High added value and long-term vision in Mexico’s aeronautical industry
Altaser Aerospace is a young company from the state of Chihuahua that has become a supplier for Honeywell and General Electric with complex machined parts for turbines. Investing in the long term and with patience, on the way he saw the opportunity to partner with a German aeronautical group to create a new company, AT Engine, which has now started operating in Hermosillo, Sonora. To carry out this project, he found the financing and focus he needed in Bancomext and, with confidence, he is ready to expand his experience in the international market. In this interview, Arturo Ávila, its Director General, tells us the story of its beginnings and presents the foundations of its current ambition.
Por: César Guerrero / Photo: Leandro Nascimento

When does Altaser Aerospace begin operations, who founded it, and what are its first lines of business?
It was founded in 2011 to become part of the chain of value of the aircraft parts manufacturing sector, based on the close relationship I have with engineer Alberto Terrazas, CEO of Grupo Punto Alto. I have over 26 years’ experience in manufacturing in aeronautical companies like General Dynamics, Labinal, Hawker Beechcraft, and Cessna. When I headed the local manufacturing association and Mr. Terrazas Seyffert the National Chamber of Transformation Industries (CANACINTRA), we presented to the governor of Chihuahua a plan to develop supply in the export manufacturing sector, in order to capture a greater portion of added value. The governor told us, “If this has such high expectations, why don’t you develop the project yourselves?” His question matured until we decided to manufacture small batches of precision machining for the aeronautical sector. We deemed it convenient to diversify the group’s activities, originally a builder, participating in an industry with a very particular business cycle. We knew that the companies established in Chihuahua imported parts at high prices from Europe, Asia or the United Stated, and we conducted market research studies looking to supply them.


What was the environment of the aerospace sector in Mexico and the world?
The aerospace industry activity in Chihuahua, where Cessna, Hawker Beechcraft, and Bell Helicopter are, was focused on business jets and small planes, the type of aircraft that was most affected by the 2008 economic crisis. We identified two markets that were not affected by the crisis: long-range commercial airplanes, with purchase orders for the next six years and little capacity to cover them; and medium-range airplanes. Only the aircraft replacement market had a growth perspective of at least 10 years, limited by the supply chain. It was the perfect moment to enter this segment, and we did better than we had envisioned. Almost 10 years later: the economy got back on its feet, the segment still has an accelerated demand for parts, and LEAP emerged, a more efficient engine used by the Boeing 737 Max and the Airbus 321. 


What would you highlight about the evolution and market share of Altaser Aerospace?
Initially, we did not think of focusing on engine parts. In 2011, we ordered a new machine with five axes, but it took us a while two get it some work. We knocked on all doors and didn’t have a single client. And so, we considered making a simpler product in order to get the experience companies were asking from us. We had some clients in the maquila industry and we began incorporating companies like TRW Automotive and Pace Industries.


How did Altaser Aerospace become a certified supplier to Honeywell Aerospace and GE Aviation?
We developed a quality system. In May, 2012, we became AS 9100 certified. Our first order for airplane engine parts was for “pre-machined,” parts with a dimension close to the end one, for Honeywell Aerospace. General Electric (GE) found us in an aerospace fair organized by the government of the sate of Sonora, in which Rolls-Royce was the operational client, and which was not interested in us. But we found, among its buyers, a company that was interested in doing business with us. They visited us in March of 2013 and although we lacked many things, they offered to take us by the hand if we invested and participated in their supplier development program. From that moment to the first purchase order, three years went by of audits, certifications and recertifications, supplying small local customers, some from industries other than aerospace, but all machining.


