aviation_industry

Mexico: Aviation Industry Opportunities of 8

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Summary

Mexico is no new client to American aviation exporters. From 1990 to 2006, Mexico ranked as a top 30 aerospace market for U.S. exporters – a key, ever-advancing sector within aviation. During this period, export sales from the U.S. to Mexico grew by an annual average of 23.87%. Moreover, this relationship has only been strengthened through the years. In 1998, the Mexican government began privatizing operations within the national airport system – a privatization policy that aided in the aviation industry’s remarkable growth. Today, Mexico has the most developed airport infrastructure in Latin America. As well, Mexico City serves as the single most important airport in the region, capable of servicing more than 32 million passengers annually and 900 flights daily. A pattern is noticeable in Mexico: more passengers are flying, a greater number of airlines are operating, and airports are upgrading and expanding both physically and operationally. In short, Mexican aviation offers opportunities to nearly all who comprise this immense industry. Market Demand

To effectively interpret the size of demand in such a vast market, many smaller sectors within aviation must be viewed independently, for the means to best measure them is not always alike. The most obvious sector, aircraft manufacturing, alone provided $127M in sales for foreign firms exporting to Mexico in 2006, 52% of which came from the United States1. Additionally, U.S. firms continue to dominate aircraft sales in Mexico in the first quarter of 2007, maintaining a 93% market share of the $14.5M in export transactions thus far1. Contrastingly, the main imported aviation service (i.e. international flight service to and from Mexico) is also a promising market; in 2006, 23 million passengers flew from Mexico internationally2. Even domestic carriers offer opportunity to foreign manufacturers of aircrafts and equipment. In this category of airline, low-cost domestic carriers are being started with relative frequency. For instance, since 2004, six new, low-cost Mexican airlines have commenced operations, which collectively carried 27.5% of domestic passengers in the first quarter of 20073. In order to defer traffic normally experienced by the Mexico City airport, four peripheral airports (Puebla, Toluca, Queretero and Cuernavaca), which comprise the Metropolitan Airports System, have been expanded. Throughout the last five years, over $1B has been invested in this peripheral airport project. These four airports now service an ever-growing number of airlines and passengers. And Mexico City airport itself will benefit from a federally funded $227M expansion project to take place throughout 2007.

Outside of the most populous area in Mexico (Mexico City), growth is occurring as well. In order to welcome large transport aircrafts and create multi-modal connections, the government is securing alliances with freight companies. This appears to be particularly promising for those in the air cargo industry. Grupo Aeroportuario del Pacifico (GAP) will invest $110M to increase infrastructure in 12 separate airports, including Puerto Vallarta and Los Cabos – both of which will have their capacity doubled. As one of the largest carriers in Mexico, Aeromexico will spend over $600M in order to renovate and expand their fleet to 66 aircrafts by the end of 2011. Even the cargo hubs in Guadalajara and Monterrey, which connect other domestic and international airports, are to be expanded. And the most hopeful news in the industry is that of the National Infrastructure Program, which

1 World Trade Atlas Internet Edition. 2 Estadística Aérea de la Secretaría de Comunicaciones y Transportes, “La Aviación Mexicana en Cifras 1989-2006.” http://dgac.sct.gob.mx/index.php?id=467. 3 Estadística Aérea de la Secretaría de Comunicaciones y Transportes, “Estadística Mensual por Empresa Enero-Marzo de 2007.” http://dgac.sct.gob.mx/index.php?id=467.

