BEFORE THE

DEPARTMENT OF TRANSPORTATION

WASHINGTON, D.C.

OFFICE OF THE SECRETARY

__________________________

Essential Air Service at )

ATKA and ) Docket DOT-OST-1995-363

NIKOLSKI, ALASKA )

Under 49 USC § 41731 et seq. )

__________________________)

COMPARISON OF

PROPOSALS OF SERVANT AIR, INC.

AND GRANT AVIATION

TO PROVIDE ESSENTIAL AIR SERVICE

AT ATKA AND NIKOLSKI, ALASKA

Communications with respect to this document should be addressed to:

Wes Osowski

Servant Air, Inc.

1619 Airport Way

Kodiak, AK 99615-6977

(907) 487-4400

April 19, 2012
BEFORE THE

DEPARTMENT OF TRANSPORTATION

WASHINGTON, D.C.

OFFICE OF THE SECRETARY

__________________________

Essential Air Service at )

ATKA and ) Docket DOT-OST-1995-363

NIKOLSKI, ALASKA )

Under 49 USC § 41731 et seq. )

__________________________)

COMPARISON OF

PROPOSALS OF SERVANT AIR, INC.

AND GRANT AVIATION

TO PROVIDE ESSENTIAL AIR SERVICE

AT ATKA AND NIKOLSKI, ALASKA

Two bids have been submitted to provide Essential Air Service to Atka and Nikolski from Dutch Harbor 

(Unalaska). Both proposals meet the Essential Service requirements, and both propose to use twinturboprop pressurized Beechcraft King Air 200 aircraft. Both propose to use Peninsula Airways for 

ground support in Dutch Harbor, and both carriers would rent a hanger from Penair as well. Despite 

these similarities, Servant Air seeks a higher subsidy payment. Servant’s request is based on three major 

differences. First, Servant proposes a substantially higher level of safety and operational reliability. 

Servant will use two-pilot flight crews. This is particularly important given the convoluted approaches to 

both Nikolski and Atka. For aircraft, Servant’s bid assumes low time airframes and engines on the 

Beechcraft King Air 200 they propose to use. These aircraft are more reliable and require less 

maintenance in the initial periods than the initially lower-cost but higher time and less reliable aircraft 

proposed by Grant.

The Grant bid is also confusing because the bid requirement is for two years, and Grant does not adjust 

costs or revenue for a second year. As noted in the Servant bid, traffic has been declining or flat and the 

communities, and expenses have been increasing at a rate faster than inflation. Even if we assume 

revenue yields go up as fast as expenses as a percentage, the fact that expenses are much higher than 

revenue mean that the subsidy need show go up each year.

Servant proposes to use dual certificated pilot/mechanics to insure more reliable service by having onsite maintenance that can provide routine repairs and inspections of aircraft. Additionally, Servant has 

obtained an agreement from Peninsula Airways to provide backup maintenance.

Servant’s proposes scheduled services that will meet all of the needs of the community and the Essential 

Service requirement. At Nikolski, Peninsula Airways has used an aircraft stationed at Dutch Harbor to 

provide service, currently a Grumman Goose. Servant will offer flights consistent with the timing of 
current offerings, while maintaining the ability to operate extra sections or flights at different times or 

days depending on weather. At Atka, Penair schedules three flights a week, all of which are connected 

to Anchorage service. If a roundtrip to Atka cannot be completed before the return departure to 

Anchorage, the Atka service is cancelled. By scheduling three flights per week, Penair hopes to 

complete the required two flights. Even with the additional schedule, Penair completed an average of 

1.96 roundtrips per week in the year ended November, 2011. Those flights had an average passenger 

load factor of 15.6%. The average total load factor outbound from Dutch Harbor was only 42%. Two 

flights a week actually completed is entirely adequate in most situations, and Servant will be able to 

operate extra sections without having other schedule commitments to worry about.

Servant’s proposal is more complete and includes reasonable expenses for a high quality Essential 

Service. For example, Grant Aviation does not plan to compensate village agents in Atka and Nikolski for 

transporting freight and mail between the airport and recipients and market rates. Grant assumes 

monthly housing costs that are actually below the market rate for apartments in Dutch Harbor, and 

excludes any cost for telephone or internet connections.

Grant’s direct operating costs for Atka service are understated by at least 14%. The average roundtrip 

block time for Penair’s Metroliners was 3:15, while Grant assumes 3:00 using a marginally slower 

aircraft. Servant Air obtained is block time and fuel burn estimates from Beech aircraft planning and 

performance data for late model King Air 200 aircraft. Both Atka and Nikolski have relatively complex 

GPS instrucment approaches, and Atka’s requires flying beyond the airport 40 miles offshore to begin a 

landing approach.

