NORTHERN AIR CARGO 

June 26,2012 

Dennis DeVany 

Chief, EAS & Domestic Analysis Division 

Office of Aviation Analysis 

U.S. Department of Transportation 

1200 New Jersey Avenue, S.E. 

Washington, D.C. 20590 

RE: "Proposals to Provide Essential Air Service at Adak, Docket 2000-8556" 

Dear Mr. DeVany: 

Northern Air Cargo, Inc. hereby submits this proposal to the Department of Transportation (DOT) to 

provide essential air service to the community of Adak, Alaska. This proposal contains our subsidy 

request to provide this service and it includes the following certifications: 

I. Nondiscrimination Assurance 

2. Certification Regarding Influencing Activities 

. 3. Certification Regarding Drug-Free Workplace Requirements 

On behalf of Northem Air Cargo, Inc. we appreciate the opportunity to part1c1pate m the 

Essential Air Service program and please contact me if you need additional information. 

Sincerely, 

(\ ~ ) 

ty~'t).~~~ David W. Karp 

President & CEO 

Attachments 

i\lOPTHERN A !R C ARGO, INc, 3900 OLD INTERNATIONAL A IRPORT Ro. ANCHORAGE, AK 99502 

(907) 243-3331 (800) 727-2141 FAX (907) 249-5190 WWW.NAC.AERO 
"Proposals to Provide 

Essential Air Service 

at Adak, 

Docket 2000-8556" 

Due Date: 

July 12, 2012 
"Proposals to Provide Essential Air Service at 

Adak, Docket 2000-8556 

July 12, 2012 

Table of Contents 

Transmittal Letter 

Narrative .............................................................................................. Page 1 

Subsidy Request .................................................................................. Page 2 

Certifications ....................................................................................... Page 7 

Nondiscrimination Assurance 

Certification Regard~ng Influent:Lng Activities 

Certification Regarding Drug-Free Workplace Requirements 
"Proposals to Provide Essential Air Service at Adak, Docket 2000-8556" 

Narrative 

Northern Air Cargo, Inc. (NAC) is pleased, in response to Order 2012-5-24, to submit its 

Essential Air Service (EAS) proposal for cargo-only air service, inclusive of freight and mail, to 

Adak, Alaska with a requested subsidy of $1 ,017,790 annually, with a proposed subsidy 

mitigation strategy that could result in annua.l refunds ranging from $67,000 to $475,000. 

Northern Air Cargo, Inc., established in 1956, provides a wide variety of air cargo delivery 

services, domestic and international mail handling and delivery services, aircraft maintenance 

services, ground service operations and cargo agent ground handling for a wide variety of 

governmental and multi-national and regional companies- including the United States Postal 

Service, the United States Department of Defense, Shell Oil, BP Global, Continental Airlines, 

Frontier Airlines and Japan Airlines. 

Northern Air Cargo, Inc. proposes to provide thirty-four (34) B737-200 cargo jet service air 

flights per year to Adak, Alaska from its Anchorage hub, located at the Ted Stevens Anchorage 

International Airport (ANC), utilizing the following schedule: 

Non-Peak Fishing Season: During the months of April, May, September, October, 

November, December and January, Northern Air Cargo, Inc. proposes to fly two (2) 

times per month round-trip service from Anchorage to Adak. One of the t1ights is 

proposed to be an Anchorage- Bethel - Adak- Anchorage flight·and one of the flights is 

proposed to be an Anchorage - Adak - Anchorage flight. The Bethel leg is proposed as a 

strategy to reduce the required EAS subsidy to Northern Air Cargo, Inc. 

• Peak Fishing 5 Months: During the months of February, March, June, July and August, 

Northern Air Cargo, Inc. proposes to f1y four ( 4) times per month round-hip service from 

Anchorage to Adak. Two of the flights are proposed to be Anchorage- Bethel- AdakAnchorage ±lights and two of the tlights are proposed to be Anchorage- AdakAnchorage t1ights. Again, the Bethel leg is proposed as a strategy to reduce the required 

EAS subsidy to Northern Air Cargo, [nc. 

Not1hem Air Cargo. Inc . 

