Order 2012-7-36

Served: July 31, 2012

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

Issued by the Department of Transportation

on the 31st of July, 2012

ORDER SETTING FINAL RATE AT ATKA AND NIKOLSKI, ALASKA

By Order 2010-7-9 the Department selected Alaska Airlines, Inc., to provide EAS at Adak and 

Peninsula Airways, Inc. (PenAir) at Atka and Nikolski through June 30, 2012. This Order 

addresses Atka and Nikolski only. Annual subsidy and service levels were established as 

follows: Atka, $290,780 for three nonstop round trips per week to Dutch Harbor with eight-seat 

Metro III aircraft;1 and Nikolski, $639,008 for two nonstop round trips per week to Dutch Harbor 

with nine-seat Grumman Goose aircraft. 

As the end of the current contracts were approaching, by Order 2012-2-8, February 10, 2012, we 

requested proposals from carriers interested in providing EAS at all three communities no later 

than March 9, 2012. On March 1, 2012, PenAir requested a two-week extension, until March 23, 

2012, to submit proposals, and by notice dated March 2, 2012, we granted that request. On 

March 21, 2012, Grant Aviation, Inc. requested a one-week extension to March 30, 2012. By notice 

dated March 22, 2012, we granted that request. On March 30, 2012, we received proposals for all 

three communities. By Order 2012-5-20, May 27, 2012, we selected Grant Aviation to provide 

EAS at Atka and Nikolski. 

While PenAir, the incumbent, did not file a notice to suspend its subsidized service at Atka and 

Nikolski, it has no long-term plans to continue serving Atka and Nikolski, and it did not submit a 

proposal. Nevertheless, the carrier is entitled to compensation for its forced service beyond 

June 30, 2012, the end of the current contract. 

It became clear that PenAir would not be relieved of its hold-in obligation immediately upon the 

end of its contract. Thus, on June 12, 2012, Peninsula Airways requested annual subsidy of 

 

1 A Metro III is typically configured for 19 seats. PenAir removed seats to afford more cargo capacity.

Essential Air Service at

ATKA AND NIKOLSKI, ALASKA

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

 DOCKET OST-1995-363
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$435,959 at Atka for two nonstop round trips per week to Dutch Harbor with 30-seat Saab 340 

aircraft2 and $907,157 for two nonstop round trips per week to Dutch Harbor with eight-seat 

Grumman Goose aircraft at Nikolski.

We have reviewed PenAir’s requested subsidy rates. At Atka, the carrier made an arithmetic 

error when summing its indirect expenses, and we have agreed to $492,894 annual subsidy, a 

higher rate than the carrier initially requested. At Nikolski, we have decreased the projected level

of compensation to $595,508 annual subsidy, to reflect the low level of completion PenAir 

historically achieved at Nikolski,3 due at least in part to the very old Grumman Goose the carrier 

operates. We have reviewed the adjusted subsidy rates and find them reasonable for the service 

provided. The rates are reflected in Appendices B and C, and will be effective from July 1, 2012, 

until Grant Aviation, Inc., inaugurates full EAS. 

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

ACCORDINGLY,

1. We set the final rate for Peninsula Airways, Inc., for its provision of Essential Air Service at 

Atka and Nikolski, Alaska, as described in Appendices B and C;

2. We direct Peninsula Airways, 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 the audit and examination by representatives of the Department. 

Such documentation shall be retained for seven years from the date of service 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; 

3. This Docket will remain open until further Department action; and

 

2 This level of service is different than selected by Order 2010-7-9, and was prompted by the carrier’s disposing of 

all its Metro aircraft. However, the level of capacity and requested subsidy provided by two round trips per week 

with a Saab 340 is similar to what the carrier’s subsidy need would have been for three round trips per week with a 

Metro aircraft, because the Saab 340 is a significantly bigger aircraft than the Metro. While the community did not 

complain, the carrier technically violated a Department Order and should have notified the Department of the 

reduction in frequency.

3 See Appendix B-2 for the calculation of both the projected level of compensation and the ceiling subsidy level 

were the carrier to, in fact, complete 100 percent of its scheduled service. PenAir used historical revenue and 

applied its historical unit costs to service with a much higher level of completion than it has historically achieved. 

