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From: 

Sent: 

To: 

Cc: 

Subject: 

Dennis, Brian, 

Manistee Airport [manisteeairport@gmail.com] 

Thursday, February 23, 2012 8:05 AM 

Devany, Dennis (OST); Swanson, Brian (OST) 

Jim Gallagher 

Subsidy payment schedule 

During this process there is one set of questions I have been expecting 

you to ask as it relates to our Alternate EAS proposal, but so far they 

have not come up. Those questions are in relation to how in our proposal 

we were requesting that the subsidy be paid (or eligible grant expenses be 

reimbursed depending on how you structure this). While this may be a 

detail to be worked out later, it is a very important detail that causes 

some concern and nervousness on my side not knowing where this stands. 

Specifically the proposal as submitted stated: 

3. Manistee requests that subsidy be paid as follows during the first 

year: 

- $75,000 monthly in arrears to cover fixed costs incurred by the 

Indirect Air Carrier including, but not limited to, aircraft leases, 

station rents and leases, personnel wages and salaries, insurance, etc. 

- $1,500 per completed flight to cover flight costs incurred by the 

Indirect Air Carrier including, but not limited to, fuel, crew costs, 

other per block hour expenses, etc. 

- A $200,000 one time startup deposit be paid upon execution of the 

Grant Agreement to cover startup costs incurred by the Indirect Air 

Carrier including, but not limited to, pre-service marketing, station 

startup costs, personnel training, etc. This deposit would be applied 

towards the last 

month(s) of service. 

- The cap on subsidy costs would be $2,400,000 in year one (not 

including the deposit). 

- The payment structure for the second year is to be mutually agreed 

upon by DOT, the Indirect Air Carrier and the Airport Authority with a 

limit on subsidy costs of $2,200,000 in year two. The goal being to 

structure on going payments in such a way as to encourage the enplanement 

of more passengers, thus reducing the subsidy level per passenger. 

While the exact final details may need to differ (especially since there 

are now different Alternative proposals on the table at different subsidy 

levels), the overall structure is based on three 

points: 1) Separate billings to cover Fixed Costs vs. Per Flight Costs, 

2) Need for a Deposit/Advance, 3) A declining subsidy year 1 vs. year 2. 

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:-~-1:~: -- ,--' r- -
Let me go into more detail as to why each of these items is important to 

us in this proposal. 

1) Separate billings for Fixed Costs vs. Per Flight Costs The traditional 

EAS program simply uses a per flight subsidy as the means for the subsidy 

payments. That simple model works even though the costs of providing 

service are not all associated with per flight costs. The reason it works 

is that standard EAS service provides the same level of service week to 

week year round. So any fixed costs can be rolled into the per flight 

subsidy. However in our proposal we are asking for the flexibility under 

the Alternate EAS program to provide service that matches the seasonality 

of demand at Manistee with more service during peak summer periods and 

less during off peak winter periods. However the fixed costs largely are 

consistent year round (rents, salaries, etc) even though the number of 

flights might be different. To reflect this reality, we have requested 

splitting the subsidy into two parts, a reimbursement monthly to cover 

fixed costs, plus a reimbursement per flight operated to cover those 

expenses (fuel, crew, etc.). 

2) Deposit. The proposal requests a $200,000 deposit/advance to be 

applied to the last month(s) of service. There are a lot of up front 

startup costs, training, station setup, advertising, etc. These are costs 

that the airport within its financial ability is not able to front and 

which for Public Charters, Inc. as a small company are also difficult to 

cash flow. Therefore we are asking for this deposit in order to help 

cover the startup expenses. 

3) Varying subsidy rates year 1 vs year 2. In all the proposals (original 

and the two alternatives) we have provided an average subsidy rate (2.3M, 

2.1M, 2.0M). However in each case we would like to see that average 

arrived at with a slightly higher rate year 1 vs. 

year 2. In the original proposal that was achieved by requesting 2.4M 

year 1 and 2.2M year 2. In the two alternatives no specific break down 

was given, but the intention would be something similar. The reason for 

this is that we fully expect that in year 2 passenger revenues will be 

higher than in year 1. Year 1 will be about building. With a new hub, 

new carrier, new model it is going to take some time to build the 

passenger numbers as the public is being informed/educated on what is now 

available, this is especially true since this will be starting after a 

hiatus in service. In year 2 we will not be facing those same issues and 

therefore fully expect that passenger numbers and therefore revenues in 

year 2 will be higher than year 1. At this point it is nearly impossible 

to accurately predict exactly how those passenger numbers will evolve, 

however in light of this reasonable expectation of increasing numbers, we 

see the need for slightly more subsidy in year 1 vs. year 2. 

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In summary, we are asking for these items in order that the payment of 

subsidy reflects the timeline of expenses (and anticipated revenue) 

associated with undertaking this endeavor. While the total level of 

subsidy is the most important number, we request within reason the 

flexibility to request subsidy/reimbursement in a manner that reflects the 

costs associated with providing the service. 

While what is being asked for may seem complicated in light of how 

standard EAS operates, we think that this provides us enough flexibility 

while providing the DOT with enough rational to justify the subsidy 

requests. The easiest thing for all parties would be for us to request 

the entire subsidy up front as one large sum, that would give us the most 

flexibility in how to use it and it would be easiest for you to manage. 

However, it is obvious why that wouldn't be feasible for all parties 

involved. Therefore we believe what we are asking for to be reasonable in 

that it still has some flexibility for us, but isn't too difficult for DOT 

to manage. 

thanks, 

--Barry 

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