EAST HARTFORD, CT, April 3, 2013 – Horst Engineering and Manufacturing Co. today announced it has acquired the assets of Sterling Machine Company, Inc. of Lynn, Mass., a manufacturer of precision machined components primarily for the aerospace industry.

Sterling had been a family-owned company, manufacturing components for the aerospace industry since 1966.  The firm employs 33 people.  The purchase price was not disclosed.

“We are very excited about this acquisition as there is very little overlap in the customers we serve,” said Scott Livingston, president and chief executive officer of Horst Engineering.  “Like Horst, Sterling specializes in producing close tolerance high precision aerospace components from a wide range of high strength metals and polymers.”

Sterling, located at 23 Farrar St., Lynn, Mass., has focused on providing parts for both commercial and military jet engines, and supplies some of the world’s leading aerospace companies.

“We intend to continue Sterling’s operations in Lynn with the same work force,” Livingston said.

Sterling’s president, Robert Struzziero, will remain with the company. Read more on Horst Engineering website.

Mexico’s labor competitiveness is projected to increase in several ways, which will continue to create downward pressure on wages over the next five years. Mexico’s growing labor market includes an increasing worker demographic, new government labor reform, and rising peso value. Read the full story.

Read the full story.

Mexico provides an incentive for companies that export goods.  The incentive consists of allowing a Mexican company to carry out “temporary” importations of production inputs and assets without having to pay the otherwise assessed value added tax; which is 16% in the interior of Mexico and 11% on the border zone.  To obtain the incentive a Mexican company must be in the business of directly or indirectly producing goods which are subsequently exported and must be registered with Mexico’s Department of Economy under the IMMEX program.

Being a registered IMMEX company and enjoying its benefits requires certain recordkeeping and inventory controls for traceability in case of regulatory audits.

Mexican companies that are registered under IMMEX and import goods “temporarily” must export those goods within a certain time frame out of Mexico or “transfer” those goods to another IMMEX company within Mexico or change the status of “temporarily” imported goods to a “definitive” status.

There are five distinct types of IMMEX registrations:

1. HOLDING COMPANY IMMEX.  Example: ACME MANUFACTURING along with its 3 affiliates have 4 legal entities in Mexico that manufacture various types of goods.  Rather than require each of the 4 companies to have their own unique IMMEX registration, one company designated the “holding” company can act as the controlling entity for purposes of ensuring compliance with IMMEX requirements.

1. INDUSTRIAL IMMEX.  Example: ACME MANUFACTURING transforms raw materials into finished goods in Mexico which are subsequently exported.

1. SERVICES IMMEX.  Example:  ACME LOGISTICS is a legal entity in Mexico that distributes goods within Mexico that are subsequently exported or used in products that are exported.  This designation may also be given to manufacturers’ recyclers, special processing, software developers, and other types of service companies.  The criterion for approving SERVICE IMMEX registration is at the discretion of the Department of Economy.

1. SHELTER IMMEX.  Example:  THE OFFSHORE GROUP has a legal entity in Mexico that that is registered as a “shelter” provider to foreign manufacturers that want to make products in Mexico without having to have their own legal entity and corresponding IMMEX registration.

1. THIRD-PARTY IMMEX.  Example:  ACME INDUSTRIES is a legal entity in Mexico that does not have manufacturing infrastructure of its own and therefore contracts its manufacturing with third parties.  Rather than require all of the subcontractors to have their own IMMEX, ACME INDUSTRIES can be registered as IMMEX and include each subcontractor under that one IMMEX.

For more information write us info@offshoregroup.com or contact us here.

More and more people are jumping on the train to Mexico – and financial analyst Jim Cramer is one of the latest to buy a ticket.

Recently, Cramer – a former hedge-fund manager and host of CNBC’s “Big Money” – was raving about railroad company Kansas City Southern (ticker KSU). “Why, oh, why do I like this company so much?” the host queried. “Its geography.”

Kansas City Southern is an intercontinental railroad running north to south, with 6,600 miles of track uniformly divided between the States and Mexico, “and the network is only one interchange away from every single major market in North America,” he notes.

“Thanks to a phenomena that’s being called nearsourcing, thanks to rising wages in places like China and rising transportation costs, it now makes sense for auto companies to build their factories in a place like Mexico where wages are low,” Cramer adds, “and it’s easy to ship the cars they build to the U.S. via the rails. Yep, Mexico’s probably the cheapest place on Earth to make stuff to send to the United States.”