Mexico: Aviation Industry Opportunities

Silvia Cardenas, Patrick Hess August 2007



Mexican President Calderon announced recently. If passed, the program will most likely yield $5.5B over the next five years in airport investment2. The Mexican aviation market has one certainty: opportunities are as diverse and numerous as is the industry itself. Market Data

Clearly, a large, diverse market for aviation is present in Mexico; however, the trends in the market are probably of greater interest to likely exporters. With regards to current market trends, the aviation sector appears as strong as it has been in decades. For instance, the number of passengers traveling internationally from Mexico has continuously grown 6.2% annually since 19892. Generally, this market tendency should favor American firms considering that 90% of Mexican international trade is done through free trade arrangements, such as NAFTA. As well, international travel is the most applicable passenger service for U.S. firms, as it’s open to foreign carriers in Mexico. To more precisely view one profound trend in international passenger travel from Mexico, the graph below displays the major regions to which passengers fly2. Figures on the vertical axis of the graph are in 1,000s of passengers annually for the U.S. and TOTAL (e.g. 10,000 = 10,000,000) and 100s for all other regions (e.g. 10,000 = 1,000,000). One can see that travel to the U.S. is a primary route for many passengers – over 79% in fact.

Airports in Mexico are experiencing growth as well. In addition to the promising announcement of the National Infrastructure Program (see section below), registered airports and airfields (commercial and non-commercial) have increased by nearly 11% annually over the last five years2. Mexican airlines have responded to the growth in airports and passengers by adding to their fleets of aircraft – last year by 9.6% and 11% in the last five years2. The aforementioned low cost airlines that are sprouting up in Mexico carried 4.3 million passengers in 2006. Yet, that figure looks less significant compared to the 1 million passengers who used these low cost services in just the first month of 2007. Aerospace groups have announced that they will invest $279M into the sector over the next few years. Goodrich will invest $100 million for the construction of an airplane parts plant in Baja California, which will generate opportunities to those that supply such manufacturers. Even the helicopter market – a smaller, yet increasingly integral part of the aviation industry – shows strong growth prospects. In fact, the number of registered helicopters in Mexico grew by 17% during 20062. National Infrastructure Plan

On July 18, 2007, Mexico’s President, Felipe Calderon, unveiled his administration’s master infrastructure development plan – titled “Programa Nacional de Infraestructura.” The expenditures associated with the program

0

5,000

10,000

15,000

20,000

25,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 20060

500

1,000

1,500

2,000

2,500

TOTAL U.S.A CANADA CENTRAL AMERICA & CARIBBEAN SOUTH AMERICA EUROPE ASIA



are to be implemented through the remainder of President Calderon’s term (2007 – 2012); yet, some of the objectives within the plan have an outlook that extends past this time frame. The program, including aviation, covers ten sectors4. Depending on whether Congress approves the current fiscal reform proposal (which will generate the revenue necessary for the program), opportunities will be available as soon as mid-November 2007 for U.S. businesses to become primary/sub-contractors for suppliers to these multi-year infrastructure projects. U.S. firms interested in learning more about specific upcoming tenders are encouraged to be in touch with the U.S. Embassy and Commercial Service, which can arrange appointments with key officials and identify sources of financing for your U.S. made good or service. The primary project to increase infrastructure in aviation is to construct three entirely new commercial airports in the Mayan Riviera, Puerto Peñasco (AKA Rocky Point) and Ensenada. Thirty-one existing airports will be substantially expanded, including Toluca, Puebla, Cancun, San Jose del Cabo, Loreto, Nuevo Leon, Monterrey, Guadalajara and Puerto Vallarta5. All sixteen of the projects designed to accomplish these developments have either started or will start no later than 2008. An additional two more expansion projects and a new airport plan (in Merida) are currently being studied6. Of the $5.5B in investment required by the aviation portion of the plan, over 45% is to come from the private sector and the remainder from the Mexican government. Import Market

