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Dennis, ManisteeAirport[manisteeairport@gmail.com] Thursday,February23,20129:25AM Devany,Dennis(OST) Swanson,Brian(OST);<jg727@aol.com> Re:Subsidypaymentschedule

In the two alternatives to the original proposal the 10 mentioned are 10 RTs per week 

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### =1040 yearly segments. Thanks, --Barry

On Feb 23, 2012, at 8:26 AM, <Dennis.DeVany@dot.gov> wrote: > I was assuming 10 per week meant 10 round trips. Does it mean 5 round trips a week?? > > -----Original Message----- >From: Manistee Airport [mailto:manisteeairport@gmail.com] >Sent: Thursday, February 23, 2012 8:05 AM >To: Devany, Dennis (OST); Swanson, Brian (OST) >Cc: Jim Gallagher >Subject: Subsidy payment schedule > >Dennis, Brian, > >During this process there is one set of questions I have been >expecting you to ask as it relates to our Alternate EAS proposal, but >so far they have not come up. Those questions are in relation to how >in our proposal we were requesting that 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. > >Specifically the proposal as submitted stated: > >3. Manistee requests that subsidy be paid as follows during the first year: > - $75,000 monthly in arrears to cover fixed costs incurred by the >Indirect Air Carrier including, but not limited to, aircraft leases, >station rents and leases, personnel wages and salaries, insurance,

1**~'-**>etc. >

- $1,500 per completed flight to cover flight costs incurred by the >Indirect Air Carrier including, but not limited to, fuel, crew costs, >other per block hour expenses, etc. >

- A$200,000 one 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 >including the deposit). >

- The payment structure for the second year is to be mutually agreed >upon by DOT, the Indirect Air Carrier and the Airport Authority 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 of more passengers, thus reducing the subsidy level per passenger. > >While the exact final details may need to differ (especially since >there are now different Alternative 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 subsidy year 1 >vs. year 2. > >Let me go into more detail as to why each of these 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 of providing service are not all associated with per flight >costs. The reason it works is that standard EAS service provides the >same level of service week to week year round. So any fixed costs can >be rolled into the per flight subsidy. However in our proposal we are >asking for the flexibility under the Alternate EAS program to provide >service that matches the seasonality of demand at Manistee with more >service during peak summer periods and less during off peak winter >periods. However the fixed costs largely are consistent year round > (rents, salaries, etc) even though the number of flights might be >different. To reflect this reality, we have requested splitting the > subsidy into two parts, a reimbursement monthly to cover fixed costs, >plus a reimbursement per flight operated to cover those expenses > (fuel, crew, etc.). > >2) Deposit. The proposal requests a $200,000 deposit/advance to be >applied to the last month(s) of service. There are a lot of up front

2> startup costs, training, station setup, advertising, etc. These are >costs that the airport within its financial ability is not able to >front and which for Public Charters, Inc. as a small company are also > difficult to cash flow. Therefore we are asking for this deposit in >order to help cover the startup expenses. > >3) Varying subsidy rates year 1 vs 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 like >to see that average arrived at with a slightly higher rate year 1 vs. >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 is that we fully expect that in year 2 passenger >revenues will be higher than in year 1. Year 1 will be about > building. With a new hub, new carrier, new model it is going to take > some time to build the passenger numbers as the public is being >informed/educated on what is now available, this is especially true > since this will be starting after a hiatus in service. In year 2 we >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 of >this reasonable expectation of increasing numbers, we see the need for >slightly more subsidy in year 1 vs. year 2. > > In summary, we are asking for these items in order that the payment of > subsidy reflects the timeline of expenses (and anticipated revenue) >associated with undertaking this 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 providing the service. > >While what is being asked for may seem complicated in light of how > standard EAS operates, we think that this provides us enough >flexibility while providing the DOT with enough rational tojustify >the subsidy requests. The easiest thing for 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 it would be easiest >for you to manage. However, it is obvious why that wouldn't be >feasible for all parties involved. Therefore we believe what we are >asking for to be reasonable in that it still has some flexibility for >us, but isn't too difficult for DOT to manage. > >thanks, > --Barry

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