Nissan, Volkswagen, Honda and General Motors are only a handful of the automakers “on board” with nearsourcing, recently announcing expanded business efforts in Mexico. One of every 10 cars sold in the United States last year was made in Mexico; in fact, every new taxi added to New York City’s fleet in 2013 will be assembled in Nissan Motors’ Mexico plant.

But there are still other reasons beyond the ones cited by Cramer, such as inexpensive labor and lower shipping costs, driving automotive manufacturers south of the border. NAFTA and Mexico’s other free-trade agreements with a multitude of countries have made it an attractive platform for doing business. For instance, Mexico’s trade deal with Argentina and Brazil made it possible for Volkswagen to avoid a 35-percent tariff by shipping cars made in Mexico to Brazil. Volkswagen pays 25 percent in taxes when shipping a European-made truck to the States, but there are no such tariffs upon sending the same vehicle – this time hecho en Mexico – to the same destination.

With scenarios like this, it’s no surprise that other industries, including aerospace and electronics, have discovered doing business in Mexico is a smart choice.

Watch Cramer: Mexico Is In Great Shape video on CNBC. (Link opens in a new window.)

In his broadcast, Cramer noted Mexican auto production is expected to surge from 2.5 million vehicles a year to3.5 million. “I think that’s low versus what will ultimately be,” the financial analyst concluded.

If you are interested in learning more about setting up manufacturing in Mexico operations to reduce your operating costs with The Offshore Group nearsourcing, please contact one of our expert advisors by submitting this contact form.

“In Saltillo, an entire automobile can almost be built,” Miguel Hernandez observes. “We don’t have a tire manufacturer here, but most of the auto parts are manufactured here in Saltillo.

“Also, union leaders have understood the need to change their way of doing business, and they’ve been very business friendly, which has created a positive atmosphere to attract the automotive and other industries.”

Hernandez is general manager of The Offshore Group’s Manufacturas Zapalinamé in Saltillo, Coahuila Mexico, which delivers comprehensive Mexico Shelter Plan services to companies manufacturing automotive, aerospace and transportation equipment, electronics, medical devices and multiple other products. (Its La Angostura Industrial Park serves 14 companies utilizing 2,700 local employees, with room to construct an additional 62 industrial buildings.)

“I see more automotive and other suppliers coming down to manufacturing in this part of Mexico,” Hernandez adds. “We have Fiat currently setting up operations in Saltillo. As a result, we are seeing a lot of automotive OEM suppliers coming to town.”

Though interest in Saltillo has picked up recently, it is not new territory for automotive manufacturers. When John Deere came to town some 60 years ago, vocational training efforts began – only to pick up speed when General Motors situated its first factory here 31 years ago, followed by Chrysler and others.

Newer business partners also are making their mark in Mexico: Automotive World reports that Daimler Trucks North America recently celebrated its third year of operations in Saltillo as the Mexico plant produced its 100,000^th Freightliner Cascadia.

Hernandez notes there are many features making Saltillo an attractive place for auto manufacturers to do business. One is geography, as Saltillo is near the NAFTA Highway (Highway 67), running from Laredo, Texas, to Mexico City. Another is education infrastructure.

“Saltillo is the city with the most universities per capita in Mexico,” he points out. “You can find all types of academic-degree levels, from business administration to specialized quality engineers.”

Additionally, Saltillo is more cost-effective for manufacturers than the bigger city of Monterrey. Hernandez says the cost of living in Monterrey is 20 percent more than in Saltillo – so wages paid in Monterrey also are higher.

Saltillo also has the advantage of elevation, as it is positioned approximately a mile above sea level. (Electric bills can nearly double in Monterrey, only 600 meters above sea level – something worth considering when figuring factory overhead costs.)

Some American executives have stalled regarding moving operations to Mexico because they are concerned about crime. Still, it remains that nine automotive manufacturers – including Ford, Honda, Toyota and Volkswagen – produce 42 brands in 20 Mexican manufacturing plants. And statistics from the Mexican Association of Automotive Industry show the total number of cars and trucks exported from Mexico has accelerated from more than 1.2 million in 2009 to 2.14 million last year.

Would that be happening if these manufacturers perceived danger? Hernandez says no, explaining most violence occurs within gangs or drug cartels.

“Violence in Mexico is not as widespread as the media would have us believe,” he insists. “Violent crime typically doesn’t touch the manufacturing industry in Mexico, or regular people or workers.

“We send trucks to the U.S. every single day from Saltillo to McAllen, Texas, and have never had an issue,” he adds. “We’re talking about moving hundreds of trucks per week.”