Mexico’s economy and population are both growing steadily. From 2002 to 2006, GDP grew by 6.5% annually and the population is currently around 104 million inhabitants7. Additionally, 40.5% of the population is under the age of 20. These socioeconomic demographics create, and will continue to create, additional consumers of aviation products and services with increasing money to spend. As well, Mexico City’s airport, which ranks 33rd and 44th in the world in number of annual flights and passengers respectively8, possesses great opportunities for many firms in aviation. As stated earlier, foreign companies sold aircraft and spacecraft products worth $127M to Mexico in 2006. Albeit large and significant, this is not the entire industry; in fact, it is merely one part. Both domestically made products and all aviation services are excluded from this figure, which are two very important categories that possess opportunity for anyone in aviation attempting to grow their business in Mexico. As such, further analysis is devoted to these vital sub-sectors below. Domestic Production In 2006, Mexico generated $305M in aviation export sales, 99.7% of which was sold to the United States1. As the “Market Demand” section stated, the U.S. exported $127M of such products to Mexico. Therefore, Mexico exports 2.4 times as much to the U.S. as the U.S exports to Mexico. Initially, it may appear that Mexico has a strong upper hand and that aviation in Mexico is a saturated marketplace. However, although these domestic producers are potential competition for a U.S. manufacturer of aviation goods, many of these firms operate at a different stage in the production cycle and never intend on selling to the Mexican market. Hence, Mexican aviation firms can be complementary to U.S. counterparts. Moreover, for those Mexican companies that do pose a threat, their businesses represent a sizeable market that is open to importation. No barrier exists to the customers to whom these Mexican firms sell; rather, current supply of more effective products from foreign counterparts does not meet demand. An additional Mexican manufacturing marvel that has thoroughly benefited U.S. exporters is the maquiladora industry, which is primarily along the U.S.-Mexico border. This business zone exemplifies how beneficial domestic manufacturers can be to foreign suppliers and it possesses numerous aviation manufacturers within it. In fact, maquiladoras demand $70B annually in production inputs, the majority of which comes from the United States. In

4 Programa Nacional de Infraestructura 2007 – 2012, “Visión de Largo Plano”. www.infraestructura.gob.mx. 5 Cruz, Lilian and Cordoba, Mayela. Reforma, “Planean 3 aeropuertos” (07/19/2007). 6 Programa Nacional de Infraestructura 2007 – 2012, “Anexos”. www.infraestructura.gob.mx. 7 World Bank, 2006 World Development Indicators. http://devdata.worldbank.org/wdi2006/contents/home.htm. 8 Air Transit World: World Airline Report (July 2007), “The World’s Top 50 Airports” pp. 50.



addition, U.S. businesses have provided 57.4% of the investment in maquiladoras. Currently, around 56,000 American firms supply these Mexican manufacturers and still the numbers continue to grow. Passenger Services It is difficult to accurately quantify services in this sector with dollars; therefore, air traffic amongst passengers is used in this report to gauge both the size of the market and the trend in passenger services. This segment of aviation includes both commercial and privately charted services. The graph below (titled “Total Passenger Transported Domestically and Internationally”) shows the trend of growth and market size related to passenger services in Mexico (includes all airlines with operations in Mexico) 1. In 2006, over 48 million passengers flew either to, from or within Mexico aboard one of the many airlines operating in the country. Since 1989, airlines have collectively shown steady growth; nevertheless, the more impressive growth of foreign firms in Mexico indicates a penetrable international market for providers of these services.

Cargo Services Air cargo service providers, such as FedEx and DHL, have tremendous business operations in Mexico. The graph below depicts the trend and quantity of cargo (measured in U.S. tons) transported annually by Mexican and international carriers (and the total of both) 1. Impressively, over 671 thousand tons of cargo was transported in, out or throughout Mexico last year by air. The percentage figures to the left show the strong average growth in this sector of aviation services since 1989. Foreign carriers maintain a majority share hold that appears to be increasing in strength.

Total Passengers Transported Domestically and InternationallyCommercial/Regular and Privately Chartered Operations

- THOUSANDS -

5.8%

4.7%

8.3%

Average Annual Change 29,807

27,83026,40424,84624,05125,04825,76025,47323,40422,12820,07020,100

23,94920,69219,99817,66715,65913,733

18,91818,28017,119

14,43013,20513,23413,65212,36111,83310,72710,2268,5208,8187,8836,9456,4754,8314,843

48,72546,110

43,52339,27637,25638,28239,41237,834

35,23732,85532,767

28,574

20,49018,576

26,94324,142

28,620 30,296

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Mexican Carriers Foreign Carriers TOTAL

Total Cargo Transported Domestically and InternationallyCommercial/Regular Operations and Privately Chartered Operations

