FY08FinalRates.pdf

MEMORANDUM FOR ALL CARRIERS 22 Aug 07

FROM: USTRANSCOM/TCAQ-P

505 Ward Drive Building 1911 Room 314 Scott AFB IL 62225

SUBJECT: Notice of Final Fiscal Year 2008 (FY08) Uniform Rates and Rules for International

Service – Solicitation Number HTC711-07-R-0004

1. The final FY08 rates in attachment two are based on fuel pegged at $2.10 and $2.20 per gallon for passenger and cargo, respectively. The final rates for the various classes of service are as follows:

Linehaul Rate Stop Charge Large Class Passenger .10895 per seat mile $2,000 Medium Class Passenger .14079 per seat mile $2,000 Small Class Passenger .14577 per seat mile $2,000 Large Class Cargo .39452 per ton mile $2,000 Medium Class Cargo .54437 per ton mile $2,000 Combi Service $21.897 per plane mile $2,000

2. To complete negotiations in accordance with FAR 15.403-4, a certificate of current cost or pricing data as of 22 Aug 07, in the format specified in FAR 15.406.2, is required from each carrier that provided cost or pricing data. The 22 Aug 07 date is the date the FY08 Rates were finalized.

This 22 Aug 07 certificate of current cost or pricing data will supersede the original certificate submitted with the cost package. Attachment one is a copy of the certificate, in the format specified in FAR 15.406-2. A contract will not be awarded to carriers that provided cost or pricing data without a certificate of current cost or pricing data as of 22 Aug 07.

3. A contract will not be awarded to any carrier without a signed MOU. If you have not already done so, please forward signed MOU to this office by COB 5 Sep 07. Anytime after this date could jeopardize award.

4. If you have any questions please feel free to call me at 618-256-4308.

//SIGNED//

WILLIAM J. PRATHER

Supervisory Price/Cost Analyst

2 Attachments:

1. Certificate for Current Cost or Pricing Data

2. Final FY08 Uniform Rates and Rules for International Service

DEPARTMENT OF THE AIR FORCE

AMC CONTRACTING FLIGHT

CERTIFICATE OF CURRENT COST OR PRICING DATA

This is to certify that, to the best of my knowledge and belief, the cost or pricing data (as defined in Section 2.101 of the Federal Acquisition Regulation (FAR) and required under FAR subsection 15.403.4) submitted, either actually or by specific identification in writing, to the Contracting Officer or to the Contracting Officer’s representative in support of this request for cost data for the FY08 Uniform Rate for International Service are accurate, complete, and current as of 22 Aug 07 .

(day) (month) (year)

This certificate includes the cost or pricing data supporting any advance agreement(s) and forward pricing rate agreements between the offeror and the Government that are part of the proposal.

Firm ______________________ Signature______________________ Name ______________________ Title ______________________

Date of Execution_______________

Prepared By: United States Transportation Command, Directorate of Acquisition, 508 Scott Drive, Scott AFB IL 62225-5357

UNITED STATES

TRANSPORTATION COMMAND

FINAL FY08

UNIFORM RATES AND RULES

FOR

INTERNATIONAL SERVICE

FISCAL YEAR 2008

INTRODUCTION

FY08 USTRANSCOM Uniform Rates and Rules (hereafter referred to as “Rates”) are the first year’s Rates developed under our new Memorandum of Understanding (MOU).

The objective of the MOU is to establish guidelines to facilitate the ratemaking process for DOD airlift with carriers willing to participate in the Civil Reserve Air Fleet (CRAF).

A synopsis of the major events leading to the new MOU for period FY08-FY12 is summarized below:

• 29 Jul 05: First letter sent to carriers requesting their input or items they would like to see addressed for the FY08 through FY12 MOU.

• Sep 05: Briefed the carriers at the MOBREP Conference on current

MOU and provided some thoughts on the new MOU.

• Sep 06: Provided initial briefing to carriers at the MOBREP Conference on all topics for the new MOU. Carriers were asked to provide comments with supporting documentation on their relevant issues.

• 30 Nov: Received comments from American Airlines, American Trans

Air, Air Transport International, Atlas, Delta, Evergreen International, Federal Express, Gemini, North American Airlines, Omni Air

International, Polar Air, Ryan International, and World Airways.

• Apr 07: The FY08 proposed Rates incorporates the changes

USTRANSCOM briefed in Sep 06 and provides a brief summary and

USTRANSCOM response to carriers’ comments.

• May 07: Received carriers’ comments on FY08 proposed Rates.

Comments received were carrier related.

• May 07: The new MOU was posted to www.fbo.gov for CRAF carriers’ signature.

• Aug 07: Amended MOU attachment was posted to www.fbo.gov for

CRAF carriers addressing minor changes to full return on investment

(ROI) and participation level to be in compliance with Truth in

Negotiation Act (TINA).

• Sep 07: Brief carriers at MOBREP Conference on the two minor changes to MOU.

We had five carriers provide written comments to the FY08 proposed Rates. The written comments were directed toward individual carrier cost. One carrier provided a verbal comment on our new full return on investment model which will be addressed under the capital compensation paragraph which follows.

Another issue has surfaced since our release of the new MOU to carriers for signature and that is we must be in compliance with TINA. This issue will be addressed below in our participation paragraph.

Capital Compensation.

