Essential AirService at BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. OFFICE OFTHE SECRETARY i " T'"'**~** I**"~** \_;,';I.!**~** l**·~,** I '

ATKA and NIKOLSKI, ALASKA 

### ) ) ) Docket DOT-OST-1995-363 Under49 USC§ 41731 et seq. )



# __________ )

PROPOSALS OF SERVANTAIR, INC. TO PROVIDE ESSENTIAL AIR SERVICE

AT ATKA AND NIKOLSKI, ALASKA

Communicationswith respectto this documentshould be addressed to: Wes Osowski Servant Air, Inc. 1619AirportWay Kodiak, AK 99615-6977 (907) 487-4400 March 30, 2012BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. OFFICE OF THE SECRETARY

Essential Air Service at ) ATKA and ) Docket DOT-OST-1995-363 NIKOLSKI, ALASKA ) Under49 USC§ 41731 et seq. ) 

## __________________)

PROPOSALS OF SERVANT AIR, INC. TO PROVIDE ESSENTIALAIR SERVICE

ATATKA AND NIKOLSKI, ALASKA

Servant Air, Inc. herein submits its bid to provide Essential Air Service at Atka and Nikolski, Alaska forterms ofup tofouryears. Atka and Nikolski are the most isolated small aircraft points in the US. Each point is distantfrom Dutch Harbor, the closest point receiving medium sized aircraft service toAnchorage, the connection pointtothe national transportation network. Historicallythese points have received service withtwin-engine aircraftwith nine orfewerseats. The historic service carrier, Peninsula airways, has declined to submitaservice bid. The only othercarrier providing any service atall atthese points, Alaska Central Express, has also declined to submit a bid.

OPERATIONAL CONSIDERATIONS

Because ofthe long distances to be flown from Dutch Harbor, and the lack ofaviation fuel atthe destination points, turbine powered aircraftwith a range of 1,000 miles ormore are required tomeet IFR alternate requirements. Both destinations have complex GPS instrument approaches which require offshore approacheswhich cannot be flown with asingle engine aircraft. Servant has proposed service to both points using a Beechcraft King Airwhich has adequate passenger capacity forthe markets, as well as sufficient cargo capacityforthe current Peninsula Airways share ofmail and freight going tothevillage. Backhaul cargo is de minimus. Alaska Central Express provides all-cargo service on a regular basis to Nikolski and Atka with its Beechcraft 1900aircraft.

These points have been historically served by an aircraft stationed at Dutch Harbor (Unalaska),

or by a9-seat Metroliner orSAAB 340 as an extension ofan Anchorage-Dutch Harborservice. Peninsula Airways sold thetwin-turboprop it had stationed at OUT, and nowoperates Atka service with aSAAB 340 and Nikolski service with aGrumman Goose which is also used to provide EAS atAkutan. Penair discontinued service with its MetrolinersafterApril, 2011.

REVENUE FORECAST

Revenue traffic available atAtka and Nikolski has continuously declined overthe last five years due to population loss, declining commercial activity and introduction ofall-cargo service by Alaska Central Express. Appendix Aoutlines the traffic history atthetwo pointsto establish the

" total marketand growthtrends. Appendix Bapplies the growthtrend and market share data for Penairtothe historictraffic. Servant has adopted Penairfares and rates, and applied theyield amounts in the same fashion as Penair did in its 2010 bid. Servant intendsto employ its standard tariffswhich include some discountfares which slightly reduce the passengeryields. Traffic projections are carried outfouryears, with passenger and freight rates expected to increase 5% peryear.Because the expense proposal is based on separate fixed monthlycosts and variable operating costs, the revenue forecast is based on actual traffic carried perflight completed. Because of this change, the revenue forecast is similartothe three flights perweek service proposal for Atka while onlytwoflights are being proposed herein. Penair had acompletion factorofabout 65%, so the historical trafficwas actually carried on abouttwoflights perweek.

EXPENSE FORECAST

Service to Atka and Nikolski combined is avery low utilization service, averaging less than two block hours aday on average. Aircraft cannot be used in conjunction with otherservice, and serviced from an alternate base such as Anchorage or Kodiak would be prohibitively expensive. The standard practice for operations based at Dutch Harbor is to rotate crews in and out every twoweeks. Local housing and avehicle are provided forthe crew, and theyare paid an "away from base" perdiem for perso11al expenses. Servant airwill rent a hangarfrom Peninsula Airways, and ground handlingwill be contracted from Penair. Appendix Cdetailsthe setup expenses to establish an operation in Dutch Harborand the monthlyfixed expenses forthe station and crew. Because the operation is so variable depending on weather, volcano eruptions orotherfactors, crews will be paid afixed monthly stipend based on their Kodiak wages, with a per diem allowance for personal expenses. Forthe firstyear ofservice, the fixed monthlyexpense level is $97,227. Appendix Dlists the variable operating costs perflight by market. Primarilythese are fuel, maintenance and ground handling costs which vary by flight orvolume ofcargo transported. Costs for both the Piper PA-31 Navajo and the Beechcraft King Airare shown. As noted below, Servant can begin service withthe Navajo very quickly, even before the end ofthe current EASperiod ifacceptable tothe Department and Penair. Once the King Air has been entered into service, all operationsto both Atka and Nikolski will use thataircraft. Crew expenses are based