- TONS -

8.2%

6.9%

9.3%

Average Annual Change

276,573294,584256,563

215,033223,66688,427 104,528 117,861 122,204

117,718 126,591169,685

154,194192,152 201,385 217,042 195,206 196,600

394,551366,543362,387332,821314,485

106,79981,31076,22486,552

157,335 183,859

317,042320,194

244,163189,601

151,757

309,597358,230

671,125661,127618,950

547,854538,151

174,980180,751199,171 229,003

275,053310,450 305,952

359,286

436,315

521,579 534,084 553,436506,197

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Mexican Carriers Foreign Carriers TOTAL



Competition

The two principal Mexican airlines that serve as the primary competition amongst Mexican firms are Aeromexico and Mexicana (formally Aerovias de Mexico and Mexicana de Aviacion). These airlines generated around $3.3B in operating revenue during 2006, transporting customers both domestically and abroad9. And Aeromexico and Mexicana handedly dominate the market in comparison to other Mexican Airlines in regards to international flight services, carrying 95% of passengers flying internationally on a Mexican-based airline3. However, such a stronghold in international travel is not the case against foreign competition. In the first quarter of 2007, the other 53 airlines servicing international flights (i.e. excluding Aeromexico and Mexicana) carried 77.5% of passengers3. Over half of the carriers providing international flight service in Mexico are neither American nor Mexican; yet, U.S. firms carried just fewer than 60% of passengers flying internationally during the first quarter of 20073. Below are two tables that contain the airlines operating in Mexico during the first quarter of 20073. Total passengers carried during this three-month period determine the order, from greatest to smallest, in which the airlines are listed. Firms that are neither Mexican nor American are highlighted in yellow. The first table contains solely international airlines and in the following are only Mexican airlines.

9 Air Transit World: World Airline Report (July 2007), “World Airline Financial Results 2006” pp. 39-42.

COMMERCIAL 2007PASSENGERS TRANSPORTED BY FOREIGN CARRIERS

Firm Jan Feb Mar TotalAMERICAN AIRLINES 250,480 224,109 274,786 749,375CONTINENTAL AIRLINES 162,769 153,572 191,782 508,123ALASKA AIRLINES 145,848 138,938 159,673 444,459DELTA AIRLINES 144,903 126,279 146,894 418,076EXPRESS JET 105,102 93,348 107,030 305,480NORTHWEST 65,335 90,342 128,714 284,391UNITED AIRLINES 89,133 79,645 95,928 264,706AMERICA WEST 62,641 59,200 72,367 194,208FRONTIER 59,877 55,606 74,402 189,885AIR TRANSAT 64,991 59,625 61,551 186,167US AIR 55,935 51,536 62,066 169,537AIR CANADA 54,273 52,958 58,649 165,880MN AIRLINES 25,064 32,015 44,022 101,101IBERIA 25,009 20,038 30,598 75,645AIR FRANCE 24,687 22,523 27,668 74,878CIA. PANAMEÑA DE AVIACION 23,596 20,822 23,538 67,956AMERICAN EAGLE 23,336 17,835 21,125 62,296ATLANTIC 19,107 19,270 22,744 61,121LUFTHANSA 20,274 18,262 20,109 58,645SPIRIT AIRLINES 11,552 16,014 20,046 47,612K L M 15,519 13,421 15,762 44,702BRENDA USA 3000 11,239 13,855 18,560 43,654LAN CHILE AIRLINES 14,309 12,936 12,795 40,040COURSE AIR 10,629 10,800 12,258 33,687JET BLUE AIR 8,042 8,361 17,236 33,639MARTIN AIR HOLLAND 12,094 9,465 10,185 31,744MESA AIRLINES 10,652 9,871 11,214 31,737AIR ESPAÑA 11,113 10,220 9,715 31,048AMERICAN TRANS AIR 10,600 8,127 11,410 30,137CUBANA DE AVIACION 10,795 8,187 10,396 29,378IBERWORLD 8,270 8459 11,659 28,388BRITISH AIRWAYS 8,664 7,137 9,030 24,831LTU LUFTHANSPORT UNTER 7,232 6,653 7,425 21,310LIVINGSTON SpA 7,001 6,999 7,224 21,224AVIANCA 7,713 5,481 7,994 21,188LACSA 6,023 5,530 6,425 17,978TACA INTERNACIONAL 6,361 5,454 5,679 17,494AVIATECA 4,811 4,140 6,554 15,505JAPAN AIRLINES 5,942 3,617 5,545 15,104STAR AIRLINES 4,252 4,177 4,907 13,336LANPERU 4,206 4,213 4,082 12,501AEROLINEAS ARGENTINAS 2,921 3,687 4,456 11,064LLOYD AEREO BOLIVIANO 3,333 2,370 1,108 6,811CHAMPION AIR 2,126 1,899 2,358 6,383VOLARE 1,231 994 1043 3,268AUSTRIAN 551 755 452 1,758