The MOU’s ratemaking attachment establishes the methodology applied in the development of the rate of return for FY08 Rates. ROI involves a number of key elements including capital structure, depreciation policies, leased equipment (both capital and operating), working capital, and profit risk. The objective for USTRANSCOM’s

ROI (profit element) is to motivate carrier participation in USTRANSCOM’s CRAF program through adequate compensation for their capital investment and associated risk in providing air transport services for DOD customers. The changes made to the capital compensation component of the rate for the new MOU does provide steps in a positive direction of providing fair and reasonable ROI for the CRAF participants.

We had one carrier comment on how the debt-to equity was calculated. We inadvertently treated the negative numbers for stockholder’s equity (account 2995) as absolute numbers. Below is an example of the way the debt-to-equity was calculated in the MOU and FY08 Proposed Rates and the correct method.

MOU and FY08 Proposed Rates:

Stockholders Long-Term Total

Equity Debt Capital Equity Debt

Carrier B ($10,800,900,500) $6,900,500,600 $17,701,401,100 61.02% 38.98%

Note: Parentheses indicates negative numbers and are treated as absolute numbers.

Correct Method:

Stockholders Long-Term Total

Equity Debt Capital Equity Debt

Carrier B ($10,800,900,500) $6,900,500,600 ($3,900,399,900) 276.92% (176.92%)

The application of negative stockholder’s equity in the calculation of the debt-to-equity provides an impractical debt-to-equity ratio for the new model. To correct this we applied a debt-to-equity ratio of 45 percent debt and 55 percent equity. This debt-to-equity ratio has been used in our previous MOU’s full ROI model. The application of a theoretical debt-to-equity (45/55) is a favorable change to the new model since equity number is higher.

Another minor change to the new full ROI model was to apply a weighted beta factor based on carriers’ revenues instead of a simple average beta. This minor adjustment to the model also results in a positive change. USTRANSCOM has posted an updated

MOU ratemaking attachment addressing these changes on www.fbo.gov .

The new Capital Asset Pricing Model (CAPM) with the changes addressed above is summarized below:

• The new CAPM will apply a theoretical debt-to-equity ratio of 45 percent debt and 55 percent equity versus a debt-to-equity ratio of the CRAF carriers who receive full ROI.

• The cost of debt is based on a risk free rate of return on long-term 10 year treasury yields plus a debt spread based on Reuters Corporate Spreads for

Transportation. Treasury yields and Reuters Corporate Spreads for

Transportation in effect at time of the proposed and final Rates will be used. The debt spread is weighted based on USTRANSCOM revenues reported on

Appendix B. The ROI model for calculation of debt is Cost of Debt = Risk Free

Rate + Weighted Corporate Debt Spread.

• The cost of equity is based on a risk free rate of return on long-term 10 year treasury yields plus a market risk premium times a weighted average beta of

CRAF carriers who receive full ROI. The beta is weighted on carriers’ revenues who receive full ROI. Treasury yields and betas in effect at time of proposed and final Rates will be used. The model for the calculation of equity is Cost of

Equity = Risk Free Rate + (Beta x Market Risk Premium).

Delta Airlines was inadvertently included in the calculation of the full ROI for the FY08 proposed Rates. Delta Airline’s investment base no longer yields a full ROI and, therefore, was removed from the calculation of full ROI for the final FY08 Rates.

Appendix L provides the details for the development of the 13.81 percent full ROI for the

FY08 Rates. This full ROI factor was applied to the FY08 average net book value of owned and long-termed/capital leased investment.

USTRANSCOM applies a minimum return allowance to ensure those carriers who have no flight equipment assets or capital assets that are fully depreciated achieve a measurable return. The minimum return provision is consistent with former ratemaking practices. Therefore, in cases where a carrier’s investment base no longer yields a ROI equal to or greater than 11 percent of total operating costs, a minimum return of 11 percent has been provided. The final FY08 full rate of return of 13.81 percent is down from the FY08 proposed Rates. The primary reason for this decrease is the credit ratings for the participating carriers have improved. These improved credit ratings lowered both the debt spread and beta factor in the model.

Participation.

USTRANSCOM Rates are based on carrier cost plus a guaranteed minimum profit.

Carriers’ rates are weight averaged (based on USTRANSCOM revenues for a two-year period) into a single uniform rate per seat-mile and ton-mile for each of the

USTRANSCOM rate categories. The FY08 Rates were developed on experienced base year cost and statistical data furnished by 19 carriers for the base year ending 30 Jun 06.

When the new MOU was briefed and forwarded to the CRAF carriers for signature, the required participation level to submit actual cost datai was $5M of USTRANSCOM charter business. After release of the new MOU for CRAF carriers’ signature, it became apparent USTRANSCOM had to be in compliance with TINA. Under TINA, if a carrier does $650K in CRAF charter business they are required to submit certified cost and pricing data. We have requested and are currently in the process of getting a TINA waiver for the FY08 contract. USTRANSCOM’s objective for the FY09 contract is be under FAR 12, Acquisition of Commercial Items. In the near future, USTRANSCOM will send out the cost packages to begin the FY09 rate review process. Since we are still currently under FAR 15, the threshold to submit cost and pricing data will be $650K.

USTRANSCOM has revised the language in the new MOU to address this problem.

USTRANSCOM’s objective is to have a pool of accurate cost data that fairly represents the cost of providing DOD charter service. Carriers’ cost data was audited and

USTRANSCOM has analyzed carriers’ forecast operating cost projections in the development of the FY08 Rates. Adjustments made to carriers’ forecast costs were based on past ratemaking practices, Federal Acquisition Regulations, and new MOU.

