May 9, 2011

Representative Brett Guthrie, United States House of Representatives 303 Cannon House Offce Building Washington, DC 205 15 Dear Representative Guthrie, We have read your 11 APR 11 correspondence with Dennis DeVany, Essential Air Service Chief, regarding service provided by KentuckySkies to the City of Owensboro. This correspondence was posted to the USDOT web site (attached). Pacifc Wings LLC, d/b/a KentuckySkies has served Owensboro for more than two years; frst under a subsidized Essential Air Service contract, and more recently, at our own expense with no federal subsidy. Your letter was the frst indication we have received that Airport Manager Bob Whitmer is apparently dissatisfed with some aspect(s) of our service. The only recent feedback we have received from Mr. Whitmer has come in the form of pressure to purchase advertising from local media outlets, including one ow ned and operated by a member of the Owensboro Airport Board. It appears there is also some expectation by airport offcials that KentuckySkies personnel will render customer service on behalf of another airline, at times when that company's airport counter is not staffed. KentuckySkies is not an agent of, and has no affliation with this company. We are neither authorized nor trained to provide their customers with any type of service, and we do not hold commercial or liability agreements necessary to render services on behalf of unaffliated, independent third parties. Kentucky Skies cannot address real or perceived issues without specifc, actionable facts and information. Mr. Whitmer's letter contains neither. It is our hope that in the future, Mr. Whitmer will make some effort to substantiate or document facts to support statements like those contained in his remarkable letter, before documenting offcial statements so potentially damaging to our ongoing business and investments in Kentucky.
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# Pacific Wings L.L.C

P . O . B o x 2 0 2 8 0 M e s a , A r i z o n a 8 5 2 7 7 - 0 2 8 0 ( 8 8 8 ) 5 7 5 - 4 5 4 6 T o l l F r e e w w w . p a c i f c w i n g s . c o mHis statements appear to be completely unsupported by any objective, actionable

information or data. We welcome any opportunity to discuss (real or perceived) issues with affected parties at any time. Our records, however, indicate no such contact has been attempted by Mr. Whitmer nor anyone else in Owensboro. Absent any other apparent due diligence or fact fnding, we can only share what facts we do posses:

• During the past four years, Pacifc Wings has saved US taxpayers in excess of $7.3 million over subsidy expenditures USDOT once paid us to serve previously subsidized EAS locations. Taxpayers will save another $3.6 million during the coming two years (the term of a subsidized EAS contract ) as Pacifc Wings continues to operate in these locations subsidy-free.

• During the past 12 months, Pacifc Wings has phased out (declined) subsidies in three additional cities across the country, saving USDOT an additional $7.9 million over the next two years. Collectively, this represents in excess of $18.3 million in savings to federal taxpayers. These taxpayer savings do not represent acts of charity or corporate generosity. Rather, they refect an understanding that rampant waste evident in the EAS program could eventually result in its elimination; and with it, airlines dependent primarily on subsidies for survival. Indeed, some of the largest EAS providers in the country have operated (or are operating) in bankruptcy, despite deriving the majority of revenues from EAS contracts which guarantee a 5% proft margin. Migration from subsidized to non-subsidized EAS delivery models necessarily involves higher fares, as the fnancial burden of providing service shifts from federal taxpayers to benefciaries patronizing the service. These fares are certainly higher than prices charged when service is underwritten by US Taxpayers, but considerably lower than subsidies paid by USDOT on a per-seat basis under the EAS program:

• In Macon, GA one-way fares increased from $39 to $185 after Pacifc Wings declined EAS subsidies; a decrease of 60% from the $464 per-passenger subsidy previously paid by USDOT to fy fewer than fve passengers per day

• In Jackson, TN one-way fares increased from $39 to $185 after Pacifc Wings stopped accepting EAS subsidies to serve that location; a decrease of more than 50% from the $373 per-passenger subsidy previously paid by EAS to fy fewer than nine passengers per day.

• In Owensboro, KY one-way fares increased from $39 to $185 after Pacifc Wings stopped accepting EAS subsidies to serve that location; a decrease of more than 81% from the $995 per-passenger subsidy previously paid by USDOT to fy fewer than nine passengers per day.

Page 2 of 4Nationally, USDOT typically purchases in excess of 80% more capacity than historical

data indicate eligible communities require to accommodate the handful of passengers utilizing the service in most locations; resulting in gross waste of federal money and prohibitively high subsidy levels.Some communities appear to recognize and accept that is is preferable to have a selfsuffcient provider operating at its own expense (albeit with higher fares) than to lose service altogether in the event the ballooning federal defcit crisis compels Congress to signifcantly curtail or eliminate the EAS program; or, in the event per-passenger subsidy levels reach a threshold which disqualifes them from the program altogether. Mr. Whitmer's response suggests he is distressed enough by these taxpayer savings that he is compelled to speak on behalf of other EAS communities served by our company. Recent media reports, however, sharply contradict Mr. Whitmer's oblique and seemingly overwrought public state ments to USDOT and your offce regarding KentuckySkies. Some communities seem to embrace independence from politics and political infuence inherent to federally subsidized air service. Unlike Owensboro's Airport Management, they have publicly extolled the benefts of improved effciency, subsidy independence and defcit reduction to the media: A March 17, 2011 Article published in the Jackson-Sun Newspaper does not supportMr. Whitmer's claim that other communities share his nebulous worries about subsidyfree service:
'... [ T ]ennesseeSkies' commitment to provide

fights without a subsidy could mean the airline is here to stay for some time. Smith said the airline's decision comes at a good time. He said the airline's commitment to serve the area means airport offcials no longer have to worry about obtaining Essential Air Service money to entice an airline .' "As far was we are concerned," Smith said, "we are out of the EAS program. No matter what Congress does, it does not affect us." Statements like these do not indicate any shared anxiety with Mr. Whitmer, nor a plea for his advocacy on anyone's behalf. Yet, Mr. Whitmer has documented a remarkable series of potentially damaging public statements (in his offcial capacity) about our

Page 3 of 4deregulated private company; seemingly devoid of any factual basis or actionable

details necessary to determine the existence, extent or details relevant to any real or perceived issues. Rushing to judgment absent any facts, details or tangible evidence of alleged issues could create perception of a problem where none actually exists. It is possible Mr. Whitmer's letter to you may represent an effort to have congressional political pressure applied to USDOT where our company is concerned.

I can only hope that in the future, Mr. Whitmer will afford us a reasonable opportunity to address any real or imagined issues before publishing unsubstantiated negative public statements with the potential to adversely affect future bookings, damage our business and undermine at-risk, private investments in rural Kentucky communities. If you would like additional information or details, I am at your disposal. Best Regards,

Greg Kahlstorf Chief Executive Offcer Pacifc Wings Airlines KentckySkies GeorgiaSkies New Mexico Airlines TenesseeSkies

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