There are three significant differences between Grant and Servant that are unrelated to pricing policies 

or underlying unit costs. First, Servant Air proposes to use a two pilot crew and a modern aircraft to 

operate the service. The two pilot crew is strictly a safety issue related to the complications of flying in 

the difficult weather of the Aleutians and the instrument approaches as Atka and Nikolski. Two pilot 

crews are the norm for multi-engine EAS operations in the lower-48. The later model King Air is a more 

capable aircraft, and a newer aircraft means more reliable service and fewer programmed maintenance 

issues in the first year. The second issue is the cost of housing and transporting the flight crew in Dutch 

Harbor. While this is not a significant cost element, it reflects the difference in bid philosophy and 

thoroughness of preparation. Based on conversations with Peninsula Airways, Servant assumed $2,000-

2,400 in rent plus utilities. Utilities are estimated at $600-1,000/month for heat, electricity, telephone, 

internet and cable. Grant does not list an away from base per diem, or costs of rotating crews between 

Anchorage and Dutch Harbor. The third difference is level of compensation paid for ground services at 

the bush destinations. At most, Grant proposes to pay bush agents a total of $10,200 per year.

The list of expense items that Grant ignores is long. Grant does not include expenses associated with a 

passenger reservations system, ignores crew rotation expenses, does not allow for route proving or 

aircraft transportation costs. Grant does not assume any telephone or other communications expense 

at the Dutch Harbor airport, no vehicle in Dutch Harbor, or any contingency allowance. In total, Grant 

excludes nearly $250,000 a year in normal air carrier expenses.
The attached appendices show that if Grant’s block times are the same as computed by Servant, the fuel 

burn computed from Beechcraft manuals, a modern version of the King Air 200 used, and a two pilot 

crew employed, Grants subsidy need would be $245,000 more than Servant’s proposal even with the 

exclusion of $250,000 in essential expenses by Grant. Adopting Grant’s costs to Servant’s proposal 

would bring Servant’s subsidy need to $330,000 below Grant’s. The only costs that are changed are 

those associated with crewing and aircraft operations, housing costs in Dutch Harbor and costs for 

ground handling in the bush villages. None of these costs are within the direct control of the carrier, and 

simply reflect the difference in bid philosophy. Whether Grant’s costs are adjusted for Servant’s 

assumptions, or Servant’s costs are adjusted for Grant’s assumptions for these three items, the outcome 

is that Servant has the lower subsidy need. Servant is happy to document its cost assumptions, or adjust 

its bid if those assumptions are incorrect.

In the end, a realistic cost approach is the only way to assure continued operation of Essential Air 

Service at Atka and Nikolski. As a group, the four Aleutian points of Adak, Atka, Nikolski and Akutan will 

go down. Whether Servant is selected or Grant, either carrier will have to establish a new base at Dutch 

Harbor, rotate crews to and from that base, house them, transport them in Dutch Harbor, provide 

ground handling in the bush points, and fly the aircraft on approved F.A.A. routings.

Servant believes its proposal is the most accurate and complete, and represents a reasonable level of 

subsidy need to sustain Essential Service over the long run.

Respectfully submitted,

Servant Air, Inc.

By Wes Osowski 

April 19, 2012
SERVANT AIR, INC. ASSUMING GRANT UNIT COSTS

ESSENTIAL AIR SERVICE PROPOSAL FOR Appendix C

ATKA AND NIKOLSKI, ALASKA Page 1 of 1

Submitted March 30, 2012 MONTHLY 

MONTHLY FIXED EXPENSES

Pilot/Mechanic $ 10,555 

Crew Housing/Utilties $ 1,800 

Away from Base Allowance $ - 

Telephone/Communications $ - 

Vehicle/Gasoline/Insurance $ - 

Personnel Rotation $ - 

Hangar Rental $ 4,000 

Nikolski Agent $ - 

Atka Agent $ - 

Reservations/Communications $ - 

D.O.T. Insurance $ 2,375 

Hull Insurance $ 5,000 

Aircraft Lease/Depreciation $ 15,000 

Contingency $ - 

General & Administrative $ 7,500 

Group Total $ 35,675 

Profit Margin (5%) $ 1,784 

SUBTOTAL $ 37,459 

ANNUAL TOTAL $ 449,505 
SERVANT AIR, INC. Assuming Grant Unit Costs

ESSENTIAL AIR SERVICE PROPOSAL FOR Appendix D 

ATKA AND NIKOLSKI, ALASKA Page 1 of 2 

Submitted March 30, 2012

VARIABLE OPERATIONAL EXPENSE -

NIKOLSKI Calculations

RT Block 

Time $ per RT 

Beechcraft King Air

Fuel & Oil

110 gph @ 

$7.30 1.25 $ 1,003.75 

A/C Maintenance $ 658.00 1.25 $ 822.50 

DUT Grnd Handling $ 300.00 

VARIABLE OPERATIONAL EXPENSE - ATKA

Beechcraft King Air Per B/H

B/H per 

Flight $/Roundtrip 

Fuel & Oil

110 gph @ 

$7.30 3.00 $ 2,409.00 

A/C Maintenance $ 658.00 3.00 $ 1,974.00 

DUT Grnd Handling $ 300.00 

Ground Handling @ Destination

Atka

Nikolski

Penair Cargo Handling @ DUT

TOTAL VARIABLE OPERATING EXPENSE
SERVANT AIR, INC.

