COVID closed Mexican factories that supply US defense industry. The Pentagon wants them opened.

By: Joe Gould

WASHINGTON ― Factory closures in Mexico due to the coronavirus pandemic are hurting U.S. defense firms, and the Pentagon is urging America's neighbor to the south to reopen vital suppliers.

Because Mexico has not designated its aerospace and defense sector as essential, it's disrupting the supply chain for the American defense industrial base, particularly aircraft manufacturers. Though little known, Mexico's defense exports to the U.S. and beyond grew mightily over the last 15 years as defense firms large and small opened production facilities there.

Speaking to reporters at the Pentagon on Monday, Undersecretary of Defense for Acquisition and Sustainment Ellen Lord said she discussed the problem with U.S. Ambassador to Mexico Christopher Landau. She was planning a letter to Mexican Foreign Affairs Minister Marcelo Ebrard, she said, to ask that he, “help reopen international suppliers there.

“These companies are especially important for our U.S. airframe production.”

The pandemic has raised broader questions about America's dependence on global supply chains, particularly its reliance on China for key medicines and supplies. A Pentagon task force set up to monitor COVID-19′s impact on military suppliers found “several pockets of closure” linked to “international dependencies,” Lord said.

“Mexico right now is somewhat problematical for us but we're working through our embassy, and then there are pockets in India as well,” Lord said.

More broadly, only small fractions of the Pentagon's suppliers in the U.S. have closed due to the new coronavirus and distancing measures imposed to fights its spread, but the aviation, shipbuilding and small space launch subsectors have been hardest hit by disruptions from the virus, Lord said.

The Pentagon is using $250 million from last month's emergency stimulus funding to bolster defense firms, and it will funnel another $750 million to medical resources.

The Defense Department is also working with the White House budget office to request “billions and billions” of dollars in future fiscal packages to cover schedule delays, accelerated progress payments and other costs, Lord said.

A Pentagon spokesman declined to provide details about the products and companies impacted by the Mexican factory closures, and said Lord's letter to Ebrard was not being shared publicly because it contained sensitive information.

A 2013 United States International Trade Commission report noted that General Electric, Honeywell, Lockheed Martin and Eurocopter were among more than a dozen U.S. firms of various sizes that opened Mexican subsidiaries ― all part of a Mexican aerospace export boom.

Mexico's growth was fueled by its lower manufacturing costs, duty-free access to markets through the North American Free Trade Agreement, a Bilateral Aviation Safety Agreement with the U.S., and by Mexican government subsidies and workforce development efforts.

According to the Mexican Federation of Aerospace Industries, or FEMIA, Mexico's aerospace exports rocketed from $1.3 billion in 2004 to $9.6 billion last year. Lizcano said Mexico manufactures everything from avionics, to landing gear and fuselages, and it's in the top ten overseas suppliers to the U.S. aerospace and defense sector.

But coronavirus is blunting Mexico aerospace growth, and it is reverberating across its economy. Mexico's Labor Department said this month that the country had lost 346,748 jobs since mid-March due to the economic impact of the new coronavirus.

FEMIA is arguing publicly that its government should designate Mexico's aerospace and defense sector as “essential,” to synchronize with the U.S. and Canada, its general manager, Luis Lizcano, told Defense News. It's also coordinating with its trade association counterparts in the U.S. and Canada.

“What we're asking is that we standardize in this sector because we're going to break with supply chains with OEMs for commercial and defense aircraft,” Lizcano said.

The U.S.-based Aerospace Industries Association had a similar argument:

“Maintaining the free flow of goods and services between the United States, Canada, and Mexico is vital to our nation's economy and to our industry," AIA President and CEO Eric Fanning said in a statement. He hailed the recent United States-Mexico-Canada Agreement as aid to that goal.

“However, this certainty is currently threatened by disruptions in America's common aerospace and defense supply chain affecting companies of all shapes and sizes. To restore certainty and keep goods and services moving, all levels of government within the U.S., Canada, and Mexico must work together to provide clear, coordinated, and direct guidance about how best to protect our workers, while ensuring aerospace and defense is declared an ‘essential' function in all three countries.

"A unified North American approach helps ensure critical operations will continue under some of the strictest health and safety standards in the world and offer much-needed stability during this crisis.”

On Monday, the CEO of the National Defense Industrial Association, retired Gen. Herbert “Hawk” Carlisle, said the increasingly global nature of some American defense supply chains cannot and should not be reversed. The U.S. ought to keep its suppliers diversified, he said, to avoid choke points overseas.

“What you don't want are single points of failure where if something happened in that country, it couldn't produce,” Carlisle said. “You have [to have] multiple, avenues to supply that capability. Some may be internal, and you can have more than one nation external.”

https://www.defensenews.com/2020/04/21/covid-closed-mexican-factories-that-supply-us-defense-industry-the-pentagon-wants-them-opened/