Building a New ANA Group: Reforms Target Profitability and
Strengthened Balance Sheet
- Strong Group Essential to Retain Trust of Investors and Customers -
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31 May 1999 - All Nippon Airways (ANA), today announced a Medium-term Corporate
Plan for the fiscal years 1999-2002 -- April 1, 1999 to March 31, 2003. This plan
represents ANA's corporate vision and its specific course of action as it strives
to strengthen its position as a global airline into the 21st Century.
Kichisaburo Nomura, President & Chief Executive Officer of ANA said, "Many
of the reforms we will undertake are going to be challenging, even painful. All
of our Group employees and Management will have to work together to achieve these
goals, while maintaining our focus on safety as a top priority. But by doing so,
we will be able to provide the high-quality product that our customers have come
to expect from ANA, while reassuring our investors with strengthened finances,
supported by improved profitability and reduced debt.
"The business environment in Japan is extremely difficult right now,
and will remain so through the plan term. Ongoing changes in accounting and financing
standards in Japan, combined with the continued liberalization of the domestic
aviation industry and the resulting increase in competition, ensure it.
"Against this backdrop, we will bring about the transformation of ANA
and the ANA Group by undertaking sweeping reforms that will affect every area
of our business. As we begin to reform ANA, we have one overriding goal: to exceed
the expectations of our investors and customers."
Details of the plan follow. |
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| I MANAGEMENT OBJECTIVE |
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| To achieve the ANA Group's mission of providing customer and shareholder value |
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| II BASIC MANAGEMENT PRINCIPLES |
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| 1. |
To enhance customer value by strengthening the basic pillars - safety, comfort,
reliable on-time performance and convenicence - of the ANA air transport product. |
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| 1) |
Maintain safe operations, ANA Group's top priority |
| 2) |
Practice the "Customer First " philosophy within the ANA Group,
providing superior services that support customer satisfaction |
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| 2. |
To increase shareholder value by achieving improvements in the profitability
of the ANA Group, the core of which is air transport services. |
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| 1) |
Strengthen balance sheet and earnings through improvements in cost structure
and reduction of debt |
| 2) |
Advance reforms of ANA Group management through leadership of ANA |
| 3) |
Focus resources and rationalize air transport services and business enterprises |
| 4) |
Achieve increased operating revenues and strengthened competitiveness by reforming
sales structure |
| 5) |
Enhance the value of the ANA Group so as to support stable, sustainable returns
for investors |
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to Details of the plan |
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| III ANA MANAGEMENT GOALS (QUANTITATIVE INDEX) |
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1. Profit to Total Assets Ratio (PTAR)
PTAR is an index designed to measure the profitability and efficiency of business
operations. |
| PTAR = |
Operating Profit + Interest and Dividend |
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| Total Assets |
| Target: Over 6% |
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2. ANA Operating Profit to Operating Assets Ratio (ANA OPAR)
ANA OPAR directly reflects the effectiveness of ANA's reforms. |
| ANA OPAR= |
Operating Income - (Operating Expenses -
Public Taxes and Charges) |
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| Operating Assets |
| Target: Over 17% |
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| Note 1 |
"Public taxes and charges" include airport charges, jet fuel tax and aircraft
property tax. The aim is to analyze the effectiveness of ANA's reforms by understanding
the changes in costs before these expenses, and by exposing shifts in operating
profit. |
| Note 2 |
"Operating assets" is assets employed for air transport activities. This is
calculated by subtracting investments and other assets, deferred charges and construction
in progress from total capital, and adding aircraft under leases and net worth. |
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| 3. ANChanges in Index |
| Fiscal Year |
PTAR |
ANA OPAR |
Operating Profit
(¥100 million) |
| ANA |
Transport Industry |
1996
1997
1998 |
2.0%
0.3%
 0.9% |
3.5%
3.2%
N/A |
15%
13%
11% |
180
6
132 |
1999
2000
2001
2002 |
0.8%
2.4%
4.2%
6.1% |
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11%
13%
15%
17% |
20
260
440
620 |
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to Details of the plan |
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| IV MEDIUM-TERM CORPORATE PLAN : CORE INITIATIVES |
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| 1. Reform of ANA Group Management |
| 1) |
Streamlining of Management Structure |
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The effective implementation of the reforms laid out in this plan require
a strengthened ANA management able to make swift, timely decisions. To this end,
ANA established a Management Strategy Committee in April 1999 and, following the
Annual Shareholders Meeting in June, will streamline the ANA Board of Directors
by reducing the number of Board Members to 19 from 31. A performance-linked pay
system, including stock options, will be considered for Board Members |
| 2) |
Changes in ANA Group Management Structure |
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The management structure of ANA Group companies will be streamlined in order
to support swift, effective decision-making. Consolidation of management resources
within the Group will be promoted by eradicating task duplication from within
group companies. Through these measures, the ANA Group will become more effective
and achieve greater cost savings. |
| I) |
Significantly reduce the number of Board of Directors within the principal
Group companies |
| II) |
Continue to investigate the legislation surrounding and the feasibility of
implementing stock option programs for the Board Members of principal Group companies |
| III) |
Achieve substantial synergies by creating an overall joint task structure
combining the administrative, sales and technical functions of the Group air transport
companies; establish a Group Headquarters, a Group Sales Center and a Group Technical
Center (will be started in fiscal 1999) |
| IV) |
Establish a Group fund pooling system and integrate Group company accounting
functions (from fiscal 2000) |
| V) |
Unite and reorganize the core air transport-related associated businesses.