on one pilot/mechanic, on supervising pilotwho will supervise the entire operation including training, and one first officer. Eitherthe supervising pilotorothercaptain will serve as the pilotin-command. Only two personnel will actually be on site in Dutch Harbor at any particulartime. Peninsula Airways has offered maintenance personnel on acall-out basis, and an allowance for that has been included in thevariable maintenance cost.

NAVAJO SERVICE

Servant intendsto begin service to Nikolski as soon as agreeable. Forthe months in which Navajo service to Nikolski is operated, the fixed monthly expenses would be reduced by the cost ofthe second Captain and the First Officerand one halfofthe perdiem pay. The variable operating cost perflightwould be based on the Navajo rate.

SUBSIDY NEED

Two subsidy proposals are outlined in Appendix E. Total subsidy need is based on one-time setup costs amortized overeithertwo orfouryears, the fixed monthlyexpenses plus the variable operating expenses assuming operation ofthe EAS requirement. Both operating expenses and revenue yields are assumed to increase 5% per annum. The setup costs would be amortized overthe bid period and paid outequally per month.

On atwoyearterm, the total annual subsidy rate assuming completion ofthe EAS requirements is $1,783,346 forthe first yearand $1,847,730forthe second year. Forthe preferred fouryear term, the subsidy needs are $1,740,952, $1,805,336,$1,909,129 and $2,018,391 respectively.WHEREAS, Servant Air, Inc. respectfully submits its bid for Essential Air Service forAtka and Nikolski, and is prepared to negotiate afinal rate as soon as possible. Respectfully submitted,

Servant Air, Inc. March 30, 2012

## SERVANTAIR, INC. Appendix 

### ESSENTIAL AIR SERVICE PROPOSAL FOR A Page 1of 

### ATKA AND NIKOLSKI, ALASKA 4 Submitted March 30, 2012 ATKATO DUTCH HARBOR {UNALASKA) YEAR MONTH ENDED PAX FRT MAIL PEQ's 

### 2007 9 264 421 6,283 297.52 2007 12 321 437 6,759 356.98 2008 3 332 506 6,506 367.06 2008 6 330 448 7,464 369.56 2008 9 302 375 7,388 340.82 2008 12 317 1,211 7,250 359.31 2009 3 282 2,754 7,376 332.65 2009 6 311 4,517 6,854 367.86 2009 9 387 5,546 5,979 444.63 2009 12 351 4,990 5,547 403.69 2010 3 361 4,456 5,265 409.61 2010 6 332 5,072 4,353 379.13 2010 9 288 8,529 4,849 354.89 2010 12 286 8,514 4,237 349.76 2011 3 300 7,525 3,877 357.01 2011 6 282 5,626 3,322 326.74 2011 9 260 1,946 2,707 283.27

### Appendix A Page 2of DUTCH HARBOR (UNALASKA) TO ATKA 

### 4 MONTH YEAR ENDED PAX FRT MAIL PEQ's 

### 2007 9 297 30445 97555 937.00 2007 12 313 37859 100917 1006.88 2008 3 325 32578 95811 966.95 2008 6 332 37255 117501 1105.78 2008 9 299 51541 122226 1167.84 2008 12 303 55412 128296 1221.54 2009 3 290 55743 129304 1215.24 2009 6 313 66898 113331 1214.15 2009 9 290 55743 129304 1215.24 2009 12 364 59027 116041 1239.34 2010 3 361 60763 109882 1214.23 2010 6 338 56726 103347 1138.37 2010 9 294 47500 103599 1049.50 2010 12 286 49071 104159 1052.15 2011 3 286 53160 107955 1091.58 2011 6 262 45755 101441 997.98 2011 9 257 49481 97762 993.22

### Appendix A Page 3of DUTH HARBOR (UNALASKA) TO NIKOLSKI 

### 4 MONTH YEAR ENDED PAX FRT MAIL PEQ's 

### 2007 9 268 43653 43419 703.36 2007 12 276 52693 44404 761.485 2008 3 248 82296 47078 894.87 2008 6 203 74927 41942 787.345 2008 9 154 61813 39716 661.645 2008 12 162 49812 41442 618'.27 2009 3 156 22453 41935 477.94 2009 6 180 20711 45138 509.245 2009 9 196 27676 44267 555.715 2009 12 180 38660 37841 562.505 2010 3 166 39959 29318 512.385 2010 6 131 46440 22784 477.12 2010 9 110 65543 21657 546 2010 12 93 51609 17178 436.935 2011 3 96 58033 16192 467.125 2011 6 84 53780 15579 430.795 2011 9 79 35521 18636 349.785

