NORTHERN AIR CARGO, INC, 3900 OLD INTERNATIONAL AIRPORT ROAD ANCHORAGE, AK 99502 

LOCAL 907-243-3331 TOLL FREE 800 727-2141 FAX 907 249-5190 WWW.NAC.AERO

February 11, 2015 

Todd M. Homan, Director 

Office of Aviation Analysis 

U.S. Department of Transportation 

1200 New Jersey Avenue, S.E. 

Washington, D.C. 20590 

RE: "Proposal to Provide Essential Air Service at Adak, Alaska, Docket DOT-OST-2000-8556" 

Dear Mr. Homan: 

Northern Air Cargo, Inc. hereby submits this proposal to the Department of Transportation (DOT) to 

provide essential air service to the community of Adak, Alaska. This proposal contains our subsidy 

request to provide this service.

On behalf of Northern Air Cargo, Inc we appreciate the opportunity to participate in the Essential 

Air Service program and please contact me if you need additional information.

Sincerely, 

David W. Karp 

President & CEO 

Attachments 
Proposal to Provide 

Essential Air Service 

at Adak, Alaska 

Docket DOT-OST- 2000-8556 

Due Date: 

February 11, 2015 

Northern Air Cargo, Inc. 

4510 Old International Airport Rd 

Anchorage, AK 99502 

(907) 249-5163 
Proposal to Provide Essential Air Service 

at Adak, Alaska 

Docket DOT-OST-2000-8556 

February 11, 2015 

Table of Contents 

Transmittal Letter 

Narrative .............................................................................................. Page 1 

Subsidy Request .................................................................................. Page 2 
Northern Air Cargo, Inc. 1 EAS Proposal at Adak 

February 11, 2015 

"Proposal to Provide Essential Air Service at Adak, Alaska 

DOT-OST Docket 2000-8556" 

Narrative 

Northern Air Cargo, Inc. (NAC) is pleased, in response to Order 2014-12-13, to submit its 

Essential Air Service (EAS) proposal for cargo-only air service, inclusive of freight and mail, to 

Adak, Alaska with a requested subsidy of $1,034,071 annually, with a proposed subsidy 

mitigation strategy that could result in annual refunds ranging from $63,000 to $445,000. 

Northern Air Cargo, Inc., established in 1956, has provided a wide variety of air cargo delivery 

services, domestic and international mail handling and delivery services, aircraft maintenance 

services, ground service operations and cargo agent ground handling for a wide variety of 

governmental and multi-national and regional companies - including the United States Postal 

Service, the United States Department of Defense, Conoco Phillips, Shell Oil, BP Global, 

Continental Airlines, Frontier Airlines and Japan Airlines. 

Northern Air Cargo, Inc. proposes to provide thirty-four (34) B732-200/300 cargo jet service air 

flights per year to Adak, Alaska from its Anchorage hub, located at the Ted Stevens Anchorage 

International Airport (ANC), utilizing the following schedule: 

 Non-Peak Fishing Season: During the months of April, May, September, October, 

November, December and January, Northern Air Cargo, Inc. proposes to fly two (2) 

times per month round-trip service from Anchorage to Adak. One of the flights is 

proposed to be an Anchorage - Bethel - Adak - Anchorage flight and one of the flights is 

proposed to be an Anchorage - Adak - Anchorage flight. The Bethel leg is proposed as a 

strategy to reduce the required EAS subsidy to Northern Air Cargo, Inc. 

 Peak Fishing 5 Months: During the months of February, March, June, July and August, 

Northern Air Cargo, Inc. proposes to fly four (4) times per month round-trip service from 

Anchorage to Adak. Two of the flights are proposed to be Anchorage - Bethel - Adak - 

Anchorage flights and two of the flights are proposed to be Anchorage - Adak - 
Northern Air Cargo, Inc. 2 EAS Proposal at Adak 

February 11, 2015 

Anchorage flights. Again, the Bethel leg is proposed as a strategy to reduce the required 

EAS subsidy to Northern Air Cargo, Inc. 

Northern Air Cargo, Inc. commits to providing the highest possible degree of service to the 

Department of Transportation and the community of Adak and, to the best of our ability, to 

provide the services and capacities as proposed. Although Northern Air Cargo, Inc. is not 

required to report on-time performance to the Department of Transportation (DOT); as a quality 

control measure Northern Air Cargo, Inc. tracks its on-time performance to DOT and Federal 

Aviation Administration (FAA) standards. During the past 12 months, Northern Air Cargo, Inc. 

has had a 91% on-time record according to DOT/FAA guidelines. 