.July 12, 2012 

EAS Proposal at Adak 
Northern Air Cargo, Inc. commits to providing the highest possible degree of service to the 

Department of Transportation and the community of Adak and, to the best of our ability, to 

provide the services and capacities as proposed. Although Northern Air Cargo, Inc. is not 

required to report on-time performance to the Department of Transportation (DOT); as a quality 

control measure Northern Air Cargo, Inc. tracks its on-time performance to DOT and Federal 

Aviation Administration (FAA) standards. During the past 12 months, Northern Air Cargo, Inc. 

has had a 92.5% on-time record according to DOT IF AA guidelines. 

Subsidy Request 

Northern Air Cargo, Inc. is requesting an EAS subsidy in the amount of$1,017,790 per the 

following flight schedule: . 

Months 

Flights Per Month 

Flights (ANC·ADK-ANC) 

Flights (ANC-BET-ADK-ANC) 

Revenue Projections 

Peak 

Seasons 

Non Peak 

Seasons 

5 7 

4 2 

2 1 

2 1 

Northern Air Cargo, Inc.'s subsidy request assumes that freight volumes remain flat at 2011 

levels and that mail volumes continue to decline at an estimated ten percent (1 0%) annually. 

Additionally, NAC has assumed that it will achieve an average thirty percent (30%) share of the 

freight/mail market from Anchorage to Adak and that the remainder will be carried on another 

carrier selected to provide EAS passenger/cargo air service. 

Therefore, NAC's revenue projections per flight are: 

Northern Air Cargo. Inc. 

July 12. 2012 

EAS Proposal at Adak 
. . ... -

Revenue Estimate (per flight) 

Rate Volume (lbs) Revenue 

Outbound Freight $ 1.50 2,925 $ 4,388 

Outbound Mail $ 1.56 1,274 $ 1,987 

Inbound Freight $ 0.50 1,849 $ 925 

Inbound Mail $ 1.56 106 $ 165 

Total 6,154 $ 7,465 

Expense Projections 

Northern Air Cargo, Inc.'s subsidy request is based upon the following expense assumptions; the 

Anchorage~Bethel-Adak-Anchorage flights have an estimated cost of $33,622 per flight and the 

Anchorage-Adak-Anchorage flights have an estimated cost of$37,616 per t1ight. 

Per Flight Estimated Expenses 

Variable Costs 

Cost of Fuel (ANC) 

Cost of Fuel (ADK) 

Landing Fees 

Ground Handling (ADK) (per pound) 

Ground Handling (AN C) (per flight) 

MX Flight Hour (per Bhr) 

Engine Costs (per cycle) 

Fixed Costs 

Capital Costs (per Bhr) 

Mechanic Labor (per Bhr) 

MX Admin I Overhead (per Bhr) 

Flight Crew Labor (per Bhr) 

Flight Ops Admin I Overhead (per Bhr) 

Insurance (per Bhr) 

Admin Overhead (per Bhr) 

Total 

Northern Air Cargo. Inc. 

July 12.2012 

Assumptions Weighting 

AnchorageBethel -AdakAnchorage 

( 4.5167 Bhr) 

AnchorageAdakAnchorage 

(5.1667 Bhr) 

!--------,---- ----··· ······- ... ··--······ ·--·-·--···- --·- .. 

50.0%1. $ ·. 6,342 $ 7,139 - 1------------ -- - ·- .... . .. . ···- ·····- -·····-······· .. 

50.0%! $ 12,684 $ 14,278 1-'-----~"-1----~~~-'-----==..:::-=---r-----· --· $ 148 $ 148 1--'------t--------"--'------·- -------·-- ---- --------

0.05 !_ $' !_6_QO _ _ $ _____ 1,§()() 

$ _______ ___ _ 1,~ -------- ----- ------ .. $ - ... . 1,400 $_ 1,400 

? ____ 262_,___ _ ___ __ _ ? ______ 1,188 $ -···· ~,359 

$ 150 $ .. }_f!l __ $ __ ____ ______ ~og _ 

---~--.-----'----------· -!-------- ---· ····-· · 

$~_~1~,0~2~4-~-------~$ ____ ~4,~6=25~ $ 5!_~~

..c.$ ____ 2_75-+--- ------ '---- -'-,2~.? __ $_ __ ___ 1,~2~

$ 50 $ 226 $ 258 -'---- ····· ..... . ...... ··- - --·· ···-- -····- ·-··· ......... . . 

