Order: 2012-6-18

Served June 22, 2012

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

Issued by the Department of Transportation

on the 22nd day of June, 2012 

 Essential Air Service at

 CHISANA, ALASKA 

 HEALY LAKE, ALASKA

Under 49 U.S. C. 47131 et seq.

 DOCKET DOT-OST-1998-4574

 DOCKET DOT-OST-1998-3546

ORDER RE-SELECTING CARRIER

AND ESTABLISHING SUBSIDY RATES 

Summary

By this Order, the Department is (a) re-selecting 40-Mile Air, Inc., (“40-Mile Air”) to continue 

providing Essential Air Service (EAS) at Chisana and Healy Lake, Alaska, and (b) establishing 

annual subsidy rates of $81,040 and $104,703, respectively, for a new two-year period, through 

May 31, 2014.1

Background

By Order 2010-4-15, April 23, 2010, the Department selected 40-Mile Air to continue providing 

EAS at Chisana and Healy Lake for the two-year period through May 31, 2012. That Order 

established an annual subsidy rate of $74,345 for two nonstop round trips per week between 

Chisana and Tok with 3-seat Cessna 185 or 4-seat Cessna 206-207 aircraft, and $98,915 for two 

nonstop round trips per week between Healy Lake and Fairbanks with 5-seat Cessna 206 or 207 

aircraft. 

Chisana and Healy Lake are guaranteed to receive at least a minimum level of air service under 

the EAS program by virtue of the fact that it appeared on a certificated carrier’s Civil 

Aeronautics Board-issued certificate on October 24, 1978, the date the Airline Deregulation Act 

of 1978 was signed into law. (See 49 U.S.C. 41731-41744 for the EAS program’s governing 

statutes.) In keeping with our normal procedure, in anticipation of the end of the rate term, the 

Department issued Order 2012-2-5, February 6, 2012, requesting proposals from air carriers 

interested in providing replacement service at the communities, with subsidy support if 

necessary, for a new two-year period beginning June 1, 2012. 

 1 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of appropriated funds.
2

Carrier Proposals

In response to our request, 40-Mile Air submitted one inseparable proposal, offering to continue 

to provide the same level of service it currently operates, consisting of two round trips per week 

between Chisana and Tok with 3-seat Cessna 185 or 4-seat Cessna 206-207 aircraft; and two 

nonstop round trips between Healy Lake and Fairbanks with 5-seat Cessna 206 or 207 aircraft. 

The air carrier proposes to provide this service at the annual subsidy rates of $81,040 for 

Chisana and $104,703 for Healy Lake, for a total subsidy of $185,742 for service at both 

communities. 

Wright Air Services, Inc. (“Wright Air”), submitted one proposal, offering to provide EAS, 

consisting of two nonstop round trips per week between Healy Lake and Fairbanks with 4-seat 

Cessna 206 or 3-seat wheel-ski equipped Helio Courier aircraft. Wright Air proposes to provide 

this service at an annual subsidy rate of $87,360. Wright Air did not submit a proposal to serve 

Chisana. 

Community Comments

On March 22, 2011, we requested community comments regarding this carrier-selection case. In 

response, we received two letters from Mr. Steven D. Hatter, Deputy Commissioner of Aviation 

for the State of Alaska. Those letters expressed support for the continuation of EAS at both 

communities; however, Mr. Hatter did not take a position on which air carrier should be 

selected. 

Decision

We have decided to select 40-Mile Air to continue to provide service at Chisana and Healy Lake 

for the two-year period through May 31, 2014, at an annual subsidy rate of $81,039 and 

$104,703, respectively. The selection of 40-Mile Air will ensure the citizens of Chisana 

continue to have access to the National Air Transportation system. 40-Mile Air will maintain its 

current level of service, consisting of two nonstop round trips per week between Chisana and 

Tok with 3-seat Cessna 185 or 4-seat Cessna 206-207 aircraft; and two nonstop round trips 

between Healy Lake and Fairbanks with 5-seat Cessna 206 or 207 aircraft. This also provides

certainty to both community’s EAS needs for the next two years. Selecting Wright Air for EAS 

at Healy Lake would require us to re-solicit proposals for service at Chisana because 40-Mile 

Air’s proposal is a two-community, inseparable package, which would leave Chisana’s EAS 

future uncertain. We find that the proposal rates are reasonable and the air carrier’s performance 

continues to be satisfactory. 