Once reorganized, ANA will make these businesses full subsidiaries and will improve
their performance and efficiency by having ANA Board Members concurrently participate
in their top management, encouraging sharing of Group and ANA management objectives. |
| VI) |
Investigate establishing a holding company during the plan period to supervise
Group airline companies so as to further reform Group management. |
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2. Strengthening of Finances
ANA will target increased profitability by reducing investments and improving
its cost structure over the period plan. Total capital employed will be reduced
by 8%, while real outstanding liabilities, including lease-related accrued liabilities,
will be reduced by 22% (compared to fiscal 1998). |
| 1) |
Reduction of investments |
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ANA will reduce the number of aircraft to be introduced during the plan period
by 9 (from 19 to 10). Through this and other measures, the company will trim investments
to a yearly average of ¥84 billion,
a figure less than cash flow from operations. |
| 2) |
Reduction of Interest Bearing Debt |
| i) |
Reduce interest-bearing debt by ¥130 billion (17%)
* to ¥610 billion in fiscal 2002 |
| ii) |
Decrease lease-related accrued liabilities by •140 billion (30%)
* to ¥340 billion in fiscal 2002. Reduce ANA's real outstanding liabilities
(including lease-related accrued liabilities) by ¥270 billion
(22%)*
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| iii) |
Reduce ANA Group outstanding liabilities by ¥320 billion (20%)*
* (compared to fiscal 1998) |
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| 3. Focus of Resources and Rationalization of Air Transport Activities |
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Targeting the maximized profitability of the Group, domestic routes will be
reorganized between ANA and Air Nippon (ANK), and ANA will continue to sharpen
its focus on high-revenue "business" routes in its operations, suspending unprofitable
routes. Total available seat kilometers (ASKs) for ANA operations will be decreased
to 95.8%* in fiscal 2002, compared to fiscal 1998.
(* ANA operated
flights only) |
| 1) |
Domestic operations from/to Tokyo (Haneda) will be expanded as the network
is reorganized between ANA and ANK and the number of slots available at Haneda
Airport increases. ANK's fleet will be downsized in order to increase operational
efficiency (ANK will purchase and lease* Boeing 737s and reduce Airbus 320s) |
| 2) |
In addition to suspending unprofitable routes, international services will
be expanded as slots at Narita Airport in Tokyo become available |
| 3) |
To improve operational efficiency, a new low-cost airline will be established
in fiscal 2000, focussing on routes out of Osaka (Kansai) (* operating
lease) |
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| 4. Reduction of Non-operating Fixed Costs and Improvement of Efficiency |
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During the plan period, non-operating fixed costs will be reduced by approximately
10% compared to fiscal 1998 levels. The business will be reformed so as to allow
for the support of profits even in the absence of revenue growth. Ordinary revenues*
are projected to decrease by approximately ¥15 billion during the plan period,
but ordinary expenditures are projected to drop by ¥62 billion over the same
term.
(* Ordinary Revenue = Operating Revenue + Non-Operating Revenue) |
| 1) |
ANA will reduce operating cost through a drastic reorganization
of tasks by the "Administration Reform Committee", established April 1, 1999 in
ANA |
| 2) |
The total number of employees in ANA and principal ANA Group companies
(28,000 people) will be brought down by 10% |
| i) |
Reduce ANA employee numbers by 1,700 (12%) by expanding the early
retirement system and limiting new hires |
| ii) |
Restrain hiring and streamline the ANA Group |
| iii) |
Decrease number of ANA employees working in other Group companies by 180,
from 540 |
| 3) |
Personnel/ Welfare System |
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ANA will place emphasis on developing specialists within each area and seek
to increase the number of employees familiar with global standards so as to promote
alliance activities and Group focus. For this purpose, the existing personnel
system will be strengthened, placing an increased importance on ability and performance.
ANA will continue to review the employee welfare system, highlighting self-responsibility
and economic rationalism.