How did TechBA participate in this process?
The aerospace fairs we attended in Mexico and the United States showed us a very precise panorama of market difficulties. Bombardier asked that we hold the AS 9100 certification for two years and that we sell $2 million dollars in aerospace parts per year to be considered as a possible supplier. In one of those fairs we discovered the TechBa program, and its director—Eugenio Marín—invited us in July of 2012 to the acceleration program, in which we were selected with the support of ProMéxico. They were tough, but we got our first certification in December and we re-did our business plan to focus on the engine parts sector, regardless of client size or location, even if they were Honeywell or General Electric. We were rookies in preparing a quote for GE and we hired TechBA another three years. First, with the support of the federal government, but afterwards, on our own, because we saw value, mainly in its worldwide network of advisors, including a former Rolls-Royce supplier in Spain and two local experts.


How did the AT Engine México project come about? What objectives does it have?
General Electric made us compete against 10 suppliers it was developing. Six with Mexican capital and the rest were transnationals. Along the way, four Mexican and two foreign companies abandoned the project, as they felt they had to wait a long time for the first return on investment. At the time when purchase orders were being sent, only three companies were left (a Mexican company, a transnational company—both in Queretaro—and us) and each one got a small order.

A year later, in late 2016, General Electric asked us to give them a quote, along with other companies, in a major project. At a meeting in Cincinnati we were asked what we looked for in the short and medium term. We said we wanted to sell them $50 million dollars per year. For us, that was an exponential increase with respect to sales we had at that time, but the Purchasing Director of General Electric thought it was little, since its market of machined parts was around $1 billion dollars and they wanted to have a group of maximum 10 suppliers with purchase orders of approximately $100 million dollars per year per company. Fortunately, we overcame this hurdle and a group of executives visited Altaser, which was very small. They accepted we participate in the quotes with companies of the size of the Dutch GKN, the French Mechacrome, the Canadian Marmen and Aerotech Peissenberg (ATP), which is our partner today.


What is the participation of Altaser Aerospace in this project? And that of Aerotech?
We are going half/half in terms of development costs, with headquarters in Hermosillo, Sonora. Part of the joint venture translates into a non-competition agreement and a collaboration agreement for future projects. Altaser will deal with clients in Mexico and Aerotech with those in Europe and Asia. They have seen how Mexico operates, what costs are like here, and they will bring work from projects they have in the Czech Republic. We think it’s a very positive relationship.


How did you first make contact with ATP?
In the preselection of the best six, we were chosen along with ATP. We saw the initial 12 competitors really advanced in terms of technology and experience. Since GE wanted the project to be in Mexico, we looked for a technological ally. Mechachrome did not want to partner with us and so we approached the CEO of ATP, who invited us to Munich. We entered a joint venture and quoted as one company. After a very long process, GE really appreciated this mix, as well as the fact that it had a new supplier; it then selected us.


Why did you partner with this German company?
For 25 years, ATP has made engine parts similar to the ones we manufacture. They had worked with Rolls-Royce and a couple of European engine manufacturers, but nothing like General Electric, which is what we brought to the table. Beyond their technical competence, other similarities have allowed us to work together namely, being a private group similar in size, with a majority shareholder and an operating one. They also developed their talent from scratch, in a small town near Munich. It is the same philosophy we have at Altaser, where the training program lasts one year with a salary we see as a scholarship, more than an internship. They have an almost identical scheme.


What was the amount invested in that project and what were your sources of funding?
To find financing, we hired KPMG Advisory, which circulated the project among a hundred commercial and development banks around the world. For commercial banking, it was a complex project due to the long learning curve of the sector, and Bancomext immediately stood out because it had a specific line for the aeronautical sector, a scheme that suited our needs. 

The project required $220 million dollars and we asked for a loan of 110. Bancomext offered 60% financing, focused on capital investments (75%). This was a very creative scheme because capital investment is very difficult in the first few years: at the beginning, 169 come from the bank and the shareholders’ capital; the following 51 from project flows; and then the accelerated payment process begins. It was a long process until our business model matured. The bank will provide $102 million dollars between December, 2018 and early 2024.


