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Dennis, Brian, ManisteeAirport[manisteeairport@gmail.com] Thursday,February23,20128:05AM Devany,Dennis(OST);Swanson,Brian(OST) JimGallagher Subsidypaymentschedule

During this process there is one set of questions I have been expecting you to ask as it relates to ourAlternate EAS proposal, but so far they have not come up. Those questions are in relation to how in our proposal we were requestingthat 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. Specificallythe proposal as submitted stated:
3. Manistee requests that subsidy be paid as follows during the first year:

- $75,000 monthly in arrears to coverfixed costs incurred by the IndirectAir Carrier including, but not limited to, aircraft leases, station rents and leases, personnel wages and salaries, insurance, etc.

- $1,500 per completed flight to coverflight costs incurred by the IndirectAir Carrier including, but not limited to, fuel, crew costs, other per block hour expenses, etc. - A$200,000one 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 includingthe deposit).

- The payment structurefor the second year is to be mutually agreed upon by DOT, the IndirectAir Carrier and theAirportAuthority 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 ofmore passengers, thus reducing the subsidy level per passenger. While the exact final details may need to differ (especially since there are now differentAlternative 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) Adeclining subsidyyear 1 vs. year 2.

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-Let me go intomore detail as towhy each ofthese 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 ofproviding service are not all associated with per flight costs. The reason itworks is that standard EAS service provides the same level of service week to week year round. So any fixed costs can be rolled intothe perflight subsidy. However in our proposal we are askingfor the flexibility under theAlternate EAS program to provide servicethat matches the seasonality of demand at Manistee with more service during peak summer periods and less during offpeak winter periods. However the fixed costs largely are consistentyear round (rents, salaries, etc) even though the number of flights might be different. To reflect this reality, we have requested splittingthe subsidy intotwo parts, a reimbursement monthly to cover fixed costs, plus a reimbursement perflight operated to cover those expenses (fuel, crew, etc.). 2) Deposit. The proposal requests a $200,000 deposit/advance to be applied tothe 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 tofront and which for Public Charters, Inc. as a small company are also difficult to cash flow. Therefore we are askingfor this deposit in orderto help cover the startup expenses. 3) Varying subsidy rates year 1vs 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 liketo see that average arrived atwith a slightly higher rateyear 1vs. 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 isthat we fully expect that in year 2passenger revenues will be higherthan inyear 1. Year 1will be about building. With a new hub, new carrier, new model it is going totake some time to build the passenger numbers as the public is being informed/educated on what is now available, this is especiallytrue since this will be starting after a hiatus in service. In year 2we will not be facing those same issues and therefore fully expect that passenger numbers and therefore revenues in year 2will 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 ofthis reasonable expectation ofincreasing numbers, we see the need for slightlymore subsidy in year 1vs. year 2.

2In summary, we are askingfor these items in orderthat the payment of subsidy reflects the timeline of expenses (and anticipated revenue) associated with undertakingthis 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 providingthe service.
While what is being asked for may seem complicated in light of how standard EAS operates, we thinkthat this provides us enough flexibility while providingthe DOT with enough rational tojustifythe subsidy requests. The easiestthingfor 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 itwould be easiestfor you to manage. However, it is obvious why that wouldn't be feasible for all parties involved. Thereforewe believewhat we are askingfor to be reasonable in that it still has some flexibility for us, but isn'ttoo difficult for DOT tomanage. thanks, --Barry

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