

painting services and repairs interiors. Its long experience

with StandardAero, Dallas Airmotive, Garmin and JSSI

in the market has allowed Monterrey Jet Center to identify

and GOGO Wi-Fi system.” Marcos comments that the

potential opportunities, such as the installation of the

most common aircraft he receives are Hawker Beechcraft,

ADS-B. The MRO expects the installation of this system,

followed by Embraer 500, 600 and 650. Hawker Beechcraft

for which it is already certified, to boost its business.

are the most popular aircraft landing at ADN and Marcos expects this trend to continue for the next five to six years.

Marcos is also making significant efforts to communicate the importance of this system to Mexican aviation

During 2017, the company will focus on acquiring more tools

companies. He organizes Amigos de la Aviación (Friends

to increase its service range, especially for Embraer aircraft.

of Aviation), a 30-year old event that “aims to solve the

This will be a significant investment. “Tooling is expensive but

problems general aviation and airlines are facing, especially

there are maintenance processes that cannot be done without

regarding the relationship between the US and Mexico, in

the right tools.” For 2017, the company expects to grow by 5

terms of regulations and equipment.”

percent but believes that 2018 will be a better year.

281

MRO SPOTLIGHT

TECHOPS MEXICO After forming the Delta-Grupo Aeroméxico Alliance in 2011, the two companies decided to establish the second-largest aircraft maintenance operation in Latin America. Located next to the Queretaro Aerospace Park and close to the Queretaro Intercontinental Airport (AIQ), TechOps Mexico now services Delta Airlines, Aeroméxico and Aeroméxico Connect planes 365 days a year, 24 hours a day. Delta Airlines and Aeroméxico invested US$55 million each for a total US$110 million to develop TechOps Mexico’s facility inaugurated in 2014. The maintenance, repair and overhaul center has a total area of 100,000m2. Its three hangars can accommodate 12 aircraft simultaneously and 12 continuous production lines. Furthermore, the company expects to keep growing is operations in the coming years and to build a fourth hangar. To ensure sustainable growth, Jess Losada, CEO and COO of TechOps Mexico, has introduced Six Sigma and KBKC practices in an effort to meet productivity and efficiency standards. The center is in an ideal location to support the state’s aerospace sector and enjoys the advantage of its proximity to UNAQ to help feed its workforce. With approximately 1,700 employees, the facility operated 1.8 million manhours in 2016, all with standards that maximize employee safety, continuous improvement and innovation. The center has an aggressive training program of over 160,000 hours per year, representing more than 100 hours per employee. This career development program has helped the company achieve a turnover rate under 6 percent. TechOps Mexico specializes in Boeing 737, 717 and 757, Embraer ERJ-145, E-170, E-190, MD-88 and MD-90. The facility’s size and capabilities would allow for an expansion. Capitalizing on its strengths, the center is targeting airlines that operate Boeing or Embraer aircraft. TechOps Mexico also wants to increase its service portfolio to include the Boeing 787 and CRJ-700 and 900.In 2016, TechOps Mexico delivered 100 A/C investing over 160,000 hours in human capital training. Thanks to this practice, the 2nd large MRO has more than enough room to continue growing. The center was also design to be environmentally sustainable. According to the Delta-Grupo Aeroméxico Alliance, thanks to ultraviolet water purification for consumption TechOps has saved and recycled approximately 264,700 liters of water per year. The center also has 3,400 solar panels that have let to energy savings of 30 percent each year.

283

Guadalajara International Airport/ Guadalajara / GAP

AIRPORTS & HELIPORTS

Low-cost airlines and an increase in tourism are steadily lifting the number of air travelers but as more people travel by plane, airports will need to renovate and expand to address demand. Mexico has a total of 1,891 aerodromes in the country, but only 76 are officially certified by DGAC for commercial operations. Several investments have been created in past years to ensure the correct functioning and modernization of these facilities and different airport groups have committed resources to the construction, modernization and development of new airport structures. Furthermore, as traffic in major hubs grows increasingly congested, helicopters are seen as a mobility solution, which in turn requires larger, safe and reliable heliport infrastructure.

This chapter will review the status of airport and heliport infrastructure in Mexico, with a special focus on renovations and other developments during late 2016 and 2017. Analysis of Mexicoâ&#x20AC;&#x2122;s current and future needs will take into account the accelerated growth of passenger air travel and the more measured rise of air cargo. It will also review the status of the capital cityâ&#x20AC;&#x2122;s most ambitious project: the New International Airport of Mexico City.

285

CHAPTER 13: AIRPORTS & HELIPORTS 288

ANALYSIS: Demand Grows for Efficient Transport Infrastructure

290

MAP: National Airport System

292

TABLE: National Airport System

294

VIEW FROM THE TOP: Federico Patiño, GACM

296

VIEW FROM THE TOP: Adolfo Castro, ASUR

298

VIEW FROM THE TOP: Alfonso Sarabia, ASA

301

INSIGHT: Fernando Bosque, GAP

302

ROUNDTABLE: What Impact Will NAICM Have on the Country?

304

VIEW FROM THE TOP: Michael Szczechowski, World Fuel Services

305

VIEW FROM THE TOP: César Moreno, EnTEC

306

HELIPORT SPOTLIGHT: EnTEC Aerospace

308

VIEW FROM THE TOP: Yousefh Pineda, Cramex

310

VIEW FROM THE TOP: Reyes Juárez, FOA Consultores and FIDIC

311

VIEW FROM THE TOP: Alberto de la Parra, Jones Day

312

INSIGHT: Manuel Romero-Vargas, Manny Aviation Services

313

INSIGHT: Santiago Tomás, Gesab Mexico and LATAM

314

VIEW FROM THE TOP: Elbson Quadros, SITA

Alex Covarrubias, SITA

Uriel Torres, SITA

316

INSIGHT: David Magaña, SAKDA

317

VIEW FROM THE TOP: Virginia Gómez, Prior Aero

318

VIEW FROM THE TOP: Pablo Ramos, Azul PR

287

ANALYSIS

DEMAND GROWS FOR EFFICIENT AIRPORT INFRASTRUCTURE AICM’s saturation shows the clash of growing demand for air transportation against the limited capacity of Mexican airports. Until NAICM is finished, maximizing airport efficiency or managing competitiveness lags are the only possible solutions Well-designed and equipped air transportation

the country; there are now more flights and more routes

infrastructure is key for any country’s competitiveness. In

available, as well as more passengers per airport,” he says.

Mexico, as demand for national and international aviation services grows, so does the need to effectively build and

As demand in the passenger and cargo services rises,

operate the airports and heliports where aircraft can land

so does the number of flight operations that take

and take off and from where passengers and cargo can

place in Mexico. According to data of DGAC, the Great

be transported.

Recession of 2008-2009 hit the Mexican aviation market. During these years, flight operations fell by 11

288

The World Economic Forum’s Global Competitiveness

percent, transported passengers by 13.5 percent and air

Report 2017–2018 ranks Mexico 61st of 138 countries in

transported cargo by 12.3 percent. Almost 10 years later,

the “Quality of air transport infrastructure” parameter. But

the Mexican aviation industry has not only recovered and

the country ranked 21st in terms of passenger capacity

surpassed its pre-2008 levels, but is now growing at a

with 2,330.2 million available airline seat kilometers

relatively constant pace and this requires an expansion

per week. Although Mexico shows competitive airline

of airport infrastructure.

capacity, the air transportation infrastructure of the country provides areas of opportunity for the country

IATA expects that during 2017 demand in the passenger

to reach its competitive potential.

sector in Latin America will grow 7.5 percent, above the growth in capacity in the country, 6.7 percent. This

Pablo Ramos, Director of Azul PR, says the Mexican

lag in capacity growth is more than evident in Mexico,

aviation industry has evolved considerably in the past

particularly in AICM. Virginia Gómez, Director General

20 years. He explains that every airport operates as a

of air space navigation consulting company Prior Aero,

private company as airport groups manage operations

identifies the fact that AICM is no longer operationally

and generate revenue, which has made airports much

efficient as the main challenge for the aviation industry

more efficient. “This has also helped aviation grow in

to overcome.

TRANSPORTED PASSENGERS IN 2016 TRANSPORTED PASSENGERS IN 2016

AICM, the country’s busiest airport in terms of operations, passengers and cargo has been saturated since 2014. And NAICM, one of the most important projects of the current presidential administration cannot arrive soon enough

126 million

to cater to Mexico’s aviation needs and turn the country into a world-class logistics hub. “NAICM is … being heavily criticized but this new location and expansion is long overdue because airlines need more slots. They are under pressure to increase the number of flights to meet demand for air travel and cargo,” says Gómez.

32.9 Mexico Mexico City International City International AirportAirport (AICM)(AICM) 32.9% 17.0 Cancun Cancun International International AirportAirport (AIC) (AIC) 17.0% 9.0 Guadalajara International Airport 9.0% Guadalajara International Airport (AIG) (AIG) International Airport (AIM) 7.3 Monterrey Monterrey International Airport (AIM) 7.3% International AirportAirport (AIT) (AIT) 5.0% 5.0 Tijuana Tijuana International International Airport Airport (LCIA) (LCIA) 3.2% 3.2 Los Cabos Los Cabos International Vallarta International Airport (PVIA) 3.2% 3.2 Puerto Puerto Vallarta International Airport (PVIA) Others 22.4% 22.4 Others

In terms of total number of operations in 2016, AICM is

Source: DGAC

percent. Only in terms of international passengers was

the most important airport with 23.7 percent followed by Cancun International Airport (AIC) with 9.1 percent and Guadalajara (AIG) with 8.3 percent. In terms of total passengers transported, AICM is again the clear winner. with 32.9 percent during this period, followed by AIC with 17.0 percent and AIG with 9.0

NUMBER OF OPERATIONS IN 2016 SATURATION PROVIDES OPPORTUNITY

NUMBER OF FLIGHT OPERATIONS IN 2016

There is still a long way to go before the first plane takes off from NAICM’s airstrips. Until then, the saturation of AICM has opened the door for airlines to expand into other airports and provide direct flights that eliminate the need to go through AICM.

1,894,606 in total

Rodrigo Vázquez, Director General of TAR Aerolíneas, a Queretaro-based commercial airline, believes that the location of the Queretaro Intercontinental Airport (AIQ) makes this airport ideal to become a true connectivity hub for the country. “Mexico City is an international entry point

23.7% Mexico City International Airport (AICM) International Airport (AIC) 9.1% 23.7 Cancun Mexico City International Airport (AICM) Guadalajara International Airport (AIG) 8.4% 9.1 Cancun International Airport (AIC) 6.1% Monterrey International Airport (AIM) 8.4 Guadalajara International Airport (AIG) International Airport (AIT) 5.4% 6.1 Toluca Monterrey International Airport (AIM) Others 47.4% 5.4 Toluca International Airport (AIT) 47.4DGAC Source:

into the country and a connection gateway but it is now saturated. Queretaro can become an efficient connectivity hub by allowing passengers to change flights in just 20 minutes,” says Vázquez. Meanwhile, Dirk Van Nieuwkerk, Director General Mexico and

Others

Central America of Lufthansa, says that while AICM has no more slots to offer, the Mexican government must ensure

AICM left behind as 518,285 more people went through

that it maintains its service level and that no budget cuts take

AIC than through AICM.

place that could hinder airliner operations. “My hope is that NAICM will be a state-of-the-art facility with 24/7 operations

In terms of air cargo, in 2016 AICM was the most used

and shorter connecting times for passengers,” he says.

airport with 55.4 percent of total tons, followed by AIG with 17.3 percent and Monterrey International Airport

All of Latin America has a role to play, says Cuitláhuac

(AIM) at 5.5 percent. More than half of the air cargo

Gutiérrez, Country Manager of IATA Mexico. Countries in

transported went through AICM.

the region must work to modernize airport infrastructure to take advantage of the fast-growing regional aviation market.

As of August 2017, AICM continues to be the most important

“Given operational, capacity and cost conditions, the region

airport in operations, passengers and cargo. In the first eight

has the potential to double in the next 15 years but the areas

months of 2017, 29,643,254 people and 346,112 tons of cargo

that should be strengthened are airport infrastructure, slot

passed through the airport and 300,349 flight operations

regulation aligned to international best practices, technology

were carried out. For cargo operations, AIG led with 104,785

that allows efficient processes and smart regulation,” he says.

tons, followed by AIM at 34,774 tons. In terms of flight operations and passengers, AIC is out front with 124,469

While Mexico's airport capabilities are good enough for the

operations and 16,504,361 passengers, followed by AIG, with

existing aviation industry as the sector grows, airports will

110,870 operations and 8,400,149 passengers. AICM is third.

have to grow in turn to keep up.

TOTAL FLIGHT OPERATIONS, TOTAL PASSENGERS AMOUNT AND TOTAL CARGO AMOUNT (2007-2016)

TOTAL FLIGHT OPERATIONS, TOTAL PASSENGERS AND TOTAL CARGO 2007-2016

873,403

Total cargo amount (in tons)

1,894,606

2015

126,023,101

821,665

113,615,671

2014

1,825,041

765,770

100,931,763

2013

1,767,242

727,529

1,681,684

2012

93,140,617

747,761

Total passengers

1,670,887

2011

86,369,804

756,290

1,631,970

2010

79,970,548

744,673

1,649,750

2009

77,265,124

Source: DGAC

591,307

Total flight operations

1,626,619

2008

75,518,987

674,046

1,828,519

87,269,857

726,227

1,899,359

86,154,940

2007

2016

289

NATIONAL AIRPORT SYSTEM

4 8 5 6

290

16 19 9 20 17 22 18

21 24

29 23

3 27

MX$1.32 billion invested in 2017 to modernize and

conserve airport infrastructure

67 of 137

in quality of air according to WEF's Global Competitiveness report

Modernized New Airports

OPERATORS North Central Airport Group (OMA)

291

Pacific Airport Group (GAP) Mexico City Airport Group (GACM) Southeastern Airport Group (ASUR)

Airports and Auxiliary Services (ASA) Chiapas Airport Group (GAC) 15

30 xx 31

38 37

40 41 42

43 33 55

44 53

45 48

51 47 49

NATIONAL AIRPORT SYSTEM

292

Airport Name

State

Operator

Tijuana International Airport

Baja California

Mexicali International Airport

Passanger traffic 2016*

2017*

GAP

4,090,274

4,726,550

Baja California

GAP

458,256

489,076

Nogales International Airport

Sonora

ASA

1,726

1,305

Hermosillo International Airport

Sonora

GAP

1,003,890

1,039,471

Guaymas International Airport

Sonora

ASA

8,564

9,814

Ciudad Obregón International Airport

Sonora

ASA

169,214

196,350

Cuidad Juárez International Airport

Chihuahua

OMA

728,006

836,438

Chihuahua International Airport

Chihuahua

OMA

836,357

927,921

Torreón International Airport

Coahuila

OMA

419,835

418,668

Monterrey International Airport

Nuevo Leon

OMA

6,010,989

6,488,531

Nuevo Laredo International Airport

Tamaulipas

ASA

55,958

54,455

Reynosa International Airport

Tamaulipas

OMA

371,819

344,382

Matamoros International Airport

Tamaulipas

ASA

68,604

58,590

Cuidad Victoria International Airport

Tamaulipas

ASA

46,506

41,042

Tampico International Airport

Tamaulipas

OMA

481,780

478,437

Loreto International Airport

Baja California Sur

ASA

50,064

59,408

La Paz International Airport

Baja California Sur

GAP

559,601

567,867

Los Cabos International Airport

Baja California Sur

GAP

2,797,275

3,307,980

Los Mochis International Airport

Sinaloa

GAP

184,848

191,601

Culiacán International Airport

Sinaloa

OMA

1,106,676

1,209,814

Mazatlán International Airport

Sinaloa

OMA

650,328

679,102

Durango International Airport

Durango

OMA

283,705

268,808

Tepic National Airport

Nayarit

ASA

100,949

98,386

Zacatecas International Airport

Zacatecas

OMA

227,206

240,605

San Luis Potosí International Airport

San Luis Potosi

OMA

326,843

368,427

Tamuín National Airport

San Luis Potosi

ASA

1,346

1,237

Puerto Vallarta International Airport

Jalisco

GAP

2,797,673

3,132,886

Guadalajara International Airport

Jalisco

GAP

7,417,206

8,400,149

Aguascalientes International Airport

Aguascalientes

GAP

452,066

497,393

Guanajuato International Airport

Guanajuato

GAP

1,106,181

1,257,228

*Data from January-August, Source: SCT

Airport Name

State

Operator

Querétaro Intercontinental Airport

Queretaro

Poza Rica National Airport

Passanger traffic 2016*

2017*

ASA

407,455

515,558

Veracruz

ASA

26,560

20,195

Veracruz International Airport

Veracruz

ASUR

871,620

913,116

Minatitlán Aeropuerto Nacional

Veracruz

ASUR

160,204

140,540

Manzanillo International Airport

Colima

GAP

121,774

127,417

Colima National Airport

Colima

ASA

92,799

84,646

Uruapan International Airport

Michoacan

ASA

85,394

101,560

Morelia International Airport

Michoacan

GAP

354,066

413,159

Toluca International Airport

State of Mexico

ASA

531,367

509,844

Mexico City

GACM

N/A

New Mexico City International Airport (NAICM)

Mexico City International Airport (AICM)

Mexico City

GACM

27,295,955

29,643,254

Cuernavaca International Airport

Morelos

ASA

15,820

5,552

Puebla International Airport

Puebla

ASA

241,179

322,984

Tehuacan Aeropuerto Nacional

Puebla

ASA

2,393

2,934

Ixtapa/Zihuatanejo International Airport

Guerrero

OMA

400,662

441,318

Acapulco International Airport

Guerrero

OMA

496,171

486,844

Puerto Escondido International Airport

Oaxaca

ASA

148,484

171,392

Oaxaca International Airport

Oaxaca

ASUR

495,679

558,900

Huatulco International Airport

Oaxaca

ASUR

451,589

540,027

Tapachula International Airport

Chiapas

ASUR

197,446

196,522

Tuxtla Gutiérrez International Airport

Chiapas

ASA

825,415

911,955

Palenque International Airport

Chiapas

GAC

12,262

9,062

Villahermosa International Airport

Tabasco

ASUR

801,213

856,541

Campeche International Airport

Campeche

ASA

116,968

125,796

Cuidad del Carmen International Airport

Campeche

ASA

331,356

245,241

Mérida International Airport

Yucatan

ASUR

1,249,329

1,406,389

Cancún International Airport

Quintana Roo

ASUR

14,797,853

16,504,361

Cozumel International Airport

Quintana Roo

ASUR

402,987

405,304

Chetumal International Airport

Quintana Roo

ASA

139,282

175,387

293

Render of NAICM Interior

VIEW FROM THE TOP

NEW AIRPORT PROGRESSING ACCORDING TO PLAN FEDERICO PATIÑO Director General of GACM

294

Q: What progress has been made on NAICM’s development?

A: During 2015, we focused on the design and planning

A: The project was announced in September 2014 by

of the project. Part of this was the design of the master

President Peña Nieto. Since then, GACM has hired the best

plan. It involved the active participation of all the parties

team worldwide. We have the world’s best consultants,

involved in the project, and balancing their needs. We

Parsons as our Project Manager, the best architect in the

held over 230 meetings with regulatory and international

world, Norman Foster, in partnership with FR-EE Fernando

agencies, national and international airlines, government

Romero, Dutch engineering firm NACO and Arup, which is

agencies and service providers, to hear their needs and

responsible for the master plan. In that regard, 2014 and

concerns and take them into account in the design of

2015 were years dedicated to planning and carrying out

the master plan.

the required tests. Several studies were carried out even before this point. An airport is a project that involves

The biggest challenge for me is to prove that Mexico

complex logistical development and demands a high level

can carry out projects of this magnitude in a transparent

of sophistication.

and honest way. GACM endeavors to become a reference for projects of this scale. Also, we want to complete the

We then focused on the design, always keeping various

project on time and within budget, especially given

questions in mind: What sort of airport do we want, a

its level of complexity. This project involves a series

regional or an international hub? What was the desired

of contingencies and uncertainties, and we constantly

capacity and the expected growth? This was necessary to

encounter surprises that we must solve. The possibility

plan the size of the project according to passenger and

of making a mistake with decisions is always present,

airline growth trends. The project was designed to meet

so we try to have the best counseling possible. It is also

the country’s needs, so that it could serve as the gateway

paramount to have a sense of urgency because often

from Mexico to the world. Starting in 2016, the construction

we do not have much time to react to certain situations.

began with preliminary projects for site preparation, such as the 33km perimeter fence, access roads, construction of the

Q: What strategies are being implemented by the

on-site offices, the removal of debris, the temporary sewage

different companies involved to optimize processes and

and ground leveling. All those projects are now completed.

the areas where cost overruns are arising?

