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 Business News | December 2007 
Mexico Hopes Aerospace is Globalization-Proof
 Joel Millman & J. Lynn Lunsford - Wall Street Journal
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| | A worker assembles a helicopter frame at the plant of MD Helicopters in Monterrey, Mexico. MD Helicopters, Bombardier, Honeywell and Goodrich all opened shop in Mexico to cut costs. (Juan Manuel Villasenor/Bloomberg) |
Mexico has felt the downside of globalization in recent years as cheaper Asian manufacturers of everything from electronics to auto parts have undercut the advantages provided by looser North American trade barriers. But Mexican officials have been banking on another sector they hope will put down deeper roots: The booming North American aerospace industry.
Mexico has moved to make it even easier for foreign companies to do business south of the border. Already, big names in aerospace such as Goodrich of the United States and Bombardier of Canada have set up facilities there.
The nation offers proximity and easy reach at a time when aerospace giants are under pressure to hit deadlines and deliver new aircraft to customers. Aerospace officials also say they are impressed by Mexico's deep talent pool. And if Mexico successfully bolsters its aerospace industry, it will demonstrate that skills burnished servicing the automotive sector can be transferred to higher-end markets.
American manufacturers, eager to cut costs, raced to build factories in Mexico after the North American Free Trade Agreement was adopted in 1993. Thanks to NAFTA, the number of Mexicans employed by maquiladoras - plants that assemble and export goods made from imported parts - doubled to more than a million by 1999, making Mexico a leading producer of garments, auto parts and electronics.
JOBS TO ASIA
But in the past several years, Asian factories, with their even lower labor costs and seemingly endless supply of workers, lured business and jobs away from the maquiladoras.
Mexico's biggest advantage may be its location. For years, major aerospace manufacturers such as Boeing Co. have farmed out a growing share of their work to suppliers in Japan, China and elsewhere. But these arrangements can make it a challenge to get finished components back to the companies' main factories for final assembly. The choice often boils down to waiting weeks for delivery by ship or paying for costly space on a cargo jet.
With demand for new jetliners and other aircraft at record levels, however, companies are under greater pressure to cut shipping time and increase production. Many U.S. aerospace companies already have built up considerable capacity in Mexico to feed the industry's production hub in Southern California.
Last year, Mexico dropped all import duties on aeronautical components. "It's something we never did for garments or automotive parts or electronics," says Eduardo Solis Sanchez, investment-promotions director for Mexico's Economy Secretariat, who calculates $1.2 billion has been invested in Mexico's aerospace sector since the start of last year.
In September, Mexico concluded a four-year campaign to forge a bilateral aviation-safety agreement with the U.S. Federal Aviation Administration. The deal ultimately will remove barriers for an industry itching to outsource production to Mexico. It contains provisions that will let manufacturers certify and ship components directly from Mexican factories, rather than sending them to the United States for completion and safety checks.
The number of Mexican workers employed by aerospace production has doubled in recent years to 16,500. While that is a small share of the 1.2 million jobs in the country's export-assembly sector, it is expected to grow.
In September, Goodrich broke ground on a 350,000-square-foot facility in the Mexican state of Baja California to make a variety of parts, including engine casings and thrust reversers. A Goodrich plant in Sonora produces turbine blades and damper seals for all of the major engine companies.
COST PRESSURE
Aerospace manufacturers who count Goodrich as a supplier "have applied pressure up and down the supply chain to continually cut costs," says Bob Yancey, president of Goodrich's engine-components business. The plant at Sonora has been such a success that Goodrich is doubling it to 70,000 square feet.
While Mexico last year exported less than 2 percent of the $25 billion in parts imported by the U.S. aerospace industry, that number is expected to increase along with the complexity and value of the components made there. Five years ago, Mexican workers were used for relatively menial work such as weaving the intricate wire bundles used in airplanes. Today, they are producing complete fuselages and landing-gear systems, with plans to export finished airplanes for Bombardier by 2012.
AERO `CLUSTER'
Nowhere is this transformation more apparent than in the state of Queretaro, in Mexico's central valley. A booming auto-parts hub a decade ago, Queretaro has suffered with Detroit's downturn. Now, General Electric and a local partner are developing a $100 million commercial aerospace park there, on land donated by the government.
GE says the development will be the first "aerospace cluster" in Mexico, housing anchor tenant Bombardier and about 20 other suppliers, as well as a government-funded school to train workers.
Bombardier expects to pour $250 million into the site over the next 10 years and to have four to six facilities in the park, with a goal of eventually assembling complete commuter jets. Just as the major automobile companies drew clusters of suppliers to their Mexican plants, Mexico expects Bombardier to help draw other companies southward.
Consultant Luc Beaudoin, director of the Everest Group, which advises companies setting up operations in Mexico, notes that work on components for Bombardier's new 50-seat Challenger jet has been relocated to Queretaro from places like Japan, Taiwan and Belfast, Northern Ireland.
Mexico's gains aren't sitting so well with labor unions in the United States. "In aerospace, we're not building kites," said Mark Blondin, an aerospace coordinator with the International Association of Machinists and Aerospace Workers, which represents workers at Boeing, among others. "Long term, workers in Mexico could become highly skilled, but you don't get there overnight." |
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