Order 2012-11-15

Served: November 16, 2012

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

Issued by the Department of Transportation

on the 16th of November, 2012

Essential Air Service at: 

AKUTAN, ALASKA

under 49 U.S.C. 41731 et seq. 

Docket DOT-OST-2000-7068

ORDER SELECTING CARRIER TO PROVIDE ESSENTIAL AIR SERVICE

Summary

By this Order, the Department is selecting Grant Aviation, Inc. (Grant), to provide 

Essential Air Service (EAS) at Akutan, Alaska, for two years, beginning as soon as the 

carrier inaugurates scheduled service at annual subsidy rates of $724,025 for the first six 

months of service and $579,220 for the remainder of the contract.1

Background

Order 2011-3-31, March 25, 2011, re-selected PenAir to provide EAS at Akutan for an 

annual subsidy rate of $654,964 through April 30, 2013. Under that contract, Akutan 

receives eleven nonstop round trips per week year round to Dutch Harbor with 9-seat 

Grumman Goose aircraft. 

On August 2, 2012, PenAir filed a 90-day notice of its intent to suspend its subsidized 

EAS at Akutan. On August 6, 2012, the State of Alaska submitted the following 

comments:

“I want to inform you that the Alaska Department of Transportation and Public 

Facilities built a new airport in the Aleutian Islands called Akutan airport. The 

runway is paved and is 4,500 feet long by 75 feet wide.2 ....We anticipate that 

[the new] Akutan airport will begin operations on or about September 1, 2012, 

 1 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of appropriated 

funds.

2 The current airport serving the community of Akutan (KQA), is a seaplane base at Akutan Island. The 

new airport with a paved runway is located on Akun Island (7AK), about 6-7 miles away. The community 

has informally indicated that Akutan passengers will be shuttled by hovercraft from Akutan to nearby 

Akun.
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and will serve the community of Akutan, Alaska. ....Therefore I request that 

Essential Air Service change the air service location from Akutan Seaplane Base 

(KQA) to our new ground based Akutan airport (7AK). I believe our new 

airport will greatly improve access to the community of Akutan, Alaska.”

On August 7, 2012, the City of Akutan submitted the following comments:

“[T]the new Akutan Airport is scheduled to begin operations on 1 September 

2012. This $71 million project is the result of significant Federal, State, local 

and private investment, and in no small measure PenAir’s consistent 

commitment to provide air service, including continuation of its existing EAS 

contract with the U.S. Department of Transportation. 

The City of Akutan also expressed concern about the likelihood of finding replacement 

service for the Grumman Goose “in time for the 1 September opening of Akutan 

Airport.” It is also concerned with the level of service that we will require of PenAir 

after September 1. However, in the community’s view, “continuation of service by the 

Grumman Goose beyond 1 September is not a reasonable option, other than as a backup 

to a new service plan.” 

Request for Proposals

In response to PenAir’s 90-day notice of intent to suspend service, by Order 2012-8-39, 

August 31, 2012, the Department prohibited PenAir from suspending service and 

requested proposals for replacement service by October 3, 2012. We noted the State and 

community’s concerns and preferences in our RFP. Grant Aviation was the only carrier 

to submit a proposal. 

Proposals

Grant submitted two proposals. Each would provide twelve nonstop round trips per week 

between the new Akutan airport, 7AK, and Dutch Harbor with Beech King Air 200 and 

Piper PA-31 (Navajo) aircraft available as backup.3 Under Option 1, the carrier 

requested $811,317 annually and under Option 2 it requested $1,123,311 annually. The 

only difference between the two is that Option 1 would terminate on September 30, 2014, 

the end of Grant’s EAS contract between Atka and Nikolski and Dutch Harbor, while 

Option 2 would terminate several months afterwards because of the later start of 

subsidized service at Akutan.4 Grant’s proposal makes no provision for the transport of 

mail, freight or passengers between the airport on Akun and the village of Akutan, which 

as the operator of wheeled-aircraft only it has no ability to provide. Finally, Grant’s 

proposal was made contingent upon “...the Postal Service agreeing, in writing, that Grant 

