### 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 31 st 

### 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 Ni kolski 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 Nikol ski , $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 prov iding 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 Aviat ion, 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 prov ide
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, th e 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

, o n 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, ALASK A

Under 49 U.S.C. 41731 et seq

. DOCKET OST

- 1995

- 363

### - 2

-

$435,959 at Atka for two nonstop round trips per week to Dutch Harbor with 30

- seat Saab 340

aircraft 2 

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

- seat
Grumman Goose aircra ft 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 tha n 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
operate s . 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).

A CCORDINGLY 

### ,

1. We set the final rate for Peninsula Airways, Inc., for its provision of Essential Air Service at Atka and Nikolski, Alaska, as descri bed 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. Th e 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 p er 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 f requency

. 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 historic al unit costs to service with a m uch 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 subsi dy 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.

### - 3

-

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.govAppendix 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 616Appendix 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.Appen dix 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).

T iming 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 Rate 1 $492,893 $ 866

, 193

Annual Fli ghts 2 208 208
Rate per Flight 3 : $2,370 $ 4,164
Weekly Ceiling 4 : $9,480 $ 16,656

Note: The carrier understands that it may forfeit its compensation for any flights that it does not operate in conformance wi th 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, i f the
carrier does not schedu le 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 carr ier 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 fo r a deviating flight should be ad justed 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 compl etely, 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 do es make payments in the stipulated amounts or at the stipulate d 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 De partment 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, a ny 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 Sept ember 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 submi tted 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