Readers with additional questions about doing business in Mexico may e-mail Hernandez at miguel.hernandez@zapa.com.mx or call him at 011(52)-844-411-3833.

“There is room to grow,” he affirms. “We have talented people. We have space, buildings, infrastructure and everything else that the industry requires to get the job done. I do see a bright future.”

Image courtesy of FreeDigitalPhotos.net

“To be honest with you, I see another metal-plating plant in Mexico in INCERTEC’s future,” notes Tim Meador, company president and CEO. “With all of the aerospace industry moving into Mexico here, and to places as far south as Guadalajara as well, I think there’s going to be a need for another plant just like this south of here at some time in the not-too-distant future.”

Based in Fridley, Minn., INCERTEC provides specialty plating and metal-finishing services not only for flight technology but also to benefit national defense and medical needs. This year, its Mexico facility in Empalme, Sonora, has experienced staggering growth. In January, its plating and plastics operations in Mexico became viable, and the Empalme location also received its nondestructive testing (NDT) process certification. More recently, INCERTEC received certification to perform secondary operations (plating and metal-finishing processes) on all of the aerospace parts in Mexico.

With more than 260 aerospace companies now operational in Mexico and industry exports of some $4.3 billion posted in 2011, the country is claiming its spot as an aeronautical manufacturer on the world stage. In fact, the Mexican government projects aerospace exports will total $12 billion by 2020 – placing Mexico ahead of Brazil and Spain.

While the metal-plating industry is not new to Mexico, Meador has some thoughts about INCERTEC’s success.

“Being a ‘job shop’ for plating is new to Mexico,” the CEO explains. “Most of the plating companies in Mexico are captured, vertically integrated companies. We are now offering that service to everybody. In offering our metal plating expertise in Mexico, we’ll be dealing with customers all the way from Nogales to Obregon and even as far into the interior of Mexico as Guadalajara.”

Meador, who says the Empalme facility is mainly “dedicated to aerospace manufacturers in Mexico,” claims certain aspects of Mexican aerospace manufacturing could not occur prior to the company’s presence there.

“As a matter of fact, a lot of aerospace companies in Mexico stopped because they didn’t have access to these important capabilities: value-added services like metal-plating, heat treating and everything related,” he explains. “What we’re adding to that mix is enabling them to expand their aerospace-manufacturing businesses in Mexico and giving them the savings of not having to ship parts to the States for plating or any other type of conversion.”

And for those who say INCERTEC’s move to Mexico is taking jobs out of American hands, Meador has a couple of points to share.

“In my industry, metal plating is on a decline somewhere on 4 to 6 percent annually, and most of that is because the work that needs to be plated is no longer manufactured in the United States,” he says. “I always use the analogy of the tail of the dog. The dog has already moved across the border; we’re just offering the metal-plating services that are needed here in Mexico.

“At our Minnesota facility, our sales are actually up 15 percent,” Meador continues. “We’re on a growth path there, and this additional work from Mexico is just going to help us. Resources and research and development will always have to be done at our Twin Cities facility, and we’ll probably be adding people in Fridley to start all of the onboarding of metal products we’re going to process down in Mexico.

Ron Eisele, vice president of operations of Colorado Springs, Colorado-based Minco Manufacturing, Inc, talks to The Offshore Group about operating a manufacturing plant in Mexico products for business equipment for the North American and world markets.

Steve Colantuoni: Ron, I’d just to ask you a few questions about your company and your experiences here. In terms of when did you and your company begin manufacturing in Mexico?

Ron Eisele: I actually started considering moving manufacturing to Mexico in 2005. We were going through a lot of corporate decisions, also evaluating whether we wanted to move the operation to China. The board directors didn’t care for that idea, so I investigated moving production to Mexico. We did decide to move forward, and things have been positive.

Steve Colantuoni: When you started up a manufacturing facility in Mexico what were some things that you found were facilitated, what things did you find that were troublesome, and that you had to overcome. Please give us examples of issues that you faced.

Ron Eisele: Steve, we really didn’t have any major problems when we moved part of our manufacturing to Mexico. I think the Offshore Group, and especially Gale Thompson, did a terrific job in explaining the process. We were given an accurate idea of what we could expect, and we went over things very, very thoroughly. After we had gone through the experience, I found it to have been a positive one.

