Mexico Outsourcing Podcasts

U.S. – Mexico Bilateral Aviation Safety Agreement

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Interview with: Humberto Gayou, Fouunder, Lexcorp Abogados, Ciudad Juarez, Chiuhuahua

The Offshore Group: Hello and welcome to another installation of The Offshore Group’s continuing series of podcasts on information related to manufacturing in Mexico, as well as other issues related to doing business in the country.

Today we’re fortunate to have with us someone with a different and interesting perspective, as you will find during our conversation. Joining us today is Humberto Gayou. Humberto is an attorney in Mexico; he specializes along with the rest of the members of his firm as an advisor to multi-national corporations. His firm, Lexcorp Abogados, has gained a reputation over the years for being experts in issues related to direct foreign investment in Mexico.

Initially their practice was quite diverse, and remains so to this day. However more recently with the rise of the Mexican aerospace industry, they’ve developed a specialization in this specialized area.

Good afternoon Humberto, maybe you can tell us a little bit more about that.

Humberto Gayou: Yes, good afternoon and thank you for allowing me to be part of this discussion that is impacting the aerospace industry in Mexico in a positive way.

The Mexican aerospace industry is a very exciting industrial sector that is rapidly growing. We’re looking for the next fifteen to twenty years to be marked by significant growth. It is very exciting for us, and thank you for having us today.

We’ll talk in depth about Mexico’s aerospace industry, and please feel free to ask any questions that you feel are important to discuss.

The Offshore Group: First to get some basic information to begin with: Can you tell us about Lexcorp Abogado’s overall practice, and your role at the firm?

Humberto Gayou: Sure, I’ll tell you a little bit more about the legal practice in Mexico that we have been conducting during the last 20 years.

I started as an attorney thirty years ago. Twenty years ago, however, I founded Lexcorp Abogados, which is now a group of lawyers spread throughout the country in various Mexican locations.

We’ve been focused on serving all types of foreign direct investment in Mexico, and more recently, the Mexican aerospace industry.

We focus on areas and industries that are expanding in Mexico. We’ve concentrated on foreign capital, and how this capital is becoming essential for Mexico’s development. In this practice we have seen a great deal of growth in Mexico’s aerospace industry.

The Offshore Group: Taking things into a greater area of specialization; I understand you’re often invited to be a speaker at Mexico aerospace events on the topic of the Bilateral Safety Agreement and Aviation (BASA) that has been concretized between the United States and Mexico. You’ve addressed how it operates, how it functions, and how it is becoming something that is important in the development of Mexico’s aerospace industry, as well as for American companies and others to manufacture in Mexico for the aerospace industry.

Can you tell us about the connection between the U.S. and Mexico, and this agreement is critical to development of aerospace manufacturing in Mexico in a global sense?

Humberto Gayou: Yes, of course. What I’ve seen in these conferences that you mention is a growing awareness of how the country is adapting its own national laws and regulations to accommodate the boom that is occurring in the Mexican aerospace industry, and the growth that is expected in the coming years.

To answer your question: we ask ourselves, what are the concerns of foreign OEMs when they think of the aerospace industry in Mexico? Is the legal infrastructure in place that is required to serve it? What kind of changes is happening in the law?

We ask ourselves, where is Mexico in terms of a legal framework for the aerospace industry right now? Mexico has passed an international treaty (about 5 years ago) with the United States, which looks for the recognition amongs authorities in both countries to improve the aerospace manufacturing process and approval of airworthiness certifications that are a big part of these markets. The two countries are working together now on these issues.

This cooperation takes the form of a document that is called “The agreement between the government of the United States and the United Mexican States for the promotion of aviation safety”. It is an accord that is of critical importance. It represents a basic understanding between the two governments to have their own authorities recognize certification processes in each of the countries.

For Mexico this is very important, because currently we have both aerospace industry suppliers and OEMs proliferating in the country. Before the agreement was signed, aeronautical parts companies would manufacture aerospace parts in Mexico, and send them to the U.S. for certification for airworthiness. Today, the BASA agreement allows suppliers and OEMs to acknowledge and recognize the certification process by the Mexican authority that is equivalent to the FAA. Here I am referring to the DGAC which stands for “Mexican Directory of Civil Aeronautic”.

The BASA agreement will improve the process of manufacturing. It will allow more aerospace manufacturing to be done in Mexico, and will put finished products in the aerospace supply chain sooner. This will benefit aerospace OEMs such as Boeing and Airbus quicker.

