Infrastructure, Aerospace Industry, and Vehicle Fleet Modernization

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1 Infrastructure, Aerospace Industry, and Vehicle Fleet Modernization Humberto Treviño Landois (SCT Mexico) Lateinamerikan Verein 21: Day of Mexico, Hannover October, 21 Contents 1 Introduction 2 3 Infrastructure projects Public-Private Partership Models 4 Investment and Operation Expenditure 5 Mexico s Aerospace Industry 6 Opportunities of Investment 7 Vehicle Fleet Modernization 2 1

2 1. Introduction Infrastructure and Investment To achieve grater participation in the global economy, it is necessary to increase the coverage, quality and competitiveness of its infrastructure. The SCT in charge of the infrastructure development has decided to carry out projects of great social and economic impact. Those projects are included in the National Infrastructure Plan , such as Punta Colonet Multimodal Project and Riviera Maya Airport. Eventhoughthereisalackofliquiditydue to the global crisis, private investment participation has increased in those greenfield projects. Million of pesos (current prices) Public-PrivatePrivate Investmentin Mexico s TransportSector Public Private Total 3 Competitiveness and International Trade When compared with the rest of the world, Mexico ranked 11th for GDP as a share of the world GDP. In the case of International Trade, after USA and Canada, Germany represents the third market of Mexican exports. GDP as a share of the world GDP (Rank) Total Exportsand Imports bycountry (29) USA China 2 18 Japan India Germany UK Russia France Brazil Italy Mexico Spain Korea Million of dollars Million of dollars Canada 14 4 Indonesia Score Source: IMF, WolrdEconomicOutlook Database(April21). USA Canada Germany Spain Colombia Exports Source: Bank of Mexico. Brazil China Imports Netherlands Japon 2

3 Railroad and Multimodal Infrastructure in 26 Intermodal Corridors in operation Mexicali - Guadalajara - Cd. de México Manzanillo - Guadalajara - Cd. de México Manzanillo - Gómez Palacio - Monterrey Lázaro Cárdenas - Cd. de México Lázaro Cárdenas - Querétaro - San Luis Potosí Monterrey - San Antonio, Texas Altamira - Monterrey Veracruz - Querétaro Veracruz - Cd. de México Resto de la red ferroviaria Terminales intermodales Interior Cargo Terminals 17 Rail Treminals 18 Port Terminals 18 Terminales privadas automotrices 7 TOTAL 6 5 Railroad and Multimodal Infrastructure Projects MultimodalCorridorsMasterPlan 4 Corridors to Mexicali Guadalajara Mexico City Manzanillo Guadalajara Mexico Citybe developed LázaroCárdenas Mexico City in the Short LázaroCárdenas Querétaro SLP Term Monterrey N. Laredo Manzanillo GómezPalacio Monterrey Cd. Juárez 5 Corridors to Monterrey Altamira / Tampico be developed Veracruz Querétaro in the Mid Veracruz Mexico City Term Salina Cruz Coatzacoalcos Guaymas Nogales Topolobampo Chihuahua Ojinaga Ensenada Tijuana LázaroCárdenas Mexico City 9 Corridors to Veracruz be developed Mexico City Salina Cruz Ciudad in the Long Hidalgo Term Veracruz Coatzacoalcos Mérida Manzanillo San LuísPotosí Altamira Mazatlán Matamoros Salina Cruz Mérida New terminals Interior cargo terminals Port terminals Private automobile terminals TOTAL

Punta Colonet Multimodal Project Description Multimodal project located 14 kms to the South of Ensenada, Baja California, that will focus on handling and transporting containers between Asia and the

The containers terminal and the railroad will denote the economic and urban development of the region.