Subsidy Request 

Northern Air Cargo, Inc. is requesting an EAS subsidy in the amount of $1,034,067 per the 

following flight schedule: 

Peak

Seasons

Non Peak  

Seasons

Months 5 7

Flights Per Month 4 2

Flights(ANC‐ADK‐ANC) 2 1

Flights(ANC‐BET‐ADK‐ANC) 2 1

Revenue Projections 

Northern Air Cargo, Inc.'s subsidy request assumes that freight volumes remain flat at 2014 

levels and that mail volumes continue to decline at an estimated ten percent (10%) annually. 

Additionally, NAC has assumed that it will achieve an average thirty percent (30%) share of the 

freight/mail market from Anchorage to Adak and that the remainder will be carried on another 

carrier selected to provide EAS passenger/cargo air service. 
Northern Air Cargo, Inc. 3 EAS Proposal at Adak 

February 11, 2015 

Therefore, NAC's revenue projections per flight are: 

Rate Volume (lbs) Revenue

Outbound Freight $             1.50               2,620 $              3,930

Outbound Mail $             1.46               1,102 $              1,608

Inbound Freight $             0.50               2,493 $              1,247

Inbound Mail $             1.46                   146 $                 213

Total 6,361                $              6,998

Revenue Estimate (per flight)

Expense Projections 

Northern Air Cargo, Inc.'s subsidy request is based upon the following expense assumptions; the 

Anchorage-Bethel-Adak-Anchorage flights have an estimated cost of $33,768 per flight and the 

Anchorage-Adak-Anchorage flights have an estimated cost of $37,493 per flight. 

Assumptions Weighting

   Anchorage ‐ 

Bethel ‐ Adak ‐ 

Anchorage     

(4.5167 Bhr)

Anchorage ‐ 

Adak ‐ 

Anchorage  

(5.1667 Bhr)

Variable Costs

Cost of Fuel  (ANC) 2.00 $               50% 4,254 $                          $               4,727

Cost of Fuel  (ADK) 7.00 $               50% 14,888 $                       $             16,545

Landing Fees 242.00 $          $                            242 $                   242

Ground Handling  (ADK)(per pound) 0.05 $            $                         1,600 $               1,600

Ground Handling  (ANC)(per flight) 1,400.00 $       $                         1,400 $               1,400

MX Flight Hour  (per Bhr) 263.00 $          $                         1,188 $               1,359

Engine Costs (per cycle) 150.00 $          $                            300 $                   300

Fixed Costs

Capital Costs  (per Bhr) 1014 4,580 $                          $               5,239

Mechanic Labor  (per Bhr) 275 1,242 $                          $               1,421

MX Admin / Overhead  (per Bhr) 50 226 $                             $                   258

Flight Crew Labor  (per Bhr) 667 3,013 $                          $               3,446

Flight Ops Admin / Overhead  (per Bhr) 50 226 $                             $                   258

Insurance  (per Bhr) 85 384 $                             $                   439

Admin Overhead  (per Bhr) 50 226 $                             $                   258

Total $                     33,768 $            37,493

Per Flight Estimated Expenses
Northern Air Cargo, Inc. 4 EAS Proposal at Adak 

February 11, 2015 

Profit Projections 

Northern Air Cargo, Inc.'s subsidy request is based upon a five percent (5%) profit, based upon 

the following per flight estimates: 

Requested Per Flight Subsidy 

Northern Air Cargo, Inc.'s subsidy request per flight is as follows: 

Annual Requested Subsidy 

Based upon the above assumptions, Northern Air Cargo Inc.'s requested annual subsidy to 

provide the proposed thirty-four (34) B737-200/300 cargo jet service flights per year to Adak, 

Alaska from its Anchorage hub, located at the Ted Stevens Anchorage International Airport, is 

$1,034,071, per the following schedule: 

Anchorage ‐ 

Bethel ‐ Adak ‐ 

Anchorage

Anchorage ‐ 

Adak ‐ 

Anchorage

Estimated Expenses 33,768 $              $             37,493

Profit @ 5% $              1,688 $              1,875

Per Flight Profit

Anchorage ‐ 

Bethel ‐ Adak ‐ 

Anchorage

Anchorage ‐ 

Adak ‐ 

Anchorage

Estimated Revenues                   6,998                    6,998

Estimated Expenses 33,768                                37,493

Operating Profit (Loss) (26,769)                            (30,495)

Profit @ 5% 1,688                                    1,875

Requested Subsidy Per Flight               28,457               32,370

Per Flight Subsidy

Annual Subsidy

Anchorage‐

Bethel‐Adak‐

Anchorage

Anchorage‐

Adak‐

Anchorage

Flights Per Year 17 17

Subsidy Per Flight $        28,457 $          32,370

Annual Subsidy $      483,773 $       550,297

Total Annual Subsidy $   1,034,071
Northern Air Cargo, Inc. 5 EAS Proposal at Adak 

February 11, 2015 

Proposed Subsidy Mitigation 

Northern Air Cargo's requested annual subsidy is calculated based upon Northern Air Cargo, Inc. 

realizing approximately a thirty (30) percent share of the 2014 actual ANC-ADK-ANC freight 

and mail volumes. We recognize that the projected market share of thirty (30) percent is a 

significant variable; and, therefore, we propose a subsidy mitigation strategy. 