The Offshore Group: Humberto, I have a question with respect to something that you’ve mentioned, which I think it translates into cost savings.

As a result of not having this agreement in place, in prior times, an aerospace part that was made in Mexico had to be sent to the United States to get the certification before sending it to the end user. Is that correct? And if so, that takes time and money to do, correct?

Humberto Gayou: Yes, exactly. That is what BASA now avoids and therefore improves the entire process. Instead of having this production take place in Mexico to be further sent to the U.S. for aerospace certification process, then be re-exported, the goal of this new regulation and/or international treaty, is for those parts to be certified for aerospace use in Mexico prior to exporting to the U.S., and the FAA will acknowledge the Mexican certification. It’s definitely an improvement on logistics, as well as on overall costs.

The Offshore Group: It seems to me that this would have significant implications on the supply chain. The need for companies to send parts to the U.S. to get FAA certification implies that at the same time secondary operations such as metal plating, metal finishing and things of that nature would previously have to be done in the United States. Now that the FAA is recognizing the Mexican authorities’ certification, a lot of those secondary processes can be done in Mexico as well. This will present an opportunity to grow the aerospace supply chain in a more integrated and vertical way in Mexico? Would that be a correct assumption?

Humberto Gayou: That is correct. The Mexican aerospace supply chain will benefit from this agreement, Industry production, at the end of the day, needs to receive airworthiness approval.

The agreement allows Mexican authorities to review manufacturers’ processes, and finish products; they will review and determine if there are airworthiness approved (which is an essential on these types of parts), components and everything else you add into the supply chain which needs to be recognized by the U.S.

You will see the aerospace supply chain grow in Mexico. The cost related to logistics will be improved. The supply chain continues to grow since the BASA agreement has been signed and enacted.

The Offshore Group: Given what you just said, and the changes that have begun to transpire, where do you see the aerospace and aeronautic industry in Mexico focusing their resources today, and in the future?

Humberto Gayou: I see great expansion both to the suppliers of the OEMs and the larger aerospace OEMs coming into Mexico, Some are already established in the country.

We see a continuous growth and expansion of aerospace operations that are taking advantage of the certification, aircraft parts and process capabilities; we also see an aerospace industry in Mexico rapidly developing. The Bilateral Aviation Safety Agreement will be the base for the aerospace push that Mexico’s government will continue to make in the years to come.

Having said that expansion and growth is expected in the next fifteen to twenty years, we have to make sure that the BASA implementation occurs in an orderly manner, and in a way that aerospace manufacturers in Mexico can take advantage of it. That’s where the practice of our law firm is heading. We aim to be part of this supply chain, as well as being able to identify the best locations in Mexico for the aerospace OEMs; those places that offer tax breaks and land, and/or other incentives so that their investment and ROI is amicable to their expansion and growth plans.

The Offshore Group: You talked about benefits and the growth of the aerospace industry in Mexico. Can you explain how this impacts in a positive way the market in the United States?

Humberto Gayou: The United States historically has had a linkage with its neighbor countries, as well as other emerging markets throughout the globe.

Mexico has played a great role in manufacturing as its closest neighbor (not only from a logistics point of view), a business partner, and economic growth driver of the region.

Mexico will represent a specialized labor for the U.S. and that can also be the greatest challenge, to continue the development of these labor markets so they are ready for the challenge of an upcoming expansion.

For the U.S. means to look at what Mexico has to offer; it’s now a mature offer after 20 to 30 years of expansion, and it will continue to be relevant to the U.S.

As a market, Mexico will increase their supply chain, and have airworthiness and an environmental certification as well. The timing will be improved and will become part of the continuous supply chain taking place in the U.S. This will also allow the U.S. to grow this market rapidly and take advantage of Mexico’s offerings.

The Offshore Group: You can see over the course of the next 20 to 30 years a partnership with positive implications for both parties. Is that correct?

Humberto Gayou: Correct.

The Offshore Group: For those listeners that want to have a stronger legal understanding in reference to this topic, could you explain how the BASA in clear and direct terms.

Humberto Gayou: Of course.

What BASA between the U.S. and Mexico addresses three major issues:

1. One can expect from the other to facilitate acceptance of their airworthiness approvals and environmental testing on aeronautical products, as well as flights evaluations.

2. Both parties’ can approve and monitor each other’s facilities. They can also examine how they alter and modify their operations, how they train personnel involved. They can examine flight and crew members, and inspect aviation training establishments to see that they meet expected requirements.