In the same year, we tendered around 65 percent of the

A: Only 6 percent of the megaprojects constructed

project’s value, awarding runways 2 and 3, the foundation

around the world are finished on time and within

piles and the electrical substation, among others.

budget. We are one of the first projects in Mexico and the first of its kind to use BIM (Building Information

In 2017, we started the construction of the terminal

Modeling). This methodology helps us use intelligent,

foundations, the control tower and runways 2, 3 and 6. The

connected workflows to help improve predictability

runways are being built simultaneously, starting with 2, 3

and productivity. We also work closely with the project

and 6 in the first phase and 1, 4 and 5 in the second. This

manager, contractors and supervision entities to develop

year we started to see the project take shape in a tangible

management strategies.

way. We have 7,000 trucks moving material every day and 40,000 people working on the project. By next year, we

NAICM is also a self-financing project. Recently, we issued

expect to have generated 160,000 direct and indirect jobs.

Green Bonds for up to US$4 billion, which gives us a total financing of US$6 billion. The financing scheme is

Q: What challenges has GACM faced in the initial

backed by the current airport’s excess cash flows and

construction phase and in the creation of the master plan

eventually by the new airport. Fortunately, the financing

for tenders and construction?

scheme is based on the TUA that is charged to most

Render of NAICM

passengers, and is charged in dollars. This protects

and modern city that is environmentally friendly and that is

the private financing from the peso’s devaluation and

directed to the potential middle class and to younger people.

volatility in the markets. I would avoid the excessive use of cars and instead have Q: What are the expectations for NAICM for the end of

a great number of bicycle paths. I would also like to see

2017 and into 2018?

a lot of technology and many universities to build a city

A: 2017 was the year for big tenders and the beginning

of knowledge, as well as a place in which people can live

of construction. By the end of 2017, we will have already

where they work and in which they will find everything they

tendered around 85 percent of the project’s value with

need. This would be a happy city that can regain the style

our most important projects awarded. These include the

of the typical Mexican neighborhood, similar to La Condesa

passenger terminal building, the air traffic control tower,

or La Roma. With the AICM land, we have the ideal place

runways 2, 3 and 6, the electrical substation and the

to achieve this goal, but we must come up with something

ground transportation center, among others. The next

completely out of the box, involving lateral thinking instead

two years will see the development’s consolidation as we

of duplication and making more of the same. We have a

will really be constructing these projects simultaneously.

great opportunity here to build a masterpiece like we expect

We will see harmony among the people, ground and

NAICM will be, but also an extraordinarily cultural space for

machinery. These years will be the most construction-

our citizens.

intensive so GACM can finish the project by 2020. Q: How are GACM and SCT ensuring the continuity of GACM is the owner of AICM and the concessionaire

NAICM’s development beyond the presidential elections

of NAICM. Once we inaugurate NAICM we will have to

in 2018?

close AICM, which is 770ha. After constructing NAICM,

A: Funding is guaranteed by the placement of Green

GACM will be its operator. In the meantime, we are

Bonds for US$6 billion. The contracts for the tenders

carrying out the required tests, in collaboration with the

are signed and construction is underway and advancing

Mexico City government, to determine what we will do

very quickly. We have contractual obligations with

with AICM’s land.

the bondholders and the contractors working on the construction of the new airport. Canceling the project

Q: What do you believe is the best future use for the

would be a waste of money and it would imply the loss

AICM area?

of thousands of jobs, sending the wrong message to the

A: I believe this land comprises a territorial reserve that is

capital markets about Mexico’s obligations.

unavailable elsewhere in the State of Mexico; it is twice as big as Central Park. We cannot make a mistake, as we owe it to future generations to put the area to best use. In my

The Mexico City International Airport is the principal

personal opinion, we must consider the best practices of

connection for the country’s airport network to the rest of the

other countries when closing an airport and opening a new

world. In the last six decades, it has been repeatedly expanded,

one. I find this a marvelous opportunity to build a smart

to accommodate a constantly increasing number of passengers

295

VIEW FROM THE TOP

EXPANDING WITHIN AND BEYOND MEXICO ADOLFO CASTRO Director General of Grupo Aeroportuario del Sureste (ASUR)

Q: What is ASUR’s role in shaping the Mexican aviation

Q: What are the main challenges that Mexican and foreign

market and how has the group contributed to the growth

airlines are facing and how does ASUR support them?

of civil aviation?

A: One of the main challenges that all airlines face is how

A: ASUR has played a pioneering role in several major

to limit costs. We support our airline clients by offering

areas in the Mexican aviation market. We were the first

them the best service at the best price.

privatized airport group in Mexico, and the first airport

296

group to be traded simultaneously on the New York Stock

Q: What role have low-cost airlines played in ASUR’s

Exchange and the Mexico City Stock Exchange. We set

growth and how will they contribute to ASUR’s future?

new standards for safety and passenger service in our

A: The emergence of low-cost airlines in the domestic

airports. Regarding the growth of civil aviation in Mexico,

market, and the subsequent bus-to-air-travel conversion,

we worked actively to invest and create the necessary

has created a lot of growth in the Mexican aviation

infrastructure for growth, which did not exist when we

sector, so much so that today ASUR’s biggest customer

took over.

is Volaris, a low-cost airline. Internationally, we receive flights from low-cost airlines such as Southwest Airlines

Over US$1.13 billion: ASUR’s investment in the infrastructure of AIC between 1999 and 2017

and Eurowings. Q: How do you expect aviation services and operations to evolve in the near future? A: This is an exciting time for air travel. We expect more demand, more competitive airfares and a greater range of travel options to fuel further growth in air traffic in the years to come. Improvements and innovations in aeronautical design and fuel efficiency will also create

Q: How does ASUR help to monitor the safety and quality

aircraft with greater ranges that allow airlines to fly

of the airlines that operate within its airports?

directly to new destinations.

A: We cannot allow an airline to operate in our airports if it is not compliant with all national and international

Q: What role does ASUR play in the country’s air

aviation safety and quality standards established by the

infrastructure in Mexico and how important is a healthy

Mexican civil aviation authorities (DGAC).

sector for economic growth? A: The unrestricted movement of people and goods

Q: How does ASUR collaborate with other airport

obviously plays a vital role in facilitating economic

administrators to strengthen the Mexican aviation

development. We know that air connectivity has a direct

sector?

and positive impact on the economic activity of an area,

Q: ASUR has been active in the Latin America Chapter

which in turn creates jobs and benefits local communities.

of the Airports Council International (ACI-LAC). Our

One of ASUR’s most fundamental priorities is to ensure

Director of Regional Airports was president of ACI-LAC

that all our airports are efficiently run and have well-

between 2005 and 2008 and is a regional adviser to

maintained infrastructure with sufficient capacity to

the organization’s World Governing Board. We have

handle the traffic we currently receive and any future

also worked with other airport groups in Mexico to

increase in passenger and cargo traffic. For ASUR, it is

bring new airlines and routes into the country, and to

also a priority to accommodate expected growth without

promote Mexico as a tourist destination in a wide range

causing operation delays or acting as a bottleneck for

of international events.

local economic growth.

Q: What differentiates ASUR from all other airport

latest self-service check-in and immigration facilities. We

groups in Mexico and what has led to its success in the

have also been looking into alternative sources of clean

market?

energy, to reduce our impact on the environment.

A: What differentiates us are the services we provide to airlines and passengers, environmental and social

Q: How important is NAICM and what impact will it have

programs and the initiatives we are involved in to promote

on airports in the southern part of the country?

our destinations. To simplify: our goal is to provide the

A: Mexico City is still the hub for most flights arriving

best and cheapest service to airlines and passengers.

from both domestic and international points of origin, and its airport is the tent pole that holds up the rest of

Q: ASUR bought the majority of Airplan y Aeropuertos

the nation’s aeronautical infrastructure. The construction

de Oriente in Colombia, which includes 12 airports,

of NAICM is therefore of the utmost importance for the

for US$262 million. What are ASUR’s plans for this

development of air traffic in Mexico. We expect that by

investment?

eliminating slot constraints the new airport will allow

A: This acquisition will be an important strategic addition

more flights between Mexico City and other airports

to ASUR’s portfolio that will allow us to enter the South

around the country, and will create growth in the industry

American market and considerably extend the scope and

at the nationwide level.

scale of the airport services we offer. It will give us the opportunity to serve 10.4 million and 5.2 million additional

Q: What are ASUR’s long-term plans to improve

passengers through Airplan and Oriente, respectively. We

connectivity within Mexico and with its neighbors?

plan to invest in these new assets to bring them up to the

A: We plan to continue working with and supporting

high standards in terms of infrastructure and services that

new and existing airline clients to develop routes and

we have achieved at other airports in our group.

to increase frequencies on existing routes, whenever this makes good business sense. Our route development

Q: Does ASUR have plans to purchase airports in other

team works constantly to identify new markets and

countries?

opportunities, so far with great results, and we believe

A: We look at every business opportunity on a case-by-

that this is the key to increasing connectivity in the long

case basis to decide whether it is good for the company,

term.

based on a strict analysis of whether or not we can create value for the airlines and the passengers given

Q: What new infrastructure developments is ASUR

the specifics of the proposed terms of the contracts.

planning for its existing airports? A: We are just coming to the end a major cycle of

Q: How much has ASUR invested in improving Cancun

infrastructure investment, involving a major expansion

International Airport’s (AIC) infrastructure?

of our airport in Veracruz, as well as Terminal 3 in Cancun

A: Between 1999 and 2017, we invested over US$1.13

and the construction of a completely new terminal

billion in the infrastructure of AIC alone. Some of our

building —Terminal 4— in Cancun, among other projects.

major projects were two completely new terminals:

Among the plans we are proposing for the next five-

Terminal 3, which was inaugurated in 2007 and Terminal

year period are: the reconstruction and reconfiguration

4, which will open this year.

of the terminal building at Merida Airport; the extension of Runway 12L-30R at Cancun and construction of a new

Another priority was a second parallel runway that allows

parallel taxiway; and the installation of a totally new

simultaneous take-offs and landings, baggage-handling,

automated inspection system for arriving baggage going

security systems, new FBO installations and the tallest

through customs at Cancun International Airport.

control tower in Latin America. Getting things built on time, on budget and to the right specifications is always

Furthermore, ASUR will invest in major extensions to the

a challenge, but with a lot of hard work from our local

terminal buildings in Oaxaca and Villahermosa airports

team we have managed it.

and also in major upgrades to the backup systems for baggage handling and inspection in eight of our nine

Q: How is ASUR making AIC an airport of the future by

Mexican airports.

integrating new technologies? A: The safety and security of airlines and passengers alike is of fundamental importance, so we have invested heavily

Grupo Aeroportuario del Sureste (ASUR) is an airport group

in state-of-the-art baggage handling and screening

in charge of managing the airports of Cancun, Cozumel,

systems that are probably the best in Latin America. We

Huatulco, Merida, Minatitlan, Oaxaca, Tapachula, Veracruz

have also tried to streamline operations by installing the

and Villahermosa

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VIEW FROM THE TOP

LONG-TERM COMMITMENT TO SUSTAINABILITY OF AIRPORTS ALFONSO SARABIA Director General of Aeropuertos y Servicios Auxiliares (ASA)

298

Q: What is ASA’S role in the Mexican aviation market and

planning, design, construction and operation of airports

how does it contribute to civil aviation growth?

that comply with national and international regulations.

A: ASA administers and operates 19 airports in the Mexican

Moreover, our experience allows us to offer consulting

Airport System. These are located in Campeche, Ciudad

services in environmental permit management, analysis and

del Carmen, Ciudad Obregon, Ciudad Victoria, Colima,

technical studies for sustainable development. Also, ASA’s

Chetumal, Guaymas, Ixtepec, Loreto, Matamoros, Nogales,

Unit of Verification (UVASA) evaluates the compliance

Nuevo Laredo, Poza Rica, Puebla, Puerto Escondido, Tamuin,

with regulations regarding airport operations, with the

Tepic, Tehuacan, and Uruapan. Likewise, it contributes in

authorization of the Mexican Entity for Accreditation (EMA).

five airplane terminals in Cuernavaca, Palenque, Queretaro, Toluca and Tuxtla Gutierrez. During the first half of 2017,

Q: What are the most urgent airport infrastructure needs

ASA’s airports reported a passenger growth of 8 percent,

at the moment?

compared to the same period 2016.

A: Airports follow “Master Development Plans” that help forecast their growth or capabilities. ASA updates these

Furthermore, ASA Airports are strategically located in

programs yearly and transforms them into investment and

Mexico. They have been essential in the management of

planned maintenance programs. Likewise, we implement

natural phenomena that has affected airplane connectivity,

annual actions to cover present and potential airport

allowing us to guarantee the safe and optimum

needs, which are often tied to the behavior and demand

transportation of goods, people and other products.

of passengers and freight for a given airport.

Q: What has been the influence of the dollar exchange

Q: What will be NAICM’s impact on ASA’s airports?

rates, airport traffic and tourism on ASA’s operations?

A: It varies by airport. From its construction, Puebla

A: ASA’s operations continue to grow. Since 2013, we have

International Airport was planned to be mostly a cargo

posted an annual growth rate of 4.4 percent, corresponding

airport due to the Volkswagen plant and others in the

to the rise in tourism in Mexico. Currency exchange

region. But it has been gaining importance in passenger

fluctuations impact airplane fuel prices, which are ruled

traffic. Given the intense promotional campaign undertaken

by international standards. Conversely, the price of airport

by the government of the State of Puebla and ASA, a

services is not affected by this factor.

significant improvement in infrastructure has been made. Therefore, both passengers and airlines are confident in

Q: How does ASA monitor the safety and quality of the

using the airport, which increasingly offers new routes and

airlines that operate in its airports?

alternatives so passengers do not have to resort to AICM.

A: It is paramount for ASA to guarantee safety, which for us means ensuring the safety of the people and aircraft. Every

Airlines can also use terminals in Puebla, Cuernavaca,

terminal complies with the safety regulation of civil aviation

Queretaro and Toluca within the Metropolitan Airport

(AVSEC), which sets the basic procedures for prevention

System to attend to the demands of the Valley of Mexico’s

and safety measures for passengers, crew, land staff and

metropolitan area and other nearby states. Each airport has

civil safeguards.

its own market and importance, as does that in Mexico City.

Q: What are the main lessons ASA has learned through

In Toluca’s case, the market demand is from the west zone

its experience in the construction, expansion and

and its surrounding areas. Its operation allows users to do

rehabilitation of airports?

what they need to do in less time and with more ease, both

A: ASA has more than 50 years of experience, a trajectory

for national and international flights. Queretaro is farther

that has allowed us to consolidate a group of experts in

away from Mexico City so the airport has gained its own

market, which is performing healthily. Finally, in Cuernavaca,

benefits customers by providing more alternatives. Hence,

ASA has made significant investments to improve the

the challenge will be related to operational efficiency for

infrastructure there and to promote the airport’s usage

optimum profitability, a better service quality for the client and

and demand, which we will continue to support through

an expansion of the air routes with an increased connectivity

the generation of new air routes.

and broader offer for passengers.

Q: What strategies are you implementing to foster the

Q: How will ASA’s collaboration with DGAC and ICAO

growth of smaller airports like those in Nogales, Tehuacán,

guarantee safe and sustainable airport operations?

Loreto, Nuevo Laredo and Tamuín?

A: ASA takes into account the published annexes by ICAO

A: For these airports we implement different strategies.

and DGAC to have safe airports. Regarding sustainability, we

We foster regional aviation, hold onto strategic air routes,

are also complying with environmental regulations, which we

develop new routes based on an efficient identification

implement through environmental certifications in 18 of our

of the market’s needs and demands and promote the

airports. Likewise, ASA has recently supported ICAO in the

establishment of potential new routes at a national and

second conference on aviation and alternative fuel. These

international level. Consequently, we have created specific

efforts seek to contribute to the development of clean fuels,

committees for air routes and promote interinstitutional

like biofuels.

agreements with SECTUR, CPTM and other states. Q: What is ASA’s role in the record sales of aviation fuel and Q: Are you collaborating with the federal and local

what are the future growth expectations for this market?

governments to strengthen these airports?

A: About 30 percent of an airline’s operating costs are for

A: ASA has a clear responsibility and commitment regarding

buying fuel and they must have an optimal process for fuel

connectivity through the optimum maintenance and

management from beginning to end. Our main input is fuel,

operation of its airport infrastructure and the permanent

so we depend on PEMEX. Together, we manage the national

creation of new air routes. We have developed strong alliances

supply chain. We also have a close relationship with airlines.

with the entities with which we share common goals, such

ASA has a huge responsibility but we are a strong and well-

as the federal government through SECTUR and several

developed organization, with a prestigious reputation in the

airlines. Collaborating with other entities helps us carry the

industry. Moreover, ASA provides its air routes with daily

goal of connecting Mexico in an efficient way through its

storage, sales and supply of aircraft fuel nationwide. In 2016,

airspace. Likewise, the Airport Law considers the operation

we provided more than 4,000L of aircraft fuel, and for the

of consulting committees coordinated by airport managers,

first quarter of 2017, we experienced an 8 percent increase

allowing the participation of private firms to add know-how

compared to the same period in 2016. In the wake of the

and propose solutions, thus fostering a PPP collaboration.

Energy Reform, ASA is adapting its operations to remain competitive in terms of quality and to remain compliant with

Q: What are the long-term plans ASA has to improve

international regulations.

connectivity and promote aerial services to all socioeconomic levels?

Q: How is ASA preparing to face the increasing demand

A: The Mexican development of aviation has been marked by

for jet fuel?

ASA’s 50-year commitment to excellence. Accordingly, one of

A: We have a strong commitment to being the main jet

our most important objectives is to foster growth and enhance

fuel provider in Mexico. We are a solid organization that

aerial connectivity through airports in different regions to

is prepared to adapt and evolve according to the new

generate business, industry and tourism bonds through a safe

challenges arising in the industry. We guarantee all our

and high-quality service.

services. Accordingly, our main strengths are: 37 certified fuel stations with ISO 9001:2008, ISO 14001:2004 and OHSAS

Aerial connectivity in Mexico is a goal of the National

18001:2007, a certified quality-laboratory (ISO 17025), 300

Development Plan that corresponds to the improvement

supply vehicles, a 99.97 percent certainty level in operations

of airport interconnection, which we are achieving through

that are environmentally responsible, more than 52 years

the infrastructure of the airport facilities in our network, and

of experience with ND-qualified personnel through the

through the promotion of new air routes and the incorporation

Trainair Plus OACI.

of new airlines. Q: What are the main challenges that Mexican and

ASA administers and operates 19 airports in the Mexican

International airlines operating in ASA’s airports face?

Airport System. The company also contributes to five airplane

A: The aircraft acquisition by Mexican airlines will allow

terminals in Cuernavaca, Palenque, Queretaro, Toluca and

them to bid for new routes and airports, which in the end

Tuxtla Gutierrez

299

300

Landing platform

INSIGHT

MEETING THE CHALLENGE OF NAICM HEAD ON FERNANDO BOSQUE Director General of Grupo Aeroportuario del Pacifico (GAP)

With the eagerly awaited NAICM project, there is a huge

with enough demand will not be jeopardized,” he says. “For

expectation that many of the major airlines will compete for

example, the Guadalajara to Los Angeles route will not be

slots within the megaproject. Fernando Bosque, Director

lost as it makes no sense to connect through NAICM on this

General of Grupo Aeroportuario del Pacifico (GAP), welcomes

route.” In fact, he believes the new airport actually represents

the competition. “The customer’s goal is to arrive in the

an opportunity for operators like GAP to consolidate point-

fastest time, at the lowest cost, with the lowest number of

to-point routes.

connections,” he says. “At GAP airports, we offer an extremely competitive service.”