 3 Both are 9-seat twin-engine aircraft fully equipped for IFR operations. 

4 Order 2011-5-20, May 23, 2011, selected Grant to provide EAS at Atka and Nikolski, Alaska, for a twoyear period of not less than 24 complete months. Since the carrier began service there on September 3 and 

September 1, 2012, respectively, the end of that contract is September 30, 2014. The only other carrier 

providing scheduled service at Dutch Harbor is PenAir, and it chose not to submit a proposal. Dutch 

Harbor is 792 miles from Anchorage and isolated from other air service. There are certain fixed costs that 

if not spread over significant levels of operation, drive up the cost of providing service. The higher level of 

subsidy for the standalone proposal reflects this reality. 
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Aviation will not be held responsible for failing to transport mail beyond Akun, to 

Akutan itself.” To date, no such assurance has been forthcoming.

Community Response

In response to our request for comments we received numerous responses, all fully 

supporting Grant’s proposal. Mayor Joe Bereskin of Akutan supports Grant as the best 

solution for the continuation of vital air service to Akutan and encourages all parties to 

work out an acceptable arrangement for the handling of mail so that air service can

resume in the immediate future. Jacob Stepetin, the Administrator of the Native Village 

of Akutan, also fully supports the selection of Grant. Similar comments were submitted 

by Larry Cotter, the CEO of the Aleutian Pribilof Island Community Development 

Association, and Joseph Plesha, the Chief Legal Officer of Trident Seafoods, one of the 

largest seafood processing plants, employing more than 1,000 people. On November 8, 

the State of Alaska indicated it supported the EAS program and deferred to the 

community of Akutan as the best judge of the community’s needs.

Postal Service Comments

The Postal Service filed comments on November 6, 2012. The Postal Service indicated 

“It is against the Postal Service’s policy to pay additional costs related to 

contracting with the hovercraft service referred to in [Grant’s] proposal. The 

Postal Service was not involved, invited to become involved, or consulted 

regarding the project that resulted in the construction of a runway on Akun. 

Thus we do not understand how the bill for difficulties arising out of decisions 

made or actions taken during that process could properly be assigned to the 

Postal Service.” 

 In an email dated November 6, 2012, the Postal Service indicated 

“...we have not fined PenAir nor have we penalized them for not operating their 

posted schedules because we know how difficult the conditions are in that area 

of Alaska. Rather we work with the air carrier ...” We also noted their concern 

about the hovercraft reliability and we indicated to Grant Aviation that we 

would consider allowing Grant to acquire a mail storage facility on Akun Island. 

So the Postal Service has addressed all of Grant’s postal concerns aired in their 

initial EAS bid.”5

Decision

The carrier-selection decision is straightforward. Grant is the only carrier to submit a 

proposal; it is a well-established carrier that provides reliable EAS at other communities; and 

it has the full support of the community. Regarding the selection period, we will accede to 

Grant’s request to “bundle” the Akutan contract with the Atka-Nikolski contract. Grant began 

providing subsidized EAS at nearby Atka and Nikolski on September 1 and September 3, 

respectively, meaning that those two-year contracts will expire on September 30, 2014. 

Consistent with Grant’s request, we will establish that date as the end of this contract as well. 

 5 We note that this does not address the fundamental issue of who is responsible for the hovercraft service. 
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After discussions with Grant, the carrier revised its proposal to request a lower level of 

subsidy. Under the revised proposal the carrier would provide the same level of service, 12 

nonstop round trips per week between Dutch Harbor and Akun, and requests $724,025

annually from the start of scheduled service through May 31, 2013, and $579,220 annually for 

the period June 1, 2013, through September 30, 2014. Under the revised proposal Grant 

would provide the bulk of its service with 9-seat Navajo aircraft rather than 9-seat King Air 

aircraft.6 We find the revised service and subsidy levels to be reasonable. The carrier’s 

agreement reiterates that 

“Grant has no ability to deliver passengers, mail, or freight beyond Akun (7AK) 

to Akutan (KQA), and the subsidy rates in question do not presume that such 

service will be provided. However, the carrier will endeavor to work with all 

parties to coordinate its service with the hovercraft operating between Akun and 

Akutan.” 