Explanatory notes are provided in Appendix I to identify individual carrier adjustments.

Aircraft Utilization.

USTRANSCOM applies a carrier’s fleet wide system average utilization for the calculation of a system constructed mileage base. USTRANSCOM missions do result in some inefficiency as compared to a CRAF carrier’s commercial scheduled operations.

Therefore, USTRANSCOM will recognize a utilization in USTRANSCOM operation for the new MOU along with the continue application of a system utilization. The

USTRANSCOM utilization will be used in the calculation of a system mileage base providing a carrier’s data supports a lower utilization.

USTRANSCOM allows the carrier to remove days for major modification and scheduled heavy maintenance in the forecast year. This is an area USTRANSCOM will annually request Defense Contract Audit Agency (DCAA) to review.

Cost Escalation.

No carrier comments were received on the proposed 4.59 percent annual cost escalation factor. Whenever possible, the carriers and USTRANSCOM use factual information such as lease agreements, contract wage agreements, equipment purchase agreements, and insurance premiums to project base period costs into the forecast year. In the event actual data is not available, USTRANSCOM applies a general cost escalation factor as computed on Appendix K. The cost escalation model uses three indices that include the

Air Transport Association Index (ATA), PPI-Nonscheduled Air Transportation Index, and Global Insight, Inc (GII). The percentage index weighting for each of the indices is

34 percent, 33 percent, and 33 percent, respectively. The final FY08 annual cost escalation factor is 4.70 percent, Appendix K.

Weighting of Rate.

USTRANSCOM’s Rates are weighted on current fiscal year dollars plus prior fiscal year dollars. Federal Express would like the World Wide Express (WWX) and CAT A contract revenues included in the charter rate revenue weighting. To include the WWX and CAT A revenues would raise the charter rate since Federal Express is a high cost charter carrier. USTRANSCOM does not consider it equitable to weight the charter rate with schedule service revenues. To combine the WWX and CAT A revenues with the charter revenues results in USTRANSCOM overpaying for all charter service for the large class cargo category. USTRANSCOM will not include the WWX and CAT A revenues in its charter revenue weightings since there is no linkage of these revenues with the charter service revenues. To recognize a linkage would not be acceptable to

USTRANSCOM customers nor to the taxpayer.

Fuel.

USTRANSCOM pegs the price of fuel for charter services based on data from carrier provided fuel reports and industry data. Fuel reports are reviewed for commercial fuel price trends for DoD missions and ratio of DoD and commercial fuel uplifted in support of DoD missions.

Carriers’ fuel reports for period Oct 06-Apr 07 conclude cargo carriers receive 71 percent of their fuel at military installations and are charged the rate set annually by Defense

Energy Support Center (DESC). Conversely, passenger carriers receive 82 percent of their fuel commercially, which fluctuates up and down with the fuel market.

Fuel prices for USTRANSCOM passenger service averaged $2.03 for commercial and

$2.31 for DOD. USTRANSCOM cargo operations averaged $2.10 for commercial and

$2.30 for DOD. Commercial fuel prices ranged from $1.95 to $2.08 and $1.95 to $2.38 for passenger and cargo respectively per U.S. gallon for Oct 06 through Apr 07.ii DESC has projected JP4, JP5, and JP8 fuel for FY08 at $2.23, $2.18 and $2.16 respectively.

DESC lowered their FY07 fuel prices effective 1 Apr 07. DESC fuel prices for JP4, JP5, and JP8 are currently set at $2.21, $2.16, and $2.14, respectively, for the remaining FY07 contract period. The FY08 DESC fuel prices have not been published to date by DESC.

The FY08 DESC fuel prices will not be known until sometime in late Aug or Sep 07.

USTRANSCOM will adjust the FY08 pegged fuel prices if DESC fuel prices warrant changing. The weightings between commercial fuel and military fuel along with current

DESC fuel prices and current commercial market prices resulted in a USTRANSCOM pegged fuel prices of $2.10 and $2.20 per U.S. gallon, for passenger and cargo

(combi will use cargo price), respectively. The pegged price includes into-plane fees and taxes.

USTRANSCOM will continue to adjust each carrier’s monthly revenues upward or downward if the price of fuel varies by $.01 or more per gallon over the pegged prices in establishing the rate. The solicitation addresses the fuel adjustment procedure.

Aircraft Productivity Rate Structure.

In FY04 the multi class rate structure for cargo (large and medium) and passenger aircraft

(large, medium, and small) was introduced. The multi class rate structure was introduced to equitably align aircraft operating cost to revenues based on aircraft productivity (ton and seat capacity). The cargo large class consists of aircraft with an ACL ranging from

60 to 90 tons. The cargo medium class includes aircraft with an ACL of 36.5 to 51 tons.

The passenger large class includes aircraft with an ACL greater than 260 seats. The medium class is aircraft with an approximate ACL range of 190-260 seats. And finally, the small class includes aircraft with an ACL of 150 seats or less. Aircraft unit operating cost will be used to place aircraft that fall between class categories.

It is accepted airline economics that smaller aircraft typically have higher operating cost per unit (ton/seat mile) and shorter stage lengths. The multi rate structure better aligns carrier aircraft operating cost to USTRANSCOM rate compensation and is based on a performance based strategy.

Stop Charges.