Assuming Grant Unit Costs 

Appendix D 

Page 2 of 2 

RT's per 

week $ per week $ per 52 weeks 

Beechcraft King Air

Fuel & Oil 2 $ 2,007.50 $ 104,390 

A/C Maintenance 2 $ 1,645.00 $ 85,540 

DUT Grnd Handling 2 $ 600.00 $ 31,200 

VARIABLE OPERATIONAL EXPENSE -

ATKA

Beechcraft King Air RT's/Week Expense/Week Expense/Year 

Fuel & Oil 2 $ 4,818.00 $ 250,536 

A/C Maintenance 2 $ 3,948.00 $ 205,296 

DUT Grnd Handling 2 $ 600.00 $ 31,200 

Ground Handling @ Destination

Atka $0.06/LB CARGO $ - 

Nikolski $0.06/LB CARGO $ - 

Penair Cargo Handling @ DUT

$0.12/LB 

CARGO $ - 

TOTAL VARIABLE OPERATING EXPENSE $ 708,162 

Profit @ 5% $ 35,408 

TOTAL VARIABLE ECONOMIC COST $ 743,570 
SERVANT AIR, INC.

ESSENTIAL AIR SERVICE PROPOSAL FOR

ATKA AND NIKOLSKI, ALASKA

Submitted March 30, 

2012

Using Grant Aviation Unit Costs

Projected Revenue (Appendix B) $ 398,606 

Fixed Monthly Expenses (Appendix C) $ 449,505 

Variable Monthly Expenses (Appendix D) $ 760,308 

TOTAL ECONOMIC EXPENSES PER YEAR $ 1,209,813 

SUBSIDY NEED $ 811,207 

Grant Subsidy Bid Using Same Assumptions $ 1,147,440 

SERVANT BID IS LOWER 

BY: $ 336,233 
Atka + Nikolski EAS Proposal Summary

ASSUMING SERVANT AIR AIRCRAFT, TWO PILOT CREW AND BUSH POINT 

EXPENSE

Fuel 

Burn

Atka

Weekly Round Trips 3 

Annual Flights @ 100% completion 156 

Per flight Block Time 3.15 

Annual Block Hours 491.40 63,882

Distance DUT - AKB (stat miles) 339 

Annual O/W Passengers expected 511 

OW fare $ 267.00 

Annual mail lbs expected 99,740 

Current mail rate / lb $ 1.8491 

Annual Freight lbs expected 25,000 

Current Freight rates / lb $ 1.91 

Nikolski

Weekly Round Trips 2 

Annual Flights @ 100% completion 104 

Per flight Block Time 2.00 

Annual Block Hours 208.00 29,120

Distance DUT - IKO 116 

Annual O/W Passengers expected 132 

OW fare $ 148.00 

Annual mail lbs expected 20,020 

Current mail rate / lb $ 0.9926 

Annual Freight lbs expected 25,000 

Current Freight rates / lb $ 0.65 

Total Annual Block Hours 699.40 93,002
Atka + Nikolski EAS Proposal Summary

ASSUMING SERVANT AIR AIRCRAFT, TWO PILOT CREW AND BUSH POINT EXPENSE

Revenue Total Revenue 

Passenger Fares $ 155,973 

Mail Revenue $ 204,301 

Freight Revenue $ 64,000 

Total Revenue $ 424,274 

Direct Expense (Base) Base Total Expense 

Fuel/oil ($/gallon) $ 7.30 93,002 $ 678,915 

Aircraft lease expense $ 30,000.00 

 

12 $ 360,000 

Maintenance $ 532.00 

 

598 $ 318,136 

Pilot labor $ 240,804 

Aviation Insurance hull + 

liability $ 50,895 

Total Direct Expense $ 1,648,750 

Indirect Expense

Hanger lease / month $ 4,000.00 

 

12 $ 48,000 

Ticketing & ground 

service $ 300.00 

 

520 $ 156,000 

DUT Freight & mail 

Handling $ 0.12 

 

169,760 $ 20,371 

Bush Ground Handling 

($2,000/mo per location + 

weight) $ 0.15 

 

169,760 $ 49,464 

Pilot housing+utility / 

month $ 3,000.00 

 

12 $ 36,000 

Total Indirect Expense $ 309,835 

Sum of direct and indirect costs $ 1,958,585 

Burden @ 17.2% 17.2% $ 336,877 

$ 2,295,461 

Profit @ 5.0% 5.0% $ 114,773 

Total Annual Economic cost $ 2,410,234 

ANNUAL SUBSIDY NEED $ 1,985,960 

GRANT SUBSIDY AMOUNT ABOVE SERVANT NEED $ 244,998