We shall make this selection contingent upon the Department’s receiving properly 

executed certifications from Grant Aviation that it is in compliance with the 

Department’s regulations regarding drug-free workplaces and nondiscrimination, as well 

as the regulations concerning lobbying activities. When the contracts for the three 

communities of Akutan, Atka, and Nikolski near their end, we anticipate issuing a single 

Request for Proposals. 

Emergency Nature

In the typical EAS situation, we would expect PenAir and Grant to work together to make 

a smooth service transition, including notifying any passengers holding reservations for 

travel after the suspension date, to assist those passengers in making alternate air 

transportation arrangements, or to provide a refund of the ticket price, without penalty, if 

requested. However, this case is unique. In anticipation of the new airport’s being 

completed on or about September 1, 2012, the State and East Aleutian Borough secured a 

hovercraft to ferry people, mail and freight the 7 miles from the airport on Akun to the 

village of Akutan. In order to accommodate the hovercraft, they built a dock/pier at 

Akutan for the hovercraft to use to load and offload passengers, freight and mail. As a 

result, PenAir no longer has access to a ramp that was needed for its Grumman Goose. In 

consequence, PenAir attempted to use a section of beach that was so rocky that it caused 

damage to its aircraft, and was inherently unsafe.7 As a result, it ceased all operations to 

Akutan as of October 22, 2012. We understand that Grant, in the interim, has operated 

charter flights from Dutch Harbor to the new airport on Akun, but the community is 

without scheduled service, although Grant’s charter service provides passenger, freight, 

and mail service on an ad hoc basis 

 6 The 30-mile stage length between Dutch Harbor and Akun is well within the Navajo’s operational 

capability. That is not the case for the subsidized service to Atka and Nikolski, which are 340 and 117 

miles from Dutch Harbor, respectively.

7 See PenAir’s comments on September 20, 2012.
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Carrier Fitness

49 U.S.C. §§ 41737(b) and 41738 requires that the Department find an air carrier fit, 

willing, and able to provide reliable service before Department may subsidize it to 

provide essential air service. Grant Aviation, Inc., is subject to the Department’s 

continuing fitness requirements. The Department has contacted the Federal Aviation 

Administration, and it has raised no concerns that would negatively affect our fitness 

findings.8 The Department therefore concludes that the carrier remains fit to conduct the 

operations proposed here.

This Order is issued under authority delegated in 49 CFR Part 1.56a(f).

ACCORDINGLY;

1. We select Grant Aviation, Inc., to provide essential air service at Akutan, Alaska;

2. We set the final rate of compensation for Grant Aviation, Inc., for the provision of 

Essential Air Service at Akutan, Alaska, as described in Appendix C;

3. We direct Grant Aviation, Inc., to retain all books, records, and other source and 

summary documentation to support claims for payment, and to preserve and maintain 

such documentation in a manner that readily permits its audit and examination by 

representatives of the Department. Such documentation shall be retained for seven years 

from the service data of this Order, or until the Department indicates that the records may 

be destroyed, whichever comes first. Copies of flight logs for aircraft sold or disposed of 

must be retained. The carrier may forfeit its compensation for any claim that is not 

supported under the terms of this Order;

4. We find that Grant Aviation, Inc., continues to be fit, willing and able to operate as a 

certificated carrier and capable of providing reliable essential air service at Akutan;

5. This docket will remain open until further order of the Department; and

 8 The National Transportation Safety Board (NTSB) and the FAA are currently in the preliminary stage 

investigating a Grant Aviation incident on October 27, 2012, with no reported injuries. Should the 

investigation final reports reveal findings adverse to the air carrier, we would reassess the air carrier’s 

fitness in light of those findings. 
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6. The Department will serve a copy of this Order on the civic officials of Akutan, the Alaska 

Department of Transportation and Public Facilities, and Grant Aviation. 