With the introduction of the multi class rate structure in FY04, USTRANSCOM performed another analysis of the stop charge concept. This analysis of USTRANSCOM round-trip and one-way missions disclosed that a $2,000 stop charge for each rate category best met the objective of aligning a carrier’s trip operating cost with trip revenues. Therefore, the stop charge used to develop the linehaul rate for each passenger, cargo, and combi rate will remain at $2,000 for FY08.iii

Eurocontrol.

One carrier provided updated eurocontrol invoices. The updated invoices were included in the final eurocontrol surcharge calculation. USTRANSCOM provides a eurocontrol surcharge to compensate carriers for the extra high cost of missions through eurocontrol1ed airspace. USTRANSCOM analyzed actual eurocontrol invoices for specific routes shown in Appendix I. The current eurocontrol charges (converted to U.S.

dollars) were calculated as a percent of the trip revenues using the FY08 final linehaul rate (without stop charge). The FY08 eurocontrol surcharge of 3.0 percent for passenger and 3.5 percent for cargo missions is applicable for the final FY08 Rate. See Appendix A for treatment of DC-8 combi and other cargo missions flying the hub and spoke operations within Europe.

Ferry.

No comments were received on the ferry rate as proposed at 90 percent of the effective rate. USTRANSCOM changed the ferry rate in FY02 from 75 percent to 90 percent.

The ferry rate is a reduced rate based on savings of flying an empty aircraft. An empty aircraft does not incur costs such as food, full cabin crew salary, and passenger liability insurance. The aircraft in empty service is more fuel-efficient and flies a more direct route. An empty aircraft in non-revenue service also incurs lower cost in “aircraft and traffic servicing.” Non-revenue enroute stops do not incur cost related to traffic handling personnel, gate requirements, security, and in some cases lower landing fees.

USTRANSCOM reviewed the current cost levels in all cost categories. The ferry rate for

FY08 will remain at 90 percent of the effective rate.iv See Appendix A for actual ferry rates.

One-Way Rates.

Historically, USTRANSCOM carriers claim that commercial backhaul opportunities for

USTRANSCOM missions are nonexistent. The ability to find a one-way commercial charter to parallel USTRANSCOM’s one-way requirements does not exist since passengers require round-trip service. Unless the USTRANSCOM charter carrier has a significant USTRANSCOM fixed buy that parallels a commercial tour operation, there is limited ability to coordinate aircraft flow and achieve commercial backhaul.

The one-way passenger and cargo rates are based on the round-trip rates, adjusted to reflect certain savings and economies. The adjustments for the one-way rate are: (1) cost savings associated with flying an empty aircraft in backhaul service, (2) a reduction for backhaul miles flown in commercial service, (3) a reduction for fewer miles flown in backhaul service due to aircraft scheduling efficiencies.

USTRANSCOM addressed the savings of flying an empty aircraft in the earlier paragraph concerning the “ferry” rate. The savings for flying an empty aircraft are roughly 10 percent. This savings also holds true for flying an empty aircraft in the reverse segment of a one-way mission.

Although there are limited commercial backhaul opportunities in USTRANSCOM passenger service, historical data does reflect some efficiency in aircraft scheduling resulting in fewer miles flown in empty backhaul service. Appendix M reflects the carrier data associated with empty backhaul service for USTRANSCOM missions. This data reflects the two empty legs before or after a USTRANSCOM one-way mission.

Carriers report the two legs before USTRANSCOM one-way missions originating outside Continental U.S. (CONUS) or, conversely, the two legs after one-way missions originating inside the CONUS. The empty legs represent the movement of the aircraft prior to re-entering commercial service, positioning to maintenance, or positioning to a carrier’s home base of operation.

The statistical ratio of historical empty flown miles to live one-way miles does reflect some efficiencies in the scheduling of aircraft in empty reverse segments. The ratio of live miles to empty miles, based on statistics of Appendix M, does reflect a savings of scheduling of aircraft in empty reverse segments for commercial operations. This savings in conjunction with the 10 percent savings for flying an empty aircraft reflects a

15 - 20 percent savings for one-way missions. Since no comments were received from industry on the proposed one-way rates, and the data used to establish the one-way rates are still current, USTRANSCOM is setting the following one-way rates for final FY08:

• The one-way passenger rate is set at 185 percent of the round-trip seat mile rate.

• The one-way expansion cargo rate is set at 180 percent of the round-trip ton-mile rate.

• The one-way combi rate is set at 185 percent of the round-trip per plane mile rate.

• The one-way contingency passenger rate is set at 193 percent of the round-trip passenger rate.

• The one-way contingency cargo rate is set at 195 percent of the round-trip cargo rate.

Two Tiered Cargo One-Way Rate.

The two-tiered one-way cargo rate was established in the FY99 Rate. It set a reduced rate of 150 percent for fixed buy one-way channel missions presented to the industry a year in advance. In theory, this concept allowed the carriers the opportunity to work the flow of the DOD one-way missions with their commercial one-way business to make an efficient operation. The cargo requirements for CRAF participants are declining as a result of an increased amount of airlift available from the organic fleet. USTRANSCOM does not have any fixed buy one-way channel missions to offer in FY08. Therefore, the two-tiered cargo one-way rate is not applicable for FY08 fixed buy requirements.

Standard Allowable Cabin Loads (ACL).