Carrier Fitness

49 U.S.C. 41737(b) and 41738 require that we find an air carrier fit, willing, and able to provide 

reliable service before we may subsidize it to provide EAS. 40-Mile Air is subject to the 

Department’s continuing fitness requirements, and no information has come to our attention that 

would cause us to question the air carrier’s fitness at this time. We have contacted 
3

the Federal Aviation Administration, and it has raised no concerns that would negatively affect 

our fitness finding. We therefore conclude that the air carrier is fit to conduct the operations 

proposed here.

This Order is issued under authority delegated in 49 CFR 1.56a(f).

ACCORDINGLY,

1. The Department selects 40-Mile Air, Inc., to continue to provide subsidized Essential Air 

Service at Chisana and Healy Lake, Alaska, as described in Appendix B, for a new two-year 

term, through May 31, 2014;2

2. The Department finds that 40-Mile Air, Inc., is fit, willing and able to operate as a 

certificated air carrier and capable of providing reliable Essential Air Service at Chisana and 

Healy Lake, Alaska; 

3. We direct 40-Mile Air, Inc., to retain all books, records, and other source and summary 

documentation to support claims for payment, and to preserve and maintain such documentation 

in a manner that readily permits its audit and examination by representatives of the Department. 

Such documentation shall be retained for seven years from the service date of this Order or until 

the Department indicates that the records may be destroyed, whichever comes first. Copies of 

flight logs for aircraft sold or disposed of must be retained. The air carrier may forfeit its 

compensation for any claim that is not supported under the terms of this Order;

4. These dockets will remain open pending further Department action; and

5. The Department will serve a copy of this Order on the Alaska Department of Transportation 

and Public Facilities and 40-Mile Air, Inc.

By:

SUSAN L. KURLAND

 Assistant Secretary for

 Aviation and International Affairs

(SEAL)

An electronic version of this document is available at

http://www.regulations.gov

 2 See Appendix C for the calculation of the subsidy rates, which assumes the use of the aircraft designated. If the 

air carrier report a significant number of aircraft substitutions, a revision of this rate may be required. 
Appendix A

40-Mile Air, Inc.

Annual Compensation Requirement for Essential Air Service at 

Chisana, Alaska

Route TKJ-CZN-TKJ

Frequency:

Two Round Trips per 

Week

Aircraft Type: Cessna 185 (3-Seat), 206 or 207 (4-Seat)

Annual Block Hours3 190.7

Revenue Rate4 Amt/lbs. Revenue

Passenger $97.67 95 $9,278.65

Cargo $0.42 2,000.00 $840.00

Space Available Cargo $0.16 26,000.00 $4,160.00

Mail $0.89 8,000.00 $7,135.90

Total Operating Revenue $21,414.55

Direct Operating Expenses Unit Cost Expenses

Pilot & Co-pilot $96 per BH $18,307.20

Fuel & Oil $102 per BH $19,451.40

Maintenance $93 per BH $17,735.10

Depreciation $22.85 per BH $4,357.49

Insurance 47.25 per BH $9,010.58

Agent Fee $20.00 per CZN dept. $2,080.00

Total Direct Operating Expenses $70,941.77

Indirect Operating Expenses @ 40% of Direct Net of Depreciation $26,633.71

Total Operating Expenses $97,575.49

Operating Loss $76,160.94

Profit Element @ 5% of Total Operating Expenses $4,878.77

Subsidy Need @ 100% $81,039.71

 3 Block hour = (TKJ-CZN-TKJ, 1.83 hours) x 2 flights/week x 52 = 190.7 hours

4 Passenger and Cargo Rates Before Excise Tax
2

40-Mile Air, Inc.

Annual Compensation Requirement for Essential Air Service at 

Healy Lake, Alaska

Route FAI-HKB-FAI

Frequency: Two Round Trips per Week

Aircraft Type: Cessna 206 or 207 (5-Seat)

Annual Block Hours5: 208

Revenue Rate6 Amt/lbs. Revenue

Passenger $65.12 50 $3,256.00

Cargo $0.47 5,000.00 $2,350.00

Mail $0.97 1,200.00 $1,162.06

Total Operating Revenue $6,768.06

Direct Operating Expenses Unit Cost Expenses

Pilot & Co-pilot $96 per BH $19,968.00

Fuel & Oil $102 per BH $21,216.00

Maintenance $93 per BH $19,344.00

Depreciation $22.85 per BH $4,752.80

Insurance 47.25 per BH $9,828.00

Agent Fee $20.00 per HKB dept. $2,080.00

Total Direct Operating Expenses $77,188.80

Indirect Operating Expenses @ 40% of Direct Net of Depreciation $28,974.40

Total Operating Expenses $106,163.20

Operating Loss $99,395.14

Profit Element @ 5% of Total Operating Expenses $5,308.16

Subsidy Need @ 100% $104,703.30

 5 Block hour = (FAI-HKB, 1 hour) x 4 flights/week x 52 = 208 hours

6 Passenger and cargo rates before excise tax
Appendix B

40-MILE AIR, INC.

