BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. OFFICE OF THE SECRETARY

__________________________________________ ) In the matter of the ) ) Intra-Alaska Bush Mail Rates ) Docket OST-03-14694 ) Response of the Consolidated Carriers to the ) U.S.P.S. and Peninsula Airways Comments ) __________________________________________)

REPLY OF THE CONSOLIDATED CARRIERS TO THE U.S.P.S. AND PENINSULA AIRWAYS COMMENTS

Communications with respect to this document should be addressed to: Hank Myers MTC P.O. Box 7142 Bellevue, WA 98008-1142 Office (425) 830-4265 Email hank@mtcworld.com March 1, 2011BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. OFFICE OF THE SECRETARY

__________________________________________ ) In the matter of the ) ) Intra-Alaska Bush Mail Rates ) Docket OST-03-14694 ) Response of the Consolidated Carriers to the ) U.S.P.S. and Peninsula Airways Comments ) __________________________________________)

REPLY OF THE CONSOLIDATED CARRIERS TO THE U.S.P.S. AND PENINSULA AIRWAYS COMMENTS

The undersigned Consolidated Carriers peti tion for leave to file an otherwise unauthorized document to respond to the Repl y of Peninsula Airways and the Comments of the U.S. Postal Service. Peninsula Airway s distorts the actual meaning of the R.S.I.A., and Order 2003-10-10 in order to support an action it had previously opposed. The Postal Service misquotes the language of the Rural Service Improvement Act in order to support including large airc raft in the 135 bush mail rate. Th is response is necessary to expose the gross fallacies in both filings, and wi ll not delay the setting of the mail rate at a lawful level, while providing a more solid basis for the decision.

U.S. Postal Service

In its request for additional time to res pond to Order 2010-12-28, the Postal Service said, “The comments in opposition are extensive a nd require additional time for an adequatereview.” It one page Comme nts simply say that the R.S. I.A. provides “incentives for

bush carriers to convert to Part 121 operations to benefit pass engers and shippers.” The irony of its position is that it is actually encouraging conversion of Part 121 service to Part 135 operations. In the preamble language of the R.S.I.A., the Act noted the increase safety and reliability of Part 121 operations compared to Part 135. By converting Part 121 operations to Part 135 rules, Penair is running directly cont rary to the clearly established goal of the R.S.I.A. Furthermore, the R.S.I.A. goal of converting to Part 121 operations was not unqualified. The Act enc ouraged such a conversion only when the market supported 121 service. Clearly th e action of Peninsula Airways to downgrade

their Metroliner and Saab 340 services to Part 13 5 is contrary to the intent of the R.S.I.A.

The Postal Service also demonstrates the conf usion between aircraft certification and the bush rates set by the Department. When the R.S.I.A. was drafted, all aircraft with a certificated passenger capacity of at least 19 were operated under Part 121 regulations. Part 135 carriers were considering operati ng Beech 1900’s with fewer than 10 seats in competition with existing Part 121 service. A primary reason for the R.S.I.A. was to create special preferences for Part 121 servic e. There is no distinction between aircraft

certificated under F.A.R. Part 23 when related to operating rules. In the R.S.I.A., the term “Part 121” was applied to aircraft having a certificated seating capacity of at least 19, while “Part 135” was used to describe aircra ft with a certificated seating capacity of less than 10 seats. As will be explained belo w, this created confusion about what to do

with aircraft with 10-18 seats which were operated under Part 121, but were excluded for all purposes from the Part 121 applica tion of rates and pr eference rights.By referring to the incentives for Part 121 se rvice, the Postal Service is stating the preference for larger aircraft with lower unit costs per revenue ton mile, hence its argument for minimizing costs. The Postal Service is asserting a preference for larger aircraft as opposed to the more expensive ope rating rules under which they are flown.