3. Work jointly to establish, maintain and ensure global aerospace standards.

These are the main principles of the Bilateral Aviation Safety Agreement (BASA) agreement.

The Offshore Group: In essence, Mexico and the U.S. are working together to facilitate and create cooperation on a number of levels. Is that correct?

Humberto Gayou: Yes. This joint governmental effort will improve safety and environment concerns in Mexico’s aerospace industry. It will also improve the timing and response on certification processes, and refine the approval mechanisms that are in place in both countries. This will eventually translate into benefits that aid each country’s development. That is a basic premise of the BASA agreement.

The Offshore Group: The key component, if I understand BASA correctly, is the concept of airworthiness approval. This is the area in which both the Mexican and U.S. authorities have to agree. The same processes must be used to determine airworthiness in both countries. Maybe you can comment on that a little bit?

Humberto Gayou: Yes, we’ve already talked about how the BASA agreement is the basis of these regulations, now we have to look at the implementation procedures.

Implementation procedures of the U.S.-Mexico Bilateral Aviation Safety Agreement require that both countries examine and harmonize the national laws of each that each uses for in their airworthiness and certification procedures for aerospace parts.

These laws and procedures will allow each government to issue an airworthiness certification.

This allows both suppliers and OEMs to ship production already certified aerospace parts, so that when products reach the U.S. market, they will have the “airworthiness” approval, and can be rapidly incorporated into the aerospace supply chain.

Implementation procedures are quite relevant from a legal standpoint. These procedures allow us to advise our clients what to do for their process to be airworthiness certified.

The procedures are a second tier set of rules to consider, and allow those to use national regulations to comply with the airworthiness certification and the BASA agreement.

The fundamental principles are to maximize exports of aviation and aircraft certification systems so the airworthiness standards are accepted by the other countries. In the example that was given, it means the FAA acknowledging the certifications issued by the DGAC in Mexico.

It’s a two way road. However, it will affect how Mexico establishes its aerospace manufacturing base, and how the Mexican players will produce and respond upon the certification process.

The Offshore Group: To implement all this requires quite a bit of coordination between the two countries. I know you recently spoke at an aerospace summit in Queretaro, Mexico. During that summit, you explained the requirements and activities between authorities of the two countries to implement this. Can you give us a bit of a synopsis of the thrust of your presentation at the Aerospace Manufacturing in Mexico Summit?

Humberto Gayou: Yes.

I’ll focus on something of great relevance during the implementation and regulation of the BASA.

Let’s look at the Mexican standards. Mexico, prior to the BASA agreement and its implementation, the country has been using the standards which are official regulations only in Mexico for the manufacturing of aerospace products and parts. These standards require those items to be airworthy. What BASA does, it looks at the Mexican standards, and how they’re complied with, and brings them into harmony with U.S. and global standards.

The standards might be technical, might be related to environmental, etc. What we do with those standards is to incorporate the in the aerospace production process in Mexico. Therefore, what I’d like to tell our audience is how they have to initially focus in how their Mexico’s aerospace operations need to comply with Mexican laws and regulations. In order to be part of BASA, they have to meet Mexican standards (which are now in harmony with U.S. standards) throughout the process. We call them “Normas Oficiales Mexicanas (NOMs)”.

We make sure that Mexican entities will respond with a high degree of responsibility and take the requisite safety measures for their Mexico aerospace manufacturing operations to comply with airworthiness standards.

We also have to distinguish between aeronautical products and aeronautical parts:

Aerospace products: definition: airplanes, motors and propellers. This is a legal definition.

Aerospace parts definition: everything else that will be installed in aeronautical products.

The distinction is not difficult. This distinction will be relevant, and stated at the time of the Mexico manufacturing process.

If you want to identify if you’re producing parts or products, both are subject to gain airworthiness approval in place between the U.S. and Mexico.

The Offshore Group: Now you’re getting a little bit more technical. We talked about the Mexican NOMs (which are the Mexican standards), what the standards are in the U.S.; would you be able to tell us in a brief way what are applicable national requirements under BASA agreement, then share some of that information through an non-technical manner?

Humberto Gayou: Yes, of course.

As you know, in the U.S. we refer to the FAA standards for airworthiness and environmental certification. These are part of their code of regulations. In Mexico, you have similar standards issued by the DGAC authority for airworthiness and environmental certification, as well.