Other routes, however, face some danger, particularly internationally. “Typically, to travel to Europe, many

GAP operates 12 airports across Mexico’s Pacific coast

passengers connect through US airports like Dallas or

and central belt: Tijuana, Mexicali, Hermosillo, La Paz,

Miami,” he says. “But passengers may find it is now quicker

Los Cabos, Los Mochis, Puerto Vallarta, Guadalajara,

and cheaper to fly to Europe direct from AICM.” Even at

Manzanillo, Aguascalientes, Guanajuato and Morelia.

home, there could be issues. “Some of GAP’s airports that

The group’s infrastructure greatly impacts the national

are closer to Mexico City may be jeopardized,” he says.

aerospace market, with five of its airports ranking within

He lists Morelia, airports in the Bajio region and even

the Top 10 in terms of Mexico’s highest passenger-traffic

Aguascalientes as possible danger zones.

levels, representing 26 percent of the total passenger traffic in Mexico in 2016. Guadalajara is in third place with

But Bosque sees this as an opportunity, since it will motivate

11.4 million, Tijuana in fifth with 6.3 million, Los Cabos in

other operators to improve their offering and provide more

sixth with 4.1 million, Puerto Vallarta is seventh with 4

competitive deals. “The real value is the passenger’s time, so

million and Guanajuato ranks 10th with 1.7 million.

it all depends on which airport can offer the lowest cost and the least travel time,” he says. “To protect ourselves, we remain

With more than 32 million passengers served per year overall,

competitive, offering low costs and shorter time frames.”

GAP is the country’s second-largest group after AICM in terms of passenger traffic volume. “The composition of GAP airports

Low-cost carriers have a significant role to play in maintaining

contributes significantly to Mexico’s civil aviation boom, in

GAP’s competitiveness. These airlines provided 38 percent of

relation to the balance between national and international

all GAP seats in 2010 but in 2017 they offer 59 percent. Volaris

passengers, the characteristics of passengers by destination,

and Viva Aerobus alone provide almost 40 percent and play

cities, business or regions,” says Bosque.

a fundamental role in the development of new routes, the frequency of flights and the capacity at GAP airports. “These

Passenger growth at some of GAP’s airports has been

airlines are expected to place a great deal of orders to keep

relatively high compared to the average at national airports.

their fleets up to date in the next few years,” Bosque says.

Stand-outs include Guadalajara and Tijuana, with 31 percent

“This is not only positive for GAP but for the entire economy

and 28 percent growth, respectively. Los Cabos and Puerto

as it underpins growth and increases capacity for passengers.”

Vallarta are not far behind, at 12 percent and 9 percent. “The group as a whole experienced growth of 26 percent in

Bosque takes GAP’s role in the country’s economic

passenger volumes in 2016 compared to 2015, second only

development very seriously. “For GAP to strengthen its

to AICM,” says Bosque.

smaller airports like Manzanillo, Los Mochis and Morelia, we must foster industry in the regions,” he says. “It is

The development of its routes in the most popular destinations

important that we anticipate the needs of the airlines and

like Tijuana and Guadalajara is among the reasons Bosque is

the passengers, and in this way, we can remain in the most

not worried about the NAICM project. “Point-to-point flights

competitive position possible.”

301

ROUNDTABLE

WHAT IMPACT WILL NAICM HAVE ON THE COUNTRY?

Travelers flying to or out of Mexico City on any Friday night or Monday morning will immediately understand one of the airport’s main problems: oversaturation. For travelers, this translates in many hours of delays and cancellations; for airlines it translates into missed opportunities and lost potential revenue as they cannot increase the number of flights into Mexico’s main hub. For that reason, it is no surprise that many in the country are invested in the buildilng of a new airport that can solve these problems.

NAICM is one of the world’s most intricate infrastructure projects and when completed will become Mexico’s door to the rest of the world. According to the National Infrastructure Plan, NAICM is intended to be an international hub as well as a global logistics platform that will spark the country’s economic and social development. This international flagship also will demonstrate the country’s ability to 302

FEDERICO PATIÑO Director General of Grupo Aeroportuario de la Cuidad de Mexico (GACM)

develop immense projects in an efficient and transparent manner and will become an economic focal point, creating a balance between the west and east of the city. One of the biggest challenges we will face will be finishing both on time and on budget, which is a challenge for any megaproject. Of all of the megaprojects constructed around the world, only 6 percent are actually finished on time and on budget but we are optimistic the new airport will be one of them.

Mexico has a unique opportunity with the new airport to create a world-class hub airport that could easily be the best hub of the region and one of the most important in the world. Already many domestic and international airlines operate in Mexico and with greater capacity the many airlines that would like to fly to Mexico could as well. Those already operating in Mexico could increase their

CUITLÁHUAC GUTIÉRREZ Country Manager of International Air Transport Association (IATA) Mexico

capacity if they want to. We have signed a collaboration agreement with SCT for different areas including the new airport where we collaborate closely with the Mexico City Airport Group providing international expertise like we do in other airport projects around the world by proposing the adoption of international standards, know-how and ensuring the aviation industry concerns or priorities are taken into consideration.

NAICM is a long-term project that we need to support. It entails investments, connectivity, more and better jobs with higher salaries. The airport will be like a small city with hotels and businesses, as well as a beautiful architectural composition. Most importantly, it will allow us to reduce layover times, increasing our competitiveness. Without this airport, aviation growth in our country would be severely limited. CANAERO’s NAICM

SERGIO ALLARD President and Director General of the National Chamber of Air Transport (CANAERO)

committee provides GACM recommendations for improvements in the design of the airport’s terminal building, airfield, cargo terminal, land accesses, baggage-handling system and back-up areas. The chamber has presented a plan to improve migratory and customs procedures to have a hub that operates under the best international practices and connects Mexico with the rest of the world. In terms of airport infrastructure, the construction of NAICM represents a transition for air transport in Mexico.

NAICM will bring great benefits to Mexico because the airspace is saturated. It will eventually replace the current airport because the location of both airports makes overlapping air routes unsafe. This is a significant risk when you have two large, complex airports performing operations close to each other. Multiple studies analyzed the feasibility of having both airports and concluded that it is beneficial for the city to only have one. Our role now is to ensure the new airport complies with international standards and finds safe and secure ways to prevent oversaturation. NAICM has access to our 19 annexes, which address every part of the international standards on airports, security, safety oversight, operations and maintenance.

MELVIN CINTRON Regional Director of International Civil Aviation Organization (ICAO)

A significant impediment to aviation sector growth is the saturation of Mexico’s main aviation hub, AICM. Regulatory agencies are trying to increase the airport’s efficiency by delaying flights that miss their slot. While this move will feel unfair to passengers, they will be the ones to push airlines to improve their practices. NAICM is in the spotlight but there should also be investment in regional airports. The second largest airport in Mexico, Cancun International Airport (AIC), lacks key infrastructure even though it receives over 10 million passengers per year. Investment in infrastructure must increase across all Mexico’s airports, to promote connectivity across the region and facilitate travel for the increasing number of passengers.

FRANCISCO BAUTISTA Leading Partner of Aerospace Industry at EY 303

My hope is that NAICM will be a state-of-the-art facility that operates 24/7 and has shorter connecting times for passengers. The infrastructure must also be able to support larger aircraft such as the Boeing 747 and Airbus A380 airplanes, while operation is handled digitally through electronic boarding passes, immigration kiosks and all other services offered in a first-world airport. The entire project must also be cost efficient and so far, we have not seen a clear business model. We are still waiting to have more information to plan our own operations. Our expectation is that regardless of the Mexican presidential elections, there will be continuity in this project and that the new people in charge will help us have certainty through constructive dialogue.

DIRK VAN NIEUWKERK Director General Mexico and Central America of Lufthansa

There is a direct link between growth in the air transport industry and enhancing economic development in a particular country. NAICM is in a unique position to become an important international hub. Its underlying design principles are oriented toward introducing flexibility to support new processes. In addition, the plan to build an “Aerotropolis” concept around NAICM will produce an important economic engine, with convention centers, hotels and other developments that will create a multimodal platform to ensure the airport is promoted as a destination not only for passengers but for the general public. Cargo is another important element to consider. This gives a perspective on how processes can trigger economic development for a country.

ALEX COVARRUBIAS Vice President Latin America & Caribbean of SITA

Thales wants to maintain its position as air traffic control (ATC) systems supplier to NAICM authorities. The company will continue introducing navigational aids, NAICM’s ACC and radars. We have started working on a value proposition for NAICM regarding the airport’s security perimeter, its operational control centers, internal communications systems, biometric security systems for restricted areas, check-in kiosks for passengers and anything related to the communications systems inside NAICM’s terminal. We are aware that NAICM is not only about air traffic control, but also about land operations. Thales wants to take part in any future train and bus line projects that go to and from the airport.

ANTONIO QUINTANILLA CEO of Thales Mexico

VIEW FROM THE TOP

GLOBAL FUEL SUPPLIER SEES OPPORTUNITY IN AVIATION MICHAEL SZCZECHOWSKI Senior Vice President of Business Aviation Sales for World Fuel Services

Q: What is Mexico’s role in World Fuel Service’s global

Q: What are the main challenges the company has faced

strategy and what are the company’s expectations for the

to operate in Mexico?

Mexican market?

A: A major challenge is the new regulation for aviation fuels

A: Mexico plays a very important role within World Fuel

that is in the approval process by the Energy Regulatory

Services’ global strategy. We have had a significant presence

Commission (CRE) and will significantly change the

in the Mexican aviation market for more than 20 years, a

rules for storage, distribution, into plane service and

period in which we have enjoyed continuous growth, and

commercialization of aviation fuels.

we are now expanding into marine, natural gas and soon 304

land fuel. Mexico is experiencing an interesting process

Q: World Fuel Services was one of the six businesses

as the opening of the energy market is transforming the

authorized by the Mexican Ministry of Energy to import

sector significantly by allowing competition and private

gasoline. What impact will this have on your business?

investment. This process is opening a great number of

A: Mexico has struggled to keep up with infrastructure

opportunities for our company in Mexico.

growth requirements that would allow PEMEX to produce sufficient fuel to meet the country’s growing demand. The

Q: What are the main services that World Fuel offers to

country imports almost 50 percent of the total gasoline

business and commercial airlines in Mexico?

supply and 30 percent of the jet fuel required by the aviation

A: We have a significant presence within aviation in Mexico

industry. Even though we have been in the aviation business

and we work very hard to make sure they get the best

in Mexico for over 20 years, the prospect of importing jet

customer service experience they can get, from credit, local

fuel into Mexico would allow us to offer our customers a

24-hour support, trip planning, fuel cards (AVCARD® for

more competitive and reliable jet fuel supply for important

retail purchases and the World Fuel | Colt Card for contract

airport locations where there are no refineries close by.

fuel purchases) and local invoicing that is compliant with fiscal requirements for domestic customers.

Q: Which new services has the company incorporated in Mexico and what capabilities are unique to World Fuel

Q: What are the main trends in the Mexican aviation

Services?

sector and which areas do you think offer the greatest

A: Recently, we began selling natural gas and we have plans

opportunities?

to begin diesel imports very soon, followed by gasoline in

A: The tourism industry continues to grow steadily

the next few months. The fact that we have been committed

at coastal destinations but we have recently seen an

to the Mexican market for more than 20 years gives World

increase in major cities like Mexico City, Monterrey, Leon,

Fuel Services a deep knowledge and understanding of

Guadalajara, Merida, San Luis Potosi and many others due

airports, operations and what is required to fully comply

to an expanding economy and the different tourist offerings

with the country’s legal and fiscal requirements.

of each state. In addition, we see significant growth in the business aviation industry, which slowly will be evolving

We continue to invest and innovate in Mexico. This year

to more of a US-type model with the increase of FBOs at

we have launched a Trip Support office in Toluca with

some important airports.

an offering designed for Mexican operators to manage every aspect of their flight operations. This new regional office opened on July 12, 2017. Our local team of experts

World Fuel Services provides energy, logistics and technology

are Spanish-speaking and understand the challenges

solutions to many markets, including aviation. In Mexico, the

faced by Mexico’s operators. They also provide direct

company operates from Toluca and recently began importing

local handling and regulatory support for international

natural gas

operators coming to the region.

VIEW FROM THE TOP

HELICOPTER DEMAND RISES, BOOSTS NEED FOR HELIPORTS CÉSAR MORENO Director General of EnTEC

Q: How has the market for helipads grown in Mexico and

generating response units specialized in specific sectors,

what are the drivers behind it?

giving the entire organization faster response times.

A: Helicopter manufacturing is expanding and it is increasingly becoming easier for transportation companies

Q: In which areas does EnTEC specialize and what have

to acquire an aircraft. Interest and demand for helicopters

been your top projects?

rose in Mexico thanks to the incorporation of more safety

A: While EnTEC has participated in helipad projects for

measures, an increase in security concerns and the versatility

marine platforms, ships and buildings, we specialize in the

of helicopters for many purposes, from emergency services

latter area. One of our most remarkable projects was the

to executive transportation. In response to this trend,

helipad at the November 20th National Medical Center as it

infrastructure for helicopters is also growing and platform

allows us to help doctors save lives. We have done projects

development on buildings is becoming increasingly

across Mexico and in several foreign locations, including

necessary. The construction of heliports has also become

the US, Costa Rica, Chile, Panama, Nicaragua, Trinidad and

simpler due to advances in construction technology and

Tobago, Guyana and Colombia. Our close relationship with

its materials, including concrete, steel, aluminum, fiberglass

international suppliers led to our globalization. Customers

and wood. The challenge now is to increase safety, which

in foreign countries often request projects from our

depends heavily on the area in which the heliport will be

partners in the US and Europe, who contact us to perform

located.

them. In Mexico, we represent European, Canadian and US companies, such as RWDI, Tractel, Jomi, Faraone and

Heliport construction was very active in 2016. Our industry

ReachMaster.

is dependent on the growth of other economic sectors, including real state and oil and gas. Heliports for marine

Q: How has your business strategy evolved to adapt to

platforms are mostly unique to that sector, which has been

projects for the middle term?

doing badly for the past few years. On the other hand,

A: We are now investing more in establishing a strong online

helipads on buildings are growing alongside Mexico City’s

presence through social networks and our webpage. We

infrastructure, mainly for office buildings. The demand

are also investing in participation in several conventions

for helipads is rising in major cities, namely in Mexico

and fairs to get closer to decision-makers. Our strategy is

City followed by Monterrey, Guadalajara, Cancun and

to remain close to current clients and to approach potential

Puebla. Other areas that are growing are those with a high

customers in a personalized manner.

concentration of hotels and hospitals. We are enthusiastic about a potential participation in the Q: With increasing demand for helipads, have regulations

NAICM terminal and control tower, which will require the use

for their construction become easier?

of highly advanced technology. We are already operating in

A: We are seeing more transparency from DGAC, which

Mexico’s highest towers and plan to continue doing so. We

is becoming increasingly receptive to project proposals,

want to make EnTEC the first company that infrastructure

revisions and comments. DGAC incorporates representatives

companies building skyscrapers think of when evaluating

from federal, local and municipal governments, as it

the high safety standards required for a helipad.

addresses many different areas, from environmental and urban impact to construction permits. The regulations for all these permits have been simplified and increasingly

EnTEC’s aerospace division specializes in the construction

adhere to ICAO standards. Adhering to these standards will

of public and private heliports, from their design to their

benefit all players in the sector, including users, pilots and

construction. EnTEC built the helipad at the November 20th

manufacturers. DGAC seems to be reorganizing itself and

National Medical Center

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HELIPORT SPOTLIGHT

ENTEC AEROSPACE EnTEC has over 14 years of experience in solutions for heliports and high-access projects, high-rise cleaning services and worksite safety systems. The company is composed of five business units: EnTEC Aerospace, Height Access, Height Services, Worksite Safety and Special Projects. EnTEC delivers integrated solutions that reduce the management burden for clients and the operational costs when carrying out several projects at the same site. EnTEC has a 644m2 office in Iztapalapa and a 485m2 production plant where it manufactures some of the systems it sells. Its production plant is equipped with top-of-theline cutting, welding, drilling and painting machines and an electromechanical workshop that repairs and provides maintenance to all the electrical appliances of heliports, building maintenance units (BMUs), griphoists and electrical platforms. EnTEC’s executive, administrative, commercial and engineering teams are based in this location. The company has another facility close to downtown Mexico City where construction, services and occupational safety managers are based. This facility is close to most of the current construction sites, which enables EnTEC to reach worksites on short notice and to have a secondary location for teams moving around the city. The company employs 165 people divided into two groups: workers in charge of coming up with solutions and the technical and worksite staff in charge of bringing these solutions to life. EnTEC’s crew is well-trained in working at high heights and is experienced in the execution of difficult maneuvers. EnTEC is the only company to offer end-to-end heliport solutions, addressing everything from construction to paperwork. This cuts heliport project costs by eliminating the problems caused by poor communication between the several players involved and the lack of regulatory understanding. EnTEC advises clients on the best possible solution and maintains a neutral position on the materials and technology best suited to the needs of each client. The company’s main objective is to help its clients meet their own goals, which means having the best resources available to create the solutions that fit their requirements. EnTEC wants its clients to have more than just a helicopter landing platform. They should have an access solution integrated into the building that caters to the specific needs of users.

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VIEW FROM THE TOP

EXCHANGE RATES BEHIND CHANGES IN HELIPORT SEGMENT YOUSEFH PINEDA Director General at Cramex

308

Q: What changes in the aviation sector most affected your

A: Our architects and our civil engineering department help

market participation?

clients plan effective projects; their support closes our circle

A: Heliports, our primary services, saw more frequent

of integral service from aeronautics, paperwork and technical

construction during 2016. We provided quotes for 80

construction. We offer consultancy services, which assures

projects during that year in comparison to 2015’s 60

safety in our clients’ plans. Cramex’s experienced team ensures

projects. Cramex did not win every single bid but we saw

construction companies are up to date on safety measures,

higher demand in the market. In January 2017 alone, 16

evaluates obstacles, the shape of the planned building and

helipad projects in Guadalajara, Guanajuato, Monterrey

the aircraft they plan to land on it. Subsequently we provide

and Saltillo came onto our books. We do not see an easy

a quote and begin to stipulate the size, permits, necessary

year ahead of us but there are strategies in place to pull

lighting and structural equipment that must be installed.

through. Heliport projects can also stretch out over three to five years so we plan quite far ahead. Our project on Torre

Our priority is making sure nothing is missed during

Bancomer began in 2010 and was finished in 2014 because

construction, as correcting mistakes later can be expensive.

neither the paperwork nor construction can be rushed.

Once a tall building is built, all work to be done involves installed cranes. If a company plans and projects a budget

The exchange rate movements were the root of most

for everything from engineering consulting down to fire

changes in the sector. We are affected by currency

extinguishers, it saves money and stress. We also advise

exchanges because the lighting equipment used at

companies when structural analysis shows that a building is

heliports is usually imported from the US or Europe.

not strong enough to land a helicopter or to build the helipad.

Encouragingly, foreign direct investment was notably

We must also consider restricted or no-fly zones and this

high in 2016, as was pilot and flight attendant recruitment.

information is not always considered or known by people

More technicians and mechanics entered the sector,

that are not experts like Cramex.

strengthening the industry from the bottom up. Mexican aviation is now more consolidated allowing it to sustain

Q: How will changes to heliport regulations discussed by

several hits without suffering much damage, and we also

the federal government at the beginning of 2017 affect your

try to maintain our service costs fairly stable, regardless

operations?

of exchange rate movements.

A: The new law is ready to roll out but is subject to government approvals. We expected these changes at the end of 2016 but

Q: Which locations demand helipad installations?

have yet to see anything official. We expect it to stipulate that

A: Growing demand for helipads is not limited to Cramex,

platforms be larger and to change standards for equipment,

the whole infrastructure sector is expanding, especially

signs and colors of the platforms. We are not required to

corporate buildings but also residential buildings. This

change existing projects or those that were started before the

represents economic growth which usually increases quality

new law is enforced, the changes will be applied to projects

of life. Puebla’s structural development has boosted the

launched after the new regulations are announced.

city’s need for our services. The value that a heliport can add is priceless for executives, which is why 90 percent of

The evolving landscape provides opportunities for us to

our projects are centered on company headquarters. We

support companies through the changes. Many will take

also install helipads in recreational locations such as golf

the changes into account for new projects but we also

courses, private clubs and hospitals.

expect certain helipads to be updated to meet the new safety standards. Cramex can either advise those interested

Q: What services can Cramex offer to support clients

or approach previous clients to show them how they can

beyond construction?

efficiently make improvements.

