Mexico: Future Aerospace powerhouse?

Today’s release of the ‘ADS Global Aerospace Outlook 2014’ identifies Mexico as one of 9 priority countries that the UK aerospace industry and UK government should increase their efforts towards over the next 12 months. Indeed, many UK companies have already moved some production capabilities to Mexico’s aerospace clusters over the last few years.

However, for a country where the UK only exported £34m in Aerospace to in 2013, and who have no desire or structure to develop their own future indigenous aircraft, why is Mexico touted as perhaps the next biggest market for the aerospace industry?

Firstly, there are some surprising facts about Mexico’s industry which underpins its ability to grow in the future:

  • Mexico has expanded its aerospace productivity by 17% since 2010.
  • There are currently over 260 aerospace companies, with around 34,000 employees.
  • Mexico is the 10th largest supplier to the US market.
  • Around 5% of Airbus A380 suppliers are located in Mexico’s aerospace clusters.
Mexico Clusters

The aerospace industry also has support from government. Mexico’s ‘National Strategic Programme for Aerospace Strategy’ in 2010 set ambitious targets for 2020: $12bn in exports, over 110,000 employees and within the top 10 global aerospace suppliers.

Mexico’s geographical location presents one advantage for its future potential.  The country stands within a corridor of large aerospace manufacturers: the US (Boeing) to the North and Brazil (Embraer) to the South. In addition, an increasing Aerospace industry presence in the southern US states over the last few years (e.g. Airbus in Alabama) means that Mexico is ideally located to build on its supplier base.

The economic potential of the country is another advantage. Rising labour costs in China have shifted focus towards countries like Mexico, which boasts relatively stable wages, greater IP protection for companies and has an increasingly educated and skilled workforce in engineering and manufacturing. In 2013, Mexico’s GDP grew an estimated 1.2%. Whilst this is relatively modest compared to some other emerging states, it ranks higher than Germany, France or Sweden. In addition, Mexican government bonds earned an A—rating in 2013 for the 1st time – ranking higher than a previous investment hotbed, Brazil.

This economic potential is underpinned by its ambitious new President, Peña Nieto. Nieto has already outlined a raft a social and political reforms during his 1 year in office – including allowing FDI in Mexico’s oil industry, clamping down on corruption, new educational & constitutional reforms and business-friendly tax code changes.

However, despite its advantages and the changes Mexico has already undertaken, it remains far from fully transformed. President Nieto’s reforms face resistance from all sides (only winning 38% of the presidential vote has decreased his mandate for change). Corruption and financial and business mismanagement in both government and industry remains, and Mexico’s drug war and ongoing violence and security worries show no sign of quickly abating.

Aviation’s week’s article last week signalled that OEMs are now changing their focus to ‘right shoring’ – weighing up the economic and business environments of emerging markets and questioning the worth of “loosely knit, far-flung global supply chains”. Mexico remains a nation in transition – but its mix of economic potential, ongoing political & social change, and growing skills base, offers unique future opportunities for companies seeking to develop their approach to ‘right shoring’.