How would you describe your experience with Bancomext?
We were looked after by executives with a lot of experience in the sector and who know its specificities very well: a lot of investment in capital goods and certifications, as well as long-term returns. These characteristics made some banks in Europe and Asia uncomfortable, but Bancomext thought our proposal was very interesting and they enriched it with their ideas. They very soon created a tailored solution which fitted us perfectly. They were very patient with us. We were treated like friends rather than clients. Their times of response were also very convenient; with other banks it would have taken us at least another year to get the financing.


Could you tell us what expectations you share with AT Engine México in terms of market share and job creation?
At the beginning, General Electric offered us all LEAP turbine spare parts. Now, it wants us to manufacture new turbine parts because Airbus wants more engines now that its other supplier, Pratt and Whitney, could not provide what it promised. This new contract is a bit longer than the expected lifespan of the LEAP turbine (30 or 40 years). We hope it will be a job that will give us 30 years of production with the same engine, with a natural access to renovation, because it will give us the experience, the plant, and the equipment to win the next tender. Regarding jobs, the plant that AT Engine has built in Hermosillo will have approximately 400 employees.


What is your expectation in terms of exports and integration of Mexican content?
All raw material comes from the United States, where base metals are melted and forged, some of which come from Russia or South Africa. Since the problem is capacity, with the support of the state government and the federal government, we are inviting some suppliers to do some of that forging near us.


What would you like to highlight about the project’s technological aspects?
If manufacturing jobs are already a salary step up from other industries for talented young Mexicans, design is the next level of development opportunity. At Altaser we have 15 years to go before we start designing parts. But we build against specification, which means that our engineers know how to manufacture them, designing both the process so that they do not heat or deform, and the tooling (the fastening system, the cutting processes). This is also design, and it is valuable.


What is the main profile for job positions at AT Engine México? Is there sufficient supply of skilled labor for this purpose?
AT Engine now has 39 workers, almost all engineers with very attractive salaries, and 20-25 years’ experience in the aeronautical sector and 10-15 in the automotive sector. We will then integrate a mix of experienced and inexperienced people. With the support of CONACYT’s Innovation Incentives Program we will develop engineers and technicians of digital control machines recently graduated from local, public and private higher education institutions like La Salle or the Technological Institute of Hermosillo. Likewise, the government of Sonora will adapt a training center for the aeronautical industry with graduates from Conalep, CBTIS and CECyTECh that will provide us with significant capacity for four years. The idea is that 70% of our workforce be trained between six and nine months, before joining the productive part.


What is looming in the aeronautical sector worldwide?
Tecnologically, at AT Engine we will make the more complex parts of an airplane and we are asking General Electric to order subassemblies from us, because we expect the hot and cold parts of the LEAP turbine to be finished in Mexico to—in the future—assemble it here. Safran manufactures in Mexico components of the cold part, that it assembles in France, while GE finishes the compressor in the United States. They both had a big interest in being in the same city. We still have a long way to go with the certifications, and for Americans it would be very hard for an airplane to leave them to be assembled in Mexico. But that does not happen with the components; that's why we want to make subassemblies.


Tell us, what is expected in Mexico’s aerospace sector?
The aeronautical sector could grow threefold in the next 10 to 15 years. We now have landing gear, turbines, fuselages, components, seats, etc., and I think we are 10 years away from assembling the complete turbines here.


Where do you think AT Engine México will be in the next few years?
We have exclusivity with General Electric, and when we finish the ramp-up, we know that they will be more flexible. If they give us more work, we will build a second unit and join it to the first; if not, they will work side by side, like twins, each with their client.


What do you recommend to drive the development of local suppliers and increase the national content of Mexican exports?
Understand and adapt to this market. Certifications alone take three years and are quite expensive. You have to be patient, like the farmer who waits for the standing calf to reach 300 pounds. We were very fortunate because the CEO of Grupo Punto Alto was patient in understanding investment periods in projects like that of AT Engine, where we needed to wait seven years before giving back returns to investors, but with a very good result when the return of the following years is averaged.