H130 Airbus Helicopters

Q: What new areas of opportunity is Cramex investigating

all drones being legally registered. This is in the interest of

within aerospace?

safety in civil aviation operations. We could also be involved

A: The UAV market grew 2,000 percent in 2016 in both

in specialist niches, such as those flying a drone specifically

recreational and professional use, so we hope to explore

to spread pesticides or manage cartography. Each activity

the market further. New opportunities in drones involve

requires specific equipment and software, for which we could

replacing helicopters for topography, photography, electrical

train UAV pilots.

line checking or mapping, for example. A UAV that can carry an adult was launched in Dubai at the beginning of 2017,

Small units are used to train students during classes on theory

managing a 20 or 30-minute flight. This could be used to

and we use a 3D Robotics Solo drone, followed by a DJI drone

rescue people from unapproachable terrain or to deliver

as students advance, because they are safe, versatile, have

packages, and a prototype of an ambulance drone has

a camera and return autonomously to where they took off

already been launched. This area of aviation can meet needs

when the battery begins to run low. We believe these are the

in different industries and provide more efficient or cheaper

best drones among the many excellent brands now available.

ways of carrying out tasks that are already performed using

Before the practical part of the course, we also use simulators

other modes of transport. Therefore, Cramex is beginning to

to teach people how to use the units.

offer courses for people to use drones legally and safely. Q: Where will your focus be in the short-term? Q: At what stage of development is Cramexâ&#x20AC;&#x2122;s drone pilot

A: We are focusing on courses for drone pilots, flight

course?

attendants and public security agencies as these contribute

A: In January 2017, we became one of the first officially

to our priority area, aviation safety. We provide knowledge on

authorized schools for training pilots to use UAVs, and began

how to react in the case of an accident and as global airlines

offering the courses two months after. We are proud of the

expand, these divisions of our business expand with them. Our

growth since then. Our courses focus on training people to

training on Safety Management Systems is also in line with

understand how a droneâ&#x20AC;&#x2122;s flight can be affected by weather,

protecting the safe growth of the industry. Thus far, we have

communications and terrain, to name a few aspects. The

offered training courses to Telmex and Bancomer, and hope

courses are programmed over approximately 15 days, with

these clients will inspire other companies to take an interest

60 hours of theory and 10 hours of practice. This is almost

in safety and contact Cramex to advise them.

identical to the aeronautics training that an airplane pilot would receive, but focused on a smaller-scale aircraft. CRAMEX is dedicated to offering consulting and support

The drone-piloting courses are geared toward every single

services for heliports. The Mexican company has more than

UAV user. All pilots must be trained and have a license to

15 years of experience and consists of a group of aeronautics

fly a unit, which DGAC stipulates as a necessity as well as

engineers, architects, pilots and construction professionals

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VIEW FROM THE TOP

MANAGING RISK AT NAICM REYES JUÁREZ Chairman and CEO of FOA Consultores and Board Member at FIDIC

Q: What role did FOA have in the building of AICM and

FOA is also considering expanding the purpose and

what factors led to it being saturated?

capabilities of NAICM. Projects of this size need to go above

A: According to the airport's original plan, AICM was

and beyond simply serving as an airport. This project is

intended to have two runways to facilitate simultaneous

ultimately impacting national participation, generating

landings. But the lanes ended up being built too close to

employment and strengthening the country’s engineering

each other to run simultaneously. The airport’s saturation is

and construction companies.

no longer manageable because the volume of passengers is

310

growing drastically. That is why NAICM became a priority.

Q: Why are the authorities prioritizing a balance between

Lack of an appropriate airport inhibits the country’s ability

international and national companies for the project?

to compete globally.

A: The project benefits from the inclusion of international firms, not because the country lacks experience but due to

Q: How is FOA contributing to NAICM?

the international best practices they can bring to NAICM.

A: As part of the Project Management Office (PMO), our

In the end, the complexity of the project will showcase the

role, among others, is managing the project’s risk. Our

national and global talent in the infrastructure industry.

ability to intervene consists of directly communicating

Mexican companies that are participating in NAICM can

with the executives at GACM who are responsible for

compete in the international arena more efficiently and join

providing final instructions to contractors. We also support

mega infrastructure projects around the world.

the administration of the project through one of our engineering subsidiaries. It is a way to always have people

Q: What types of tools does FOA use to administrate the

onsite who can follow up on the details of the project. We

many and complex details of NAICM?

represent local talent and help our Prime Contract, Parsons,

A: Tools used by the PMO and GACM are meant to help

an international firm, adapt to the context in Mexico.

the project finish on time and on budget. Primavera is a powerful software that is being used in NAICM to

Few countries have the opportunity to build an airport

administrate the many details of the project. ACCONEX

with such large passenger flow, both nationally and

is another software that is used to manage the number of

internationally. The airport will turn Mexico into an important

documents the project uses.

logistics hub within the Americas. The software helps us register changes and daily matters, Q: What are the main challenges you face with the new

from the weather to community discussions. It facilitates

airport?

accountability when an issue arises. People onsite need

A: As part of the PMO, we face several obstacles. First, the

to upload this data every single day. The registration of

location complicates the process and requires a thorough

information is an essential part of mitigating risks and

analysis. To achieve the construction’s approval, changes

guaranteeing its punctual completion.

to the Law of Public Works were necessary because it was not designed to manage a project of this size and had to

FOA also developed its own software, PGPI-Risk, to

be adjusted to fit the needs of NAICM.

control and register risks that arise and to organize them according to urgency. It offers constant updates and registers relevant information. It can even identify the

FOA Consultores is a consultancy with expertise in airports,

areas that are in charge of preventing these risks from

highways, tourism development, mobility, energy and ports.

growing into a problem. It is much cheaper to invest in

The company participates in the project management group

well-designed plans and risk mitigation tools than cleaning

of NAICM

up a problem after it occurs.

VIEW FROM THE TOP

AIRPORT BONDS PROVIDE MARKET WITH CERTAINTY ALBERTO DE LA PARRA Partner at Jones Day

Q: What were the most challenging elements Jones Day

A: GACM, along with the federal and Mexico City

faced when closing the various NAICM deals?

governments, have worked arduously to create viable

A: Each deal was complex in its own way. For instance, with

proposals to interconnect NAICM with the rest of the

renewable-energy deals, the balance in off-taker profiles is

country. There are currently various projects in the pipeline

important because the full financial risk is based on their

including highways and metro line extensions, as well as

strength. With the old self-consumption permits, PPAs

the express train that will run from Metro Observatorio to

were formed based on the financial strength of each of

NAICM. That is a project that will belong to the Mexico City

the off-takers, meaning that the banks would review the

government and not the federal government or NAICM. In

balance sheet of the off-takers and the termination rights

the end, it will come down to the viability of the project

outlined in the PPA. Since the revenues from the repayment

and whether or not the costs will require government

of the financing come from the PPAs, they require strong

subsidies. At this point, there is no way for the government

termination rights and penalties. With the new system, we

to subsidize the amount required. The Mexico-Toluca

have an energy market and guidelines for compensation

Interurban Train is a great project but requires a significant

with a different risk factor. The most complex issue is how

subsidy from the government.

the banks will assess that risk. The airport bonds provide great certainty to the market due to the fact that all the

Q: In terms of developers or the government, who has

revenue comes from TUA directly from the airlines into a

responsibility for land rights?

trust, which is the source of payment of the financing. There

A: Land rights are always an issue and vary from project

is no way for the airport to misappropriate those funds.

to project. For instance, eminent domain provided for

Terminal 2 of AICM was financed the same way and this

hydrocarbon projects grants preference to the oil industry

method guarantees the financing banks are repaid.

over any other activity. But acquisition of a plot of land is more an issue of negotiation with stakeholders. In transport

Q: What measures can companies implement to protect

and telecommunications projects, it is difficult because

their projects against changes in political administrations?

each piece of land must be negotiated separately.

A: Investors must ensure that their concessions are respected, regardless of how elections unfold. The solid

Q: Why should there be more PPPs to develop infrastructure

legal framework in place helps to maintain the certainty

in Mexico?

of concessions. Most companies hold international bonds

A: The more we create PPP schemes and the more pension

or equity stakes, especially large developers. These types

funds invest in the projects, the more guarantees the

of deals are protected by NAFTA, among many other free

projects will have. For the private sector, access to funds

trade agreements, which is why the Canadian and Mexican

is more expensive than for the government. If you want

governments have asked that Chapters 11 and 19 of NAFTA

to finance a project using the private sector or PPP, that

be respected. These chapters regulate foreign investment

financing will be charged at the higher “private sector rate”

and the arbitration and dispute resolution when investment

so that the government is essentially paying more than it

is not respected in a country. Mexico is among the countries

would for a fully-public project. But the government is now

with the most free-trade agreements in the world and

pursuing more PPPs.

Chapters 11 and 19 form a good framework for protecting investment in concessions. Jones Day is an international law firm that served as lead counsel

Q: What advances have there been in interconnecting

for NAICM’s US$2 billion green bond issuance, winning Structure

NAICM to the rest of the country and how viable are these

Finance and Securitization of the Year by IFLR. In 2016, it was also

projects?

named Best Infrastructure Law Firm in Mexico by Latin Finance

311

INSIGHT

FBO CELEBRATES 20TH ANNIVERSARY WITH IS-BAH CERTIFICATION MANUEL ROMERO-VARGAS Director General of Manny Aviation Services

With little room for error and the potential consequences

20 years.” The company’s goals for this year, which include

of any mistake, safety is a cornerstone for any air operator.

the continued provision of good services and keeping up

To strengthen health and safety standards, Manny Aviation

with international standards, might seem modest, but Manny

Services is breaking new ground among Toluca airport

Aviation Services has big plans. “Our long-term goal is for

operators by being the first to obtain the International

Manny Aviation Services to have its own FBO in Toluca and

Standard for Business Aircraft Handling (IS-BAH) certification.

later in other locations, such as San Jose del Cabo and Puerto Vallarta. These are all significant destinations for our clients,”

Based on ICAO’s principles for safety management systems, 312

says Romero-Vargas.

IS-BAH compiles a set of industry best practices for ground handlers. The certification is granted by the International

In the short term, the company is focusing on consolidating

Business Aviation Council (IBAC), an organization based in

its local operations and continuing to comply with IS-BAH

Canada. The IS-BAH is exclusively given to Business Aviation

standards. By the end of 2018, the company is required to

Handling Agencies (BAHA) also known as FBOs. Recognition

reach the second stage of this certification, as IS-BAH audits

from IBAC is globally recognized.

are mandatory every two years. Requirements also change every six months, so the company will need to invest in

“We worked for over two years to achieve the IS-BAH

staying up to date and training personnel. The company will

safety regulation, which we finally obtained in December

also expand. “We are putting together a second office within

2016. This made us the first ground-support coordination

Asertec’s hangar, which will incorporate dispatch services and

company in Mexico to obtain the certification,” says Manuel

a training room. Toluca is our base but we have teams in Los

Romero-Vargas, Director General of Manny Aviation Services.

Cabos, Cancun, San Luis Potosi, Queretaro and Mexico City.”

Manny Aviation Services is a family company in its second generation. It provides a series of services ranging from

Overall, 2016 was a good year for Manny Aviation Services.

customs and immigration clearance to ground transportation,

“We grew approximately 18 percent in revenue in comparison

security and ground transport. “We focus mainly on ground

to 2015,” says Romero-Vargas. The company has a positive

services, including car, limousine and armored-vehicle

outlook for the future and aims to reach similar numbers

rental, hotel booking, in-flight catering and other security

in 2017. Romero-Vargas also expects this growing trend to

operations,” he adds.

permeate Toluca International Airport (AIT). “AIT is growing thanks to general aviation,” says Romero-Vargas, referring

At its core, Manny Aviation Services is an expert in charter

to executive and cargo operations. “We want to see more

jet and helicopter arrangements and in aviation law. The

commercial airlines and connectivity from Toluca but it is

company has a side business called Manny’s Catering.

impossible to forget the importance of general aviation to

According to Romero-Vargas, Manny Aviation Services is the

AIT’s operations.” Executive aviation is an important business

preferred service provider for some government flights to

development tool, explains Romero-Vargas, punning on the

Mexico. “We have managed flights for operators from many

idiom, “no plane, no gain.”

countries, including Russia, India, Europe, Kuwait and South America,” he says.

The importance of executive aviation for Mexico’s economy is often overlooked but these travelers spend large amounts

Romero-Vargas expects that the IS-BAH certification will be

of money. Therefore, it is important for governmental

instrumental in the company’s continuous improvement. “The

organizations to support the sector and avoid corruption, says

IS-BAH will allow us to provide better services to our current

Romero-Vargas. He sees corruption as the only barrier to AIT’s

clients. 2017 marks our 20th anniversary and we expect this

growth. “The sector will continue expanding if corruption and

certification to be the first step in our growth for the next

security concerns can be addressed,” he says.

INSIGHT

MERGING DESIGN AND CONTROL SANTIAGO TOMÁS Director General of Gesab Mexico and LATAM

The extensive minutiae of an airport’s operations are not

were more concerned with the durability of a product than

always obvious but they are essential to safety. At the center

with aesthetics.”

of it all, is the control room that manages large amounts of data and requires specialized features a normal office

Because the company works on a project basis, the volume

cannot provide. Airports are only a portion of equipment-

of products and the sector it caters to vary according to

maker Gesab’s portfolio but it is an area the company

market fluctuations. Gesab’s 2012-2013 year was dominated

expects to grow in Mexico.

by oil and gas clients and 2014-2015 by the banking sector. To date, airports represent 20 percent of its projects but Tomás

At Gesab’s core is the design and manufacturing of technical

expects this sector to continue growing. The company now

furniture for critical environments. “From the beginning, we

operates in Cancun International Airport and Monterrey

designed furniture for data-processing centers and later we

International Airport. One goal is to work with NAICM, which

adapted to include control centers,” says Santiago Tomás,

Tomás calls “the most important real-estate project in Mexico.”

Director of Gesab Mexico.

Monitoring centers for NAICM will be numerous and varied in their services, ranging from security to airport management,

Gesab does not manufacture standard furniture, it only makes specialized equipment for control centers for sectors including aerospace, oil and gas, banking, government, transportation and telecommunications. These centers are used 24-7, so they must host operators at all times and accommodate large numbers of monitors that deal with vast amounts of data. “Control rooms are built with more resistant materials and meet higher requirements in material quality and resistance in comparison to a normal room,” says Tomás.

“

and Gesab is pitching control rooms and furniture for them.

Because of its size, the Mexican market is extremely attractive for Spanish companies”

Gesab’s offices in Mexico now supply all of Mexico and Latin

The Spanish company was founded in 1991 and has since

America. “It is easy to serve Colombia, Peru and Ecuador

grown at an accelerated pace. In 2000, it began opening

from Mexico but we also have projects in Bolivia, Panama,

offices in other European countries including Germany,

the Dominican Republic and Costa Rica.” The US market is

the UK and the Netherlands, and started analyzing

handled separately from Gesab’s offices in Spain because “the

possibilities beyond Europe. Mexico seemed a logical

Latin American and the US markets are extremely different,”

choice. Gesab started its first project in Mexico in 2009

says Tomás referring to the US’ preference of functionality

and opened offices in Mexico the following year. “Because

above design.

of its size, the Mexican market is extremely attractive for Spanish companies,” says Tomás. He highlights the close

Most of Gesab’s equipment is manufactured in Barcelona and

connection between both countries as a key strength for

exported all over the world. Tomás explains that the Mexican

Gesab’s incorporation into the Mexican market. “Mexico and

branch is increasingly turning toward Latin America, especially

Spain have a shared history, language and character. The

after the US 2016 election raised fears of a downturn in the

Mexican market was greatly influenced by the US but our

Mexican market. Gesab has positive expectations for 2017,

mentality is more European in terms of design, which is a

with several projects lined up for the year, including tenders

key product differentiator,” he says. Gesab’s focus on design

for NAICM. The company expects to take flight in 2018 as

has impacted its competitors, Tomás adds. “We have even

efforts made in the past few years mature and become

influenced the US market. Previously, US manufacturers

multipliers for growth.

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VIEW FROM THE TOP

ENVISIONING THE AIRPORTS OF THE FUTURE

Elbson Quadros Vice President for Latin America of SITA

Alex Covarrubias Vice President for Airport Business in Latin America of SITA

Uriel Torres Commercial and Corporate Relations Director for Airports of SITA

Q: What differentiates SITA from other IT companies?

inform passengers of the status of their flight and their

AC: SITA belongs to the airline community. This gives

luggage’s location. These perks improve the passenger

us a unique understanding of their business processes

experience.

and how to improve efficiency. Our goal is to work with different organizations to define industry standards. 314

AC: Airport technology efficiency focuses on how passengers and luggage are managed. Using technology

EQ: We are passionate about the industry. We work

at the core of these processes can generate revenue for

closely with airlines, airports and governments and we are

airports and reduce costs for passengers, which can in

helping them to improve their processes. All our efforts

turn make airports more competitive. Since NAICM aims

aim to help them be successful and to make passengers

to become a hub for the region, it could greatly benefit

happy. What differentiates us is our extensive experience

from incorporating this technology to become efficient

and familiarity with all players in the sector, which permits

and competitive.

us to pinpoint their needs and create solutions for them. UT: Infrastructure contributes a significant part of any UT: SITA has been in Mexico for over 50 years. We possess

country’s GDP. This airport is going to be the second-

comprehensive knowledge of the Mexican market.

largest in the world. Its construction will boost the economy and being located in the middle of the Americas

Q: How do you envision the airport of the future and

makes it an excellent entry point to Latin America from

what role will technology play in its development?

Europe and Asia.

EQ: An airport is all about passenger experience. SITA’s goal is to make the passenger’s trip as pleasant

Q: In which areas could SITA support NAICM’s

as possible, which involves a significant amount of

construction?

technology and services. For passengers, the check-in

EQ: NAICM will need to develop a comprehensive road

process, baggage documentation and security checks

map for its construction to become a gateway to Mexico

are the most stressful. To make their journey more

City. We already provide services for AICM, the Cancun

straightforward we have created automated services

International Airport (AIC) and all airlines operating in

to eliminate the long periods of time spent standing.

Mexico so we are fully informed regarding the sector’s

We have innovated in self-service technology for many

needs. We are preparing to participate in the airport’s

years and are now incorporating kiosks for automated

technology bids because we want to bring the same

immigration, check-in and luggage drop.

improved technologies to NAICM.

There are many steps that travelers never see, such as

UT: SITA analyzes different technologies and passenger

managing many different processes simultaneously,

needs to streamline trips through airport infrastructure.

including flight operations, catering, maintenance

We are well-acquainted with the processes involved

and clearing. This area, called airport management

and study how to improve them for different passenger

technologies, ensures flights take off and land on time.

profiles. We would like to ensure that technology is in

A new area involves the personalized services that

place and fully integrated. Our goal also is to have the

airports provide to passengers. Many people want to be

opportunity to provide our experience in Master Systems

in control of their trip using mobile technology so we

Integration and to support operators as they move

from the old airport to the new location. SITA is also a sustainability-focused company, so we can help the

TOP 10 MOST INNOVATIVE AIRPORTS IN THE WORLD 1

JFK International Airport. New York, New York.

Changi Airport. Airport Blvd, Singapore.

Incheon International Airport. Seoul, South Korea.

Helsinki Airport. Vantaa, Finland.

San Francisco International Airport. San Francisco, California.

all technological aspects of construction from the start

Munich Airport. Munich, Germany.

is important. Internally, we have prepared strategies to

Carrasco International Airport. Montevideo, Uruguay.

Kuala Lumpur International Airport. Selangor, Malaysia.

flexibility into their design to adapt to future needs.

Dubai International Airport. Dubai, United Arab Emirates.

Q: What impact will NAICM have on its neighbors and

Heathrow Airport. London, England.

airport acquire LEED and other certifications. AC: Technology is often installed after the construction of an airport but it should be incorporated much earlier in the process. The earlier technology is incorporated into the design the better for the airport’s long-term prospects. Having a single integrated program managing

support NAICM’s construction and our team is excited to be able to participate in the tenders of this project. Airports last for decades so it is necessary to incorporate sufficient

how could SITA support a streamlined incorporation of

Source: Business Insider.

technology in the area? UT: NAICM will impact the entire city but the area

EQ: We have implemented end-to-end services in airports

surrounding the airport will feel this impact the most. We

in Australia and Singapore. We believe that NAICM will

are preparing to offer NAICM a service that can integrate

need to incorporate similarly advanced technology into

all the technology needs of the airport, the surrounding

many different areas and now is the perfect time to

area and the transport system linking the airport with

develop that.

all neighboring streets. We call this the “Aerotropolis.” Businesses located around the airport will provide

AC: NAICM’s team is incorporating recommendations

services so we are studying how to develop IT systems

from industry experts and working with the International

to serve this part of society.