In FY92 the concept of maximum standard ACLs for aircraft performing

USTRANSCOM business was implemented. USTRANSCOM was concerned about parity among carriers and maintaining a competitive environment within the

USTRANSCOM Rates. The maximum standard ACLs are based on range capability, aircraft usable floor space, gross takeoff weight capacity, lavatories, aircraft operating expense, and passenger comfort and convenience. Appendix A provides the maximum

ACLs by rate aircraft category.

Incremental Passenger Movement.

In FY02, USTRANSCOM developed an incremental passenger service rate for periodical requirements that require the use of extra seats above the standard ACL. The rate applies when the number of additional passengers above the standard ACL is identified for an exercise, SAAM, or contingency. See Appendix A, paragraph (8).

Appendices.

Appendix A provides procedures and rules for the application of USTRANSCOM Rates.

Appendix B provides the weighting and participation of carriers comprising the large, medium, and small class of passenger aircraft, the large and medium class of cargo aircraft, and combi aircraft rates, respectively. Appendices C through H illustrate individual treatment of each carrier’s cost by aircraft type, with explanatory notes provided in Appendix I. Appendices J, K, L and M provide the eurocontrol surcharge, cost escalation factor, return on investment, and operational data for USTRANCOM services, respectively.

i The Commercial Operation Integrated System (COINS) database supports contracting of commercial airlift. The database for contract dollars is maintained by AMC/A3KA.

ii The average commercial prices of fuel in USTRANSCOM service include into-plane fees and taxes. The below average price is also a weighted average for the month based on total dollars and total gallons broken out by passenger and cargo operation. The weighted average price is computed based on all carriers who provided fuel reports through Apr 07.

Passenger Cargo Commercial Commercial Month Avg. Price Avg. Price Oct 06 2.07 2.11 Nov 06 2.01 2.04 Dec 06 2.04 2.09 Jan 07 2.06 2.09 Feb 07 1.95 1.95 Mar 07 2.00 2.02 Apr 07 2.08 2.38 iii This chart is a comparison of compensation a carrier would receive under the effective rate verses linehaul rate.

Average Average Effective Linehaul Aircraft Effective Stop Linehaul Directed Trip Rate Per Rate Per Class Rate ACL Charge Rate Stops Miles Mile Mile

Lg Pax 0.11126 336 $2,000 0.10895 4 9,684 $37.38 $37.43 Med Pax 0.14475 207 $2,000 0.14079 4 8,141 $29.96 $30.13 Sm Pax 0.15279 150 $2,000 0.14577 4 7,250 $22.92 $22.97

Lg Cgo 0.40259 89 $2,000 0.39452 5 13,334 $35.83 $35.86 Med Cgo 0.56252 45 $2,000 0.54437 4 8,647 $25.31 $25.42 iv The analysis of the ferry rate was performed using the final FY07 large class passenger rate of 10.423 (effective rate) cents per seat mile. The .8988 was rounded to 90 percent.

Wgt'd Percentage Cost Ferry Cost Category Cost Allowed Allowed Rate

Crew .8768 100% .8768 Fuel 3.4620 90% 3.1158 Maintenance 1.0951 100% 1.0951 Insurance 0.0822 100% 0.0822 Rent 0.6308 100% 0.6308 Depreciation 0.3204 100% 0.3204 Preop 0.0000 100% 0.0000 Grd Property 0.0383 100% 0.0383 Aircraft & Traffic Service 0.6876 85% 0.5845 Passenger Service 1.7300 65% 1.1245 G&A 0.5206 100% 0.5206 Profit .9790 100% .9790 Total 10.423 9.3680 0.8988

INDEX OF APPENDICES

No.

Appendix Title Pages

A United States Transportation Command 7 Uniform Negotiated Rates and Rules

B Computation of Uniform Rates: 6 Large Class Passenger Service Medium Class Passenger Service Small Class Passenger Service Large Class Cargo Service Medium Class Cargo Service Combi Class Service

C Costs Per Seat Mile by Carrier and Aircraft Type In Large Class Charter Passenger Service 7

D Costs Per Seat Mile by Carrier and Aircraft Type in Medium Class Charter Passenger Service 7

E Costs Per Seat Mile by Carrier and Aircraft Type in Small Class Charter Passenger Service 1

F Costs Per Ton Mile by Carrier and Aircraft Type in Large Class Cargo Service 7

G Costs Per Ton Mile by Carrier and Aircraft Type in Medium Class Cargo Service 2

H Cost Per Plane Mile by Carrier Charter Combi Service 1

I Explanatory Notes 4

J Eurocontrol Surcharge 2

K Cost Escalation Factor 2

L Rate of Return on Investment 3

M Operational Data for United States Transportation Command 1 Service

APPENDIX A

SCHEDULE OF UNIFORM NEGOTIATED RATES AND RULES

FISCAL YEAR 2008

A. RATES. Air transportation services shall be paid for at the following rates. In addition, carriers' monthly USTRANSCOM revenues based on the uniform rate will be adjusted for the variance in fuel price as provided in paragraph C of this Appendix A.