Steve Colantuoni: Under the Mexico shelter service business model, the Offshore Group does non-core functions that are not things related to the actual manufacturing work done in Mexico. Do you find that when you examine those things that are done by the shelter company in Mexico—whether it be the payroll preparation, or the import-export transactions being done, or maintaining the building—how do you find that the model works in as relates to cost in Mexico? If you had to replicate those things done by the shelter company would it be less expensive, more expensive or about the same?

Ron Eisele: Oh, it would be much more expensive. I really feel because of the fact that we compete internationally, we sell our products in 50 countries around the world and we were competing directly with the Chinese, it was very important for us to move our manufacturing to a cost competitive area in Mexico. Actually working through the Offshore Group, utilizing the services in its Mexico shelter plan for manufacturers, really helped us do that. I know that we’ve lowered our costs by thirty five to forty percent by moving our manufacturing to Mexico. It’s been very, very positive for Minco.

Steve Colantuoni: In addition to that, what we believe, and hopefully this in the way things play out in reality, the division of labor between the Offshore Group and its Mexico manufacturing clients creates an environment where, hopefully, the manufacturer operating in Mexico is better at manufacturing because of the lack of a need to deal with the other things that are peripheral to their main mission. Does that play out in the real world, or is that just something that we like to believe?

Ron Eisele: Yeah, I think that’s a very valid point to be able to do that. We focus on what we are in business to do. I think the one thing we did find out, as end user of the shelter services in Mexico, was that, in addition to having the purchasing and accounting and other services available to us, we felt that we could enhance things even more by having some of our own people on staff to work in tandem with the shelter company in Mexico. Even with this added cost it’s still much less expensive to manufacture in Mexico under this business model than it would be otherwise.

Steve Colantuoni: Another thing that is significant is that your building is situated in a very big industrial park in Mexico. Do you find as a result of being in, let’s call it an industrial park, manufacturing campus-type environment, there things that are facilitated by having many other Mexico manufacturing facilities located in proximity to you?

Ron Eisele: Certainly there is no negative that I’ve seen. I think it’s pretty good. I think, again, that it’s helped by enabling us to consolidate freight to and from Mexico, and things like that, with other companies in the area. It’s been a benefit for us.

Steve Colantuoni: So that helps you to save resources?
Ron Eisele: Right.

Steve Colantuoni: So how’s business, pretty good these days?

Ron Eisele: I’d like it to be a little bit better, but it’s stronger. We’ve always kind of played in the copier and printer industry, but now, because of the confidence we have in the workforce here and management team, my partner and I are very aggressively trying to implement a growth strategy into other areas and industries that we haven’t previously entered. We’re looking forward to growing our manufacturing in Mexico operations here.

Steve Colantuoni: So overall, given the fact that there have been challenges over the past few years, you’re still feeling a high level of confidence about the future?

Ron Eisele: Oh yeah, we’re here to stay.

Steve Colantuoni: Well I appreciate you answering a few questions.

Ron Eisele: Sure.

Steve Colantuoni: Good luck to you.

The NAFTA-20 conference was recently held in San Antonio, Texas, where NAFTA was signed in 1992. It was held by the North American Development Bank and the Asociación de Empresarios Mexicanos, and attended by more than five hundred business , government, and logistics leaders from across the continent. The speakers and business leaders that attended discussed creating a path designed to deepen the integration of Mexico, Canada, and the U.S. through political support and the defense of NAFTA leaders of all each of the three signatory governments to the agreement.

Data shows that Canada, Mexico, and the United Starts are, to a great degree, much more economically integrated today, 20 years after the signing of NAFTA. The agreement has largely fulfilled its trade-growth purpose. The U.S., Canada and Mexico’s leading economic indicators have increasingly tracked similar patterns since NAFTA was implemented. Each country now depends on the other to a greater extent than before the existence of the trade pact.

Robert Pastor, the intellectual founder of the concept of the North American Union (NAU) and former U.S. security advisor, sees a dreary future for the NAFTA in its present form. He cites available data to make his point. He believes that annual growth in NAFTA trade, which started in 1994, actually peaked in 2001 with a 19% growth that year, but momentum has declined since then, partly because of new security regulations that followed the 9/11 attacks. Pastor encouraged NAFTA supporters to expand the NAFTA, and move on to the creation of a North American Community with trans-national thinking. Pastor’s encouragement of North American integration has been the subject of intense controversy. While Pastor has contested any advocacy of a North American Union (NAU), he does suggest a North American Community. Pastor laid out a vision that’ s identical to NAU.