Air Transport Association (IATA) to get input from airlines on improving passenger processing. SITA works with

AC: Creating an Aerotropolis around the airport will

all Mexican airlines, mapping their needs within this

increase commercial revenue both for the airport and

collaborative environment to ensure we implement the

the surrounding area, provided it caters to users’ needs.

right processes and systems. We are also working with

But technology changes each year so our challenge is

Jet Blue and Miami International Airport to implement

to develop a product for the area surrounding NAICM

biometrics technology. Its installation requires a

that can sustain the evolution of technology throughout

collaborative effort between airports, airlines and

its lifetime and still be modern when the processes are

government entities.

operational in 2020. For a long time, IATA has been closely advising airports EQ: Since the airport will be operational in three years,

about the implementation of processes and technology

SITA is thinking ahead. Long ago, we anticipated some

and SITA has held workshops with airlines for the last

measures that are now essential in a modern airport, such

three years, preparing them for the introduction of

as the kiosks we installed for automated registration. Next

technologies like self-tagging facilities. IATA recently

steps will include the introduction of technology aimed

passed resolution 753, which motivates airlines to

at tracking luggage and automated passenger bag drops.

maintain an accurate inventory of luggage and track

Another area we want to improve is documentation.

reception and delivery for the comfort or passengers.

Passengers have to carry an ID and boarding pass but

Airlines had communicated these requirements to the

we are working with biometrics and facial recognition

government to ensure the implementation of these

to eliminate that. A fully automated airport would

standards and requirements.

allow passengers to check in and drop their luggage by themselves and not worry about carrying personal documents.

SITA

the

world’s

leading

specialist

air

transport

communications and information technology. The company

Q: Which airports are incorporating this end-to-end service

works with its air transport owners and members to provide

and how do you foresee its incorporation into NAICM?

technology solutions that make a difference at a community level

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INSIGHT

REGULATORY HURDLES HINDER RADIOCOMMUNICATIONS GROWTH

“

We proposed the introduction of TETRA technology, a system used by airlines around the world” David Magaña , Project Engineer at Radiocomunicaciones SAKDA

and is now developing conditions for a tender in which Radiocomunicaciones SAKDA will participate. “For this tender, we proposed the introduction of TETRA technology, a system commonly used by airlines and airports around the world,” says Magaña. One of the main advantages of this technology is that it permits users to use up to four lines in a single frequency, an impossibility with analog equipment. For this project, the company plans to use Hytera equipment as this manufacturer

An often overlooked but instrumental part of airport

is the only one worldwide providing monitoring and

and airline operations are radiocommunications. The

administrative software alongside the equipment,

importance of this area has led to many efforts to

according to Magaña.

optimize their use but Mexico faces a hurdle to properly implement them in the shape of government regulations.

TETRA technology has not been implemented anywhere in Mexico, which would make Radiocomunicaciones SAKDA

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The use of radio frequencies is so common that it

pioneers if its bid is successful. The company reported

can be taken for granted. Radio equipment is present

last year its most popular brand for airport operations

almost everywhere, in taxis and police cars, hospitals

was Hytera, followed by ICOM. Radiocomunicaciones

and construction sites, pharmacies and factories and in

SAKDA also plans to introduce TETRA technology to

every single location where people need to communicate

NAICM.

constantly. Frequencies are in such demand that these coveted communications routes can cause a problem in

The company is participating in a project to bring DMR

certain circumstances, such as operations at AICM. To

technology into the Airports and Auxiliary Services (ASA)

address similar demand at other airports, manufacturers

network across 22 airports. The technology will allow

have invested in alternatives such as Digital Mobile

ASA to monitor operations and provide communication

Radio (DMR) and Terrestrial Trunked Radio (TETRA).

services across all its airports and fuel storage units. This

Implementation of these technologies in Mexico, however,

initiative is also expected to be implemented during 2017.

is not easy because current regulations outlaw them.

Eventually the company plans to approach other airports in Mexico to offer the technology.

“One of the main problems radio operators are facing is the outdated regulation concerning radio

The company represents Motorola, Kenwood, ICOM,

frequencies,” says David Magaña, Project Engineer at

Vertex and Hytera. It works with Aeroméxico, Interjet,

Radiocomunicaciones SAKDA. “This regulation was

Volaris and Aeromar and sells equipment to Mexican

created over 20 years ago and takes neither current

airports. The company endeavors to stay up-to-date

sectorial needs nor technological advances into account.”

with the latest technologies, even before they can be

It is a problem for all users, and airports and airlines

implemented. Its investment in technology has paid

are no exception. “Airlines operating in Mexico City are

off. Radiocomunicaciones SAKDA is an authorized

using analog equipment that does not have the capacity

distribution center for all the brands it represents.

to reach the entire airport, thus they are unable to communicate across many areas and are forced to use

In Magaña’s opinion the reason behind the regulatory lag

landlines or cellphones instead.” In airports, this is more

is the government’s view on the use of radio frequencies.

than a mere inconvenience. It may endanger operators

“Mexico is the only country in Latin America without modern

if they find themselves unable to communicate during

regulations in this area and it is not a government priority,”

an emergency.

he says. To address the regulatory challenge, Mexican radio distributors have allied forces under the National Association

AICM has a significant communication problem due

of Radiocommunication Equipment Distributors (ANDEAR),

to the volume of operations. The airport has tried to

which represents the sector’s interests and pushes for

generate a tender for its own communications system

regulatory changes. Changing this regulation must be a

for the past two years. At the beginning of 2017, the

priority, Magaña says. “Clear regulations will be of the utmost

airport gained authorization to use these frequencies

help to all radio frequency suppliers.”

VIEW FROM THE TOP

TECHNOLOGY SOLUTIONS FOR AIRCRAFT SERVICE VIRGINIA GÓMEZ Director General of Prior Aero

Q: What challenges are airlines and airports in Mexico facing?

Q: What are the main regulatory challenges impacting your

A: The industry’s first challenge is related to Mexico City’s

client’s operations?

current international airport no longer being efficient in its

A: A system called Flow Control was established in Mexican

functions. The New Mexico City International Airport (NAICM)

airports in 2010-2011. If all those involved in the process used it

is also being heavily criticized but this new location and

correctly, the Mexico City International Airport would be much

expansion is long overdue because airlines need more slots.

more effective. In that area, there is still work to be done. We

They are under pressure to increase the number of flights to

need to create a regulation that facilitates the participation

meet demand for air travel and cargo. Another challenge faced

of all airlines in scheduling flights to avoid delays through

by local infrastructure is that airlines need and are purchasing

effective planning. The goal should be to make regulations

increasingly bigger planes. Trends to offer a greater variety

together, with public and private industry participants all

of flights and to transport more passengers have rendered

contributing to accomplish this. Unless we solve this soon,

the current airport infrastructure impractical because it was

the problem will simply be carried over to NAICM when it

designed for smaller airplanes.

begins operating.

Q: What new technologies are modern airports implementing

Q: For which aerospace services is Prior Aero seeing

to improve communication and safety?

increased demand?

A: Many routes are incorporating more technology to help

A: My customers demand training. We want to involve them

airplanes land more accurately and easily. These systems also

in Safety Management Systems (SMS), which all businesses

keep them clear of other objects on their route or even away

involved in aviation must install. But this system does not

from another plane on a similar flight path. Ultimately this new

always behave the way they expect it to. When this happens,

technology increases air space safety. Sometimes problems

clients call us for SMS support but they would benefit from

arise from companies thinking they only need to invest in high

taking specific courses on this system.

technology but not in training their employees. Untrained staff can be ineffective and can even damage equipment. When

Q: How soon do you plan to begin offering consultancy

equipment is borrowed from US airports, challenges often

services for drone owners?

arise from improper training. If it is not used correctly, even

A: The regulation CO AV-23/10 R3 has included a classification

the most sophisticated equipment becomes useless.

for unmanned aircraft since 2016. The SCT classifies this technology according to weight and probable usage,

Q: What are the main challenges when introducing new

which is why some drones will require a special permit to

technologies to Mexican airports?

be legally operated. Drones weighing more than 250g must

A: Economic support is as important as training because the

be registered with the government and owners must know

equipment required is expensive. Forming a committee with

where they are allowed to fly and where not, such as private

the government and all airlines involved could be the solution,

property. All drones come with an identification chip from the

wherein experts could oversee the purchase and maintenance

factory that allows aviation authorities to keep tabs on them.

of the correct equipment. Prior Aero has championed

Prior Aero often helps people keep their permits in order and

a committee of this type for quite a while now. We are all

even to get a license to fly should they need one.

involved in the process: the traveler, the airline CEO, their employees and air-traffic personnel among many others. If all the players are not on the same page and only look at what

Prior Aero is a consultancy specializing in air space navigation.

is best for them, that prevents the team effort from working

It provides services regarding the construction of airports and

correctly. All industry players need to agree on the different

heliports plans and designs air routes and offers consultancy

processes involving air-traffic safety and flight monitoring.

services to improve security and reduce fuel use

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VIEW FROM THE TOP

DO’S AND DON’TS IN THE CONSTRUCTION OF NAICM PABLO RAMOS Director of Azul PR

Q: How has the aviation sector in Mexico evolved?

owned by Siemens, which helped us grow considerably in

A: The aviation sector has changed considerably in the

the market. Even after ADB was sold to an investor group,

past 20 years. Previously, only one entity, ASA, regulated

its growth allowed us to develop our position in Mexico.

all airports in the federal airport system. Today, each airport

Together with ADB, we offer innovative and FAA-approved

operates as a private company with various airport groups

lighting solutions such as proximity and precision approach-

in charge of managing operations and generating revenue,

path indicators to our clients.

which has made them much more efficient than they ever

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were. This also helped aviation grow in the country; there

ADB is the company that has developed the most products

are now more flights and more routes available, as well as

in collaboration with the FAA. Although these are tested in

more passengers per airport. Passenger flow is increasing

the US and Canada first, our proximity to these countries

at airports across the country. Even though Mexico City

has helped us incorporate new technologies into Mexico’s

remains the largest terminal in the country, it is no longer

infrastructure. We have supplied and modernized almost all

the most important connection point for passengers.

airports in Mexico since ASA was in charge of the country’s

Cancun, Guadalajara and Monterrey are expanding their

airport infrastructure. Once airport groups began operating,

terminals so clients do not have to go through Mexico

companies were more open to modernization and we were

City to reach their final destination. This is not a bad thing

responsible for the installation of the first LED lighting

considering that Mexico City International Airport (AICM)

in Mexico’s airports. Some companies were reluctant to

is already oversaturated.

include this technology at first but now almost all use LED

90 percent: the amount of energy consumption advanced power supply systems can reduce by eliminating extra electronics

lighting. Q: What new technologies are you bringing to Mexico’s airports? A: The airports most open to innovation are those located in the south and southeast of the country. This is where we have installed the first full LED runways, solar windsocks and low-consumption energy regulators or advanced powersupply systems. These last components have helped clients reduce energy consumption by 90 percent, eliminating the

Even though the sector has grown, there are also

extra electronics needed in LED installations. Although we

deficiencies related to the government’s infrastructure

have received requests to install this equipment in other

management. The country waited too long to build a new

airports, it has been difficult to promote these components

airport in Mexico City and I fear that in its early stages, the

because the government has no way of testing them, which

NAICM project will be insufficient to address the needs of

means they are not certified or regulated in the country. The

the Mexican public. We will have to wait approximately 10

government is working on regulations and we expect these

years for more runways to open and a second terminal to

to be ready in the next two years.

be available so the airport can truly support the country’s needs and infrastructure.

Q: What do you see as the main deficiencies in the development of NAICM?

Q: What role does Azul PR play in the development of

A: Its location will prove a challenge in terms of accessibility

airport infrastructure?

and costs. There is infrastructure in place to reach the airport

A: We began operations 20 years ago by representing

but it will need to be improved once it starts operating.

the company ADB Airfield Solutions. This company was

Regarding costs, the new airport is being constructed in

what was previously the Texcoco lake. This is increasing the project’s budget substantially and once it is finished, companies might find operational problems due to the type of land. These problems might lead to the closing of runways and terminals. The government’s rush to finish the project could also cause problems in the future. Runways alone need five to six years to be fully operational after a one to two-year period during which the land has to be prepared. Meanwhile, the government has a timeline of three to four years to complete the project. Q: What would you recommend regarding the construction of NAICM? A: The first thing would be to take the necessary time to build the airport. The government is taking the right steps to prepare the land but they are not planning to give it the proper time to preload and compact. Contractor integration is also crucial for the project to succeed. There are several companies involved in the construction of the runways

319

and terminals and if they do not know what the other is doing, they might encounter problems. Every aspect of the construction is connected and any delay or malfunction will impact the development of the entire airport and its operations. Q: What is Azul PR technology’s proposal for NAICM? A: We want to introduce technology currently used only in European airports. With the recent merger between ADB and the Safegate Group, we created a larger portfolio with more solutions for our clients. We can now participate in the development of control towers, runways and platforms, which no other company can do. We want to integrate all these systems in NAICM, from lighting and automated docking systems to smart traffic control. These technologies would help Mexico reach the concept of Airport Collaborative Decision Making (ACDM). By integrating all operators participating in the docking of an airplane, we can reduce the time an aircraft spends on platform by up to 30 percent and prevent the airport’s oversaturation. ACDM is already used in many cities in Europe and some airports have already made it a standard in their operations. However, for ACDM to work there needs to be collaboration between controllers, airlines and airport operating staff. Integration is complicated but not impossible and if we want flawless activities in the future, we must embrace this standard.

Azul PR is a leading company focused on lighting solutions for airport applications. The company represents the ADB Group in Mexico, which now also incorporates Safegate International Group and all its related brands

Premium Economy A380/ Airbus

Aircraft Engine / DB Schenker

ON THE HORIZON

Though aerospace has been in Mexico for over four decades, it is just beginning to take off. Some states already have a strong industry, while others are in the nascent stage. The challenge ahead for Mexico is to join the efforts of the industry, academia and the government to successfully strengthen, consolidate and promote the sector and its capabilities beyond manufacturing. The development and complete assembly of a Mexican aircraft is still in the works and several institutions are working toward that end. It is still necessary for the sector to join forces not just to facilitate manufacturing but also to promote itself, its strengths and capabilities at a global level. Through guidance from expert consultants and the efforts of governmental agencies, the Mexican aerospace sector is closer to getting on the world map as the aerospace manufacturing hub it wants to become.

This chapter will look ahead to what the future of the aerospace industry in Mexico could hold and what is being done to ensure continued growth. With interviews from representatives of consulting agencies, government and industry representatives, and other experts, the chapter will summarize what actions must be taken to make Mexico a world-class destination for aerospace.

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CHAPTER 14: ON THE HORIZON 324

VIEW FROM THE TOP: Cesar Fragozo, ProMéxico

325

INSIGHT: Dan Arellano, ADD Aviation Intelligence

326

Alvaro Serrano, ADD Aviation Intelligence

VIEW FROM THE TOP: Manuel Nieblas, Deloitte Mexico

Alberto Torrijos, Deloitte Consulting Group

327

VIEW FROM THE TOP: Eduardo Muñiz, Bancomext

328

VIEW FROM THE TOP: Luis Lizcano, FEMIA

330

AIRPORT SPOTLIGHT: NAICM

332

INSIGHT: Eugenio Marín, TechBA Madrid-Montreal & TechBA Aerospace

334

INSIGHT: Francisco Bautista, EY

335

INSIGHT: Brig. Gen. Rodolfo Rodríguez, FAMEX

336

ROUNDTABLE: What Are Your Expectations for the NAFTA Talks?

338

VIEW FROM THE TOP: Alejandro Bravo, KPMG Mexico

323

VIEW FROM THE TOP

MEXICO LIFTING NORTH AMERICAN COMPETITIVENESS CESAR FRAGOZO Chief of the Aerospace Unit at ProMéxico

324

Q: How did the aerospace industry perform in 2016 and

president’s policies, but the peso was facing problems

what are your expectations for 2017?

before the election due to internal policies. Many are

A: 2016 saw exports increase by 10 percent to US$7.2

confusing these two different situations and often US

billion and we closed the year with about 360 registered

policies are unreasonably blamed for decreasing the value

aerospace companies. We expect the sector to keep its

of the Mexican currency, adding to the general uncertainty.

current pace. The aerospace industry is stable because it

The exchange rate, however, benefits investors. Last year,

has orders for the next five years. Demand is high as airlines

Mexico broke its own record of exports to the US and

must acquire new aircraft to cater to the growing number

companies manufacturing in Mexico and exporting are

of passengers and also to renew fleets. The US, one of the

actually increasing their profits due to the exchange rate.

world’s strongest aviation zones, is expected to maintain its fleet size but areas such as the Asia-Pacific, the former

Foreign aerospace companies perceive Mexico’s strength

Soviet bloc and Latin America are expected to double

in the aerospace sector. European companies are showing

their fleets. This also increases the need for MRO services,

their commitment to Mexican manufacturing, especially

technicians and pilots so we can safely diagnose potential

those in the aerospace industry, while some US companies

for the development of local MRO capabilities.

are cautious of the comments they make. But manufacturers will be unwilling to move out of Mexico simply because

The coming year may be challenging for sectors like

of threats, as they would have to start over and invest in

automotive, yet there are many positives, including an

infrastructure, human capital and certifications.

economic boost brought about by the Energy Reform. Q: How is ProMéxico supporting the country’s emerging Q: How sensitive is the Mexican aerospace industry to

space sector?

domestic and foreign economic challenges?

A: We are preparing for the bid of the third satellite from

A: The aerospace sector will not be affected as demand

the MexSat system, which will be a support satellite for

for parts and components is constant and manufacturers

communications. The unit will offset national manufacturing

are always on the lookout for ways to increase their

by 10 to 15 percent and is expected to be finalized in a few

competitiveness. The aerospace manufacturing chain is

years. Potential bidders include Airbus, Boeing, Safran and

extremely intricate as it involves the repeated transportation

Lockheed Martin, which are looking for national suppliers.

of pieces across borders before final assembly. To add an import tax to this transaction would only elevate costs for

This project will bring state-of-the-art technology to Mexico.

the final user. Neither is moving manufacturing to other

The aviation sector is highly aware of safety, which has led

countries easy, as producers must consider the installed

to the creation of many certifications, including AS 9100

capacity at every location and transportation costs to and

and NADCAP. On the other hand, safety concerns are not

from destinations. Moving production lines from Mexico

as prominent when dealing with satellites. In this latter case,

to another country would greatly increase transportation

the most prominent aspect is cost as satellites are valued at

costs and reduce competitiveness. Many people think

over US$1.5 billion. Certifications for satellites and their parts

that Mexico’s economy was only impacted by the US

are issued by the manufacturers themselves, permitting a greater investment in developing materials and technologies. The incorporation of satellite manufacturing poses significant

ProMéxico is a subdivision of the Mexican Ministry of Economy

opportunities for Mexican companies. While MexSat would

in charge of promoting trade of Mexican goods in other

initially imply only a reduced number of parts, once we have

countries and attracting foreign direct investment and new

developed the technology to manufacture satellites, we

companies to the country

would be able to manufacture for other countries.

INSIGHT

“

IS LEASING THE FUTURE OF AIRCRAFT?

We are an engineering center that works with aircraft lessors and lessees on delivery and redelivery processes” Dan Arellano, CEO of ADD Aviation Intelligence

and preparing an aircraft to be returned to a lessor in India. Serrano is confident that with the exponential growth of aviation both globally and in Mexico, more companies will recognize the advantage of buying aircraft and leasing it in emerging markets such as Mexico. “Our goal is for leasing companies to continue looking to Mexico as a business opportunity,” he says. Just as with a new car, new aircraft fully comply with the manufacturer’s guarantee conditions. But a pre-owned aircraft might have technical issues that require repairs,

As new car owners soon find out, buying a automobile can

with fissures in the fuselage being the most common,

be a bad bet as its value wanes rapidly and it is difficult to

according to Serrano. “Used aircraft also require more

change it for a new one. This is the same case with aircraft.

inspections and maintenance because there will likely be

And as with a car, leasing the aircraft instead of owning it

more failures,” he says, “This usually translates to more

is the easiest way to tackle both issues.

manpower, materials and a larger maintenance budget.” The lease price of a pre-owned aircraft is lower, so the

Airlines often lease aircraft from large financial entities,

name of the game is finding a balance between price

such as GE Capital Aviation Services (GECAS) and Nordic

and expected maintenance costs and looking for minimal

Aviation Capital (NAC), and must prepare it to comply

defects. “Commercial airlines’ business is not in old aircraft,

with their leasing agreement in terms of components and

which require much more maintenance that makes them

maintenance upon returning the aircraft. They hire ADD

less competitive.” says Serrano, “Older aircraft now are

Aviation Intelligence to make sure the leased aircraft

mostly used for cargo.”

complies with all regulations once it is recovered. “We are an engineering center that works with aircraft lessors and

Serrano finds that changes in technology also incentivize

lessees on delivery and redelivery processes and design

airlines to renew aircraft relatively frequently to ensure top-

maintenance programs for aircraft and analysis for aircraft

of-the-line systems are installed in aircraft. “For instance,

maintenance,” says Dan Arellano, CEO of ADD Aviation

a 20-year-old aircraft lacks a system that automatically

Intelligence.

informs flight and ground crews of a failure while a newer

“ plane does.”