(1) CATEGORY B (CHARTER) PASSENGER SERVICE

a. Large Class Aircraft

Passenger Linehaul Rates, cents per seat mile Round-trip: 10.895 One-way: 20.156 (Contingency Rate): 21.027 Ferry rate: 10.013 (90% of effective rate) Stop Charge: $2,000 per directed landing Incremental Passenger Rate: $176 (per passenger)

b. Medium Class Aircraft

Passenger Linehaul Rates, cents per seat mile Round-trip: 14.079 One-way: 26.046 (Contingency Rate): 27.172 Ferry rate: 13.028 (90% of effective rate) Stop Charge: $2,000 per directed landing Incremental Passenger Rate: $176 (per passenger)

c. Small Class Aircraft

Passenger Linehaul Rates, cents per seat mile Round-trip: 14.577 One-way: 26.967 (Contingency Rate): 28.134 Ferry rate: 13.751 (90% of effective rate) Stop Charge: $2,000 per directed landing Incremental Passenger Rate: $176 (per passenger)

(2) CATEGORY B (CHARTER) CARGO SERVICE

a. Large Class Aircraft

Cargo Linehaul Rates, cents per ton mile Round-trip: 39.452 One-way (expansion buy): 71.014 (Contingency Rate): 76.931 Ferry rate: 36.233 (90% of effective rate) Stop Charge: $2,000 per directed landing

b. Medium Class Aircraft

Cargo Linehaul Rates, cents per ton mile Round-trip: 54.437 One-way (expansion buy): 97.987 (Contingency Rate): 106.152 Ferry rate: 50.627 (90% of effective rate) Stop Charge: $2.000 per directed landing

(3) CATEGORY B (CHARTER) CHARTER SERVICE

Combi Linehaul Rates, per plane mile Dollars per plane mile: 21.897 One-Way: 40.509 one-way plane mile Ferry Rate: 20.514 (90% of effective rate) Stop Charge: $2.000 per directed landing

(4) DIMENSIONAL PRICING – All cargo moved under Less Than Full Pallet (LTFP) CLINs are subject to dimensional pricing. Dimensional weighting compensates for low density per cubic area cargo movement. The dimensional weighting factor for international is 166 and for domestic cargo movement the factor is 194, consistent with commercial industry. The formula below illustrates how the dimensional weighting factor is applied for international. For the domestic calculation, substitute 194 in the place of 166.

Step 1 Shipment ____ length X ____ width X ____ height = cubic inches.

Step 2 ____ cubic inches, divided by 166 cu in/lb. = ____ chargeable pounds.

Step 3 Pay greater amount of: chargeable pounds or actual pounds.

Example: A shipment weighting 5 pounds that is 10” long, by 10” wide, by 10” high.

Step 1 10” (length) X 10” (width) X 10” (height) = 1,000 cubic inches.

Step 2 1,000 cu in, divided by 166 cu in/lb. = 6.02 chargeable pounds

Step 3 Actual weight = 5 pounds Chargeable weight = 6 pounds Payable weight = 6 pounds

(5) CATEGORY A SCHEDULED SERVICE CARGO (FULL PALLET)

The trip price for Scheduled Service cargo transportation is based on a per pound rate and negotiated outside the USTRANSCOM rate.

- Minimum guarantee per 463L pallet for widebody is 4,980 pounds.

- Minimum guarantee per 463L pallet for narrowbody is 3,750 pounds.

(6) EUROCONTROL. Eurocontrol applies where a carrier is required to transit countries with an ICAO prefix of "E" or "L" (i.e., EDAF, LIRA), with the exception of EGYP in the Falkland Islands. Carriers will be paid the applicable rate plus a surcharge of 3.0 percent of trip price (does not include stop charges) for passenger missions and 3.5 percent of trip price (does not include stop charges) for cargo missions. The Eurocontrol charge will not be calculated on ferry miles.

For DC-8 combi and other cargo missions flying a hub and spoke operation within Europe, the surcharge will not apply. These cargo missions will be reimbursed Eurocontrol charges based on actual invoices. Eurocontrol charges are those invoiced by Eurocontrol, Rue De La LOI 72-B-1040, Bruxelles.

(7) FERRY. In the event the air carrier operates a round-trip flight where the distance between originating and terminating stations exceeds 250 statute miles, the carrier will be paid either ferry rate for the statute miles between the originating station and termination, or ferry rate for the statute miles between the terminating station and, by mutual consent, one of the carrier's principle operating bases. Ferry will be paid based on standard ACL or lesser amount. Positioning and depositioning ferry shall be included with the offer and negotiated at time of award.

The carrier will not be paid ferry compensation to “close the jaw” if USTRANSCOM has that carrier operate a follow-on flight, which originates from the terminating station, within 24 hours.

(8) INCREMENTAL PASSENGER MOVEMENT. The incremental passenger rate applies when the number of additional passengers above the standard ACL is identified for an exercise, SAAM or contingency. The incremental passenger movement rate is $176 for each additional passenger over the standard ACL. In cases when the per seat cost is lower than USTRANSCOM’s incremental passenger rate, USTRANSCOM will pay the lesser amount.

B. AIRCRAFT STANDARDS. The rate set forth in paragraph A shall be applied to the following standard aircraft loads. When an aircraft is offered for channel missions with less seats than the standard ACL, and the aircraft is not 34 inch seat pitch configuration, we will only pay for the actual number of seats.

