mexico and globalization of the aerospace industry

Las Vegas, NevadaMay 19-20, 2011

Bellagio

Manufacturing in Mexico ConferenceNear-Shoring - Maquiladoras - Site Selection

For more Mexico business information, visit the presentations section of The Offshore Group website.

http://www.offshoregroup.com/category/mexico-outsourcing-presentations/

Cover

May 19th, 2011

Manufacturing inMexico Conference

Las Vegas

Mexico

and

Globalization of Aerospace Industry



Relevancy of Mexico in Aerospace

Aerospace business practices in evolution

The Decision of Offshoring

Section 1 – Globalization



A m

atte

r o

f I

ndus

try

sur

viva

l

Aerospace is embracing new realities

Socio-economics

Demographical

Market

Competition

Best practices

Technologies

Pace of changes weighs on Aerospace

Challenging the established order:

Traditional Aerospace players

Protectionism around Aerospace

Ways of doing things



The Transformation of our sourcing practices

TraditionalPurchasing

StrategicSourcing

CompetitivePurchasing

The OEMs impose profound changes on Suppliers

Source: Northrop Grumman & Business Week

Reduction in numberof suppliers

Outsourcingmanufacturing

Developpartnershipswith largesuppliers

Gettingsuppliersinvolved instudies

Subcontractcompletesystems

Risk sharing



Performance

Contribution to OEM business interests

Source: EADS GSN- May 2007

A new model of collaboration between Primes & Suppliers

Target area for

Qualifying Suppliers

Cooperation



Globalization of the Supply Chain

Source:Conference Board of Canada, Sept 2008

At presentation to Aerospace Industries Association of Canada

Major Value Chain

Investments

by 121 OEMs

1990-2009 *

Source: AeroStrategy, September 2009* As of August 2009

“OEMs are reconstructing their Value Chain by

positioning each link at the place in the world that

will minimize COST and maximize RETURN”



French Aerospace – Strong deployment in Morocco and Tunisia

New battlegrounds for competitiveness - Example

For• The language• Its costs

• Its proximity• Its logistics• Ease for suppliers

Investments in• New capabilities• New infrastructures• Training





The Decision of Offshoring




The Precursors – before 2005

We started to see an increasing number of aerospace companiesestablishing in Mexico (60-100) in the early of decade 2000

The vast majority were smaller manufacturing investments

The majority were U.S. investments

Even big names started very modestly

1986 – 40 employees

2001 – 25 employees

LABINAL1998 – Acquisition of Aerotec



The Beginning of Organized Aerospace in Mexico - 2005



The Beginning of Organized Aerospace in Mexico - 2005

Bombardier’s announced its Mexico investment in October 2005

They came with a Long-Term Strategic view

Decided to setup in Mexico as at any other Bombardier plant

For the eventual assembly of airplanes in Mexico

For thousands of jobs

With a Supplier Strategy in mind

They were instrumental in

Creation of a National Aerospace

School

Development of a Supplier Park

BASA



Surge of French Aerospace in Mexico

Late 2007 and early 2008 have been difficult for European aerospace

The exchange rate of the British Pound and Euro against the US Dollarreached record highs

The Primes such as Rolls-Royce, EADS, SAFRAN suffered deeply theimbalance between their production cost in local currency relative to theportion of their revenue made in USD.

Mexico them became a strategic platform to

• Diminish costs

• Edging the currency effect – Mexico is a USD zone

• Penetrating strategically the North American aerospace market

For France, for instance, Mexico became such an important platformthat it received the highest level of attention

Mexico was declared a “Pôle de Compétitivité” for the French Aerospace

The French and Mexican Governments established a Bilateral High-LevelCommittee to study collaboration initiatives in the areas of:

• Aerospace education

• Support to investments and development of suppliers



Aerospace Trade Education

France is giving its support to several aerospace training initiatives:

An aerospace campus with a capacity of 600 to 70 students was announced last July by

SAFRAN

Eurocopter has developed several partnership with local trade schools and universities in

support to the training of its workforce

•

•

•

EADS has opened a Global sourcing office

French primes are holding suppliers conferences in Mexico

Mexican local companies are assisted by French companies to qualify for their work

The French Aerospace is developing a strong presence

There is a rapid deploymentof French aerospacecompanies in Mexico

For instance, SAFRAN is thelargest aerospace employerin Mexico with over 3000employees in 6 plants.

Sourcing



Significant growth since

Mexico is strategic as well for the UK Aerospace

As a Strategic Sourcing LocationAs an Offshore Manufacturing Location

ADS has conducted several missions in Mexico, including a recent one in Baja CaliforniaUKTI in Mexico is actively supporting UK aerospace development activities the country

Canada and the United States see as their strategic low-cost partnerwithin the framework of an integrated North American economy



Mexico is building its aerospace backbone

As set the essentials bodies required for structuring the industry such asthe Mexican Aerospace Industry Association

Is getting more COHERENT and STRATEGIC in its deployment

Is harmonizing its law and rules of aviation with other countries

Is investing and cooperating in the development of aerospace education

Is supporting initiatives in support of aerospace certification of suppliers

Is reviewing ways to provide better government support to the industry

Mexico has made significant strives in the last 5 years



Aerospace Industry in Mexico

16.5

12.57.5

31.0

21.0

37.5 1,2001,100

900

450

250200

7,500

5,000

3,4002,700

1,300

270

310

250

190

150

110

65

Source: MexicoNow Research

2001 2004 2007 2008 2010 2012E

TotalEmployment(inthousand)