T o t a l 1,629,541 1,528,745 1,859,164 5,017,450



The additional table below shows the main providers of domestic service3, as these are potential clients to U.S. firms that provide goods and services to the airline industry. Airlines in Mexico, just like anywhere else, pose opportunity for the businesses that maintain and upgrade each airline regardless of nationality.

End Users

Opportunities are available in every aspect of the aviation industry. As this report demonstrates, trends in the Mexican aviation market are overwhelmingly upward. When the major contributors to the aviation industry (i.e. airlines, airports, etc.) grow, so do those smaller to mid-sized firms that supply the inputs to these larger industry contributors. From the smallest of aircraft parts to the maintenance of jet engines to the provision of flight services, U.S. aviation exporters can provide much to Mexico. Even in the face of a growing Mexican aviation industry, which often exports to the U.S., arises an opportunity. For instance, a great amount of foreign direct investment has benefited aerospace manufacturing in Mexico. FDI finds its way to Mexico in large part due to its proximity to a sizable purchaser – the United States. In fact, last year Mexico exported $500M in aerospace products according to the Secretariat of Economy - $178M of which went to the U.S10. Yet, the 125 firms that employ 16,500 workers in Mexico’s aerospace industry are not necessarily competing exporters; rather, they are firms potentially in need of U.S. products and services that will contribute to the final aerospace goods. Large companies like Bombardier (the third largest airplane manufacturer in the world) and Honeywell respectively produce fuselages and heat exchanges in Mexico10 and these manufacturers are not going anywhere soon. For instance, Bombardier plans to invest $200M in their Mexico operations by 201610. And a number of companies, with intentions similar to Bombardier, have recently published plans to operate in Mexico, including but not limited to: Ellison Surface Technologies (Queretaro); Daher (Nogales, Sonora); Airpas Aviation AG (Puebla); Hawker Beechcraft – HBC (Chihuahua); and Industrias Michelin

10 Poder y Negocios (07/03/2007), “Querétero aeroespacial” pp. 54-60.

COMMERCIAL 2007PASSENGERS TRANSPORTED BY MEXICAN CARRIERS FOR DOMESTIC SERVICE

Firm Jan Feb Mar TotalAEROVIAS DE MEXICO 437,019 429,089 504,675 1,370,783MEXICANA DE AVIACION 311,402 293,175 398,594 1,003,171AVIACSA 284,773 254,855 304,141 843,769AEROVIAS CARIBE 115,818 127,596 164,833 408,247VUELA 93,086 100,053 140,799 333,938AEROLITORAL 95,793 97,627 119,084 312,504ABC AEROLINEAS 96,440 81,586 111,393 289,419AEROCALIFORNIA 77,654 85,355 102630 265,639AVOLAR 71,119 62,946 70,572 204,637AEROENLACES 59,961 53,302 86,742 200,005GRUPO AEREO MONTERREY 53,613 47,538 50,777 151,928AEROLINEAS MESOAMERICANAS 47,740 40948 61,484 150,172AEROMAR 39,808 36,973 47,289 124,070LINEAS AEREAS AZTECA 70,803 42,770 0 113,573