Acquiring an aircraft entails a large investment, even for airlines. Sometimes it just makes more financial sense to lease than to buy. And, just like with that 1967 Mustang, providing an aircraft maintenance and keeping it in good shape are paramount to ensuring that value is maintained and performance remains smooth. According to Alvaro Serrano, Engineering and Operations Principal at ADD Aviation services, “An aircraft is an asset that loses value over time. Our role is to maintain the craft’s value for our customers by ensuring it is returned in good condition.” ADD Aviation Intelligence works closely with operators to

Our role is to maintain the craft’s value for our customers by ensuring it is returned in good condition” Alvaro Serrano, CEO of ADD Aviation Intelligence

ensure compliance with all the maintenance documents

There are many opportunities to be taken advantage of

that ensure the aircraft’s air worthiness and its adherence

in the leasing business model. According to Arellano,

to national and international regulations, including DGAC’s.

only 37 percent of aircraft is leased worldwide while the rest is owned by airlines. “But shifting toward leasing is a

The company works closely with the top carriers in the

growing trend because of the growing desire to improve

country, including Aeroméxico, Volaris, Viva Aerobus

technologically,” he says. “After six to eight years, the

and Interjet, says Arellano. ADD Aviation Intelligence is

average length of aircraft leasing agreements, airlines can

delivering aircraft to Aeroméxico and preparing aircraft

return the leased aircraft and lease a different one with

for delivery to Interjet in 2018 while also working with NAC

more modern technology.”

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VIEW FROM THE TOP

TECHNOLOGY SHOULD NEVER BE LEFT BEHIND

Manuel Nieblas Partner and Manufacturing Industry Leader at Deloitte Mexico

326

Alberto Torrijos Partner and Consultant at Deloitte Consulting Group

Q: How aligned is Mexico with the technological trends

incentives from the government to incorporate advanced

adopted by other industrialized hubs?

technology among national suppliers, while the industry

AT: Companies in Mexico are already analyzing how to

is not that committed to developing the local supply

implement Industry 4.0 practices into their production.

chain. For many years, the driving force in the Mexican

Having said that, if the world is at an advanced stage in

industry was to produce more with less. However, this is

the adoption of the latest automation and optimization

no longer enough, according to international standards.

technologies, Mexico’s maturity level is very low in

Companies must now learn how to add value to their

comparison.

operations.

MN: Mexico has always been regarded as a low-cost

AT: Mexican companies are not ready to face the

manufacturing destination. In contrast, Industry 4.0

technological challenges; they are more focused on

implementations require large investments. The moment

surviving. If companies do not offer an added value,

technology becomes more affordable than human labor,

their products will be commoditized, which will be a

the industry will transform. According to the OECD,

huge problem in the next five years due to the extreme

Mexico is the least prepared country in sensorization and

competition in the market and the evolution of new

digitalization. We can see some robotics projects and

technologies. Small suppliers must find a way to enter

automation strategies but human labor remains the most

the production chain or they will meet their end at the

cost-effective alternative in the country. The problem

hands of larger players.

Mexico faces is that technology prices keep falling and it will not be long before they match the country’s

Q: What do you see as the biggest opportunities to

competitive labor advantages.

improve optimization processes based on Industry 4.0 ideals?

Q: How ready are Mexican companies to face the

AT: Plants generate huge amounts of data but it is of no

technological challenges posed by leading international

use if it is not compiled and structured to offer predictive

players?

information about the site’s performance. There are many

AT: New manufacturing plants from OEMs and global Tier

companies now offering data analysis solutions but clients

1 suppliers are arriving to Mexico, all with state-of-the-

must be committed to the necessary investment, not only

art production technology. However, in lower tiers there

in their products and processes but in the development

is no knowledge or strategy regarding automation and

of the right human capital to use these tools.

technology integration. Q: What are the main areas the industry must focus on to MN: There are massive technology gaps. SMEs are

continue its consolidation?

practically unaware of the advantages these advances

AT: The Mexican industry faces two pressing needs. The

can offer and they do not have the necessary resources

first is for local companies to invest in certifications and

to invest in advanced manufacturing equipment. The

process optimization. OEMs and Tier 1s no longer focus on

situation worsens when we consider that there are no real

just-in-time processes. The goal now is just-in-sequence, which means suppliers must now become part of their clients’ production line, delivering the products the

Deloitte is one of the Big Four accounting firms in the world

line needs in the exact moment, quality and quantity it

and headquartered in the US, it provides auditing, financial

demands. Companies that cannot meet these standards

consulting and tax services. The company is also the largest

will be left out. The second priority for Mexico is to grow

professional services network

availability of products that are not manufactured locally.

VIEW FROM THE TOP

FINANCING ECONOMIC GROWTH AND THE VALUE CHAIN EDUARDO MUÑIZ Automotive, Aerospace and Logistics Financing Director of Bancomext

Q: How has Bancomext contributed to the growth of the

Q: What is behind the rapid growth of the aerospace

aerospace manufacturing sector?

industry and what does that mean for Mexico?

A: Bancomext’s goal is to promote Mexican economic

A: The country offers many advantages to the sector, so

growth and employment, financing foreign trade and

its continued specialization and development will raise

attracting investment. This is of utmost importance for the

Mexico as an emerging aerospace exporter. Thanks to the

aerospace industry, which has been mostly supported by

automotive sector, aerospace companies were able to find

foreign investment. Having seen the industry’s projected

potential collaborators that had already installed state-of-

growth in Mexico, we developed a specific, dedicated

the-art manufacturing technology. The sectors are distinct

financing program.

in volumes, being automotive an industry of high volume while aerospace is an industry of low volume production,

Bancomext deems the aerospace industry a priority

highly sophisticated and with high costs per unit, so their

because of its dynamism and sustained double-digit

production can coexist. Aerospace emerged and expanded

growth in Mexico since 2005. The sector is a safe bet

swiftly thanks to synergies with the automotive sector.

and is receiving significant support from the Ministry of Economy and local governments hosting the five Mexican

Q: How is Bancomext supporting the development of

aero clusters.

Mexico’s much-needed supply chain? A: Bancomext allocated over MX$10 billion (US$527

Q: In what ways does Bancomext support Mexican aviation?

million) in 2016 to the aerospace sector in four different

A: Bancomext has one of the largest financing portfolios for

areas: commercial aviation, manufacturing, services and

the commercial aviation sector in Mexico, including most

supply chain. We finance the entire aerospace supply chain

commercial airlines and a few regional ones. We finance

requirements, including facility expansions and renovations,

fleet acquisition, advance payments for aircraft purchases

account receivables discounting, acquisition of supplies

and working capital for consumables. As a foreign trade

in Mexico or abroad and working capital for production

development bank, our goal is to provide a range of choices

process needs.

for exporting companies. While we have mostly worked with commercial airlines we can work with business aviation

We also have programs to finance capital expenditures to

companies as long as they aim to improve connectivity.

support growth and consolidation, helping direct and indirect

Furthermore, we finance MROs, including several projects

exporters or companies with cash flows in foreign currencies.

being developed in the north of Mexico.

While some Mexican companies have entered the sector, the demanding certifications and high investment required mean

Value chain creation and development for the sector is

most aerospace companies are financed by foreign capital.

a priority for us in both the aerospace and automotive

The bank is also financing airport renovations and expansions

sectors and Bancomext is willing to provide support

to ensure sound logistics for exporters. We are currently

through “ad-hoc” financial products for the industry.

supporting between 20 and 25 companies, including airlines,

We are also supporting the development of a logistics

suppliers and real-estate developers. We expect to allocate

platform that backs these value chains, including ports

MX$10.5 billion (US$553 million) to the industry in 2017.

to increase load-management efficiency for products coming in or out of Mexico. This logistics platform includes industrial infrastructure and its surrounding areas, which

Bancomext helps small Mexican companies to sell their

require hotels to accommodate business travelers. For a

products internationally through a support network that

company to be competitive, it needs good connectivity

provides up to US$3 million in loans. Requests over US$3

and energy infrastructure.

million are directly supported by Bancomext

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VIEW FROM THE TOP

INTERNAL POLITICS ABROAD COULD OPEN DOOR TO COMPETITORS LUIS LIZCANO Director General of FEMIA

328

Q: What are the most influential trends affecting the

Q: How could Mexico benefit if it successfully adapts to

aerospace sector?

changing policies abroad?

A: Commercial aviation is being led by Boeing and Airbus,

A: The global market for aerospace products is strong,

for commercial aircraft, and Bombardier and Embraer,

thus many international companies have a positive outlook.

for regional jets. These companies and their suppliers

Mexico has one of the most open economies in the world,

constantly work to optimize their manufacturing practices

counting trade agreements with 46 countries. A climate

to reduce costs as the market demands, which often leads

of uncertainty may cause an economic slowdown as

them to outsource processes and services from their

companies become increasingly cautious to expand or

home countries. There are concerns that this trend will

invest. Many are waiting to see what happens before they

reverse due to internal policies in certain countries but any

commit to any changes in strategy.

policy that prevents companies complying with market demands will impact manufacturers’ competitiveness, creating an opportunity for OEM competitors from other

DISTRIBUTION OF THE REGIONAL SUSTAINABLE SIZE OF AEROSPACE COMPANIES BY HEADCOUNT DEVELOPMENT FUND 2

countries, including China and Russia, to enter the North American market. Regardless of the policies, in the longterm the market will always correct itself. There are two situations to consider. The first is the global market, which is growing especially for the commercial

43% 28% 22% 7%

aviation segment. Globally, passengers prefer flying over other methods of transportation. This trend will continue unimpeded unless there is another global crisis. To address the needs for this large number of passengers, airlines must grow and update their fleets. Aircraft are part of a complex supply chain that incorporates companies all over the world and the market is pressuring

11% Mazapil

2% Sahuaripa

9% Cananea

2% Morelos

7% Nacozari de Garcia

2% Eduardo Neri

Medium Large Small Micro

Source: FEMIA and Ministry of Economy

manufacturers to reduce costs. This may lead them to

Some are talking about an elimination 5% Fresnillo 2% Aquila of NAFTA but this

best-cost countries where they can outsource quality

is4% notOcampo a realistic scenario, while is. The treaty 2% renegotiation Alamos

processes and services.

is4% almost 20 years old, so some of its clauses need to be Caborca 1% Chinipas updated taking the three countries’ interests into account. 2% Sierra Mojada 47% other

The second aspect of the economy which could impact

Even theMinistry treaty were eliminated, 1 Source:if CGM, of Economy With figures Mexico to March ofhas 2015many

the aerospace industry is seen in specific trade scenarios,

other trade partners. The reasons Mexico is attractive to

but uncertainty at this point means it is not possible to

the aerospace sector will not change. It is not possible to

determine how the wind will blow. We are assessing

manufacture markets’ behavior as markets themselves act

different scenarios and constant analysis should help us

as equalizers. This period of uncertainty is a hiccup in an

to react and prepare for evaluated events.

otherwise healthy sector. Q: What actions is FEMIA taking to support the sector amid

FEMIA represents the Mexican aerospace industry with the goals

economic challenges?

of promoting it internationally and attracting FDI. It represents

A: We are now implementing a national supply chain

the industry's interests and helped to create the Pro-Aéreo plan

development program and developing other strategies

to position Mexico as the 10th aerospace supplier globally

to support the sector, including certification and business

development programs. We are in line to reach Pro-

we attract attention to the business opportunities in

AĂŠreoâ&#x20AC;&#x2122;s export and industry growth goals and are already

aerospace and strengthen the supply chain. We are also

developing the next edition of the program alongside

connecting companies to suppliers they did not even know

the federal government. FEMIA will continue its course

existed. We had cases wherein companies were neighbors

to supply chain development and human resources preparation. If we continue on this road and fulfill the lacking core competencies, I am certain the sector will be successful. Q: How is FEMIA supporting the development of the aerospace supply chain?

Approximately 25 percent of FDI comes from Europe according to FEMIA

A: Our supply chain development program is collecting a significant amount of technical data and information about

in an industrial park but did not know that their services

core competencies of every company in the industry. This

complemented each other. Companies trust FEMIA to

data will facilitate the identification of sector needs and

make the connections, protect their privacy and look for

what can be done to promote and support individual

their best interests.

companies. Q: How can Mexican aerospace reach new markets and We are studying the market to determine how many

which areas should the industry turn to?

companies have the AS 9100 certification and estimate

A: The Mexican aerospace industry is still young. While

those to hold it at 60 to 70 percent of Mexican aerospace

a few companies have existed for over 40 years, the

companies. There are also many other companies that have

sector only started to take shape about 13 years ago. To

sufficient personnel and core competencies but have not

convince foreign companies to invest in Mexico we are

entered the aerospace sector as they lack the certifications

reaching out through events and investment seminars

or equipment to do so. This study is a long-term process to

all over the world. We have to look toward the European

create awareness, of which the first phase will be finished

Union and Asia. Europe is a great ally. We estimate that

by September 2017.

approximately 25 percent of FDI for the aerospace sector comes from this region and the rest comes mainly from

We also support companies that are not already certified

the US and Canada. Working with Asian companies is a

and help them connect with potential buyers, including

possibility but it is necessary to take into account the fact

OEMs and Tier 1s who can sponsor and advise them.

that business practices vary widely between countries.

Moreover, FEMIA is developing a pre-assessment program

Japan, one of Asiaâ&#x20AC;&#x2122;s strongest players, can take up to six

for companies that want to enter the industry that consists

years to make investment decisions while European and

of a comprehensive analysis of business practices, quality

US countries usually make them in two years. We could

and technology. This helps them determine their standing

also look toward Latin America, especially to Brazil which

and figure out what they are missing to enter the sector.

we have identified as a potential partner with growth

Through the identification and inclusion of more companies

possibilities.

329

AIRPORT SPOTLIGHT

NAICM TO MEET RISING DEMAND As air cargo transportation and tourism markets grow, so do demands for flights to Mexico City. The Mexico City International Airport (AICM) was declared saturated in 2014 yet flight operations continue to increase. In terms of passengers, AICM is the busiest airport in Latin America and operates 31.3 percent above its installed capacity of 32 million passengers a year. Only in 2016, the airport had 450,000 operations that resulted in the transportation of almost 42 million passengers and 483,433 tons of cargo. As the number of passengers and the amount of airtransported cargo continues to grow, NAICM cannot start operating soon enough. The first phase, expected to be finished by 3Q20, will have a capacity of 550,000 operations per year that will transport 50 million passengers and will have three runways. Once the second phase is finished by 2050, its yearly capacity will increase to 1 million operations, 120 million passengers and six runways, making it one of the largest airports in the world. GACM —the company in charge of building, administering, operating and exploiting NAICM— expects 160,000 jobs to be created during its construction and 450,000 once the airport reaches its full operations. NAICM is planned to be financially self-sustainable through its mixed scheme of investments. The first phase of the project will cost MX$180 billion (US$9.46 billion), of which 58 percent of the funds, MX$104.4 billion (US$5.47 billion), will come from the Federation’s Expenditure Budget and the remaining 42 percent (US$3.97 billion) from private bank loans. GACM receives support from key national and international aviation actors to ensure the airport meets international standards. First, CANAERO provides NAICM’s authorities with recommendations on the design of the airport and the implementation of best international practices in its operations to promote the airport’s competitiveness, according to Sergio Allard, president of CANAERO. Second, IATA has signed an agreement with DGAC to provide technical and operational assistance for the design and construction of NAICM and the adoption of best international practices, says Cuitláhuac Gutiérrez, country manager of IATA in Mexico. As Federico Patiño, General Director of GACM, told Mexico Infrastructure and Sustainability Review, “NAICM will be Mexico’s door to the rest of the world. It will spark the country’s economic and social development.”

331

INSIGHT

HOW TO GROW IN AEROSPACE EUGENIO MARÍN CEO of TechBA Madrid-Montreal & TechBA Aerospace

Almost 37,000 commercial aircraft, worth about US$3.7

large OEMs are not willing to make the large investments

trillion dollars, will be necessary by 2035, according to

necessary for supply chain development,” says Marín.

a 2015 Boeing forecast. Whether the global aerospace

332

industry is ready to manufacture them is another question.

Initiatives like TechBA can help these suppliers improve

“For the next five years, a global supply shortage of US$50

as soon as possible. A pivotal role in the development of

billion is expected,” says Eugenio Marín, CEO of TechBA

the supply chain falls on the shoulders of companies that

Madrid-Montreal & TechBA Aerospace. “Mexico is in good

support the growth and consolidation of local suppliers.

position to absorb 10 to 15 percent of that shortage in the

TechBA was created by Mexico’s Ministry of Economy and

next 10 years.”

FUMEC, a binational entity with an endowment from the

“

For the next five years, a global supply shortage of US$50 billion is expected. Mexico is in good position to absorb 10 to 15 percent of that shortage”

US and Mexican governments. With four offices in the US, two in Canada, one in Spain and one in Colombia, TechBA helps SMEs in many sectors, identifying value-added niches. TechBA also supports ProMéxico and FEMIA, contributing to a large study on supply chain integration and it provides feasibility studies for the Mexican Space Agency’s (AEM) technology transfer centers. AEM is creating centers across Mexico and is collaborating on a project with CONACYT to develop human resources and certification training in Sonora and Baja California.

This represents a significant business opportunity for an industry that aims to export US$12 billion by 2020.

Approximately 250 Mexican companies in the aerospace

The Mexican aerospace sector has been growing at

sector are working to obtain the certifications, human

an accelerated pace for the last 13 years, led by major

resources and infrastructure needed to achieve success.

international aerospace companies that saw in Mexico

“About 50 percent of the sector has been working for

an opportunity to manufacture the same quality at more

over 10 years and those companies are well-positioned

competitive costs. “For aerospace companies that invested

and fully certified. The rest have joined the aerospace

five years ago, it is important to start upping the pace.” To

boom in the past five years.” Barriers along the way, such

achieve this, companies need to overcome a number of

as major aerospace companies requiring suppliers to

challenges. TechBA’s chosen path as a business accelerator

provide strong production track records, causes setbacks.

for SMEs involves facilitating their entrance to the supply

“OEMs and Tier 1s often look for companies that already

chain. TechBA is currently supporting 10 SMEs through

have aerospace clients, complicating the entrance for

various acceleration programs, explains Marín. “We help

newcomers. Furthermore, it takes companies four to six

them create a road map to enter the sector.”

months to prepare for a bid.” These factors stall local SMEs and the consolidation of the supply chain. If suppliers are

One of the recurring concerns in Mexican aerospace is

not ready to handle this workload, manufacturers send

supply chain integration, which is complicated by the lack

the work to competitive regions such as Turkey, Poland

of a strong supply base. One solution is for international

and Morocco.

companies to bring their suppliers to Mexico. Another is to raise the level of existing suppliers in the region to the

SMEs that identify long-term opportunities and returns

requirements of OEMs and Tier 1 and 2s. “Many of these

persevere but many excellent, quality companies give up.

“Many Mexican family businesses are used to one-year ROIs but this is not possible in the aerospace sector,” said Marín. TechBA inspires patience in the face of adversity for those that have real potential. TechBA’s team also identifies companies facing slowdowns

Almost 37,000 commercial aircraft, worth about US$3.7 trillion dollars, will be necessary by 2035

in their specialist areas, such as oil and gas, and help them migrate these capabilities to the aerospace sector. “This

companies must support the services they will need in

can take up to two years, which can seem slow for budding

the next five years to keep their manufacturing costs

aerospace players but it is fast for the sector,” says Marín.

low enough to retain competitiveness,” says Marín. As

Companies that can be adapted to aerospace operations

companies look toward Mexico as more than an entry

include automotive, metal mechanics and suppliers of

point to the US, but also to Canada, Latin America and

medical devices.

even Europe, international companies must invest in developing more advanced capabilities. The next goal will

Another problem is that SMEs often lack the financing

be generating new intellectual property. GE Queretaro, for

merited by their expertise in manufacturing. Small

example, employs 2,500 engineers to develop the next

companies in Mexico need agile access to grants and

aircraft engine locally. “Other companies have followed

financing to speed up their growth. “A company may be

suit such as Safran and ITP, but these companies have

the best at producing a specific component but to grow

operated in Mexico for decades. Newcomers are not doing

in this industry it must diversify its scope and increase its

so and it is necessary for them to bring in these complex

capabilities. This will attract larger customers such as Tier

capabilities.”