PASSENGER AIRCRAFT CARGO AIRCRAFT

Maximum Entitlement Maximum Entitlement Standard Category Standard Category Aircraft Type Payload Aircraft Type Payload

Small Aircraft:

Small Aircraft:

B-727-100 120 Short Range B-727-100 18 Short Range B-737-100 120 Short Range B-727-200 22 Short Range B-737-300 130 Short Range A319 135 Short Range MD-80 140 Short Range B-737-400 140 Short Range B-727-200 150 Short Range B-737-800 150 Short Range A320-232 150 Short Range A321-200 170 Short Range

PASSENGER

AIRCRAFT CONT. Maximum Entitlement

CARGO

AIRCRAFT CONT. Maximum Entitlement

Standard Category Standard Category Aircraft Type Payload Aircraft Type Payload

Medium Aircraft: Medium Aircraft:

B-757-200 190 Narrow Body DC-8-50 36.5 Narrow Body B-757-200ER 190 Narrow Body DC-8-62 39.2 Narrow Body B-757-300 200 Narrow Body DC-8-61 39.2 Narrow Body B-767-200 200 Narrow Body DC-8-63 45 Narrow Body B-767-200ER 200 Narrow Body DC-8-71 45 Narrow Body A-310 200 Narrow Body DC-8-73F 45 Narrow Body A-300-600ER 210 Narrow Body B-767-200F 48 Narrow Body A-300 210 Narrow Body A300-B4(F) 50 Short Range B-767-300 240 Wide Body A300-600ER 51 Short Range B-767-300ER 240 Wide Body B-767-400ER 260 Wide Body

Large Aircraft: Large Aircraft:

DC-10-10F 53 Wide Body L-1011-50 280 Wide Body L-1011-50/500* 60 Wide Body L-1011-100 280 Wide Body B-767-300F 61 Wide Body DC-10-10 280 Wide Body DC-10-30/40 75 Wide Body L-1011-500 300 Wide Body MD-11C 82 Wide Body A-330-300 310 Wide Body MD-11F 86 Wide Body A-330-323 310 Wide Body B-747-100 90 Wide Body B-777-200ER 330 Wide Body B-747-200 90 Wide Body DC-10-40 330 Wide Body B-747-400 90 Wide Body DC-10-30 330 Wide Body B-747-400ER 90 Wide Body MD-11C 360 Wide Body MD-11ER 360 Wide Body B-747-100 400 Wide Body B-747-200 400 Wide Body B-747-400ER 400 Wide Body

C. FUEL ADJUSTMENTS.

(1) General. The carrier shall be compensated for variance in fuel prices incurred on USTRANSCOM contract full planeload missions bought at the USTRANSCOM rate. Compensation will not be made to the prime or subservicing carrier for substitute service or subcontracted miles. Adjustments will be made upward or downward if the price of fuel varies by more than one cent per gallon from the pegged price (as stated in the USTRANSCOM Uniform Negotiated Rates and Rules) used in establishing the USTRANSCOM rates.

(2) Category B. The solicitation/contract addresses the current fuel adjustment procedures.

D. ROUND-TRIP SERVICES. The round-trip rate will be applied to trips where passengers and/or cargo are transported on two or more successive revenue flights in opposite directions.

E. CHANNEL EXTENSIONS. Seattle closed as of 1 Oct 05 as a full up commercial gateway and now operates as a channel extension. The following amounts will be paid per stop when the government directs a landing at Seattle.

Large Class Aircraft Ferry In/Live Out $3,815 Live In/Ferry Out $2,379

Medium Class Aircraft Ferry In/Live Out $3,815 Live In/Ferry Out $2,379

Small Class Aircraft Ferry In/Live Out $3,815 Live In/Ferry Out $2,379

F. COMPUTATION OF PASSENGER SEAT-MILES AND CARGO TON-MILES FOR PAY PURPOSES.

Long Range Service: Computation of miles and stop charges shall be computed as follows:

(a) If a live route segment is less than 4,000 miles, mileage shall be computed nonstop from origin to destination of that segment.

(b) When a route segment is 4,000 miles or more the mileage shall be computed via an intermediate point(s) which yields the shortest mileage. The government will pay for a directed operational stop when a route segment exceeds 4,000 miles. Carrier enroute stops related to paid ferry when positioning an aircraft for USTRANSCOM service do not receive a stop charge since paid ferry is paid on the effective rate versus the linehaul rate.

Examples: KBWI*CYQX–EDDF–LTAG–EDDF*CYQX–KBWI-KCHS = 7 Paid Stops1/

KCHS#MMCZ-MPTO=1 Paid Stop2/

KWRI+KCOF-TAPA-FHAW-TAPA-KCOF+KWRI= 4 Paid Stops3/

1/ * This symbol used in the above example indicates operational stops.

2/ # This symbol used in the above example indicates special miles for circumnavigating countries which will not grant over flight clearances—stop charges do not apply.

3/ + This symbol used in the above example indicates ferry leg for which stop charges do not apply.

(c) If a route segment is in the Pacific, the mileage shall be computed as indicated below:

PACIFIC ROUTINGS

PHILIPPINE

BETWEEN THAILAND A/ ISLANDS GUAM KOREA HAWAII TAIWAN OKINAWA JAPAN ALASKA

CONUS 4 or 6 4 or 6 5 4 or 8 B/ 1 4 or 8 B/ 4 or 8 B/ 2 or 5 B/ 1

ALASKA 3 3 - 3 - 3 3 1 or 3

JAPAN 1 1 1 1 1 B/ 1 1

OKINAWA 1 1 1 1 3 B/ 1

TAIWAN 1 1 1 1 3 B/

HAWAII 7 7 1 3 B/

KOREA 9 1 1

GUAM 1 1

PHILIPPINE 1

ISLAND

ROUTINGS

1. Direct 4. Via Anchorage/Yokota AB, Japan 7. Via Guam

2. Via Anchorage 5. Via Honolulu 8. Via Honolulu/Yokota AB, Japan

3. Via Yokota AB, Japan 6. Via Honolulu - Guam 9. Via Taipei A/ Certain trips to Thailand require submission of flight plan for circumnavigation.