T o t a l 1,855,029 1,753,813 2,163,013 5,771,855

COMMERCIAL 2007PASSENGERS TRANSPORTED BY MEXICAN CARRIERS FOR INTERNATIONAL SERVICE

Firm Jan Feb Mar TotalMEXICANA DE AVIACION 353,962 265,428 347,091 966,481AEROVIAS DE MEXICO 188,972 143,589 176,185 508,746AVIACSA 12,259 10,118 10,582 32,959AEROVIAS CARIBE 10,824 7,454 8,515 26,793AEROLITORAL 4,567 3,608 4,096 12,271AEROMAR 0 0 64 64LINEAS AEREAS AZTECA 0 19 0 19AEROCALIFORNIA 0 0 0 0

T o t a l 570,584 430,216 546,533 1,547,333



(Queretaro). That said, a long-term relationship could be built with such a firm, which would most likely prove very lucrative to any U.S. firm possessing something that any of these multi-million dollar operations require. Market Entry

NAFTA provides free trade for nearly all products and services between the U.S. and Mexico, and exporting any of the products and services mentioned in this report are no exception. The best way for American firms to enter the Mexican market is to initially identify which type of clients they are pursuing. This client may be a stable, experienced Mexican firm that supplies aviation products and/or services or it might simply be an individual consumer of the aviation product/service offered by the U.S. firm. In either scenario, a distributor, partner or buyer within Mexico must be located; however, the latter of the two clients (i.e. individual consumer) necessitates a greater need for a Mexico contact. Aviation services, for example, have certain business requirements, such as advertising, which cannot be done nearly as successfully without a solid Mexican counterpart. To supply throughout the country, more than one local distributor may be needed. Also, manufacturers in Mexico will expect product warrantees and technical support. The U.S. Commercial Service can assist in initiating this relationship. Our knowledgeable, experienced staff has the connections and market know-how to assist in this often-difficult process of entering a foreign country’s import market. Our offices in Mexico are located in Mexico City, Monterrey, Guadalajara and Tijuana. We provide numerous services to assist our U.S. clients, such as investigating potential partners and the current market environment, overcoming governmental impediments through advocacy, and scheduling meetings between the U.S. exporter and possible Mexican purchasers and distributors of the service/product at hand. For more information on opportunities in this industry please contact Commercial Specialist Silvia Cardenas by email at [email protected] or phone at (52-55) 5140-2670. Key Industry Contacts

Secretariat of Communications and Transportation http://www.sct.gob.mx The National Infrastructure Plan http://www.infraestructuta.gob.mx Airports of Mexico Informational Website http://www.aeropuertosmexico.com Aeropuertos y Servicios Auxiliares (ASA) http://www.asa.gob.mx Pacific Airport Group (GAP) http://www.aeropuertosgap.com.mx

Upcoming Trade Shows and Events

International Aviation Trade Show and Convention (2008/2009) http://www.aeroexpo.com.mx/index.html

CIAM International Trade Show (2008) http://www.expo-ciam.com

Mexican Business Aviation Exposition (March 12-14, 2008) http://www.expombae.com



For More Information

The U.S. Commercial Service in Mexico City can be contacted via e-mail at: [email protected]; Phone: (52-55) 5140-2670; Fax: (52-55) 5566-1115 or visit our website: www.buyusa.gov/mexico. The U.S. Commercial Service – Your Global Business Partner

With its network of offices across the United States and in more than 80 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://www.export.gov/. Comments and Suggestions: We welcome your comments and suggestions regarding this market research. You can e-mail us your comments/suggestions to: [email protected]. Please include the name of the applicable market research in your e-mail. We greatly appreciate your feedback. Disclaimer: The information provided in this report is intended to be of assistance to U.S. exporters. While we make every effort to ensure its accuracy, neither the United States government nor any of its employees make any representation as to the accuracy or completeness of information in this or any other United States government document. Readers are advised to independently verify any information prior to reliance thereon. The information provided in this report does not constitute legal advice. International copyright, U.S. Department of Commerce, 2006. All rights reserved outside of the United States.

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