The Postal Service claims that only by crea ting a single class will carriers be incentivized [sic] to control costs and make strides toward efficiency. This claim is ludicrous when

one examines the record of service. Th ere are 170 bush markets served by wheeled aircraft where only nine seat or less aircraft (135) are used for mail transportation. There

are 16 non-mainline markets served with airc raft with 19 or more seat certificated capacity aircraft (121). The number of markets served by ea ch aircraft type has been unchanged for several years, so there seems to be no incentive to convert to the larger

aircraft in the 170 Part 135 markets

The main reason for the stability is that th e 170 “135” markets are significantly different from the 16 “121” markets. According to the T-100 segment reports for the year ended June 30, 2010, service to and from the 170 points served only with aircraft of nine or fewer seats had an average payload capaci ty of 1,815 lbs, while the 16 “121” markets averaged 6,527 lbs of capacity per segment. On segments where mail was carried (all zero mail segments excluded), the average mail load on the 135 se rvice was 213 lbs.,

while on the 19 or more seat aircraft it was 796 lbs.. The average hop (stage length) for the 135 aircraft was 56 miles, and for the 19 s eat or greater aircra ft it was 389 miles.Clearly the operations for small aircraft are si gnificantly different from those of the larger aircraft. The average payload in 135 operations is less than a third of that for the 19 or greater seat aircraft. Sim ilarly, the average 135 mail load is about 30% of the average mail load on the larger aircraft. The aver age stage length for the 19 seat or greater

aircraft was six times the average stage length for the Pa rt 135 aircraft. The 19 seat or greater aircraft are operated over longer se gments with much higher mail loads. The larger aircraft are only used in larg er markets and over longer stage lengths.

The difference in operations between the Part 135 carriers and the 19+ seat aircraft has been documented throughout the mail rate cas e, but the most significant point which undermines the Postal Service argument is the average mail volume per point. The average mail volume to the 170 points receiving only Part 135 service is 270,000 lbs. per year (869 lbs. per day assumi ng 312 service days). For the 16 non-mainline points served with aircraft with 19+ seat capacity aircra ft, the average volume per year is 808,000 lbs (2,590 lbs. per day). It is l udicrous to suggest that adding high capacity aircraft to the Part 135 mail rate will provide any sort of incentive to the carrier s serving the 170 very small points, most of which do not even ha ve a runway long enough to support the larger

aircraft. Lower mail rates will provide the incentive to re duce service and/or increase subsidy need.

Given that the goal of the mail rate is to cover all mail related e xpenses incurred by the carriers, and no service is actually changing as a result of the Penair request, there should be no change in the total mail payments by the Postal Service. If the rate system isworking correctly, the argument that this scheme will save the Postal Service money

should be false.

Peninsula Airways

The Carriers demonstrated that th e inclusion of aircraft certif icated with 19+ seats in the bush 135 rate was contrary to the intent of the R.S.I.A. in its January 31, 2011 filing, and quoted the Departments findings related to Issue 6 about inclus ion of aircraft in the three bush rate cost pools designated by the R.S.I.A. Ironically, Penair refers to this same section to try to support its argument for incl uding Metroliners and S aab 340’s in the 135 pool.

It is clear from the Departme nt’s language that it was speaking only of the aircraft capacity in setting the rate pools, and not th e operating rules applicab le. The discussion was limited to how to deal with aircraft with a certificated capacity of ten or more, which would be operated under Part 121. The first issue was what was meant by the 19 seat requirement for inclusion in the 121 rate pool. Here Penair was absolutely clear. It was the certificated capac ity and not the actual number of s eats that should determine which pool an aircraft was placed in. Penair asserted that it operated its Me troliner aircraft with

fewer than the 19 certificated seats even when in an all-passenger configuration. Nonethe-less, Penair insisted that these aircraft belonged in the 121 rate pool. The next question was what to do with aircraft operated under Part 121 but having 10-18

certificated seats. The issu e addressed aircraft such as the Beech 99 or the stretchBeechcraft King Airs, not aircra ft certificated for 19 or more seats, which was decided above. The Department posed three options, put all Part 121 into the Part 121 pool, put

the 121 aircraft with less than 19 certificated seats in the 135 pool, or simply ignore the