$ 667 $ ?~9 !?. .? ________ 3_,4.L!:§_ 

$ 50 $ 226 $ 258 ------- - . ····+--- .. ------ -- -- --·· $ 89 $ 402 $ ---- -------.... -· !--·-------- - . --··--··-- · 460 

$ 50 $ 226 $ 258 

$ 33,622 $ 37,616 

3 EAS Proposal at Adak 
Profit Projections 

Northern Air Cargo, Inc.'s subsidy request is based upon a tive percent (5%) profit, based upon 

the following per flight estimates: 

Anchorage- AnchoragePer Flight Profit Bethel -Adak- AdakAnchorage Anchorage 

Estimated Expenses :s 33,622 $ 37,616 I 

Profit IS 1@5% 1,681 $ 1,881 

Requested Per Flight Subsidy 

Northern Air Cargo, Inc.'s subsidy request per flight is as follows: 

Anchorage- AnchoragePer Flight Subsidy Bethel- Adak- AdakAnchorage Anchorage 

Estimated Revenues 7,465 ! 7,~~ 

Estimated Expenses ' 33,622 ! 37,616 

Operating Profit (Loss) 

! (26,157)1 (30,151l 

Profit @5% 1,681 1,881 

Requested Subsidy Per Flight I 27;838 32,032 

Annual Requested Subsidy 

Based upon the above assumptions, Northern Air Cargo Inc.'s requested annual subsidy to 

provide the propose? thirty-four (34) 8737-200 cargo jet service flights per year to Adak, Alaska 

from its Anchorage hub, located at the Ted Stevens Anchorage International Airport, is 

$1,017,790, per the following schedule: 

Annual Subsidy 

Flights Per Year 

Subsidy Per Flight 

Annual Subsidy 

Northern Air Cargo. Inc. 

July 12, 2012 

Total Annual' Subsidy · 

Anchorage- AnchorageBethel-Adak- AdakAnchorage Anchorage 

I 171 17 

:s 27,838 $ 32,032 

's 473,246 I $ 544,544 

$ 1,017,790 

EAS Proposal at Adak 
Proposed Subsidy Mitigation 

Northern Air Cargo's requested annual subsidy is calculated based upon Northern Air Cargo, Inc. 

realizing approximately a thirty (30) percent share of the 2011 actual ANC-ADK-ANC freight 

and mail volumes. We recognize that the projected market share of thirty (30) percent is a 

significant variable; and, therefore, we propose a subsidy mitigation strategy. 

The proposed subsidy mitigation strategy is based upon an annual reconciliation of actual total ... .. realized revenues for ANC-ADK-ANC (on both the non-stop and one-stop segments). NAC will 

remit to the DOT eighty (80) percent of the difference between the per flight subsidy paid to 

NAC by DOT and the actual realized revenue up to $25,000 per flight, which is based upon 

100% of the 2011 actual mail and freight volumes. NAC will retain twenty (20) percent of the 

variance to account for increased variable expenses due to larger cargo load factors. 

The following table presents the potential subsidy refund at various mail/freight levels: 

Estimated Revenue at 30% 

Realized Annual Re.venue 

10% 

20% 

Proposed Subsidy Mitigation 

$ 7,464 $ 7,464 $ 7,464 $ 7,464 $ 7,464 $ 

-------- --------- ---- ---- ---- ------------------- --- -------- ----- ---- ---- --

7,464 $ 7.464 $ 7,464 

--------=-30%_::_:__:_• - t-$"---'--'-7,_:_:: 4644------:-----+-- - - +----l----f--- --:-.- --..-- ,--------- --- --- ----- -------- 40% $ 9,953 

--- ------ ---+---1- 2.__12,44!_ r--------1----------- - --- ----- r-----~----- 60% $ 14,929 

______ 7_0%_· - -t----t----+------- $ 17.417 1-- -- - --- -- ----- -- - ~ ,--------- -------- - - - -- - ---------- --- ---

$ ---------~~ --- -· -- -- --

_______ __:__ 90%::..:..•:..___-+---+----+----+-----+-----t-----+-$--- __ ~~ r----- --- -- 100% $ 24,881 

Variance 

Variable Expenses@ 20% 

Per flight refund to DOT 

Assumed flights 34 

Annual subsidy refund 

$ 

$ 

$ 

$ 

$ 

$ 

(2,488) $ 

498 $ 

(1,991) $ 

(4,976) $ 

995 $ 

(3,981) $ 

(7,464) $ 

1,493 $ 

(5,972) $ 

(9,953) $ 

1,991 $ 

(7,962) $ 

(12,441) 

2,488 

(9,953) 

$ (14,929) $ (17,417) 

$ 2,986 $ 3,483 

$ (11,943) $ (13,934) 

i......; $ 167.6nl $ (135.3541 $ 1203.0311 $ 1270.708) $ 133§.3851 $ 140§.0§21 $ 1473.7391 

Conversely, should the annual revenue reconciliation reveal that Northern Air Cargo, lnc. 

realized less than the estimated revenue of $7,464 per flight; then, the DOT would remit to 

Northern Air Cargo, Inc. the difference between the $7,464 per tlight and the actual realized 

revenue. 

