Mexico’s aerospace sector is hotter than a rocket’s exhaust, now worth $11.2 billion. Experts predict it will more than double to $22.7 billion by 2029! The United States-Mexico-Canada Agreement (USMCA) has been central to this expansion. Yet, despite continued issues with labor practices and questions about long-term market stability, it has led to the sector’s growth and innovation. As Mexico strives to position itself alongside France and the United States as a leading hub for aerospace engine assembly, the question arises: will this growth be undermined during the upcoming USMCA review?
The aerospace industry in Mexico has grown tremendously, particularly in states such as Queretaro, where the growth has been described as “truly explosive.” Combined with low manufacturing costs and geographic proximity to the United States, this offers strong incentives to U.S. companies. Consequently, many are opting to move their production south. This swiftly evolving industry presents a lot of opportunity. It is now coming under fire for its working conditions and wage gap compared to U.S. and Canadian counterparts.
Growth Driven by USMCA
The USMCA has been instrumental to strengthening Mexico’s aerospace sector. The deal aims to get rid of “protection unions.” This amendment stops Fortune 500 corporations from being able to negotiate shady backroom deals with corrupt heads of state, increasing labor rights and transparency. Further, this shift has made the environment more competitive and less ripe for U.S. firms who wish to start operations in Mexico.
Mexico’s government is taking a very brave step by committing to increase the minimum wage. They intend to raise it substantially, from 88 pesos ($4.82) in 2018 to 278.8 pesos ($15.30) by 2025. In border municipalities, the minimum wage can be as high as 419.88 pesos ($23). In Mexico’s aerospace industry the daily wage averages between 402 and 606 pesos per day. This is well below the approximate 5,500 pesos ($300) that U.S. workers earn per day.
“Right now they’re [Mexican workers] doing more entry-level type things, but our concern is that later on, larger pieces of the aerospace operation will go to Mexico,” – Peter Greenberg
This inequality underscores the difficult path in front of Mexico. The country has a strong ambition to enter the top ten of world aerospace production value. To keep our country strong, it’s important for industries that create growth to do it in a way that respects labor so our nation can stay competitive.
Queretaro’s Explosive Development
As a result, Queretaro has emerged as an important center for Mexico’s rapidly-growing aerospace industry. It’s drawing huge investments from U.S. and Japanese companies. The state’s success in education has created an excellent educational and training pipeline. This unique configuration fuels accelerated talent growth, helping the region consistently rank as the nation’s top aerospace manufacturing cluster.
“Since Bombardier’s arrival, an educational and training system was created that allows us to develop talent in a very efficient way, let’s say, fast track,” – Del Prete
The rapid expansion within Queretaro has attracted interest from numerous actors across the aerospace value chain. The influx of companies seeking to benefit from the region’s resources has led to an ecosystem that supports innovation and growth.
This rapid growth comes with serious repercussions on the ground, especially related to labor exploitation and abuse. Workers’ rights Critics say that despite the rapid growth of the industry, workers at some companies continue to be subjected to dangerous environments with poor working conditions.
“They don’t hire workers who are dismissed for union activism,” – Humberto Huitron
As Queretaro continues to attract new investments, it is crucial for local authorities and businesses to ensure that labor standards keep pace with economic development.
Future Outlook Amid Concerns
President Claudia Sheinbaum has forecasted exceptional years of growth for Mexico’s aerospace industry. Over the next four years, it’s poised to grow at a rate of 15 percent annually. This rosy prediction is dependent on a number of factors, such as global demand and local labor market conditions.
Despite these rosy forecasts, market uncertainty looms large. Continued concern among stakeholders exists that shifts in policy and/or economic conditions may affect Mexico’s capacity to continue on its current growth trajectory.
“Having this great uncertainty – one day it’s on, the next it’s off, who knows tomorrow – and based on no specific criteria, but rather on the president’s mood, creates chaos and severely damages the country and the economy,” – Lugo
Firms are in the process of working through their production scenarios in favor of Mexico or another foreign alternative right now. Wage disparity and labor rights must be central to this decision-making process.
“There is a need for stronger incentives to keep work in the United States and Canada. We want to see the wages in Mexico go up so that it doesn’t become automatically a place where companies go to because they know they will have lower wages and workers who do not have any bargaining power or strong units,” – Greenberg