Pastor’s Projected North American Framework:

1) Creating a common security perimeter

2) Promoting a single ‘common’ or seamless’ market

3) Reducing the development gap between Mexico and its North American counterparts

4) Building intercontinental infrastructure

5) Enhancing labor mobility between the three countries

6) Forming a tribunal to adjudicate investment disputes

For many, this represents a threat to U.S., Canadian and Mexican national sovereignty. Words like “regionalization” and “cross border” are often used to describe the relationship that currently exists between the NAFTA countries. If a project to create a North American Union (NAU) was undertaken and successful, national priorities would take a back seat to regional priorities, and resources and wealth would quite possibly be taken from one nation to redistribute to another.

Some postulate that this would result in employment and investment gains for Mexico and Canada, while others believe that the effects on wages and job creation in the U.S. may be adversely affected.

As an example of how the economies of three countries have become highly integrated, Luis de la Calle, managing director of De la Calle, Madrazo y Mancera S.C., pointed out that an automobile can’t be manufactured in the United States without parts that are manufactured in Mexico.

Meanwhile, the tariff reductions and supply chain integrations that occurred under NAFTA will continue to benefit some of North America, especially as wages rise and policies change in China, making production in that country increasingly more expensive. The U.S, Mexico and Canada, working together as economic partners are not only competitive with China, but also hold substantial competitive advantages over China, most noteworthy being the proximity on of the world’s largest markets for consumer goods. Importing goods from Mexico into the U.S. and Canada is far less expensive than it is to transport them North American markets than from far away China. Also, China’s population is aging at a much quicker rate than Mexico’s, due to its one-child policy. Mexico’s workforce will continue to be plentiful, while the Chinese workforce will decline in number, and, as a result, increase in cost.

While it’s clear that the intention of NAFTA proponents is to push ahead with deeper North American integration, beyond the single realm of trade, Pastor, along with Canada’s John Weekes and Mexico’s Ambassador Arturo Sarukhan, advocated that NAFTA nations join the Trans Pacific Partnership (TPP) and use it as a way to renegotiate NAFTA. The TPP can provide an opportunity to update NAFTA. The TPP is expected to broaden trade rules to include areas that did not exist twenty years ago, such as issues involving digital technologies, for instance.

Pastor also encouraged the Canadian and Mexican governments to bring their ideas for a more integrated North American “community” via the TPP, to the U.S. and that the Obama Administration would be opening to listening to them. Some see this as a good thing, while many in each of the three countries involved see movement in this direction as a possible threat to individual nations’ sovereignty.

Bill Kessenich, president of Oconto, Wisconsin-based, Unlimited Services, Inc., talks to The Offshore Group about operating a manufacturing plant in Mexico that produces wire harness and cable assemblies for heavy duty transportation and telecommunications equipment.

Steve Colantuoni: Bill, I’m wondering if you could tell us how the process of starting up manufacturing operations for wire harness and cable assemblies in Mexico several years ago went for you–did you find it to be easy, were there difficulties, challenges?

Bill Kessenich: There were some concerns, primarily because we didn’t have any previous experience manufacturing in Mexico. The benefit of working with The Offshore Group under it Shelter Plan, however, was two-fold—number one, when we bought the company that had that already Mexico manufacturing facilities here and the relationship with The Offshore Group in place, we inherited a lot of that experience and Offshore themselves were very instrumental. They came up to our plant in Oconto, Wisconsin. They explained the additional benefits of manufacturing in Mexico, and how they would be able to help us to expand our business as well as make it cost effective.

Steve Colantuoni: What products are you currently manufacturing in Mexico and who are their end users?

Bill Kessenich: We primarily started out as a telecom and data communications supplier company in terms of the knowledge and the work force, as well as the experience that was down here in Mexico. The types of customers that Unlimited Services started with were large customers like Motorola and JDS Uniphase. When we took over the company, part of our strategy was also to move toward attaining a capability for servicing higher volume, 12-volt mobile equipment here as well. The team of our workers here in Mexico has fielded that type of work and has become very confident at doing it.

Steve Colantuoni: If you had one piece of advice, in the category of “if I knew then what I know now” for somebody that might be in the position you were in when you were first looking at Mexico and making the move to Mexico, what would it be?

Bill Kessenich: Our initial foray into Mexico was to buy a company of our own. When we approached the legal and accounting, and national law concerns we decided that it would be much more advantageous to have a partner shelter company in Mexico to help us with these things. This gave us the opportunity to not only cost-effectively identify where the gains in Mexico were going to be made, but also how we could steer through the significant bureaucracy that was present at the time. So that would be my advice to anyone new to Mexico: get a strong shelter company in Mexico to partner with.

