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From: 

Sent: 

To: 

Cc: 

Subject: 

Dennis, 

Manistee Airport [manisteeairport@gmail.com] 

Thursday, February 23, 2012 9:25 AM 

Devany, Dennis (OST) 

Swanson, Brian (OST); <jg727@aol.com> 

Re: Subsidy payment schedule 

In the two alternatives to the original proposal the 10 mentioned are 10 

RTs per week = 52 * 10 * 2 = 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, 

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> 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) A declining 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 

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> 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 2 will 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 to justify 

> 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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