< Major Measures implemented in fiscal 1999>
- Reduction of Board Members' salaries (President & CEO/Senior Executive
Vice President:25%,
Senior Vice President/Managing Director:20%,
Senior Director: 15%)
- Decrease in manager's allowances (ground staff by ¥18,000 - ¥28,000/month;
flight crew by ¥43,000 - ¥68,000/month)
- Basic salary cut for senior managers
- No increase in base salary for fiscal 1999
- Reduction of bonuse
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| 5. Reform of Group Companies |
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Consolidated profitability and finances will be improved through drastic management
reforms. |
| 1) |
Operation and Ownership of hotels will be clearly distinguished in order to
reform the hotel management structure (from fiscal 1999). |
| i) |
Hotel Operation |
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While investigating the possibility of renaming ANA Enterprises, Ltd. as ANA
Hotels Co. Ltd.(tentative name), reform the current ANA Enterprises, Ltd. as the
head of overall operations, integrating the operational functions of the hotels,
in order to improve efficiency and utilization of resources. The management structure
of hotels will also be flattened. |
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Hotel Ownership |
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ANA will hold ultimate responsibility for the performance of hotels, and will
seek the hotels' improved performance and recovery of invested capital through
the establishment of a new evaluation system |
| 2) |
Rationalization of Group Businesses |
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With the aim of supporting a healthier balance sheet, group businesses lacking
the potential to generate future profits will be shed by the Group. A provisional
loss of ¥30 billion is planned for these purposes. |
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| 6. Reform of Sales Structure |
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ANA will strive to increase revenues and sharpen competitiveness through the
establishment of a group sales structure. |
| 1) |
Establish a "Group Sales Center" jointly with ANK. Group Sales Center administrative
divisions will work to develop a joint sales strategy for the ANA Group, including
sales subsidiaries. Sales activities will also be performed jointly (from fiscal
2000) |
| 2) |
Divide and reorganize sales subsidiaries into two categories: retail and wholesale.
Establishment of a separate company in charge of direct sales functions will also
be considered |
| 3) |
Reorganize local and overseas offices by integrating functions and improve
efficiency of reservations function so as to reduce sales cost (from fiscal 1999) |
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to Details of the plan |
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| 7. Reform of Airport Services / Operational Support Structure |
| ANA aims to promote customer satisfaction and increased competitiveness in
airport services by establishing a high quality, low cost structure supporting
efficient operations within ANA and Group companies. |
| The company will strengthen planning and operational functions by reorganizing
the division of tasks and authority between the Airport Operations & Services
division and local airport offices (in fiscal 1999) |
| The Flight Control Center (FCC) will be developed and fortified into a new
organization that reports directly to the Senior Executive Vice President. The
new organization will closely link operation-related divisions (Flight Operations,
Maintenance, In-flight Services, Airport Services), and will function as a 24-hour
information center. It will also support improved every day operations-related
services and strengthen the pillars of the group transport product (safety, comfort,
reliable on-time performance and convenience) by allowing for better, more flexible
operational support and more accurate decisions - for example during bad weather
conditions (to be enacted from fiscal 1999) |
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8. Development of Alliances
ANA is scheduled to become a full member of Star Alliance in October of this year.
Through participation in Star Alliance, ANA expects increased recognition in overseas
markets and higher revenues, particularly from premium travel, thanks to an enhanced
frequent flyer program, joint advertising, and strategic marketing activities.
Cross utilization of airport facilities, joint purchasing and linking of systems
(such as reservations systems) will support improved profitability by allowing
for cost savings in addition to above mentioned revenue increases. |
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to Details of the plan |
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9.Enhanced Product Competitiveness
ANA aims to be an airline that is responsive to passengers' expectations and provides
superior customer satisfaction. As well as improving the basic pillars —
safety, comfort, reliable on-time performance and convenience — of the ANA
air transport product, ANA will strive to develop an ANA brand representing "a
global airline that customers trust and that offers superior services, from reservation
to check-in to in-flight service to arrival at the final destination." |
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to Details of the plan |
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| [DATA] |
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| 1. Number of Flights/Available Seat Kilometers |
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| Number of Flights (ANA operated flights only) |
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FY 1998 |
FY 2002 |
FY2002 vs. FY1998 |
| Domestic |
200,650 |
192,570 |
96.0 |
| International |
17,870 |
17,500 |
97.9 |
| Total |
218,520 |
210,070 |
96.1 |
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| Available Seat Kilometers(ANA operated flights only) |
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FY 1998 (million) |
FY 2002 (million) |
FY 1998 vs. FY2002 |
| Domestic |
54,630 |
52,940 |
96.9% |
| International |
30,490 |
28,640 |
93.9% |
| Total |
85,120 |
81,580 |
95.8% |
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| 2. Revenues/Expenses/Income |
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FY 1998
(million Yen) |
FY 2002
(million Yen) |
FY 1998 vs.
FY2002 |
| Ordinary Revenues |
963,400 |
948,600 |
98.5% |
| Ordinary Expenses |
962,800 |
900,500 |
93.5% |
| Ordinary Income |
600 |
48,100 |
+ 47,500 million yen |
| Net Income |
6,600
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21,100 |
+ 27,700 million yen |
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| 3. Jet Fleet Planning |
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| Number of Jet Aircraft |
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FY 1998 |
FY 2002 |
Change |
| ANA |
133 |
126 |
7
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| ANA Group |
160 |
157 |
3
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| Aircraft Introduction/Retirement over the plan period |
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Introduction |
Retirement |
| ANA |
10 |
21 |
| ANA Group |
22 |
25 |
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