4 Punta Colonet Multimodal Project Description Multimodal project located 14 kms to the South of Ensenada, Baja California, that will focus on handling and transporting containers between Asia and the USA. Estimated cost: 5, million of dollars. Financing via private investment. Its success will depend on the competitiveness vis a vis alternative multimodal corridors. The containers terminal and the railroad will denote the economic and urban development of the region. Private investors are expected to assume obligations regarding the development of basic urban infrastructure. Punta Colonet Tijuana Ensenada Colonet Mexicali 7 New railroad route Encarnación-El Castillo Description Construction of an 195 km new rail road route (shorte route Guadalajara Aguascalientes), allowing savings of 2 km for railroad traffic originated at Manzanillo and Guadalajara to the north of the country. Estimated cost: 35 million of dollars. Financial scheme under consideration. The actual railroad route cover 417 km between Encarnación and El Castillo but withthisproject,itwillbeonly223km. Development of the regional economy around the new railroad route. Reduction of operative costs for the Concessionaire given the smaller distance, and the greater velocity of operation. Líneas Ferrocarril Mexicano (Ferromex) Líneas Kansas City Southernde México (KCSM) TramoEncarnación El Castillo 12 El Castillo 12 Encarnación 8 4

Financing via private investment. Re-route railroad traffic outside the cities and populated. Guarantee security. Strengthen international flows of goods. Improve ecological conditions in the region.

5 Matamoros Brownsville Crossing Description Rellocation of railroad tracks, construction of bypass(5.8miles in USA and 6.6milesin mexico), construction of a new international bridge, construction of an intermodal backyard, in a location outside ofthecitycenterofmatamoros. Estimated cost: 6 million of dollars. Financing via private investment. Re-route railroad traffic outside the cities and populated. Guarantee security. Strengthen international flows of goods. Improve ecological conditions in the region. 9 Manzanillo Bypass Description Construction of an 11.5 km bypass in the margin of Basin II of Laguna de Cuyutlán, allowing the future expansion of the port and the construction of a railroad tunnel. Estimated costo: 3 million of dollars. Financing via public investment. Bypass to remove railroad operations from the city, reducing transportation times and increasing safety. Improve traffic conditions in the main avenues of the city Eliminate traffic congestion and delays due to railroad operations. Reduce accidents. 1 5

Suburban train: System 2 Current situation Bidding process started in 28. 9 companies has registered for the process. Project studies are in bidding process.

Increase in productivity equivalent to 53 million men hours. 3, low capacity transportation units substituted. Reduction of greenhouse gas emissions, noise production and oil-based fuel consumption.

6 Suburban train: System 2 Current situation Bidding process started in companies has registered for the process. Project studies are in bidding process. Deadline for consortia formation: not available. Estimated cost: 44 million of dollars. Public(52%) Private (48%) investment. Round-trip saves1hr,2min. Increase in productivity equivalent to 53 million men hours. 3, low capacity transportation units substituted. Reduction of greenhouse gas emissions, noise production and oil-based fuel consumption. System3 1st Stage 3 km System 2 21 km System3 2nd Stage 17 km 11 Suburban train: System 3 Current situation Bidding process started in 28. Analizing the construction in 3 stages. Cost-benefit analysis is in elaboration process. Complementary studies are in process. Negotiating with the State of Mexico. Round-trip saves1hr,2min. Increase in productivity equivalent to 4 million men hours. 7 low capacity transportation units substituted. Reduction of greenhouse gas emissions, noise production and oil-based fuel consumption. Investmentneeded(stageI and II) Source Milllion dollars % Estimated 1,1 1% Public % Private % 12 6

7 Airport infrastructure in 26 (million passengers) International Airports Domestic Airports 13 Airport Infrastructure Projects International Airports Domestic Airports 26 Situation New Airports Expansion Modernization Projects under consideration 14 7

Airport in Riviera Maya Cancún Description Construction of a new airport with an initial capacity of 3 million pax/year. Estimated cost: 225 million of dollars. Financing via private investment.