By:

Susan L. Kurland

Assistant Secretary for

Aviation and International Affairs

(SEAL)

An electronic version of this document is available 

at http://www.regulations.gov
Appendix A-1

Nonstop Great Circle Miles on the Aleutian Chain, Starting 

with the Farthest Community From Anchorage

Adak (ADK) – Atka (AKB), 107

Atka (AKB) – Nikolski (IKO), 231

Nikolski (IKO) – Dutch Harbor (DUT) 116

Dutch Harbor (DUT) – Akutan (KQA) 35

Akutan (KQA) – Cold Bay (CDB) 143

Cold Bay (CDB – King Salmon (AKN) 332

King Salmon (AKN) to Anchorage (ANC) 288
Appendix A-2

Nonstop Great Circle Miles

Akun (7AK) to Akutan (KQA) 7

Dutch Harbor (DUT) to Akutan (KQA) 42

Akun (7AK) to Dutch Harbor 35
Appendix B

Grant Aviation, Inc., EAS to be Provided to Akutan/Akun, Alaska, Docket 2000-7068

Aircraft Type Navajo

Weekly Nonstop Round Trips to Akun (7AK) 12

Annual Flights 1,248 1/

Block Time 0.30

Annual Block Hours 374

Rate Units

Pax. Revenue $148 2,000 $296,000

Mail Revenue $0.57 121,000 $68,970 2/

Freight Revenue $0.75 33,000 $24,750

Total Revenue $389,720

Pilots, $400 per day $400 365 $169,360

Fuel and Oil, Gallons $8 16,848 $134,784 3/

Flight Maintenance $595 374 $222,530

Insurance $25,448

Aircraft Lease $4,500 12 $54,000

Total Direct Expense $606,122

Hanger lease / month $4,000 12 $48,000 5/

Ticketing & ground service / per turn $300 624 $187,200

Freight & mail Handling / lb DUT & Akun $0.18 154,000 $27,720

Staff facilities $3,000.00 12 $36,000 5/

Total Indirect Expense $298,920

Sum of direct and indirect costs $905,042

Burden @ 17.2% 17.2% $155,667

Profit @ 5.0% 5.0% $53,035

Total Annual Economic cost $1,113,745

Annual Subsidy Rate, Initial Six months $724,025

Annual Subsidy Rate, Remainder, Thru 9-30-14 $579,220

1/ 12 round trips per week x 2 direction x 52 weeks = 1,248

2/ Linehaul, $12.0763 per ton mile x 35 miles = $422.67/ton, 

Terminal, $716.16/ ton, or $0.57 per pound total, Order 2012-8-35.
Appendix C

Essential Air Service to be Provided to Akutan, Alaska, Docket 2000-7068

Effective Period: Start of Service through September 30, 2014.

Scheduled Service: 12 nonstop round trips per week between Akun (7AK) and Dutch Harbor, (DUT).

Aircraft Type: Piper PA-31 Navajo, 9 seats.

Start of Scheduled Service June 1, 2013

Thru May 31, 2013 September 30, 2014

Annual Subsidy 1 $724,025 $579,220

Annual Flights2 1,248 1,248

Rate per Flight 3 $580 $464

Weekly Ceiling 4 $13,920 $11,136

Note: The carrier understands that it may forfeit its compensation for any flights that it does not operate in 

conformance with the terms and stipulations of the rate Order, including the service plans outlined in the Order 

and any other significant elements of the required service, without prior approval. The carrier understands that 

an aircraft take-off and landing at its scheduled destination constitutes a completed flight; absent an explanation 

supporting subsidy eligibility for a flight that has not been completed, such as certain weather cancellations, only 

completed flights are considered eligible for subsidy. In addition, if the carrier does not schedule or operate its 

flights in full conformance with the Order for a significant period, it may jeopardize its entire subsidy claim for 

the period in question. If the carrier contemplates any such changes beyond the scope of the Order during the 

applicable period of this rate, it must first notify the Office of Aviation Analysis in writing and receive written 

approval from the Department to be ensured of full compensation. Should circumstances warrant, the 

Department may locate and select a replacement carrier to provide service on these routes. The carrier must 

complete all flights that can be safely operated; flights that overfly points for lack of traffic will not be 

compensated. In determining whether subsidy payment for a deviating flight should be adjusted or disallowed, 

the Department will consider the extent to which the goals of the program are met and the extent of access to the 

national air transportation system provided to the community.

