Las Vegas, Nevada May 19-20, 2011 Bellagio Manufacturing in Mexico Conference Near-Shoring - Maquiladoras - Site Selection

Cover May 19 th, 2011 Manufacturing in Mexico 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 matter of Industry survival 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 Traditional Purchasing Strategic Sourcing Competitive Purchasing The OEMs impose profound changes on Suppliers Source: Northrop Grumman & Business Week Reduction in number of suppliers Outsourcing manufacturing Develop partnerships with large suppliers Getting suppliers involved in studies Subcontract complete systems 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 Co op er ation

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 * 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

Relevancy of Mexico in Aerospace Aerospace business practices in evolution The Decision of Offshoring Section 1 – Globalization

The Precursors – before 2005 We started to see an increasing number of aerospace companies establishing 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 LABINAL 1998 – Acquisition of Aerotec

The Beginning of Organized Aerospace in Mexico

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 Dollar reached record highs The Primes such as Rolls-Royce, EADS, SAFRAN suffered deeply the imbalance between their production cost in local currency relative to the portion 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 platform that 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-Level Committee 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 deployment of French aerospace companies in Mexico For instance, SAFRAN is the largest aerospace employer in Mexico with over 3000 employees 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 California UKTI in Mexico is actively supporting UK aerospace development activities the country Canada and the United States see as their strategic low-cost partner within 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 as the 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 ,200 1, ,500 5,000 3,400 2,700 1, Source: MexicoNow Research E TotalEmployment (inthousand) E AnnualInvestment (US$Million) E AnnualExport (US$Million) E TotalNumberofPlants

Main Aerospace Clusters Baja California Mexicali Tijuana

Main Aerospace Clusters Sonora Nogales Guaymas

Main Aerospace Clusters Chihuahua Cd. Juarez

Main Aerospace Clusters Nuevo Leon Monterrey

Main Aerospace Clusters 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 PROGRAMS 6 months to 18 months programs With free internship in companies SHORT COURSES Metrology NDT Quality Standard Chihuahua

STRUCTURES SimpletoComplex ENGINES SimpletoComplex SYSTEMS SimpletoComplex MRO SimpletoComplex MinorAssy MajorAssy–Smalla/c Metalcomponents Compositesecondary structures BladeMachining RingMachining Somesurface treatments HarnessesAssy& design JBAssy/Connectors Interiorsfab&assy MechanicalSystems components Systemstesting EngineMRO LandingGearMRO CaptiveA/CHeavy Mtce MajorAssy–Largea/c Moremachining Processes CompositesPrimary Structures Partsmachining- Military Titaniumcastings Aluminum& Magnesiumcastings SurfaceTreatments LPModulesub-assy A/CBrakingSystems Flightactuators AvionicsPCBAssy LDGsub-Assy Mechanicalsystems sub-assy APUComponentsMRO IndependentA/CHeavy MtceMROshop Helicopterassy GeneralAviationA/C assy CompressorAssy& testing Avionicsboxesfull assyandtesting FullMech.Syst.Assy APUMRO Established Imminent Next Phase 2 nd Next Phase FUTURE – Expansion of Aerospace in Mexico … room to grow

Relevancy of Mexico in Aerospace Aerospace business practices in evolution Offshoring to Mexico as One option Section 1 – Globalization

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 entire requirements 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% cost improvement? 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 Manufacturing Strategies Must not be the unique strategy It offers a paradigm shift. There offers the possibility to replicate the 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 / COST Saving 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 redistribution of 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 than the average More airport-related services and equipment as the airport infrastructures of Mexico 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 the successful 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 thinking our expertise in manufacturing our hands-on experience at implementations our knowledge of Mexico Your contact: Luc Beaudoin – Principal Tel: +1 (514) Cell: +1 (514) Thanks for your attention

Las Vegas, Nevada May 19-20, 2011 Bellagio Manufacturing in Mexico Conference Near-Shoring - Maquiladoras - Site Selection