Essay: Expansion of KLX Aerospace into Mexico – industry/market analysis

Industry analysis

The aviation industry in the world generates more than 450 billion dollars and is a large source of specialized jobs, as well as activities closely linked to the development of new technologies, which contributes to triggering innovative activity and generating greater value added throughout its productive chain, especially as it participates in the design and manufacture of more complex aircraft parts and systems.

The characteristics described make the aviation industry a highly attractive industry which makes Mexico part of the global chain of this industry. Increasing its participation in that sector represents an opportunity to attract investments, to generate activities of greater added value, engineering and design and, eventually, be a trigger for research and development activities that allow Mexico to participate in cutting-edge programs that are developed in the industry.

The aviation industry in Mexico has registered an important growth in the last 7 years, reaching exports superior to the 4,000 million dollars

Market analysis

One of the sectors that has grown the most in recent years in Mexico, is undoubtedly the aviation sector, which is characterized by demanding high levels of quality, technology and safety in all its activities. The Mexican aeronautical industry ranks first in manufacturing investments in the world, with 33 billion dollars in the period 1990-2009, higher than those captured by the United States, China, Russia and India. The growth that has been taking place in the sector is due to several factors that allow Mexico to remain as a strong investment destination, the proximity to two of the largest markets such as the United States and Canada, the geographical location that allows them to have an exit by both coast of the country, the reduction of costs for products with high cost of transport and storage, are only some of the advantages offered by the aviation industry of Mexico.

Market prospects

The reasons that explain the growing activity of the aviation sector are the advantages offered by Mexico:

1. Geographic location, being close to the most important market, which currently involves reducing production costs mainly from companies that carry out operations in Europe.
2. The experience and level of competitiveness achieved in other sectors such as automotive and electronic, which allows having a base of personnel and companies that can be oriented to the aeronautical sector.
3. Various free trade agreements that allow access to 43 markets under preferential conditions.

The following analysis demonstrates the potential success of KLX Aeroespace Solutions in Mexico’s aviation industry.

Competitive products on the market in that country

The presence of companies in the aviation industry in Mexico has increased, as of December 2011 there are approximately 2483 companies and support entities in the country more than double those registered in 2006, including leading companies in the manufacture of aircraft and parts in the world that carries out manufacturing and / or engineering operations such as: Bombardier, Honeywell, Safran Group, Eaton Aerospace, Goodrich, ITR, among others.

Current product usage habits

The aviation sector in Mexico is made up of 248 companies and support entities: 70.6% dedicated to manufacturing, 12.5% to repair and maintenance and 16.9% to engineering and design. Among the main manufacturing activities are the manufacture of parts and components, harnesses, parts machining, safety equipment, as well as the assembly of fuselages for aircraft and helicopters. Regarding the industrial turnaround of repair and maintenance is the case of maintenance to turbines and aircraft engines, while in engineering and design, the creation of new projects of turbines and composites is contemplated.

Major advertising media used in Mexico

In Mexico, open television (TVA) remains the medium with the highest penetration reaching 96% of Mexican households. Mass media consumption habits indicate that TVA is the medium that has the greatest penetration and conscious consumption among the population; this is due, in part, to the population’s access to TVA, which is even greater than that of drinking water according to the National Institute of Statistics and Geography (INEGI).

TVA in Mexico is present in 96% of Mexican households, compared to the Internet with only 37%, this high rate of penetration results in an intensive use of the population on TVA.

According to the General Survey of Media 27 cities 2014, the medium that most respondents have consumed in the last 30 days, and therefore with a greater reach, is the TVA with 88%, followed by the radio (80%) and press and internet (61%). Pay TV (TVP) reached in 2014 a penetration of 44.24%. The technological advances of the last decades have favored the penetration of the internet with 37%, followed by the radio, 33%. The printed media, such as magazines and newspapers, have a penetration of 16% and 12%, respectively.

Target market and market potential for KLX Aerospace Solutions.

The need for air transport in Mexico has had an unprecedented growth in recent times. In the last year alone, the number of passengers increased 10.7%, from 73.2 million passengers in 2015 to just over 82 million passengers in 2016, a growth that goes hand in hand with the real decrease in ticket prices. Despite the deficiencies in airport infrastructure, in the last 5 years national airlines have responded to this growing demand with significant investments to have the highest number of aircraft in the history of Mexico.

The aviatio sector contributes to the economic growth and development of Mexico by generating more than one million jobs and a contribution of 2.9% to GDP. Likewise, the strengthening of air connectivity has allowed more than 220,000 national and international passengers to pass through the country daily, which generates an economic income of nearly 18 billion dollars per year.

The main results of the SWOT analysis are that, based on the strengths of Mexico’s geographic position, the availability of low-cost human capital and, in general, the cost advantage, opportunities can be seized to continue driving the industry from different schemes, which can strengthen the skills of supply, training and technology. All of these factors allow KLX Aerospace Solution to penetrate the market successfully and scale up to higher value-added activities and face the threats of international competition.