costs of those smaller Part 121 aircraft. In the end, the De partment grouped all aircraft

with fewer than 19 certificated seats in th e 135 pool, regardless of the operating rules they were flown under. It was aircraft si ze and not operating rules that determined the rate pool. It was at this poi nt that the Department decided that 19 seats meant all aircraft with 19 certificated seats regardless of speed or STOL capability. Subsequently the Department created a Part 121 STOL rate for th e Twin Otter, stating that aircraft with different operating characteris tics and distinctly different unit costs should not be grouped together. It established a separate Part 121 for the Twin Otter, with the full knowledge that Era regularly opera ted those aircraft with fewe r than 19 seats. There was never any question as to where the costs fo r those aircraft should be considered.

Since 1982 when the C.A.B. first took up the qu estion of mail rates to bush villages, the policy has been to differentiate rates based on the capacity of aircraft. First it was simply mainline and bush with the dividing line at 7,500 lbs payload. After the F.A.A redefined its operating regulations so th at aircraft with 10 or more seats had to be operated under Part 121, there was a push by operators of thos e aircraft (including Penair) for special preferences and rates. While the distinc tion was categorized by operating rules, the

actual distinction was for aircraft with a cer tificated capacity of 19 seats or more, or fewer than 19 seats. An aircraft might be operated under Part 121, but if it had acertificated passenger capacity of less than 19 seats it was tr eated as a Part 135 aircraft for ratemaking and mail tender purposes.

The clear intent of the R.S.I.A. was to enc ourage safer and more reliable operations under Part 121 rules using aircraft certificated with 19 or more passengers. The Department has honored this intent, while adjusting rate pools to differentiate between aircraft types of different capacities and capacities. First Pena ir downgrades its service from Part 121 to Part 135 rules, then it expects to be paid at the higher rate for the downgraded service.

Finally, we must reiterate the impact of th e Penair ploy on the carriers providing service to the 170 small bush markets using aircraft cer tificated with 9 or fewer aircraft. These carriers will be substantially under-compensated for service. These carriers do not have the option of using larger, more efficient aircraft because the size of the markets or the length of runways at these points. There will be no incentive to become more efficient,

rather the incentive will be to reduce or even eliminate service. As such this creates a predatory practice by Penair. None of these ac tions was the intent of the R.S.I.A., and the Department has the power, and has used it before, to set compensatory mail rates for a

class.

WHEREFORE, the Consolidated Carriers respec tfully request that all aircraft with a maximum certificated passenger capacity of at least 19 seats be a ssigned to the 121 pool only, and that all aircraft with a seating capaci ty less than 19 seats be assigned to the 135 pool as they are today regardless of operating rules. This is the intent of the R.S.I.A., andwas carefully considered in Order 2003-10-10 wi th the full support of Peninsula Airways. While Penair and any other air carrier may be free to downgrade the service with their larger aircraft, there should be no reward or incentive to do so. The real incentive for Penair to downgrade its serv ice is to save money by avoi ding the more costly Part 121 operating and personnel requirements. Paying for large aircraft servic e at small aircraft rates eliminates the incentives for greater efficiency for Penair while failing to pay compensatory mail rates for the vast majority of bush mail service. To suggest that it is the rest of the industry that is gaming the system, as Penair has, is beyond silly.

Respectfully submitted,

The Consolidated Carriers Air Excursions, Inc. Bering Air, Inc. Bidzy Ta Hot ‘Aana, Inc. d/b/a Tanana Air Service Flight Alaska, Inc. d/b/a Yute Air Grant Aviation, Inc. Iliamna Air Taxi, Inc. Redemption, Inc. d/b/a Island Air SeaPort Airlines, Inc. d/b/a Wings of Alaska Servant Air, Inc.

____________________ By Hank Myers March 1, 2011CERTIFICATE OF SERVICE

I hereby certify that I have this day serv ed a copy of the foregoing Replay of the Consolidated Carriers upon all parties to this docket thr ough electronic mail.

____________________ Hank Myers March 1, 2011