### Appendix A Page 4of NIKOLSKI TO DUTCH HARBOR (UNALASKA) 

### 4 MONTH YEAR ENDED PAX FRT MAIL PEQ's 

### 2007 9 250 1768 6790 292.79 2007 12 261 2189 7043 307.16 2008 3 240 2200 7881 290.405 2008 6 190 1213 5277 222.45 2008 9 143 1224 4997 174.105 2008 12 162 803 4877 190.4 2009 3 158 865 4203 183.34 2009 6 180 1024 5829 214.265 2009 9 204 981 6778 242.795 2009 12 182 2481 7806 233.435 2010 3 161 2359 7343 209.51 2010 6 122 2622 4823 159.225 2010 9 95 2684 3605 126.445 2010 12 76 1594 1837 93.155 2011 3 84 2275 1772 104.235 2011 6 77 1951 1654 95.025 2011 9 75 1351 1413 88.82

## SERVANTAIR, INC. ESSENTIAL AIR SERVICE PROPOSAL FOR Appendix B 

### ATKA AND NIKOLSKI, ALASKA Page 1of 1 Submitted March 30, 2012 COMMERCIAL REVENUE FORECAST 

### 6/13 6/14 6/15 MARKET TRAFFIC YIELD TRFC 6/13$ TRFC 6/14$ TRFC 6/15$ 6/16FC 6/16$ DUT-IKO PAX $135.20 65 $8,788 $50 $7,098 $45 $6,708 $40 $ 6,260 FRT $0.65 6000 $3,900 $5,400 $3,686 $4,860 $3,483 $4,374 $ 3,291 MAIL $0.99 13000 $12,897 $10,850 $10,764 $9,750 $9,673 $8,500 $ 8,433 $25,585 $21,547 $19,863 

### $ 17,984 IKO-DUT PAX $135.20 65 $8,788 $50 $7,098 $45 $6,708 $40 $ 6,260 FRT $0.65 0 $0 $0 $0 $0 $0 $0 $ MAIL $0.99 1200 $1,188 $1,000 $990 $900 $891 $800 $ 792 $9,976 $8,088 $7,599 

### $ 7,052 TOTAL REVENUE**~351561 ~291635** **~27A62 ~**  

### 251037 DUT-AKB PAX $244.80 257 $62,914 $252 $64,774 $247 $66,663 $242 $ 68,580 FRT $1.91 25000 $47,750 $45,000 $90,248 $45,000 $94,760 $45,000 $ 99,498 MAIL $1.85 98000 $181,216 $98,000 $181,216 $98,000 $181,216 $98,000 $ 181,216 $291,879 $336,237 $342,639 

### $ 349,293 AKB-DUT PAX $244.80 257 $62,914 $252 $64,774 $247 $66,663 $242 $ 68,580 FRT $1.91 1900 $3,629 $1,900 $3,810 $1,900 $4,001 $1,900 $ 4,201 MAIL $1.85 2500 $4,623 $2,500 $4,623 $2,500 $4,623 $2,500 $ 4,623 $71,165 $73,207 $75,287 

### $ 77,403 $363,045 $409,445 $417,926 

### $ 426,697 ALL MARKETS 

### $398,606 $439,080 $445,388 

### $ 451,733

## SERVANT AIR, INC. ESSENTIAL AIR SERVICE PROPOSAL FOR Appendix C 

### ATKA AND NIKOLSKI, ALASKA Page 1of 1 Submitted March 30, 2012 MONTHLY 2YEAR 4 YEAR SETUP EXPENSES TOTAL AMORT AMORT Deliveryto OUT Navajo 