Steve Colantuoni: You’ve had a manufacturing plant in Mexico for how many years now?

Bill Kessenich: Actually the company has been manufacturing in the state of Sonora, Mexico for going on seventeen years, we’ve owned it for ten.

Steve Colantuoni: That’s a pretty long stretch. You’ve obviously been successful over the years. What does your business look like going forward?

Bill Kessenich: We’re really enthusiastic about the fact that we made the move to manufacture in Mexico, because it gave us the opportunity to grow and to enhance profitability. As work from China seems to be re-shoring to North America, I think that Mexico’s manufacturing future (and by extension, ours) is very, very bright because the country is in a unique geographical position in North America to be the hub of business for Canada and the United States, as well as Brazil and all of South America.

Steve Colantuoni: One last question: a lot of people are under the impression that when jobs are created in Mexico like the ones that we’re looking at in this building that this represents a “zero-sum game” vis a vis the United States. I know that, in addition to this Mexico manufacturing plant, you have your company headquarter are located in Wisconsin and that there’s work that’s coordinated between the two facilities. How do the two entities interact, and how has your Mexican plant affected and/or fortified your American facility?

Bill Kessenich: Since the time we bought the Mexico wire harness and cable assembly manufacturing plant, we’ve also bought another American facility in Rockford, Illinois. We have always felt that our strategy with Mexico has supported the unique kinds of business that stay local in our quick response types of business. This work needs to be done in close proximity to existing customers who are in the United States, and want an American supplier, and, yet, also want, when their volumes make sense, to go to a low labor cost country Because of these considerations, we believe that there’s a balancing and supportive strategy between the locations in the two countries.

Steve Colantuoni: So you would say that using resources in both geographies actually makes the whole of your company, i.e. its U.S. facilities and Mexican facilities, a much more solid unit?

Bill Kessenich: Yes, it’s not an either-or proposition; we’re all in a global economy today. At this point in our history we would be interested in expanding even further globally beyond North and South America.

Steve Colantuoni: Thanks again for answering our questions, and good luck.

Bill Kessnich: You’re welcome.

The Offshore Group: Humberto Gayou, an attorney in Mexico specializing in fostering and guiding multinational corporations and who has gained a reputation through the years as an expert on the subject of foreign direct investment, especially in the Mexican aerospace industry has agreed to answer some questions related to the Bilateral Aviation Safety Agreement, or BASA, for us today.

HG: Thank you for speaking with me about an issue that is important and related to the industry that we will discuss, which is the Mexican Aerospace industry. Aerospace activity in Mexico is changing. We are presently mapping and modifying its development in a way that will affect it today, as well as in the years to come. I am positive with respect to this. In a nutshell the aerospace industry is going to be an engine of economic growth in a way that the automotive industry has already been for a number of decades and continues to be.

The Offshore Group: To begin, can you tell us a bit about yourself, and about the law firm that you manage in Mexico. We would like to know more about LexCorp’s overall practice, and as to what you are dedicating your expertise to at present.

HG: With pleasure.  Very well, I have been representing multinational companies since the year 1982. I began my practice in Mexico as an attorney. Then, for the last 30 years, which include 20 (years) since I founded the LexCorp group of law firms in Mexico, I have focused on servicing all sources of foreign direct investment in Mexico, in all areas of economic endeavor. Recently our firm has been working with emphasis on the Mexican aerospace industry. A lot of FDI has been flowing into Mexico in the area of aerospace manufacturing in the last several years.

The Offshore Group: So Lexcorp works with all types of foreign direct investment and investors, but today the bulk of its activity is in the aerospace industry in Mexico?

HG: Yes, well it is with such approach that we at LexCorp get involved in all areas of the law, with the specialization just mentioned, and every day comply with the Foreign Corrupt Practices Act, the Sabarnes Oxley Act and other regulations that apply to our clients. Doing business in Mexico is not what it used to be in the early years of my practice. Today it is a much more dynamic proposition. Today Mexico operates at global standards.

What we have done, at least in the last 20 years, in the area of the Mexican aerospace industry is related, on the one hand, to the establishment of business related manufacturing services for the aeronautical products. By aeronautical products I am referring to airplanes, motors and/or propellers, but this also includes the aeronautical parts. Today we see more and more the establishment of a good and solid aerospace manufacturing base in Mexico. It has been developing for years and we expect that this will continue to be the case.

