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ADAK,ALASKA ) DocketOST-2000-8556 )**_u_n_d~e~r~49~U~.S~._c_.§~4_17_3~1_e~t~.s~e~q~·--** _________)

PROPOSALOF PENINSULAAIRWAYS, INC. TO PROVIDE ESSENTIALAIR SERVICE ATADAK, ALASKA

Communicationswith respectto this documentshould be addressed to: DannySeybert Scott Bloomquist PENINSULAAIRWAYS, INC. 6100 Boeing Avenue Anchorage, Alaska 99502

March 30, 2012 Robert E. Cohn Patrick

### R. Rizzi Hogan Lovells US LLP 555 13th Street, N.W. Washington, D.C. 20004 (202) 637-4999/5659 robert.cohn@hoganlovells.com patrick.rizzi@hoganlovells.com Counselfor PENINSULAAIRWAYS, INC.BEFORETHE DEPARTMENTOF TRANSPORTATION WASHINGTON, D.C.

Essential Air Service at ) ) ) ADAK, ALASKA under49 U.S.C. 

### § 41731 et. seq. ) DocketOST-2000-8556 ) ) March 30, 2012



# _________________________________)
PROPOSALOF PENINSULAAIRWAYS, INC. TO PROVIDE ESSENTIALAIR SERVICE ATADAK, ALASKA Pursuant to DOT Order 2012-2-8, Peninsula Airways, Inc. ("PenAir") hereby presents its proposal to provide subsidized essential air service ("EAS") atAdak, Alaska, foratwo-year period beginning July 1, 2012. 1

I. PenAir's Adak EAS Proposal. PenAir proposes to provide four weekly roundtrip flights between Adak and Anchorage using PenAir's combination Saab 340 aircraft on an AnchorageCold Bay-Adak-Anchorage routing. PenAir's proposal would require an annual subsidyof$3,440,096.69. See Exhibit and accompanying Notes.

The benefits of PenAir's EAS proposal forAdak are compelling. PenAir's Saab 340 aircraft is appropriately sized for the Adak marketplace. PenAir's

The Departmenttwice extended the due datefor submission ofproposals, with the final due date being March 30, 2012.

•IDC •004721/000002 • 3368997 v2proposal will double the number ofweekly frequencies Adak currently receives. Although Adak currently receivesjet service from Alaska Airlines, PenAir's Saab 340 has a long stage length capability and offers passengers the comfort and convenience of a stand-up cabin, leather seating, full lavatory, flight attendant service, and substantial cargo capacity. Indeed, the State of Alaska recently acknowledged: "However, the time has come for all of us to consider afresh whatwould bethe mostcost-effective and appropriate options [forAdak service], which may no longer includejetservice." DOT Order2012-2-8, at 2; Letterfrom State ofAlaska to DOT, dated February 6, 2012. Accordingly, the Department has expressly "encourage[d] proposals with turboprop aircraft" forAdak this time around. DOTOrder2012-2-8, at 3. PenAir's Saab 340 proposal fits the bill. PenAir has had longstanding experience in providing essential air service to Adak. Prior to the Department's selection ofAlaska Airlines, PenAir had for many years provided quality EAS service to Adak. Following the demise of Reeve Aleutian Airways in 2000, PenAir was the only airline with the demonstrated interest and resources to step in immediatelyto provide Adak with EASonan emergency basis and was selected to do so by DOTOrder2001-7-3. PenAir believes that its prior experience serving Adak (with a 99% schedule completion rate) and its higher frequency proposal (which would double the numberofweeklyflights currently provided to Adak) will bestserve the public interest and the needs ofthe Adak market, providing more frequent delivery of goods, parts, equipment, and personnel in support of the island's industry.

'\DC'- 0047211000002-3168997v2 2PenAir's proposal also benefits from the fact that the federal government will not need to incurthe costs and expenses associated with transporting three TSA agents to/from Anchorage or Cold Bay for each service as is currently done forAlaskaAirlines' service atAdak. In sum, PenAir's Saab proposal will best serve the interests of both the Adak community and the Department by providing higher frequency, reliable EAS at a reasonable subsidy cost given the stage length and unique circumstances entailed in serving Adak. II. CarrierSelection Factors Favor PenAir. Under 49 U.S.C. 

### § 41733(c)(1), the Department considers five factors in selecting a carrier to provide subsidized essential air service including: (1) service reliability; (2) contractual and marketing arrangements with a larger carrier at the hub; (3) interline arrangements with a larger carrier at the hub; (4) communityviews; and (5) each applicant's relative subsidy requirements. PenAir excels in each of these categories. PenAir is among the largest and most reliable commuter airlines in the state ofAlaska and has had decades of experience in providing reliable subsidized essential air service to small Alaska communities (e.g., 99% completion factor at Adak). PenAir's subsidy proposals in this case represent highly cost-efficient essential air service appropriately sized to meet the needs of the communities on an economically efficient basis. In addition, PenAir has a marketing arrangementto/from PenAir's

'.'DC- 004721/000002. 3368997v2 3hub at Anchorage which offers seamless service for PenAir's passengers to the national airtransportation system. In conclusion, PenAir requests that the Department select it to be the subsidized essential airservice carrieratAdak, Alaska, foratwo-year period.