2001 2004 2007 2008 2010 2012E

AnnualInvestment(US$Million)

2001 2004 2007 2008 2010 2012E

AnnualExport(US$Million)

2001 2004 2007 2008 2010 2012E

TotalNumberofPlants



Main Aerospace Clusters

Baja California• Mexicali• Tijuana




Sonora• Nogales• Guaymas




Chihuahua• Chihuahua• Cd. Juarez




Nuevo Leon• Monterrey




Queretaro• Queretaro



Mexico is building its aerospace backbone

Aerospace Trade Programs available from TECHNICAL COLLEGES

Aircraft Structure assembly

Electrical Harness assembly

Composites

Basic Machining

Advanced CNC Machining

Sheet Metal / Fabrication

Aircraft Maintenance

LONG PROGRAMS6 months to 18 months programs

With free internship in companies

SHORT COURSESMetrology

NDT

Quality Standard

Chihuahua



STRUCTURESSimpletoComplex

ENGINESSimpletoComplex

SYSTEMSSimpletoComplex

MROSimpletoComplex

•MinorAssy•MajorAssy–Smalla/c•Metalcomponents•Compositesecondarystructures

•BladeMachining•RingMachining•Somesurfacetreatments

•HarnessesAssy&design•JBAssy/Connectors•Interiorsfab&assy•MechanicalSystemscomponents•Systemstesting

•EngineMRO•LandingGearMRO•CaptiveA/CHeavyMtce

•MajorAssy–Largea/c•Moremachining•Processes•CompositesPrimaryStructures•Partsmachining-Military

•Titaniumcastings•Aluminum&Magnesiumcastings•SurfaceTreatments•LPModulesub-assy

•A/CBrakingSystems•Flightactuators•AvionicsPCBAssy•LDGsub-Assy•Mechanicalsystemssub-assy

•APUComponentsMRO•IndependentA/CHeavyMtceMROshop

•Helicopterassy•GeneralAviationA/Cassy

•CompressorAssy&testing

•Avionicsboxesfullassyandtesting•FullMech.Syst.Assy

•APUMRO

Established

Imminent

Next Phase

2nd Next

Phase

FUTURE – Expansion of Aerospace in Mexico

… room to grow





Offshoring to Mexico as One option




Aerospace supply chain under great pressure

Process improvements initiatives such Six Sigma, Lean Manufacturing,Value Engineering and others will not be sufficient to respond to entirerequirements of cost reduction and to remain competitive

Can process improvements guarantee for long-term survival?

Can process improvements can realistically provide a net 20%-30% costimprovement?

Market competition grows in Low Cost Economies, either through

My traditional competitors taking the opportunity of Globalization

New Suppliers being groomed abroad by the OEM’s

Long-term growth means embracing OEMs/Tier-1 strategies & priorities

Business model

Globalization

Cost reduction

Is Status Quo an option?



Offshoring as one of the strategies

It is one more option in our “Card Deck” of ManufacturingStrategies

Must not be the unique strategy

It offers a paradigm shift. There offers the possibility to replicatethe best of what we are but in a lower cost structure.

Without compromise on the content, complexity and practices

Offers opportunities to create value-added activities at home

The whole creating increasing overall enterprise value

Probably no more efforts than many other Improvement / COSTSaving initiatives available to you


Mexico as a new market for Aerospace?

Mexico, by large, is not a net source of new Aerospace business.

The volume of worldwide aerospace work is set by the number of commercial,business, rotary aircraft in production and the military spending.

The production of aerospace goods of Mexico is a geographical redistributionof an existing market.

Are there some pockets of new opportunities in aerospace in Mexico?Certainly, but it remains marginal

More MRO work as the Mexican fleet of aircraft is growing more rapidly thanthe average

More airport-related services and equipment as the airport infrastructures ofMexico are getting beef-up

Mexico must be seen as a platform- For global competitiveness- To reach the U.S. / Canadian markets


Is it within my reach?

Limited Financial Resources

Limited Human Resources to apply against project

Management attention is spread out

I am risk adverse – a lot of unknown

Managing at Distance

Should be a complex undertaking

I am only a relatively small supplier !

Can I realistically consider an Offshore operation?

ANSWER: Definitely YES under proper setting,under proper guidance


AeroShores is a Consulting and Services firm dedicated at thesuccessful launch of manufacturing investments in Mexico

w w w. A e r o S h o r e s . c o m

Our values resides in

our strategic thinkingour expertise in manufacturingour hands-on experience at implementationsour knowledge of Mexico

Your contact:

Luc Beaudoin – PrincipalTel: +1 (514) 667-1534Cell: +1 (514) [email protected]

Thanks for your attention


Las Vegas, NevadaMay 19-20, 2011

Bellagio

Manufacturing in Mexico ConferenceNear-Shoring - Maquiladoras - Site Selection


mexico and globalization of the aerospace industry

Documents

mexico business information

presentations section

offshore group website

relevancy of mexico

mexico investment

currency effect mexico

mexico conferencenearshoring

aerospace campus