Northern Air Cargo, Inc. 

July 12.2012 

5 EA S Proposal at Adak 
The following chart details the revenue assumptions included in the above chart: 

Revenue/ Flight 

Pound Segment Pounds 

Total Per flight 

_L !:~ ~C-ADK 43,307 1,274 

L_l.SQ ANC-ADK 99,452 2,925 

i .. __ !;2?_ ~~~:~ -· 3,606 106 

$ o.so ADK-ANC 62,852 1,849 

Total 209,217 6,153 

Pounds 

Total Per Flight 

.. ? - !~ ANC-ADK - 101,051 2,972 

i. !·?Q. ANC-ADK . 232,054 6,825 r----

j_ ... !:56 ADK-ANC -- 8,4_!2 __ 247 r------ $ 0.50 ADK-ANC 146,655 4,313 

Total . ~8§,174 14,358 

Northern Air Cargo, Inc. 

July 12,2012 

30% 

Revenue 

Total Per Flight 

$ 67,560 $ 1,987 

$ 149,177 L 4,388 

$ 5,626 $ 165 

$ 31,426 $ 924 

$ 253,789 $ 7,464 

~ 

Revenue 

Total Per Flight 

$ 157,§_L $ 4,636 

$ 348,080 $ 10,238 

$ 13,127 $_ 386 

$ 73,327 $ 2,157 

$ 592,174 $ 17,417 

40% 

Pounds Revenue 

Total Per Flight Total Per Flight 

57,743 1,698 $ 90,080 $ 2,649 

- 132,601___ 3,900 $ 198,903 _$ 5,850 

---- 4,8CJ:9._ --~---- 141 $ 7,501 ____ $ __ 221 

83,803 2,465 $ 41,901 $ 1,232 

278,957 8,205 $ 338,385 $ 9,953 

110% 

Pounds Revenue 

Total Per Flight Total Per Flight 

115,48?._ 3 397 $ 180,159 $ 5,299 

--265,2~----.. 7,800 $ 397,806 $ 11,700 ... 

_2-_61? --------. 283 $ 15,003 $ 441 - 167,606 4,930 $ 83,803 $ 2,465 

557,913 16,409 ~ 676,770 $ 19,905 

.:6 

I\IPC 

i'.li.~Jf.-{ rr-~.>1-<i'J ;:..!>,;c.:""'~ <r.;u 

50'.$' 60Xo 

Pounds t Revenue Pounds Revenue 

Total Per Flight' Total Per Flight Total Per Flight Total Per Flight 

72179 2,123 $112,599 $ 3,312 86,615 2,547 $135,119 $ 3,974 

165,753 4875 $248,629 $ 7,313 198,903 5,850 $298,355 $ 8,775 

6,011 177 $ 9,377 $ 276 7,213 212 $ 11,252 $ 331 

104,754 3,081 $ 52,377 $ 1,540 125,704 3,697 $ 62,852 $ 1,849 

348,696 10,256 \ $422,982 $12,441 418,435 12,307 $507,578 $14,929 . ': . 90%' l.Oim 

Pounds Revenue Pounds Revenue 

Total Per Flight! Total Per Flight Total Per Flight Total Per flight 

129,922 3 821 j $202,679 $ 5,961 144,358 4,246 $225,199 $ 6,623 

298,355 8,775 $447,532 $13,163 331,505 9,750 $497,258 $14,625. 

10,819 318 $ 16,878 $ 496 12,021 354 $ 18,753 $ 552 

188,556 5,546 $ 94,278 s 2,m 209,507 6,162 $104,754 $ 3,081 

627,652 18,16() $ 7§1,}6Z_ j g~3_ - _6'll,~92 20,512 $845,963 $24,881 

>\ 

·' 

EAS Proposal at Adak