8 Airport in Riviera Maya Cancún Description Construction of a new airport with an initial capacity of 3 million pax/year. Estimated cost: 225 million of dollars. Financing via private investment. Expand the supply of airport services in the Mayan World. Improve touristic services as well as productive and employment opportunities. Building a new airport is the best option for the area s development. 15 Palenque airport Description Buildanew airport inpalenquewith an installed capacity to serve 3 thousand pax/year. Estimated cost. 65 million of dollars. Government financing. Service the touristic demand of the Riviera Maya. Expand the supply of airport services for the Mayan world. Improve touristic services as well as productive and employment opportunities. 16 8

9 Investment and operation expenditure The investment expenditure assigned for infrastructure works has almost trippled during thelast5years. The current expenditure assigned to supervise and administrate the works has also descreased. This behavior is related to the evolution of the personnel, it is estimated that willdecrease18%from26to21. Investment expenditure and evolution of the personnel (26-21) Million of pesos e Positions Investment Expenditure Current Expenditure Personnel 17 e: positions estimatedfor 21. Public-Private Partnership Models The models To attract private capital to the development of new infrastructure, the SCT has designed and implemented Public Private Partnership Models. The models are: Concessions Public-Private Partnership Highway Assets Utilization (exclusively for road infrastructure) These models are operative and are allowing to increase the investment in infrastructure. Concession model characteristics The concession model allows to build, operate, and maintain the infrastructure. Concessions are granted through public bids. The time of concession is between 15 and 3 years (the maximum allowed bythelaw),dependingonthetypeof projet. The government offers a minimum revenue guarantee to facilitate involvement by private banks, investment funds, etc. 18 9

10 Public-Private Partnership Models Public service contract model characteristics A concession is awarded through a public bidding process which also grants to the concessionaire the exclusive right to sign the service contract. The duration of the service contract isfixedfrom15to3years. The private firm provides services in exchange for periodic payments. Periodic payments are based availability of the infrastructure. Assets Utilization model characteristics Is the key for financing 35 projects of the National Highway Program Considers the utilization of highways of Fonadin network to support construction of 2,2 km of new roads, according to the following: SCT designs packages composed by exiting toll roads and roads to be built by the winning bidder. SCT organizes public bids to transfer these packages to the private sector and obtain resources to pay outstanding debts. 19 Mexico s Aerospace Industry 2 Why Mexico has gained the most manufacturing investment? Access to a dependable, and skilled low cost labor force, as evidenced by Mexico s strong record in the automotive and consumer electronics industries. Completion of the U.S.-Mexico Bilateral Aviation Safety Agreement (BASA). Proximity to U.S. and Canadian aerospace supply chains, faciliting low-cost ground transportation. Confidence in Mexico s willingness to protect intellectual property. Mexico s elimination of duties for aeronautic components. Aerospace Investment-Manufacturing* (199-29**) Thousan million dollars Mexico China USA Russia Source: AeroStrategyanalysis * Includesjoinventuresand organicinvestmentsfor121 largestoems; excludesadquisitions. ** 29 data isas at August29. India Poland Malaysia Japan Morocco 1

11 Comparative advantages Competitive costs Mexico offers the most competitive operation costs. Mexico is an important provider in the world aerospace industry. In this industry, Mexico has shown two-digit growth during the last three years. Cost Index Aircraft PartsManufacturing International Results(US=1.) The number of companies participating in this industry has tripled during the last five years. Today, Mexico is the provider number nine in exports of components and aerospace parts to the USA. 2 France Germany Italy Netherlands Europe UK Canada Mexico United States North America Australia Japan Asia Pacific Source: KPMG s CompetitiveAlternatives21 research. 21 Aerospace Education Centers Master in Aerospace Engineering Specialization in Aerospace Engineering Specialization in Aeronautic Thecnical Program in Aeronautical Manufacturing AerospaceEngineering AeronauticalEngineering Specialization in Aeronautical Engineering AerospaceEngineering Specialization in Aeronautical Engineering Technical MRO Program in Motors Manufacturing, AeronauticalEngineering Specialization in Aeronautical Engineering of manufacturing AeronauticalEngineering AeronauticalEngineering Aeronautical Engineering and Master in Desing and MRO. Technical MRO Program AeronauticalEngineering 22 11