If the Department unilaterally, either partially or completely, terminates or reduces payments for service or 

changes service requirements at a specific location provided for under this Order, then, at the end of the period 

for which the Department does make payments in the stipulated amounts or at the stipulated service levels, the 

carrier may cease to provide service to that specific location without regard to any requirement for notice of such 

cessation. Those adjustments in the levels of subsidy and/or service that are mutually agreed to in writing by the 

Department and carrier do not constitute a total or partial reduction or cessation of payment.

Subsidy contract are subject to, and incorporate by reference, relevant statutes and Department regulations, 

as they may be amended from time to time. However, any such statutes, regulations, or amendments 

thereto shall not operate to controvert the foregoing paragraph.

Funds are not currently available for performance under this Order beyond March 31, 2013. The 

Government’s obligation for performance under this Order beyond March 31, 2013, is subject to the 

availability of appropriated funds from which payment for services can be made. No legal liability on the 

part of the Government for any payment may arise for performance under this Order beyond March 31, 

2013, until funds are made available to the Department for performance. If funds are not made available 

for performance beyond March 31, 2013, the Department will provide notice in writing to the carrier.

All claims for payment must be submitted within 60 days of the last day of service provided under this 

Order.

Note: Grant Aviation reiterates that it cannot be responsible for service beyond Akun. The carrier will 

coordinate as much as possible with the hovercraft providing service between Akun and Akutan.

 1 See AppendixB. 2 12 round trips per week x 2 directions x 52 weeks = 1,248. 3 Annual subsidy divided by annual flights.

4 Rate per flight times 24 flights per week.
Appendix D

General Terms and Conditions for Essential Air Service

The carrier understands that it may forfeit its compensation for any flights that it does not 

operate in conformance with the terms and stipulations of the rate Order, including the 

service plans outlined in the Order and any other significant elements of the required 

service, without prior approval. The carrier understands that an aircraft take-off and 

landing at its scheduled destination constitutes a completed flight; absent an explanation 

supporting subsidy eligibility for a flight that has not been completed, such as certain 

weather cancellations, only completed flights are considered eligible for subsidy. In 

addition, if the carrier does not schedule or operate its flights in full conformance with the 

Order for a significant period, it may jeopardize its entire subsidy claim for the period in 

question. If the carrier contemplates any such changes beyond the scope of the Order

during the applicable period of these rates, it must first notify the Office of Aviation 

Analysis in writing and receive written approval from the Department to be ensured of 

full compensation. Should circumstances warrant, the Department may locate and select 

a replacement carrier to provide service on these routes. The carrier must complete all 

flights that can be safely operated; flights that overfly points for lack of traffic will not be 

compensated. In determining whether subsidy payment for a deviating flight should be 

adjusted or disallowed, the Department will consider the extent to which the goals of the 

program are met and the extent of access to the national air transportation system 

provided to the communities.

If the Department unilaterally, either partially or completely, terminates or reduces 

payments for service or changes service requirements at a specific location provided for 

under this Order, then, at the end of the period for which the Department does make 

payments in the stipulated amounts or at the stipulated service levels, the carrier may 

cease to provide service to that specific location without regard to any requirement for 

notice of such cessation. Those adjustments in the levels of subsidy and/or service that 

are mutually agreed to in writing by the Department and carrier do not constitute a total 

or partial reduction or cessation of payment.

Subsidy contracts are subject to, and incorporate by reference, relevant statutes and 

Department regulations, as they may be amended from time to time. However, any such 

statutes, regulations, or amendments thereto shall not operate to controvert the foregoing 

paragraph.

Funds are not currently available for performance under this solicitation beyond 

March 31, 2013. The Department’s obligation for performance under this solicitation 

beyond March 31, 2013, is contingent upon the availability of appropriated funds from 

which payment for services can be made. No legal liability on the part of the 

Government for any payment may arise for performance under this Order beyond 

March 31, 2013, until funds are made available to the Department for performance. If 

funds are not made available for performance beyond March 31, 2013, the carrier will 

receive notice in writing by the Department.

All claims for payment must be submitted within 60 days of the last day of service 

provided under this Order