### $ 3,200 King Air 

### $ 27,000 Crew Qualification 

### $ 55,000 Proving Runs 

### $ 42,299 Aircraft Conformity 

### $ 12,000 F.A.A. Compliance 

### $ 15,000 Barge Delivery Fuel Truck 

### $ 5,000 Furnishings/Fixtures 

### $ 2,000 Setup Expenses SubTotal 

### $ 161,499 Profit Margin 

### $ 8,075

SUBTOTAL 

### $ 169,574 

### $ 84,787 

### $ 42,393 MONTHLY FIXED EXPENSES Pilot/Mechanic

Supervising Pilot 

### $ 9,333 Captain 

### $ 6,067 First Officer 

### $ 4,667 Crew Housing/Utilties 

### $ 3,000 Away from Base Allowance 

### $ 3,500 Telephone/Communications 

### $ 450 Vehicle/Gasoline/Insurance 

### $ 900 Personnel Rotation 

### $ 7,906 Hangar Rental 

### $ 4,000 Nikolski Agent 

### $ 2,000 Atka Agent 

### $ 2,000 Reservations/Communications 

### $ 800 D.O.T. Insurance 

### $ 2,375 Hull Insurance 

### $ 5,000 Aircraft Lease/Depreciation 

### $ 30,000 Contingency 

### $ 3,100 General 

### & Administrative 

### $ 7,500 GroupTotal 

### $ 92,597 Profit Margin (5%) 

### $ 4,630 SUBTOTAL

### ~ 971227 ANNUAL TOTAL

### ~ 111661725

## SERVANT AIR, INC. ESSENTIAL AIR SERVICE PROPOSAL FOR ATKA AND NIKOLSKI, ALASKA Submitted March 30, 2012 VARIABLE OPERATIONAl EXPENSE- NIKOLSKI Piper PA-31 Navajo Fuel 

### & Oil A/C Maintenance DUT Grnd Handling Beechcraft King Air Fuel 

### & Oil A/C Maintenance DUT Grnd Handling VARIABLE OPERATIONAl EXPENSE- ATKA Beechcraft King Air Fuel 

### & Oil A/C Maintenance DUT Grnd Handling Ground Handling @ Destination Atka Nikolski Penair Cargo Handling@ DUT TOTAlVARIABLE OPERATING EXPENSE Per B/H 48 gph @$8.30 $396 $300 perdeparture 140gph @$7.30 $ 658.00

Per B/H 130gph@ $7.30 $ 658.00 B/H per Flight 2.00

1.63 1.63

B/H per Flight 3.25 3.25 Appendix D Page 1of2 $/Roundtrip $ 796.80 $ 792.00 $ 300.00 $ 1,665.86 $ 1,074.73 $ 300.00 $/Roundtrip $ 3,084.25 $ 2,138.50 $ 300.00Piper PA-31 Navajo RT's/Wk Fuel 

### & Oil 2 A/C Maintenance 2 DUT Grnd Handling 2 Beechcraft King Air Fuel 

### & Oil 2 A/C Maintenance 2 DUT Grnd Handling 2 VARIABLE OPERATIONAL EXPENSE- ATKA Beechcraft King Air RT's/Week Fuel 

### & Oil 2 A/C Maintenance 2 DUT Grnd Handling 2 Ground Handling@ Destination Atka $0.15/LB CARGO Nikolski $0.15/LB CARGO Penair Cargo Handling @ DUT TOTAL VARIABLE OPERATING EXPENSE $/Week $ 1,593.60 $ 1,584.00 $ 600.00 $ 3,331.72 $ 2,149.47 $ 600.00 Expense/Week $ 6,168.50 $ 4,277.00 $ 600.00

$0.12/LB CARGO $/Year $ 82,867 $ 82,368 $ 31,200 $ 173,249 $ 111,772 $ 31,200 Expense/Year $ 320,762 $ 222,404 $ 31,200

$ 19,110 $ 3,030 $ 17,712 

### $ 930.440 Appendix D I Page 2 of2

### SERVANT AIR, INC. SUBSIDY NEED PROJECTION TWOYEAR CONTRACT

Commercial Revenue (App B) Amortization ofSetup Expenses (App 

### C) Fixed Expenses (App 

### C) Variable Expenses (App D) 

### TOTAL EXPENSES SUBSIDY NEED 

### YE 6/13 

## $ 398,606 

### $ 84,787 

### $ 1,166,725 

### $ 930,440 

### $2,181,952 

### $ 1,783,346 YE 5/14 

### $ 439,080 

## $ 84,787 

## $ 1,225,061 

### $ 976,962 $2,286,810 

### $ 1,847,730 Appendix E Page 1of2

### SERVANTAIR, INC. SUBSIDY NEED PROJECTION FOUR YEAR CONTRACT

Commercial Revenue (App B) Amortization ofSetup Expenses (App 

### C) Fixed Expenses (App 

### C) Variable Expenses (App D) 

### TOTAL EXPENSES SUBSIDY NEED YE 6/13 

## $ 398,606 

## $ 42,393 

## $ 1,166,725 

### $ 930,440 

### $2,139,558 $1,740,952 YE 

### 6/14 

### $ 439,080 

### $ 42,393 

## $ 1,225,061 

## $ 976,962 $2,244,416 

### $ 1,805,336 YE 

### 6/15 

### $ 445,388 

### $ 42,393 

### $ 1,286,314 

### $ 1,025,810 $2,354,517 

## $ 1,909,129 Appendix E Page 2of2



### YE 

### 6/16 

### $ 451,733 

## $ 42,393 

### $ 1,350,630 

### $ 1,077,101 $2,470,124 $2,018,391