These standards are taken together as a set of regulations. There is one issued on aeronautical design by the aeronautical authority acceptance. These were adopted in the beginning of 2012.

You could also refer to other aerospace manufacturing standards: for products, aeronautical authorities’ application of certification processes, also called standards for manufacturing and parts in Mexico. That is the basic regulation out there that applies to all manufacturing processes regarding safety and environmental issues, as well as the applicable procedures to obtain airworthiness approval.

We talk about Mexican standards when some of our clients have to be reinforced on this important matter. We stress the fact that they’re mandatory. If you want to have a presence in Mexico aerospace manufacturing, you have to be in compliance with those regulations.

Once companies comply with Mexican regulations, then they can obtain airworthiness approval, which will be recognized in the U.S.

These standards are evolving, and therefore the aerospace manufacturers in Mexico are looking to comply with and benefit from the BASA agreement, to have their products approved by the FAA.

The Offshore Group: You are providing quite a bit of information related to the U.S.-Mexico Bi-lateral Safety Agreement (BASA). This discussion has been immensely informative thus far.

There are a lot of keys to be crossed and eyes to be dotted. As a group of lawyers and founder of this company Lexcorp, you’re obviously are gathering more expertise in this area of discussion, where do you see your role as an organization that has been able to guide companies that want to manufacture aerospace in Mexico. What do you think you can offer them in terms of making the initiation of the process smoother, and what kind of pitfalls do you believe you can help people that will be embarking on this type of activity avoid?

Humberto Gayou: The challenge that we continue to face is to convince our clients that Mexico is a good choice for their aerospace manufacturing activity. This is a big challenge overall. In our firm, we try to transmit confidence, and make every effort accomplish our client’s goals when looking at Mexico. This challenge continues to be part of our practice.

We believe that foreign direct investment in Mexico offers manufacturers an opportunity to grow their profits and enjoy the benefits of what the country provides: geography, culture, history and human and other resources. Our firm’s role is to accomplish what companies want to do in Mexico. We strive to obtain this, but it’s a constant challenge for our firm.

For this matter, we visit our clients around the world and understand how they operate, to speak their language and be able to explain to them how they can benefit from Mexico. So when they make their decision to invest in the country, we focus all our efforts and resources to accommodate what they need.

As an example, in the case of setting up an operation in the area of one of Mexico’s major aerospace clusters, we advise them how to do it; eventually we look at all the issues that surround their decision making process. We provide the legal support for everything that has to do with their business plan to open an aerospace manufacturing plant in Mexico.

The Offshore Group: As you many already know Sonora houses one of the largest aerospace manufacturing clusters in Mexico. The companies are mainly in Guaymas and Empalme, most of the companies are involved in making aero engine parts.

Humberto Gayou: Yes, we’re familiar with that. What we’d like to do is familiarize ourselves with the officials that have presence in that market. We understand how we have to work with our clients to select the industrial sites that suite them best.

The Offshore Group: I want to respect your time, but I’d like to comment upon a document that you’ve sent me. For those listeners of this podcast, you will see below this podcast there is a transcript that will recap this discussion, and in this transcript, there will be a link to a blog document which will be posted. The document provided by Humberto as a Q&A format expanding upon issues that we talked upon here on this verbal podcast.

With respect to your time Humberto, people who listen to these podcasts eventually have questions regarding the various issues that we have discussed. If somebody has questions for you on anything they’ve listened or read, how can they get in contact with you?

Humberto Gayou: They can reach out to me directly, or talk to any of my three closest collaborators in the firm.

Alejandro Velasco, Fernando Hernandez or Ricardo Perez.

They can contact either one of us. I will provide our contact information from our office located in Texas: 915-351-3636

They can also login into our website to find our e-mail addresses and more information about our Mexico offices.

They can also contact us through our main office located in Ciudad Juarez, Chihuahua. Or reach out to us through our Queretaro office.

They can send us an e-mail as well. All of this information is in our the Lexcorp Abogados website. They can also contact us through you.

It will be a pleasure to hear from you and discuss more on this topic.

The Offshore Group: Thank you Humberto, this has been incredible and useful information. We wish you the best of luck and hope you help aerospace companies in Mexico to set up in Mexico with fewer pitfalls as possible.

Humberto Gayou: Thank you again Steve. We look forward to advice you in any legal matters relating to this area.

The Offshore Group: Have a great day

Humberto Gayou: You too as well.

 

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