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News & Topics in 2008

March 27, 2008

Nippon Cargo Airlines

NCA announces an updated version of its medium-to long-term business plan:Phoenix Project 08

Nippon Cargo Airlines (NCA: Headquartered in Minato-ku, Tokyo; President, Tadamasa Ishida) today announced NCA Phoenix Project 08, an updated version of its medium- to long-term business plan.

Phoenix Project is an extraordinary challenge without parallel in the world, one in which NCA accomplishes self-operation in flight operations, maintenance, freight service and IT in a little over three years and globalizes the scope of its business, while concurrently operating about 10 B747 freighters internationally.

NCA has been carrying out the Phoenix Project since FY2006, inaugurating it originally on May 12, 2006, followed by Phoenix Project 2.0, the second edition, on April 26, 2007. Phoenix Project 08 is the third edition, one revised based on the progress of the Phoenix Project and changes in the business environment.

NCA will grow to become the world’s top-ranking cargo airline both in quality and quantity, expanding business globally with the combined advantages of its powerful hardware, such as a fleet of 24 state-of-the-art aircraft, and competitive software such as the operational excellence provided by our own flight operations, maintenance, freight services, IT, global organization, and human resources. Given the highest-priority compliance and safety on which the company is built, NCA will provide high-quality and environment-friendly services to its customers.

Outline of Phoenix Project 08

<Accomplishments in FY2007>

(1) Independence
NCA carried out more than 400 action plans and will have achieved independence in most fields of operations by the end of March 2008: freight service in January 2007, maintenance in July 2007, and flight control plus IT very soon in April, 2008.NCA also accelerated a renewal of its fleet, taking delivery of B747-400Fs, while completing the retirement of all B747-200Fs within FY2007.

The fleet renewal and achievement of independent operations resulted in reducing the double cost that NCA had borne in the process of gaining independence. In terms of organization, NCA established a global business structure by setting up four regional headquarters around the world one each in North America, Europe, Asia, and Japan. NCA also divided its head-office organizations into four functions: flight operations, engineering and maintenance, cargo business, and administrations. The organizational change has strengthened the system to realize safe operation, comply with laws, and evolve business swiftly.

(2) Movement toward improvement
Fuel prices increased to an average $84.7/BBL in the first half of FY2007 and $106.7/BBL in the second half (up to February), while $75/BBL was expected at the beginning of FY2007. Further, the air-cargo market had been sluggish for almost one year until summer 2007.Regrettably NCA fell short of its revenue and profit targets in the first half.

The performance in the second half of FY2007 has gotten on track in spite of continuously high fuel prices, however. NCA achieved its revenue and profit targets for five consecutive months, from October to February. Enhanced relationships with customers, scientific approach to marketing, strengthened sales activities, independence’s reduction of operational double-costs, and steady efforts in the cost-reduction movement (TRG) these activities have all contributed to an improved bottom line, which NCA will continue and strengthen.

<Financial Plan in Phoenix Project 08>

Continual increases in fuel prices are expected in and after FY 2008. NCA set the fuel prices at $115/BBL in Phoenix Project 08, which resulted in additional fuel costs of \13
billion yen (US$130 million) in FY2008 compared with the Phoenix Project 2.0, the previous edition.In spite of the increased fuel burden, NCA will generate profit in the 2nd half of FY2009, and will achieve a profit for the whole financial year in FY2010, one year behind the plan.

The earlier retirement of B747-200Fs and efficient operations by all B747-400Fs will have a positive impact on the bottom line.In addition, NCA will improve its earning capability through efforts such as the enhancement of sales and marketing, reduction of costs, efforts to improve service quality as in company-wide initiatives for on-time performance, and the strengthening of business foundations in growing markets to/from Asia. Following the achievement of the profitability, NCA will realize sustainable growth and expansion of profits through enhancement of its fleet and promotion of globalization.

NCA aims to ensure safe and independent operations, provide air cargo services to meet its customer’s expectations, strengthen its business basis by improvement of the bottom line through the “Seven Pillars in Phoenix Project 08 (See below).

(Unit : JPY 100million)
    FY07 FY08 FY09 FY10 FY13
Revenue   1,010 1,050 1,300 1,650 3,000
Ordinary Profit & Loss ▲ 265 ▲ 120 ▲ 70 30 220
No. B747-200F retirement        
of B747-400F 6 10 10 10 10
Aircraft B747-8F     2 5 14
  Total (end of FY) 6 10 12 15 24
Average of Aircraft age (end of FY) 1.4 1.7 2.3 2.8 4.2
Aircraft Utilization (Hours/day) 11.2 13.5 13.6 13.8 14.0
MOPS   $97 $115 $115 $115 $115
Exchange US$ JPY 115 JPY 100 JPY 100 JPY 100 JPY 100

<Seven Pillars in Phoenix Project 08>

(1) Improvement of operational quality by an efficient fleet of jumbo jet freighters

(2) Establishment of independent global business infrastructure

(3) Enhancement of business in Japan

(4) Development and flexible application of global business models in the market to/from Asia

(5) Global marketing and strengthened sales activities to make the most of an efficient cutting-edge fleet and maximize revenue

(6) Cost structure to meet global competition

(7) Safe Operations・Strengthening of management foundations