3 and 4 companies,” Marín says. Once SMEs have taken this step they can access bank loans more easily, which will in

Marín points to Altaser Aerospace as one of TechBA’s

turn allow them to invest in machines, processes, insurance

greatest successes in 2016. Collaboration with this

and personnel. “This is the only way a small aerospace

company goes back many years, to when the company

company can grow, and we support them by helping them

expressed an interest in machining but lacked expertise

to access these channels and capital.” TechBA performs

in the sector, which led them to acquire a machining

a comprehensive analysis of a company’s capabilities and

division from Soisa Aerospace with TechBA’s support. The

processes. Once strengths and weaknesses are identified,

relationship between both companies has been extensive.

its team generates a comprehensive business plan so SMEs

“From 2016, we have helped them in their commercial

can expand their operations. The company will also guide

operations, financing and acquiring new contracts,” he

them through submittal processes for loans and insurance.

says. Last year, Altaser started a joint venture with an English company for surface treatments. TechBA will

On the other end of the scale from SMEs, international

help Altaser deliver greater added value and eventually

players that are already established in the country

to gain even larger contracts following the joint venture,

have invested in consolidating the supply chain. “Large

Marín adds.

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INSIGHT

FLIGHT FORECAST: TURBULENCE AHEAD FRANCISCO BAUTISTA Leading Partner of Aerospace Industry at EY

With a NAFTA renegotiation discouraging investment and

on the sector as many foreign entities are continuing their

competitive fuel costs stinting purchases of new, efficient

investments, they are just keeping quiet about it. Some

aircraft, Mexico remains a cost-effective and attractive place

plans have been delayed but none have been canceled,”

for foreign companies, says Francisco Bautista, Leading

says Bautista. Instead, fresh concerns are arising from the

Partner of Aerospace Industry at EY, although 2017 is proving

renegotiation of NAFTA. “I do not fear an increase in tariffs

interesting for Mexico’s aerospace market.

but rather, the loss of a legal framework that has protected companies doing business in the region,” says Bautista.

334

“Mexico is a good partner for aerospace companies. I

“Tax reductions and changes suggested by US President

would recommend, however, that foreign investors do

Trump could be problematic for Mexican manufacturers. A

their due diligence before doing business here. There are

significant reduction of taxes on products manufactured in

opportunities, you just have to find them,” says Bautista.

the US could counteract any benefit that Mexican companies can offer foreign investors. We still do not know what impact

EY, one of the largest auditing, tax, finance and accounting

this will have on the Mexican aerospace sector but it is not

service providers in the world, has a diverse range of services

possible to ignore that the largest company in the sector,

for almost any economic sector. In the Mexican aerospace

Boeing, is based in the US.”

industry, the firm works mostly with multinational companies providing tax and fiscal services followed by auditing

While the picture might seem less than perfect, Bautista

services. Bautista says Mexico remains attractive and EY is

does not seem concerned with the short-term future of

optimistic about aerospace despite the swirling uncertainty.

the sector. “The effects of these reforms will only begin

“We are developing several new projects for the sector, trying

to be felt by late 2018 or early 2019. I do not believe that

to work more closely with governments to develop programs

any company currently operating in Mexico will decide to

that generate higher added value for Mexico.” The feeling of

leave the country but new companies might think twice

uncertainty is temporary and should not be a deterrant for

about investing here, the consequences of which will be

companies wanting to invest in Mexico, Bautista says.

lower FDI.”

He points out, however, that several global economic factors

Despite slowing orders, there is no cause for concern from

have brought about a slowdown in the entire sector that

manufacturers yet as the sector has a production backlog

might impact local manufacturing practices. Hits to the

for the next nine to 10 years and orders are expected to

global oil and gas sector have also hurt the aerospace

recover. Moreover, an increasing desire to travel, especially

industry. “Low fuel prices make even older aircraft more

from emerging economies, will continue to push aircraft

cost-efficient so airlines are less likely to renew their fleets.

acquisitions. “Civil aviation will continue to rise gradually,

This will last as long as fuel prices remain low,” says Bautista.

driven by developing markets including Asia, which is

The slowdown might be related to an overall climate of

growing at an incredible rate, and South America, which

uncertainty, partly as a result of Brexit, explains Bautista.

has much unexplored potential.”

The UK is the fourth-largest aerospace manufacturer in the world with an industry valued by International Trade Centre

In the short term, Bautista expects the Mexican market to

data at US$19 billion in 2015. Any economic slowdown might

continue expanding. “The introduction of low-cost airlines

expand through the world’s supply chain.

has been beneficial to the Mexican market as competition has lowered prices, leading an increasing number of people

Mexico’s aerospace sector has been threatened by factors

to travel and to overall sector growth,” he says. For the past

closer to home but so far, their impact has been minimal.

15 years the aerospace industry has expanded in double-

“Our relationship with the US is not having a drastic impact

digits and Bautista estimates 10 percent growth for 2017.

INSIGHT

GENERATING SYNERGIES TO UNDERPIN GROWTH BRIG. GEN. RODOLFO RODRÍGUEZ QUEZADA President of FAMEX

Mexico’s thriving aerospace sector needs support from all

these discussions, we noticed that many companies bought

its members if the industry is to reach its goal of positioning

components from foreign suppliers. But these products are

the country among the world’s largest aerospace players,

also manufactured in other Mexican aero clusters or even

says Brig. Gen. Rodolfo Rodríguez Quezada, President of

by companies within the same cluster,” he adds. Business

the Mexican Aerospace Fair (FAMEX). He adds that a top-

meetings of this kind are FAMEX’s bread and butter. While

notch industry event like FAMEX, organized by SEDENA, is a

other fairs welcome more visitors, often tourists watching

key component in that strategy. “As the 14th-largest country

the air shows, FAMEX aims to attract business leaders and

in aerospace exports, Mexico deserves an aerospace fair

decision-makers from across the sector. “In 2015, we hosted

that lives up to the quality of its exploits,” says Quezada.

over 3,500 business meetings,” says Rodríguez. The 2017, the event saw the number of those meetings increase to 4,600.

The fair is among SEDENA’s endeavors to aid the country’s economic development, supplementing its mandate to

FAMEX, held every two years, is much more than just a

protect Mexico and support the local population through

meeting place for the industry’s businesses. The event hosts

social development programs, reforestation and providing

several seminars in foreign investment and aeronautical

support during natural disasters. The defense ministry

education. FAMEX 2017, held in April, also hosted the first

also helps promote the industry at international forums,

Mexico-Brazil Synergy Seminar. “This event marks the first

including airshows in France, Dubai and Berlin, Farnborough

encounter between the two Latin American economic

International Airshow and the International Air and Space

powerhouses in the aerospace sector,” says Rodríguez. “It

Fair (FIDAE).

was organized to cater to Brazilian corporations’ interests in Mexico’s aerospace industry.” Brazilian OEM Embraer

Mexico’s aerospace industry exported US$7.2 billion in

was born from the country’s army and eventually branched

2016. The country is the fifth-most attractive destination

into the commercial sector. Its regional airplanes are now

for aerospace FDI, after the US, China, the UK and France.

used by many Mexican airlines. The presence of financial

Quezada points out that in addition to governmental

institutions from both countries, such as Brazil National

support, the sector enjoys the cooperation of academia,

Bank, NAFIN and Bancomext, ensured many business

which is aligning curricula with industry interests and

opportunities for Mexican companies. Brazil and Mexico

allowing recent graduates to slip straight into major

compete in several industries, including automotive and

aerospace companies operating in Mexico, such as Safran,

technology but both can learn from each other, Rodríguez

Honeywell, UTC and Zodiac.

says. “The event’s objective was to create business opportunities and to offer information on financial support

FAMEX’s goal is to promote the growth of the aerospace

that banks provide to the industry.”

industry by attracting foreign companies and investment. The ministry believes it is uniquely positioned to achieve

FAMEX 2017 raised expectations even more than

this. “We have a complete understanding of Mexico’s

its predecessor and delivered. The event welcomed

industry and we are promoters of local aerospace,” says

45,000 visitors and 505 exhibitors, from the largest

Rodríguez. Results speak for themselves. “After its first

OEMs including Boeing, Airbus, Bombardier, Embraer,

edition, FAMEX became the second-largest aerospace fair

Gulfstream, MD Helicopters and Pilatus, to their suppliers.

in Latin America in terms of attendees, conferences and

It hosted exhibitions from the US, Canada, Israel, Brazil, the

exhibitors, having hosted participants from 18 countries,” he

UK and France, the second Foreign Investment Seminar

says. FAMEX 2015 represented the first occasion in which all

and the second Aerospace Education Forum. The event

aerospace clusters sat together with FEMIA and the event

also allowed the exchange of knowledge through 107

created unprecedented business opportunities. “During

conferences and panels.

335

ROUNDTABLE

WHAT ARE YOUR EXPECTATIONS FOR THE NAFTA TALKS?

Mexico can pride itself on having the largest number of trade relationships in the world, with a total of 46. Yet, one of the country’s most important FTAs in terms of trade volume now hangs in the balance due to the protectionist policies pursued by the US administration. Since the largest export destination for Mexican goods is the US, changes in trade conditions brought about by a renegotiation NAFTA could have a deep impact in the Mexican economy.

NAFTA allowed maquilas in Mexico to supply to each other and to be supplied to by Mexican companies, generating a synergy in the manufacturing sector and convenient conditions for the introduction of more foreign manufacturers. In my opinion, it is impossible for companies operating in Mexico to move their manufacturing back to the US due to prohibitive costs. I asked some of our main lessees whether they would

ALBERTO CHRETIN 336

Director General of Terrafina

move their operations back to the US in the case of a negative outcome for NAFTA and everyone answered “no,” even if border adjustment taxes were implemented. While NAFTA is not a minor problem, it will not impact the sector as badly as some fear because the US government wants to increase its exports. A shaky relationship with the US, on the other hand, did impact the generation of new deals but even that impact was limited.

The uncertainty generated during this period has scared US companies in many sectors. Our US market, which represented over 80 percent of our business, is now closed. Companies that are already working in Mexico are safe and growing, albeit slowly. New businesses, on the other hand, are reluctant to enter the state. I expect the NAFTA renegotiation to result in a win-win for all parties. It would

LUIS LARA Chairman of the Board and CEO for American Industries

also be beneficial to NAFTA’s three members to extend the agreement to the rest of Central America. At this point it is necessary to improve the quality of life in all regions instead of building walls among countries. Mexico is in a good position to lead Central America and increase trade across the region. This is the time to open borders.

Our industrial centers in Ensenada, Tijuana, Tecate and Mexicali allow us to be close to the hubs in Los Angeles and San Diego. This whole region gets much attention from aerospace companies and they trust in the economic development potential of Baja California. There is currently a lot of uncertainty generated by all these conversations around the renegotiation of NAFTA, but as of today there is nothing

VÍCTOR HIDALGO President of Aerospace Alliance

tangible to address. As an aerospace industry, we have to be vigilant of any political or commercial changes but we need to take care of other issues that are more related to our daily operations. We need to focus on our performance and let our Federal and State authorities handle political and economic issues. We just need to make sure that the government takes into account our concerns specifically when it relates to NAFTA.

The renegotiation of NAFTA can bring many benefits to manufacturers in Mexico. In a worst-case scenario, trade will continue as it is. The reason is that the US lacks the manufacturing infrastructure to replace whatever they are manufacturing or importing from Mexico in the short term. Acquiring this infrastructure will take the US many years during which demand for these products will not diminish in any way. Furthermore, once they acquire the facilities and warehouses they will need workers to man them, which in the US come at higher costs. The best outcome for NAFTA’s renegotiation will be for all three members to share best practices because some practices in Mexico

ÁNGEL DE LOPE General Manager of Kaeser Compresores de México

can improve manufacturing conditions north of the border and vice versa.

A worst-case scenario imagines a cancellation of NAFTA but even under these circumstances the results will not be as bad as many expect them to be. If NAFTA were to be canceled, Mexican exports to the US would be levied a 4 percent tax with the exception of pickups, which would be taxed at 25 percent. However, we now know that NAFTA will not be canceled but renegotiated which might be a beneficial for Mexico. It is often said that there is a trade deficit between Mexico and the US. We expect that the renegotiation of NAFTA will allow the US government to fully understand the relationship between both countries’ manufacturing sectors and how they complement each other.

JAIME CAMPOS Aerosapce Industry Director at the Ministry of Innovation and Economic Development of Chihuahua 337

NAFTA and other trade agreements helped Mexico position itself as a commercial powerhouse by significantly opening borders and simplifying commerce. This made the country an attractive destination for parts manufacturing. But the ease with which these can be exported limits any interest in completing the supply chain. Brazil, on the other hand, has limited trade policies and thus had to invest more heavily in the development of an entire internal supply chain for the construction of Embraer. As part of NAFTA, Mexico entered the global supply chain, allowing it to become a top aerospace parts supplier for the US but there

CÉSAR FRAGOZO Chief of the Aerospace Unit at ProMéxico

is still room for growth.

While the agreement needs to be reviewed as it is over 20 years old, in my opinion it is here to stay. During this long period, the market changed considerably and new technologies have entered the picture. It is time to adapt the treaty to the current state of the industry and world commerce. I expect the renegotiation to lead to a stronger and more beneficial agreement for the three countries and continue promoting the opportunities the free trade agreement provides. What we can expect is an efficient negotiation between the three countries.

LUIS AZÚA General Manager of Bell Helicopter

The manufacturing sector will benefit from a revision of NAFTA and an improvement of its security provisions. Any revision must ensure and enforce cargo inspections across the entire Mexico-US border to prevent the introduction of contraband. In Nogales, which has a modern customs office, cargo is inspected by US Customs and Border Protection much more quickly than at other border crossings thanks to modern technology. This allows companies in Nogales to increase their output and even save up to US$1 million a year. Other areas that need to be addressed are information and technology sharing across borders.

RICHARD RUBIN COO of Javid LLC

VIEW FROM THE TOP

ADDED VALUE KEY TO COMPETITIVE INDUSTRY ALEJANDRO BRAVO Lead Partner of the Aerospace Sector for KPMG Mexico

Q: What can Mexico do to become more competitive and

A: It would be very complex. Reaching a level of complete

continue to attract more foreign direct investment?

aircraft assembly does not happen overnight. In Embraer’s

A: The only answer is to manufacture components with

case, it took decades to become the OEM it is now. There

added value. It is true that Mexico has experienced

are companies betting on Mexico performing the assembly

significant growth, namely in the manufacturing industry.

of a complete aircraft at some point, but I do not see it

Now, we have to add more engineering expertise and more

happening in the short term.

technology into component production to boost supply

338

chain growth. The products manufactured in Mexico

Several companies are working toward complete aircraft

do not necessarily require high technological value to

assembly and the government’s 2020 plan has ambitious

be added; we need to change this situation and start

goals for the industry regarding exports, companies

producing more specialized components, building on our

operating in the country and FDI. But I would foresee

expertise in fuselages and engines, among others. The

a complete assembly as more likely to happen in 10 or

more components we produce with more added value,

15 years.

such as aircraft computers or aircraft, satellite and rocket circuits, the more the industry will contribute to increasing

Q: Does Mexico have the sufficient talent to meet Pro-

the value of Mexican exports.

Aéreo’s objectives? A: We are very much in line with the plan and there are

Q: How can Mexican companies become more integrated

certain states that have excelled. It is something we

into the global aerospace manufacturing chain?

are working on as an industry. Specialized companies,

A: The aerospace industry presents several entry

such as those located at the border with the US, are

barriers. New participants need large investments and

constantly training technicians, and UNAQ has become

technology, but certain elements work in our favor. During

a major producer of engineers and technicians for the

the past few years, Mexico has become well-known for

aerospace industry.

its engineers and technicians. We now have a qualified workforce in several industries, including aerospace.

Although the specialization of the industry has made

Another advantage is our geographic location next to

bringing engineers and technicians from abroad

the US, which is the main aerospace market. So far, we

necessary, the expectation is that Mexico will be self-

have been successful and are reaping the benefits of

sufficient in terms of aeronautic specialized human

these two elements.

capital to cover the industry’s needs with national talent. This represents job opportunities and the level

To successfully enter the global production chain, Mexican

of specialization required means that these jobs are

companies need a high level of investment in technology

well-paid. There are many incentives to achieve self-

and human capital. Mexican industry has done things in

sufficiency.

the right way, as a recipient of FDI and investment from Mexican companies as well. Certain Mexican companies

Q: How will the renegotiation of NAFTA affect the

have grown in such a manner that they are acquiring

Mexican aerospace industry?

foreign companies in other parts of the world. We are on

A: Almost 90 percent of the products manufactured in

the right track, but we need to keep up the investment in

Mexico are sent to the US but to accurately say how the

and training of our human capital.

renegotiation will affect the industry, we need to know exactly which parts of the treaty will change. To date,

Q: Do you think it is feasible for Mexico to assemble a

it seems that the aerospace industry is not a target in

complete aircraft?

the talks.

Airbus A350-1000

339

There is a general level of uncertainty regarding Mexican

fleet renovations and an increase in aircraft orders for the

exports, as most of Mexican production is sent abroad.

largest OEMs in the next 20-30 years.

But the aerospace industry is dynamic and we would not expect it to suffer drastically. Aerospace requirements

The automotive industry’s future is not comparable, as

and orders make it perfectly possible that the sector will

needing to manufacture large volumes at pace is distinct

emerge unscathed.

from the aerospace industry which is slower, but more detailed. It is almost artisanal. It has taken Mexico many years

In terms of parity exchange between the Mexican peso and

to reach a solid position in the global market and the aero

the US dollar, which has favored the dollar, this is expected

clusters have made significant headway toward consolidating

to have an impact but not as significantly as on other

Mexico’s reputation. Nuevo Leon in particular has opened

industries. Most of the components that are produced in

itself to foreign investment and its characteristics, such as

Mexico are exported and, at a global level, the aerospace

infrastructure and proximity to the US, could boost its growth

industry is mostly priced in dollars. We could even see a

in the future.

scenario where dollar prices are beneficial as components priced in pesos will contribute to a final product sold in

We expect the industry to develop at the same level it has

dollars.

shown in past years, and that the industry’s requirements will continue driving its growth. To continue at this pace, we need

Q: What are the aerospace industry’s expectations for

not only governmental support but also input from companies

2017 and beyond?

and academia. There is still much to be done to achieve Pro-

A: The markets with the highest growth expectations

Aéreo goals and while we did not expect such uncertainty in

are the Asia-Pacific region, led by China and India, and

our neighbor’s political landscape, we are on the right track.