\IDC- 00472!1000002 •3308997 v2 Respectfullysubmitted,

Robert

### E. Cohn Patrick R. Rizzi Hogan Lovells US LLP 555 13th Street, N.W. Washington, D.C. 20004 (202) 637-4999/5659 Counselfor PENINSULA AIRWAYS, INC. d/b/a PenAir

4

### Notesto PenAir's EAS Subsidy Proposal Note 1: Total passenger data are adjusted from the YE October 2011 data for Adak attached to DOT Order 2012-2-8 to account for the reduction in TSA passengers that are carried on each Alaska Airlines flight for security screening at Adak. Given the size of PenAir's Saab aircraft, those TSA passengers are no longer required. Note 2: PenAir will require a refueling tech stop at Cold Bay (COB) on the Anchorage to Adak flight. There will be no local ANC-CDB traffic on PenAir's Adak service. Ifsuch local traffic were permitted, it would require an additional roundtrip service (for a total of 5 weekly) in order to meet the historical traffic/freight demands of Adak, with a corresponding increase in the required subsidy. Note 3: PenAir estimates average revenue per passenger of $393 for the ANC-ADK market. This amount equates to the average ANC-ADK revenue (net of taxes) that Alaska Airlines received for YE Q3 2011, using the U.S. DOT, Origin-Destination Passenger Survey, via Diio,LLC. Note 4: The price offuel has increased substantially in the past two years. PenAir's fuel expense estimate is based on current fuel prices of $3.49 (ANC) and $5.69 (ADK, COB). Note 5: The "extra crew member" expense reflects the estimated pay, benefits, and training costs for an additional Captain on board PenAir's ANCCDB-ADK-ANC service. As a result of the projected 9.8-hour "no wind" block time for the Adak service, PenAir is required to augment the flight crew with an additional Captain in order to comply with the FAA's new, more restrictive, flight and duty regulations governing Part 121 flight crew members which limit unaugmented flight time periods to only 9 hours. See, 14 CFR Section 117.11 & TableA. Note6: The "extra mx crew member" expense reflects the estimated pay, benefits, and training costs to carry a PenAir A&P mechanic on board PenAir's ANC-CDB-ADK-ANC service. Alaska Airlines currently carries an A&P mechanic on-board its Adak service. There are no trained A&P mechanics with maintenance expertise for the Saab aircraft located at Adak. If a PenAir Saab had a mechanical issue atAdak that needed atrained A&P to repair, it could be two orthree days before another Saab might be available to serve the route and transport a PenAir mechanic to Adak for the repair. PenAir cannot risk such a majordisruption ofits system and aircraftscheduling.

'.'DC- 004721/000002 • 33689Q7v2 5

### Aircraft Saab 340
ANC/CDB/ADK/ANC Passenger Distance Passengers Payload Weekly Round Trips Annual Flights Annual Departures BlockTime Block Hours Passenger Anchorage-Adak Adak-Anchorage Freight Anchorage-Adak Adak-Anchorage Mail Anchorage-Adak Adak-Anchorage TOTAl.

### BEVENUE

Flying Ops per hr Fuel & Oil per hr Insurance per hr Maintenance per hr Aircraft per hr FlightAttendant perhr Extra Crew Member Extra MxCrew Member Adak Weather Startup Expenses Total Directs Departure Related @ $199.42 Traffic Related @ 12.95% Capacity Related @ 12.27% Totallndirects TOTALOPERATING EXPENSE $393/pax $393/pax $1.50/lb $0.75/lb $3.8767/lb $3.8767/lb

$ 245.40 $ 570.53 $ 63.78 $ 751.25 $ 161.23 $ 48.87 $ 184.05 $ 32.57 $ 19.61 1

$ 199.42 12.95% 12.27% 1192 2983 4500

4 416 

### PassengerAircraft Only- 4 Weekly

624 incl. CDB Tech Stop 9.8 2038.4 Revenue 1,496 pax $ 587,928.00 1,487 pax $ 584,391.00 284,520 lb $ 426,780.00 174,500 lb $ 130,875.00 155,380 lb $ 602,361.65 13,740lb $ 53,265.86 

### $ %;335,601.51 Expenses per/blk/hr $ 500,223.36 per/blk/hr $ 1,162,968.30 per/blk/hr $ 130,009.15 per/blk/hr $ 1,531,348.00 per/blk/hr $ 328,651.23 per/blk/hr $ 99,616.61 per/blk/hr $ 375,167.52 per/blk/hr $ 66,390.69 perfit. $ 4,078.88 $ 133,000.00 

### $ 4,331,453.40 Per Dep. $ 124,438.08 per/blk/hr $ 560,923.21 per/blk/hr $ 531,469.33 

### $ 1,216,830.60 

### $ 5,548,284.00Profit@ 5% ECONOMICCOSTS ANNUALSUBSIDY $ 277,414.20 $ 5,825,698.20 

# I$·

## 3,440,oss.691