We have taken historical revenue and applied historical unit costs to the level of service that experience suggests 

PenAir will achieve to determine a subsidy rate per completed flight. We then increased that result to the 100 

percent completion factor. Because we pay carriers on the basis of completed flights, that figure reflects the 

maximum level compensation the carrier could receive. 
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4. The Department will serve copies of this Order on Peninsula Airways, Inc.

By:

Susan Kurland

Assistant Secretary for

Aviation and International Affairs

(SEAL)

An electronic version of this document is available on the World Wide Web at

http://www.regulations.gov
Appendix A

Nonstop Great Circle Miles from Anchorage (ANC))

Adak (ADK) 1,192

Atka (AKB) 1,100

Nikolski (IKO) 905

Dutch Harbor (DUT) 791

Cold Bay (CDB) 620

Other Nonstop Great Circle Miles

ADK-AKB 107

AKB-IKO 231

IKO-DUT 116

ADK-DUT 445

AKB-DUT 339

ADK-CDB 616
Appendix B

Essential Air Service at Atka and Nikolski, Alaska.

Docket 1995-363

Atka Nikolski

Aircraft Saab 340 Goose

Nonstop Miles to DUT 340 116

Seats/AC 30 8

Passengers 511 511

Weekly Trips 2 2

Annual Flights 208 143 1/

Block Time 1.5 1.1

Block Hours 312 157

Total Seats 6,240 1,144

Passengers 511 132

Freight 49,840 50,620

Mail 99,720 20,000

Passenger $134,792 $20,369

Freight $104,664 $36,447

Mail $136,616 $27,400

Total Revenue $376,072 $84,216

$/Hr. $/Hr.

Flying Ops. $78,175 $250.56 $132,412 $843.39

Fuel & Oil $182,991 $586.51 $49,328 $314.19

Insurance $20,043 $64.24 $41,344 $263.34

Maintenance $239,669 $768.17 $261,499 $1,665.60

Aircraft $48,575 $155.69 $18,378 $117.06

Flight Attendant $15,010 $48.11 $0 $0.00

Total Directs $584,463 $1,873.28 $502,961 $3,203.57

Seat Related @ $15.34/Seat $95,722 $17,549

Tff. Related @ 12.95% of Directs $75,688 $65,133

Cap. Related @ 12.27% of Directs $71,714 $61,713

Total Indirects $243,124 $144,395

Total Operating Exp. $827,587 $647,356

Profit @ 5% $41,379 $32,368

Economic Costs $868,966 $679,724

Annual Subsidy $492,894 $595,508

Nikolski Subsidy @

100% Completion

$866,193 2/

1/ Flights completed at Nikolski, T-100 Segment, July/August 2011 were 22 out of 32 possible.

208 annual flights at 100% completion x 22/32 = 143 flights.

2/ $595,508 annual subsidy x 208/143 departures = $866,193.
Appendix C

Subsidy Rate Agreement for the Provision of Essential Air Service by

Peninsula Airways, Inc., at Atka and Nikolski, Alaska

Effective: July 1, 2012, until further notice (UFN).

Timing of flights: Flights must be well-timed and well-spaced to ensure full compensation. 

Atka, Alaska Nikolski, Alaska

Hub DUT DUT

Intermediate Stops None None

Aircraft Type Saab 340 Grumman Goose

Seats 30 8

Weekly Round Trips Two Two

Annual Subsidy Rate1 $492,893 $866,193

Annual Flights2 208 208

Rate per Flight3: $2,370 $4,164

Weekly Ceiling4: $9,480 $16,656

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 September 30, 2012. The Government’s obligation 

for performance under this Order beyond September 30, 2012, 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 September 30, 2012, until funds are made available to the Department for performance. If funds are not 

made available for performance beyond September 30, 2012, 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.

 

1 See Appendix B.

2 2 trips per week x 2 directions x 52 weeks per year = 208.

3 Atka: $492,893 ÷ 208 flights = $2,370; Nikolski, $866,193 ÷ 208 flights = $4,164.

4 Atka: 4 flights per week x $2,370 = $9,480; Nikolski, 4 flights per week x $4,164 = $9,480