Latin America, led by Mexico and Brazil. Across the world and including Mexico, aircraft orders are increasing, boosting the need for more cost-efficient processes, so

KPMG provides audit, tax and advisory services globally and

the industry is trying to find new ways of doing things

specializes in regulation compliance, international commerce

and improving its processes. We expect the aerospace

and customs, and entrance to new markets or development

market to continue growing, in light of upcoming aircraft

of growth strategies

ACRONYMS AEM Mexican Space Agency AIC Cancun International Airport AICM Mexico City International Airport AIQ Queretaro Intercontinental Airport AIT Toluca International Airport ALTA Latin America and Caribbean Air Transport Association ASA Airports and Auxiliary Services ASUR Grupo Aeroportuario del Sureste BASA Bilateral Aviation Safety Agreement CANACINTRA National Chamber of the Transformation Industry CANAERO

National Chamber of Air Transport

CENALTEC

High Technology Training Center

CENTA National Center of Aerospace Technology CIDESI Engineering and Industrial Development Center CIMAV Research Center for Advanced Materials CINVESTAV

Center for Research and Advanced Studies

CONACYT

National Council of Science and Technology

CONALEP

National Technical Professional College

COPARMEX

Mexican Employer Confederation

COPRESON

Sonora Council for Economic Promotion

DGAC General Direction of Civil Aviation ESA European Space Agency FAA Federal Aviation Administration FAMEX Mexican Aerospace Fair FBO Fixed Base Operator FEMIA Mexican Federation of the Aerospace Industry FIBRA Mexican Real Estate Investment Trust GACM Grupo Aeroportuario de la Ciudad de México GAP Grupo Aeroportuario del Pacífico IATA International Air Transport Association ICAO International Civil Aviation Organization INADEM

National Institute of Entrepreneurship

IPN National Polytechnic Institute IS-BAO International Standard for Business Aircraft Operations ITESM Monterrey Institute of Technology and Higher Education MRO Maintenance, Repair and Overhaul Nadcap

(previously NADCAP, National Aerospace and Defense Contractors Accreditation Program)

NAFTA North American Free Trade Agreement NAICM New Mexico City International Airport NASA National Aeronautics and Space Administration OMA Grupo Aeroportuario Centro Norte SCT Ministry of Communications and Transportation SEDECO

Ministry of Economic Development

SEDENA

Ministry of National Defense

SEMAR Navy TUA Airport Use Tariff UAV Unmanned Aerial Vehicle UNAM National Autonomous University of Mexico UNAQ Queretaro Aeronautic University UVM Valle de Mexico University

ADVERTISING INDEX 6

Queretaro Aerocluster

Aerospace Cluster Chihuahua

70 AEISA 76

Daher Aerospace

Monterrey Aerocluster

95 AEISA 103

Coast Aluminum

118 AeroExpo 133 MIMSA 136

Mexico Business Publishing

145

Rodolfo Neri Vela

162

Mexico Business Events

171 CIDETEQ 184

Javid LLC

202 Hellmann 213 AeroUnion 226

Mexicana MRO

254 ASESA 260 SAE 268

TechOps Mexico

286 GACM 322

Mexico Aerospace Forum 2018

329 ERM 333 Parqmex

PROJECT SPOTLIGHTS 38 CENTA 78 Latècoére 158 CIDETEQ 180 UNAQ 192 Safran 198 Bombardier 278 SAE 282

TechOps Mexico

306

EnTEC Aerospace

330 NAICM

AIRCRAFT & TECHNOLOGY SPOTLIGHTS 58

Bombardier C Series

IBN-ND Group

Safran LEAP Engine

130

Boeing 767

214

Boeing 777

INDEX #-D 3D Systems 101

Aviation Technical Services 178

A.E.Petsche 199

Axon’ Interconex 98

ABT Manufacturing 42

Azul PR 288, 318-319

ADD Aviation Intelligence 327

Baja Aerospace Cluster 35

AEISA 70, 94-95

Bancomer 308-309

AEM 98, 135, 138-139, 140-141, 142, 144-145, 165, 166, 181, 334

Bancomext 14, 20-21, 329, 337

Aernnova 29, 72-73, 96, 174, 181,

Bell Helicopter 62-63, 104, 186, 256,

Aeroélica 264

Bodycote 97

Aerolíneas Ejecutivas 178, 263

Boeing 8-11, 14, 24-25, 32-33, 36, 40, 48, 50-51, 52-53, 74,

Aeroman 230, 272

75, 79, 82, 84, 97, 102, 104, 113, 129, 131, 142-143, 147, 165,

Aeromar 23, 236, 316

192-193, 204-205, 214-215, 219, 236-237, 242-243, 272-273,

Aeroméxico 13, 19, 22-23, 26-27, 49, 52-53, 73, 178, 188,

282-283, 236

204-205, 232, 247, 249, 250-251, 272-273, 275, 280, 283,

Bombardier 15, 16-17, 29, 35, 40, 48-49, 56-57, 58-59, 78-

316, 327

79, 82-83, 104, 120, 158-159, 166, 170-171, 198-199, 238-239,

Aeroprocess TTT 106

270, 330, 337

AeroRent 265

Bosch 126

Aerospace Alliance 34, 77, 172, 338

CAMIMEX 102

AeroUnion 48, 55, 105, 212-213, 240-241

CANACINTRA 21, 123

Aerovics 280

CANAERO 8-11, 18-19, 220,

AGA 18

Capital Aviation Services 327

AIC 288-289, 293, 297, 303, 313

CargoLogicAir 212-213

AICM 18, 22-23, 146-147, 204-205, 208-209, 210, 220, 228-

Cathey Pacific 249

229, 236-237, 238-239, 240-241, 246, 277, 288-289, 293,

CEMEX 196, 249

294-295, 298-299, 301

CENALTEC 30-31, 168, 169

Air Berlin 238, 249

CENTA 28, 39, 164-165, 172

Air Canada 13, 236

Cessna 187, 261

Air France – KLM, 13, 55, 242-243

Chandler Industries 122

Air New Zealand 249

Chihuahua Aerospace Cluster 36, 42, 104

Airbus 14, 15, 24, 30, 32, 36, 40, 48-49, 50-51, 54-55, 60-61,

CIAAC 179

74, 75, 79, 82, 96, 100, 104, 193, 212, 236, 239

CIATEQ 39

Airbus Helicopters 15, 60-61, 73, 257, 309

CIDESI 39, 164-165, 174-175

Alitalia 23

CIDETEQ 39, 80, 158-159, 170-171

ALTA 11, 19, 230-231, 271, 335

CIMA 270

Altaser Aerospace 335

CIMAV 39

América Móvil 249

CINVESTAV 75, 192-193

American Airlines 18, 54-55, 131-132, 228, 232-233

CLAC 19

American Industries 186-187, 188, 338

Coast Aluminum 102-103

Amistad Real Estate 187

COMIMSA 39

Amphenol Optimize 100

CONACYT 75, 107, 141, 170-171, 195, 192-193, 334

AMPIP 196-197

CONALEP 17, 42-43, 82-83, 164-165, 180-181,

AMROS 250-251

Copa Airlines 53, 236, 240-241, 244

ANA 23

COPRESON 40-41

ANDEAR 316

Cramex 308

ASA 259, 290-291, 298-299, 316

Daher Aerospace 39, 72-73, 76, 264

ASENSA 276

Dallas Airmotive 270, 281

Asertec 312

Dassault Systèmes 128, 138, 149

ASESA 256

Datalogics 126

ASPA 172, 179

DB Schenker 205, 208-209

ASTECA 165, 178

Deloitte 8-11, 129, 328-329

ASUR 290-291, 292-293, 296-297

Delphi Connection Systems 111

AugustaWestland 256

Delta Airlines 12-13, 26-27, 130-131, 150-151, 272-273

Avianca 48-49, 54-55, 236-237, 240-241, 250-251

DGAC 8-11, 18-19, 22-23, 35, 48-49, 178, 179, 204-205, 228-

Avianet 261

229, 259, 270, 272-273, 276, 285, 298-299, 305

INDEX D-M DHL 216

Hughes 142, 143, 144, 146

Discover the World 249

Hyrsa 110, 124

Ducommun 72-73, 84

Hytera 316

Duncan Aviation 270, 281

IATA 11, 12, 19, 22, 23, 26-27, 204, 205, 206, 210, 217, 219,

Duqueine 28

220, 228, 229, 233, 247, 265, 288, 289, 302, 315, 333

Dylo 221

Iberia 13

EAE 179

IBN-ND Group 65

Eaton 96, 122

ICAO 10, 19, 22, 24-25, 27, 87, 166, 172, 179, 228, 230, 247,

Embraer 36, 48-49, 84, 104, 146-147, 208-209, 232-233,

251, 299, 303, 305, 312

236, 281, 336-337

ICCS 261

Emerson 122,

Icelandair 249

EnTec 305, 306-307

Icom 316

Eolo 258

INADET 30, 169

Etihad Airways 249, 250

INAOE 39

Exova 97

InDeplo 148

EY 336

Innocentro 277

EZI Metales 97

Interjet 13, 23, 48, 54, 55, 73, 205, 240, 245, 247, 275, 316,

FAA 17, 42-43, 67, 230, 232-233, 250-251, 259, 270, 276

326

FabLab Chihuahua 138-139, 152

Intermex 187

FAMEX 337

International Business Aviation Council 312

Faraone 305

IPN 31, 67, 144, 164, 179, 199

FEMIA 8-11, 16-17, 36-37, 42-43, 56-57, 67, 99, 115, 122, 125,

ISA Ingenium 126

149, 164, 195, 277, 330-331

ITESM 152, 199, 273

Festo 126, 138-139, 154

ITP 29, 57, 72, 73, 75, 96, 106, 109, 164, 181, 335

Figeac Aero 40-41, 82-83, 104

ITQ 199

Fly Across 265

ITT Cannon 111

FlyMex 280

Ixaya 155

FOA 310

Javid LLC 164, 189, 339

Fokker 8-11, 36-37, 152, 168, 186

Jetex 258

Frisa 97,

Johnson Controls 261

FUMEC 334

Jomi 305

GACM 18-19, 292-293, 294-295, 310

Jones Day 311

Garmin 67, 276, 281

JSSI 281

Gesab 313

Kaeser Compresores 105, 172, 339

GKN 8-11, 36-37, 77

Kaman Aerospace 73, 152

Global Composites 97

Kayak 248

Gol Airlines 52, 240-241, 249

Kelly Services 10, 164, 176-177

Google 216

Kenwood 316

Government of Queretaro 106, 232

King Air 276, 279

Gulfstream 32-33, 74, 265, 280, 337

KPMG 15, 340-341

Hartzell 276

Kuehne + Nagel 204, 217

Hawker Beechcraft 96, 276, 281

KUKA 82

Hellmann 222-223

Laser & Manufacturing 115

Helmut Fischer 96

LATAM Airlines 147, 240, 245, 251

HEMAQ 127, 128, 173,

Latécoère 31, 40, 41, 53, 72, 73, 79, 82-83, 90, 104, 150, 160

Hermosillo Institute of Technology 41

LearJet 49, 51, 260, 265, 270, 279, 280

HMC 178

Liat 249

HondaJet 66

Lockheed Martin 142, 326

Honeywell 10, 14, 15, 30, 33, 72, 73, 85, 88, 96, 129, 337

Lufthansa 13, 49, 236, 238-239, 252, 277, 289, 300, 303

Horizontec 28

Lycoming 276

Horn Machine Tools 123

Magnaflux 94

HTMC 280

Magnicharters 246, 280

HT-MX 108

Manny Aviation Services 312

INDEX M-R Marposs 99

O’Donnell 187

Maule 276

Omni-X 123

MD Helicopters 337

Out Helping 173, 174

Meggitt 199

Panalpina 219

MercadoLibre 207

Parker Aerospace 122

Metal Finishing Company 36, 104

Parker-Chomerics 42

Mexicana MRO 14, 16, 230, 271, 275

Parker-Stratoflex 42

Mexichem 249

PCC Aerostructures 39, 97

MexJet 263

PEMEX 256, 257, 299, 304

Microsoft 240

Pencom CSS Manufacturing 129

MIMSA 132-133

Pilatus 337

Ministry of Economy 9, 10, 13, 15, 16, 28, 41, 103, 104, 105,

Piper 261, 270, 276

191, 326, 329, 330, 334

Platinadora Baja 111

Ministry of Innovation and Economic Development of

Pratt & Whitney 40, 59, 85, 97, 125, 276

Chihuahua 30-31, 339

Priceline Group 248

Ministry of Sustainable Development of Baja California

Prior Aero 288, 317

32-33

ProMéxico 5, 15, 53, 73, 98, 106, 115, 139, 142, 165, 169, 197,

Mitsubishi 49, 113

326, 334, 339

Monterrey Aerocluster 42-43, 88

Proquímica 42

Monterrey Jet Center 281

QAEC 250-251

Motorola 316

Qet Tech 280

MTU 85

Queretaro Aerocluster 28, 29, 39, 74, 96, 106, 164, 174,

Mundo Maya 233

193, 283

NAFIN 89, 337

Queretaro Intercontinental Airport (AIQ) 39, 131, 181, 220,

NAICM 11, 18, 19, 23, 147, 166, 205, 209, 212, 213, 237, 239,

233, 283, 289, 293

246, 277, 288, 289, 293, 294, 295, 297, 298, 301, 302, 303,

Radiocomunicaciones SAKDA 316

305, 310, 311, 313, 314, 315, 316, 317, 318, 319, 333

ReachMaster 305

NASA 141, 142, 144, 145

Redwings 178, 262

Nordic Aviation Capital 327

Robinson 276,

Oaxaca Aerospace 51, 67

Rohmann GmbH 94

Lufthansa Airbus A340-600

INDEX R-Z Rolls-Royce 30, 40, 72, 73, 74, 75, 97, 276

TechOps Mexico 14, 16, 28, 174, 272-273, 275, 283

SAE 260, 270, 279

Técnica test 109

Safran 9, 10. 14. 15, 16, 28, 29, 33, 39, 53, 57, 72, 73, 74, 75,

Terrafina 186-187, 190, 332

76, 81, 85, 87, 88, 96, 97, 99, 100, 106, 125, 129, 132, 149, 159,

Textron 33, 62, 96, 186

170, 171, 174, 181, 193, 199, 326. 335, 337

Thales 73, 146-147, 228, 303

Sargent Aerospace 125

Tighitco 152, 168

Schneider Electric 153

Toluca International Airport 258, 259, 260, 270, 279, 289,

SCT 18, 23, 141, 142, 143, 144, 145, 146, 246, 292, 295, 302

293, 312

SECTUR 18, 299

Transportes Aéreos Pegaso 60, 257

SEDENA 165, 166, 178, 181, 337

UANL 43, 164, 277

SEDESU Baja California 32

UAQ 199, 273

SEDESU Queretaro 28, 89

UNAM 142, 143, 144, 193

SENEAM 73, 146,

UNAQ 17, 28, 56, 57, 67, 80, 164, 165, 166, 173, 174, 181, 232,

SICAMSA 223

271, 272, 273, 283, 340

SI-EMC 112

United Airlines 11, 13, 232, 236-237, 244

Siemens 126, 154, 318

Universal Aviation 259

SITA 247, 303, 314

Universal Robots 139, 156

Soisa Aerospace 36, 81, 88, 107, 152, 335

UPS 49, 131, 206-207

SpaceX 142, 145

UTC Aerospace 85, 164, 337

StandardAero 281,

Viva Aerobus 11, 13, 19, 23, 48, 54, 55, 178, 229, 232, 241,

Star Alliance 236, 241, 244

247, 250, 251, 280, 301, 327

StarGo 157

Volaris 13, 19, 23, 48, 54, 55, 178, 229, 232, 247, 250, 296,

Switch Luz/ Electro-Mech Components 113

301, 316, 327

TACNA 190, 191

Walbar 40, 85

TAR Aerolíneas 13, 178, 232-233, 289

Wecotech 123

TATA Technologies 151

World Fuel Services 304

TBM 264

World Economic Forum 138, 245, 288

TE Connectivity 111

Zodiac Aerospace 9, 10, 33, 36, 72, 73, 81, 122, 152, 168,

TechBA 48, 89, 334-335

209, 337

Technlogical University of Hermosillo 83

PHOTO CREDITS Cover Lufthansa

Inside Front Cover Lufthansa

97 Exova

DB Schenker

98 MBP

FEMIA, Boeing, Bancomext

99 MBP

Ministry of Economy, Airbus

100 Amphenol Optimize

Helmut Fischer

16 FEMIA

102 Coast Aluminum

18 CANAERO

104 MBP

20 MBP

105 MBP

21 CANACINTRA

106 MBP

22 DGAC

108 HT-MX

24 ICAO

109 MBP, MBP, MBP

26 IATA

110 MBP, MBP, MBP

111

SEDESU Qro

Platinadora Baja

29 MBP

112 SI-EMC

Ministry of Innovation and Economic Development of

113 MBP

Chihuahua

114 CIIIA

31 Latècoére

115 MBP

116 CIDESI

Ministry of Sustainable Development of Baja California

33 Airbus

123 MBP, MBP

34 MBP

124 MBP

35 MBP

125 Sargent Aerospace

36 MBP

126 MBP

127 HEMAQ

DB Schenker

40 COPRESON

128 HEMAQ. MBP, FESTO

129 MBP

Monterrey Aerocluster

43 Airbus

132 MIMSA

44 Airbus

134 AEISA

52 Boeing

140 MBP

54 Airbus

144 MBP

56 FEMIA

146 Thales Mexico

60 MBP

148 MBP

149 MBP

Airbus Helicopters

62 MBP

150 Latécoère

151 MBP

Bell Helicopter

67 MBP

152 MBP

68 Airbus

153 MBP

72 MBP

154 FESTO

Safran Group

155 MBP

Daher Aerospace

156 Universal Robots

77 MBP

157 MBP

80 GE

160 Latécoère

166 MBP

Zodiac Aerospace

82 MBP

167 UTG

83 Latécoère

168 CENALTEC

84 MBP

169 INADET

Walbar Engine Components

170 CIDETEQ

MBP, Monterrey Aerocluster, MBP

172 MBP, MBP, MBP

SEDESU Qro, TechBA, CIDESI, COPRESON

173 MBP, Out Helping, MBP, MBP

90 Latécoère

174 Out Helping

94 MBP

175 CIDESI

PHOTO CREDITS 176 Kelly Services Mexico

262 Redwings

177 EAE

263 MBP

178 ASTECA

264 Aeroélica

179 EAE

265 MBP

182 Zodiac Aerospace

266 TechOps Mexico

186 Terrafina

270 SAE

188 American Industries

271 Mexicana MRO

189 MBP, Javid LLC

272 MBP

190 MBP, MBP, Terrafina

273 MBP

191 MBP

276 ASENSA, ASENSA

194 Airbus

277 Innocentro

195 MBP

280 MBP

196 MBP

281 MBP

200 DB Schenker

284 GAP

206 UPS

292 GACM

208 MBP, MBP

294 GACM

210 FEDEX

295 GACM

212 MBP

296 ASUR

216 DHL

298 ASA

217 MBP

300 Lufthansa

218 MBP

301 GAP

219 MBP

302 GACM, IATA, CANAERO

220 Amerijet

303 ICAO, EY, Lufthansa, SITA, Thales

221 Dylo

304 Lynnparks

221 DHL

305 MBP

222 Hellmann

308 MBP

223 SICAMSA

309 MBP

224 Bombardier

310 MBP

231 Dassault Aviation

311

232 TAR Aerolineas

312 MBP

236 MBP

313 MBP

238 Lufthansa

314 SITA, SITA, SITA

240 MBP

317 Prior Aero

242 MBP

318 MBP

243 Air France

319 Airbus

244 MBP

320 DB Schenker

245 MBP

326 ProMéxico

246 MBP

328 Deloitte

247 SITA, SITA

329 Bancomext

248 KAYAK

330 MBP

249 Discover the World

334 MBP

250 QAEC

336 EY

251 Airbus

337 FAMEX

252 Lufthansa

338 Terrafina, American Industries, MBP

256 ASESA

339 MBP, Ministry of Innovation and Economic

257 Transportes Aéreos Pegaso

Jones Day

Development, ProMéxico, Bell Helicopter, MBP

258 Eolo

340 KPMG Mexico

259 Universal Aviation Mexico

341 Airbus

260 SAE

344 Lufthansa

261 MBP

Inside Back Cover Dassault

CREDITS SENIOR JOURNALIST & INDUSTRY ANALYST: Alicia Arizpe JUNIOR JOURNALIST & INDUSTRY ANALYST: Luis Pesce JUNIOR JOURNALIST & INDUSTRY ANALYST: Gabriela Mastache JUNIOR JOURNALIST & INDUSTRY ANALYST: Marisol Marín EDITORIAL MANAGER: Nadine Heir EDITOR: Ricardo Guzmán MANAGING EDITOR: Mario Di Simine PUBLICATION COORDINATOR: Cagla Polat PUBLICATION COORDINATOR: Alena Lipková PUBLICATION COORDINATOR: Eduardo Magaña COMMERCIAL DIRECTOR: Jack Miller JUNIOR GRAPHIC DESIGNER: Mónica López GRAPHIC DESIGNER: Ailette Córdova DESIGN DIRECTOR: Marcos González WEB DEVELOPMENT: Omar Sánchez SOCIAL MEDIA COORDINATOR: Karen Sujo COLLABORATOR: Alejandro Salas COLLABORATOR: Brenda Salas COLLABORATOR: Alejandra Gómez COLLABORATOR: Sophie Murten COLLABORATOR: Camila Del Villar COLLABORATOR: Arturo Hernández COLLABORATOR: Agata Sobolewska COLLABORATOR: Anaël Farah COLLABORATOR: Paulina Fernández CIRCULATION MANAGER: Elizabeth Solis DIRECTOR GENERAL: Jeroen Posma

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Mexico Aviation & Aerospace Review 2018

Articles inside

GENERATING SYNERGIES TO UNDERPIN GROWTH

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MRO EYES HANGAR EXPANSION, WIDE BODIES FOR GROWTH

MEXSAT TO INCLUDE MEXICAN TECH, PROFESSIONALS

Interiors Supplier Focused on Transformation

A Leap from France to Queretaro

MEXICO A MAJOR CONTRIBUTOR TO ‘QUETZALCóATL’ DEVELOPMENT

OEM DOMINATES MEXICAN MARKET, TARGETS THE WORLD

Flying in International Best Practices

COLLABORATION IS THE NAME OF THE GAME