The proposed subsidy mitigation strategy is based upon an annual reconciliation of actual total 

realized revenues for ANC-ADK-ANC (on both the non-stop and one-stop segments). NAC will 

remit to the DOT eighty (80) percent of the difference between the per flight subsidy paid to 

NAC by DOT and the actual realized revenue up to $25,000 per flight, which is based upon 

100% of the 2014 actual mail and freight volumes. NAC will retain twenty (20) percent of the 

variance to account for increased variable expenses due to larger cargo load factors. 

The following table presents the potential subsidy refund at various mail/freight levels: 

Estimated Revenue at 30% $    6,998 $     6,998 $        6,998 $        6,998 $        6,998 $        6,998 $        6,998 $        6,998

Realized Annual Revenue

10%

20%

30% $    6,998

40% $     9,331

50% $     11,664

60% $     13,997

70% $     16,329

80% $     18,662

90% $     20,995

100% $     23,328

Variance $        ‐ $    (2,333) $      (4,666) $      (6,998) $      (9,331) $    (11,664) $    (13,997) $    (16,329)

Variable Expenses @ 20% $        ‐ $         467 $           933 $        1,400 $        1,866 $        2,333 $        2,799 $        3,266

Per flight refund to DOT $        ‐ $    (1,866) $      (3,732) $      (5,599) $      (7,465) $      (9,331) $    (11,197) $    (13,063)

Assume 34 Flights

Annual subsidy refund $       ‐ $(63,451) $(126,902) $(190,354) $(253,805) $(317,256) $(380,707) $(444,158)

Proposed Subsidy Mitigation

Conversely, should the annual revenue reconciliation reveal that Northern Air Cargo, Inc. 

realized less than the estimated revenue of $6,998 per flight; then, the DOT would remit to 

Northern Air Cargo, Inc. the difference between the $6,998 per flight and the actual realized 

revenue. 
Northern Air Cargo, Inc. 6 

February 11, 2015The following chart details the revenue assumptions included in the above chart: 

Revenue/ Flight

Pound Segment

Total Per Flight Total Per Flight Total Per Flight Total Per Flight Total Per Flight Total Per Flight 

$ 1.46 ANC‐ADK Mail 89,082 2,620 $ 133,623 $ 3,930 118,776 3,493 $ 178,164 $ 5,240 148,470 4,367 $ 222,705 $ 6,550 

$ 1.50 ANC‐ADK Freight 37,455 1,102 $ 54,684 $ 1,608 49,940 1,469 $ 72,912 $ 2,144 62,425 1,836 $ 91,140 $ 2,681 

$ 1.46 ADK‐ANC Mail 84,762 2,493 $ 42,381 $ 1,247 113,016 3,324 $ 56,508 $ 1,662 141,270 4,155 $ 70,635 $ 2,078 

$ 0.50 ADK‐ANC Freight 4,969 146 $ 7,254 $ 213 6,625 195 $ 9,672 $ 284 8,281 244 $ 12,090 $ 356 

Total 216,267 6,361 $ 237,942 $ 6,998 288,356 8,481 $ 317,256 $ 9,331 360,446 10,601 $ 396,570 $ 11,664 

Pounds

Total Per Flight Total Per Flight Total Per Flight Total Per Flight Total Per Flight Total Per Flight 

$ 1.56 ANC‐ADK Mail 207,858 6,113 $ 311,787 $ 9,170 237,552 6,987 $ 356,328 $ 10,480 267,246 7,860 $ 400,869 $ 11,790 

$ 1.50 ANC‐ADK Freight 87,394 2,570 $ 127,596 $ 3,753 99,879 2,938 $ 145,824 $ 4,289 112,364 3,305 $ 164,052 $ 4,825 

$ 1.56 ADK‐ANC Mail 197,778 5,817 $ 98,889 $ 2,909 226,032 6,648 $ 113,016 $ 3,324 254,286 7,479 $ 127,143 $ 3,740 

$ 0.50 ADK‐ANC Freight 11,593 341 $ 16,926 $ 498 13,250 390 $ 19,344 $ 569 14,906 438 $ 21,762 $ 640 

Total 504,624 14,842 $ 555,198 $ 16,329 576,713 16,962 $ 634,512 $ 18,662 648,802 19,082 $ 713,826 $ 20,995 

30% 40% 50% 

Pounds Revenue Pounds Revenue Pounds Revenue

Revenue Pounds Revenue Pounds Revenue 

70% 80% 90%