The Offshore Group: Humberto, what in particular is enabling Mexico to develop its aerospace industry, and how will this impact the the U.S. market?

HG: This is where I would like to focus our discussion. It is important to consider, at first, if the laws that are in place are friendly with respect to the development of the aerospace industry in Mexico. We must determine if they meet new demands and needs that exist in today’s markets? If not, the Mexican aerospace industry might be left behind trying play catch up with global requirements? The Bilateral Aviation Safety Agreement, or BASA, has been put in place as a tool to enable Mexico to continue to develop its aerospace capabilities.

The Offshore Group: Humberto can you explain to us what are the features of the BASA, and what effect its existence will have on Mexico aerospace?

HG: Sure, the BASA Agreement is THE AGREEMENT BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE UNITED MEXICAN STATES FOR THE PROMOTION OF AVIATION SAFETY

This Bilateral International Treaty was executed by the Federal Transportation Authorities of the United States of America and Mexico in Montreal, on September 18th, 2007, and binds the Government of the two countries (let’s call them the “Parties”, it is easier for us Attorney to use such terms).

Also important to note is who the Implementing Authorities of the BASA Agreement are: In the U.S. it is the Federal Aviation Administration (FAA) of the Department of Transportation, while in Mexico it is the Mexican General Directorate of Civil Aeronautics (DGAC) of the Ministry of Communications and Transport.

In a simple manner the BASA Agreement is the most relevant aviation safety agreement for the U.S., the country that is the major foreign player in manufacturing and service activities in the Mexican aerospace industry.

For the purposes of clarification: the BASA Agreement is entered by the U.S. with other countries as well, but it is significant that Mexico now has such an agreement with the U.S. Its is a major legal driver and framework definer for the interaction between the United States and Mexico in the aerospace industry from the present going forward.

The Offshore Group: What does the BASA mean for the U.S. and Mexico in concrete terms?

HG: The U.S. and Mexico have agreed to in principle:

1.- the facilitation and acceptance by each Party to the BASA of the other Party’s: (a) airworthiness approvals and environmental testing and approval of civil aeronautical products, and (b) qualification evaluations of flight simulators.

2.- the facilitation and acceptance by the Parties to the agreement of the approvals and monitoring of maintenance facilities and alteration or modification of aerospace facilities, maintenance personnel, flight crew members, aviation training establishments, and flight operations of the other Party, and

3.- cooperation in sustaining an equivalent level of safety and environmental objectives with respect to aviation safety.

The Offshore Group: Can you please tell us about the term “airworthiness approval”, and why is such an important component of the BASA?

HG: Under the BASA, “airworthiness approval” means a finding that the design or change to a design of a civil aeronautical product meets the standards agreed to between the parties to the agreement. It also signifies that a civil aeronautical product conforms to a design that has been found to meet those standards, and as such it is in a condition for safe operation. As a matter of fact, pursuant to the BASA, the FAA and the DGAC shall conduct technical assessments and work cooperatively to develop an understanding of each other’s standards and systems in the following areas:

1.- Airworthiness approvals of civil aeronautical products;

2.- Environmental approval and environmental testing;

3.- Approval and monitoring of maintenance facilities and maintenance personnel;

4.- Approval and monitoring of flight operations and flight crew members;

5.- Evaluation and qualification of flight simulators, and

6.-Approval and monitoring of aviation training establishments.

The BASA Agreement between the U.S. and Mexico for the aerospace industry is all about improving timing and approval mechanisms for the benefit of all players. It is about promoting and increasing the efficiencies of the global actors in producing finished products to for world markets, and, finally, it is about improving mutual recognition amongst the most suited authorities in each of these magnet countries (the U.S.A. and Mexico) in these matters as in others, which will certainly improve the development of the respective economies in both countries.

The Offshore Group: You have stated in talks that you have given that the purpose of this international aerospace agreement between the U.S. and Mexico is to define the civil aeronautical products, parts and appliances eligible for import into the U.S.A. and Mexico, and to define the interface requirements and activities between authorities for the import and continued support of those civil aeronautical products, parts, and appliances. Are there procedures that have been put into place for executing the provisions of the BASA agreement?

HG: Yes, of course, there implementation procedures that address the performance of design, production, airworthiness, and related certification functions. These have their base in a high degree of mutual confidence in the FAA’s and DGAC’s technical competence and regulatory capabilities to perform these tasks. Let me stress that the FAA and DGAC, as importing civil aviation authorities, shall give the same validity to the certification made by the other, as the exporting civil aviation authority, as if the certification had been made by the FAA or DGAC in accordance with its own applicable laws, regulations, and requirements.