12 Aerospace Investments and International Trade Aerospace Investment and Exports International Trade forescast for 21 (Mexico Aerospace Industry) As a result of the mentioned comparative advantages, dozens of Original Equipment Manufacturers (OEMs) have invested in Mexico in recent years. In this industry, the Mexican trade has growth significatively during the last years. The expectations for 21 is to generate about 3,6 million dollars in exports. Million dollars ,2 3,6 The compound annual growht rate for the last five years is 16% (considering the forecast for 21) Imports Exports * Source: DGIPAT-SE, Bank of Mexico. * 21 data isas at March Opportunities of Investment Major R&D Investments Aerospace Investment-R&D* (199-29**) Mexico is the sixth most preferred destination for engineering/r&d expansion. The advances in Mexico Airspace Industry depends on how the companies move from manufacturing to R&D industry. The Mexican competitive advantages have driven the accelerated rate of investment for each major function (manufacturing, R&D, and MRO). These investments allow the development of the Aaerospace Industry in all its active functions. Thousand million dollars Russia USA India Singapore Korea Mexico China Japan Brazil Source: AeroStrategyanalysis * Includesjoinventuresand organicinvestmentsfor121 largestoems; excludesadquisitions. ** 29 data isas at August

13 The most Active Functions by State Manufacturing (M) is the highest investment category (81%), followed by Maintenance, Repair and Overhaul(MRO)(12%), and Research and Development(R&D)(7%). M 27 M 48 MRO 1 R&D 2 M 32 M 13 MRO 7 R&D 4 MRO R&D M 5 MRO 1 R&D M 5 MRO 1 R&D M 5 MRO R&D MRO M 1 R&D MRO 3 M 2 MRO R&D M MRO 5 R&D 2 R&D 3 M 3 MRO M 25 R&D 3 MRO 5 R&D M 3 MRO R&D M MRO 1 R&D M 3 MRO R&D Evolution of the Vehicle Fleet Modernization Program The vehicle fleet modernization program oficially started on October, 23. The principal objective is to reduce the age of the vehicle fleet through fiscal incentives. The minimum age of the vehicle to participate in this program is 1 years. The modernization scheme includes the participation of the Federal Government, producers, scrap dealers, and the Federal Transportation subsector. During 29, registered vehicles decreased due to the economic crisis, estimating a recovery for 21. Vehicles Evolutionof of the vehicles registeredin in the Modernization Program e 2, * *Data isas at June 21. e: estimated 26 13

14 Type and age of vehicles registered in the Program There are 13,9 vehicles registered since the program started until June % of them are cargo vehicles, and 43% are passenger vehicles. 48%oftheregisteredvehiclesareover25yearsofage. Typeof Vehicles (at June 21) Ageof vehicles (at June 21) Vehicles Vehicles Tractor-trailer truck Unit truck Buses 6 to 1 11 to to 2 21 to 25 > 25 Unknown Agesegment(years) 27 Evolution of the Financing Program The SCT, Nacional Financiera (Development Banking Insitution), and Secretary of Economy have implemented a financing program to support the fleet renovation. From December 28 to December 29, the amount increased 46%. Approximately, 22,7 companies have been favoured. 2. FinancingAmount (from May24 to July 21) 25. FavouredCompanies (from May24 to July 21) 18. Million of pesos Number of companies May 24 to Dic 26 Dic-7 Dic-8 Dic-9 Jul-1 May 24 to Dic 26 Dic-7 Dic-8 Dic-9 Jul

15 THANK YOU Humberto Treviño Landois (SCT Mexico) Lateinamerikan Verein 21: Day of Mexico, Hannover October,

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