ANNUAL COMPENSATION REQUIREMENT FOR ESSENTIAL AIR SERVICE AT

CHISANA, ALASKA

Effective period: June 1, 2012, through May 31, 2014.

Scheduled service: Two nonstop round trips each week to Tok

Intermediate Stops and 

Upline

No upline or intermediate service is permitted without prior Department 

approval

Aircraft type: Cessna 185 (3-seats) or Cessna 206/207 (4-seats)

Timing of flights:

Flights must be well-times and well-spaced in order to ensure full 

compensation

Annual Compensation: $81,040

Subsidy Rate Per 

Arrival/Departure: $3907

Weekly Compensation 

Ceiling:8 $1,560

 7 Annual compensation of $81,040 divided by 208 arrivals and departures: 4 flights per week x 52 weeks.

8 The subsidy rate for each arrival/departure ($390) multiplied by four (4) eligible arrivals and departures each

week. 
2

40-MILE AIR, INC.

ANNUAL COMPENSATION REQUIREMENT FOR ESSENTIAL AIR SERVICE AT

HEALY LAKE, ALASKA

 9 Annual compensation of $104,703 divided by 208 arrivals and departures: 4 flights per week x 52 weeks.

10 The subsidy rate for each arrival/departure ($503) multiplied by four (4) eligible arrivals and departures each 

week. 

Effective period: June 1, 2012, through May 31, 2014

Scdeduled service: Two nonstop round trips each week to Fairbanks

Intermediate Stops and 

Upline

No upline or intermediate service is permitted without prior Department 

approval

Aircraft type: Cessna 206/207 (5-seats)

Timing of flights:

Flights must be well-times and well-spaced in order to ensure full 

compensation

Annual Compensation: $104,703

Subsidy Rate Per 

Arrival/Departure: $5039

Weekly Compensation 

Ceiling:10 $2,012
Appendix C

General Terms and Conditions for Essential Air Service

The carrier understands that it may forfeit its compensation for any flights that it does not operate 

in conformance with the terms and stipulations of the rate order, including the service plans 

outlined in the Order and any other significant elements of the required service, without prior 

approval. The carrier understands that an aircraft take-off and landing at its scheduled 

destination constitutes a completed flight; absent an explanation supporting subsidy eligibility 

for a flight that has not been completed, such as certain weather cancellations, only completed 

flights are considered eligible for subsidy. In addition, if the carrier does not schedule or operate 

its flights in full conformance with the Order for a significant period, it may jeopardize its entire 

subsidy claim for the period in question. If the carrier contemplates any such changes beyond 

the scope of the Order during the applicable period of these rates, it must first notify the Office 

of Aviation Analysis in writing and receive written approval from the Department to be ensured 

of full compensation. Should circumstances warrant, the Department may locate and select a 

replacement carrier to provide service on these routes. The carrier must complete all flights that 

can be safely operated; flights that overfly points for lack of traffic will not be compensated. In 

determining whether subsidy payment for a deviating flight should be adjusted or disallowed, the 

Department will consider the extent to which the goals of the program are met and the extent of 

access to the national air transportation system provided to the community.

If the Department unilaterally, either partially or completely, terminates or reduces payments for 

service or changes service requirements at a specific location provided for under this Order, then, 

at the end of the period for which the Department does make payments in the stipulated amounts 

or at the stipulated service levels, the carrier may cease to provide service to that specific 

location without regard to any requirement for notice of such cessation. Those adjustments in 

the levels of subsidy and/or service that are mutually agreed to in writing by the Department and 

the carrier do not constitute a total or partial reduction or cessation of payment.

Funds are not currently available for performance under this Order beyond September 30, 2012.

The Department’s obligation for performance under this Order beyond September 30, 2012, is 

subject to the availability of appropriated funds from which payment for services can be made.

No legal liability on the part of the Government for any payment may arise for performance 

under this Order beyond September 30, 2012, until funds are made available to the Department 

for performance. If funds are not made available for performance beyond September 30, 2012, 

the Department will provide notice in writing to the carrier.

Subsidy contracts are subject to, and incorporate by reference, relevant statutes and Department 

regulations, as they may be amended from time to time. However, any such statutes, regulations, 

or amendments thereto shall not operate to controvert the foregoing paragraph.

All claims for payment must be submitted within 60 days of the last day of service provided 

under this Order.