Here, the fundamental principle is to maximize the use of the exporting civil aviation authority’s aircraft certification system to ensure that the airworthiness standards of the importing civil aviation authority are satisfied. As we would expect this is a real time and cost saver for all parties involved in the process.

The Offshore Group: Could you explain to us what the Applicable National Requirements, Procedures, and Guidance Material under the BASA Agreement are of importance?

HG: That is not a problem at all, now a days, I carry this information with me at all times. Give just a second, OK, with the possibility of overdoing this chat but I shall keep brief, we as Attorneys shall consider:

In the U.S.A. – The FAA’s standards for aircraft airworthiness and environmental certification are contained in the Code of Federal Regulations (CFR), Title 14, Parts 21, 23, 25, 26, 27, 29, 31, 33, 34, 35, and 36. The FAA also uses Certification Specifications (CS)-22 and (CS)-VLA for some special class aircraft. Guidance material, policy, and procedures are contained in FAA Advisory Circulars, Orders, Notices, and Policy Memoranda.

In Mexico – DGAC standards for aircraft airworthiness and environmental certification are contained in the CP AV-01/02 Standards for Aeronautical Design Accepted by the Aeronautical Authority (January 24, 2012), Mexican Airworthiness Standard CP AV-05/05, Standards for the Certification of Aeronautical Products Accepted by the Aeronautical Authority (July 25, 2008). For Mexico, the Procedures are contained in Normas Oficiales Mexicanas (NOM’s), internal procedures, and guidance material. Also, at the Applicable National Requirements, Procedures, and Guidance Material CO AV-29-11 R1 -Standards for Aeronautical Manufacturing of Products and Parts Approval Accepted by the Aeronautical Authority (dated June 27, 2012) – This is Mexico’s most recently enacted Standards.

When we talk about the standards for Mexico, you should note that these are mandatory, and that they will apply to all companies that manufacture aerospace parts in Mexico. These establishment of these standards was executed in response to the significant increase in the number of firms manufacturing aeronautical products (airplanes, motors and/or propellers) in Mexico during the course of the last ten years.

The Offshore Group: On a personal business level, can you comment on the kind of challenges your firm has experienced in Mexico,or may experience in the future?

Humberto Gayou: The greatest challenge has been and will continue to be, for some time, reaching out to those companies not yet benefiting from the BASA Agreement. Many aerospace manufacturing in Mexico companies could benefit from an awareness of it. We feel that LexCorp is well-placed nation-wide to address the needs of the aerospace industry in Mexico. We feel that we can educate and serve aerospace manufacturers with respect to the BASA.

The Offshore Group: What say in general about the conditions for manufacturing aerospace parts in Mexico?

HG: All entities established in Mexico with the purpose of manufacturing aeronautical products or parts must comply with all requirements contained in the aforementioned standards in order to obtain a “Manufacture Approval” from the Aeronautic Authority to proceed with any manufacturing/production process.

The Offshore Group: I believe that you have already addressed this matter, but can you reiterate, who is the authority in Mexico who evaluates and implements the BASA Agreement?

HG: Of course, the DGAC is the authority that evaluates, qualifies and applies sanctions, by due process, in cases of non-compliance to these standards, or related laws, regulations and Mexican aerospace manufacturing standards that apply.

The Offshore Group: What would be the main challenge in Mexico for the aviation authorities in implementing the BASA Agreement?

HG: The DGAC,as the regulatory entity in Mexico implementing the BASA, faces, faces the challenges related to adapting to today’s needs and new environments in the specialized markets as they evolve. Effective implementation can only be successfully addressed in a collaboration with other Nations as has occurred historically with the U.S.A. The BASA between the U.S. and Mexico is a tangible example of this.

Furthermore, I consider that the DGAC, as the governing uthority in Mexico, must deal with the enforceability and harmony of provisions, rules and understandings reached at the Chicago Convention, the Convention on International Civil Aviation of the International Aviation Organization, and other International Treaties to which Mexico is a signatory, this includes Mexican Civil Aviation and other National Laws and Rules and its technical and official standards.

The Offshore Group: What effect is expected to occur as a result of the signing of the BASA between the two neighboring countries? It has been five years since the execution and signing of the BASA agreement occurred between the U.S. and Mexico. Can you please give us an assesssment on what the effect of its existence during this time has been?

HG: Thus far, it has been a major reason why aerospace manufacturing is growing and will continue to grow in Mexico.