B/ Honolulu – Yokota AB, Japan either direct or via Midway or Guam as specified in the USTRANSCOM contract.

G. DEFINITIONS.

“Category A cargo” Transportation of less than full planeload lots of cargo individually waybilled on schedules commercial flights between CONUS and overseas stations or between overseas stations.

“Category B Airlift” USTRANSCOM channel airlift for the transportation of passengers in full planeload lots on aircraft chartered from the commercial air industry. These international charter flights are scheduled by USTRANSCOM on a regular basis to and from designated commercial airports and/or USTRANSCOM gateways and/or military aerial ports.

“Charter rate” means a commercial price that is in fact available to the general public for equivalent services. Missions bought at a commercial charter price are all inclusive of taxes and any other ancillary cost and are not subject to adjustments for fuel prices.

“Consignment” means a number of Category A cargo pallets moving as one shipment, on the same date and assigned a Government/Commercial Bill of Lading (GBL/CBL) Number or listed on a DD Form 250 as one shipment. The minimum charge for any consignment is based on pallet minimum weight guarantees, times the number of pallets in the consignment. If the total weight of cargo on all pallets in the consignment exceeds the average guarantee, make payment for the actual weight.

“Contingency rate” The USTRANSCOM proposed contingency one-way rates are to be used at the USTRANSCOM commander’s discretion during conditions such as outbreak of war, armed conflict, insurrection, civil or military strife, or similar conditions (overseas). The one-way rates are adjusted to reflect limited backhaul capabilities.

“Stop charge” The stop charge is paid by the government in the case of government directed landings (operational and traffic stops) identified by the contract or delivery order to support the USTRANSCOM mission.

Operational stops allowed in accordance with Appendix A, Paragraph F (b) are considered directed stops. Landings made by the contractor of his own discretion for maintenance, aborted flights, fuel stops, crew changes, or emergency landings are not considered "directed landings," and therefore receive no stop charge.

“Pay miles” means the statute miles used to compute the price of the mission in accordance with Commerical Operation Integrated System (COINS). COINS calculates distances based on longitude and latitude for geographical locations listed in the DoD Flight Information Publication (FLIP) and identified by location indicators assigned by the International Civil Aviation Organization (ICAO) and published in the Location Indicator, Doc 7910/67.

APPENDIX B

COMPUTATION

USTRANSCOM UNIFORM RATE

ROUND-TRIP PASSENGER SERVICE

LARGE CLASS AIRCRAFT

USTRANSCOM

ADJUSTED FY06 FY07

RATE PER PASSENGER PASSENGER WEIGHTED

AIRCRAFT PAX MILE REVENUES REVENUES RATE

CARRIER TYPE (CENTS) [000] [000] (CENTS)

American Airlines B-777-200ER 12.137 $6,009 $0 American Trans Air L-1011-500 11.935 $172,253 $111,161 Omni Air Int'l DC-10-30 10.642 $316,472 $200,220 United Airlines B-747-400ER 11.986 $29,300 $10,996 United Airlines B-777-200 12.354 $10,102 $0 World Airways MD-11 10.975 $397,824 $257,913 World Airways DC-10-30/40 12.235 $26,756 $32,863

RATE -- WEIGHTED BY REVENUES 11.126

Linehaul Rate Effective Rate Average Average Rate Per Per Paid Per Seat Mile Stage Seats Per Directed Seat Mile

(cents) Length Mission Landing (cents)

11.126 2575 336 $2,000 10.895

Note: The weighted average stage length and weighted average seats are based on international base year data.

USTRANSCOM UNIFORM RATE

ROUND-TRIP PASSENGER SERVICE

MEDIUM CLASS AIRCRAFT

USTRANSCOM

ADJUSTED FY06 FY07

RATE PER PASSENGER PASSENGER WEIGHTED

AIRCRAFT PAX MILE REVENUES REVENUES RATE

CARRIER TYPE (CENTS) [000] [000] (CENTS)

American Trans Air B-757-200 $15.424 $31,011 $12,845 American Trans Air B-757-300 $14.863 $95,323 $58,131 Delta Airlines B-767-300ER $11.826 $10,884 $3,484 North American Airlines B-767-300 $14.886 $122,956 $107,682 North American Airlines B-757-200 $15.261 $32,197 $61,293 Omni Air International B-757-200 $10.820 $35,402 $22,956 Ryan International Airlines B-757-200 $14.242 $61,733 $16,725

RATE-WEIGHTED BY REVENUES 14.475

Per Seat Mile Stage Seats Per Directed Seat Mile

14.475 2441 207 $2,000 14.079

USTRANSCOM UNIFORM RATE

ROUND-TRIP PASSENGER SERVICE

SMALL CLASS AIRCRAFT

USTRANSCOM

ADJUSTED FY06 FY07

RATE PER PASSENGER PASSENGER WEIGHTED

AIRCRAFT PAX MILE REVENUES REVENUES RATE

CARRIER TYPE (CENTS) [000] [000] (CENTS)

Miami Air Int'l B-737-800 15.279 $45,384 $37,577

RATE--WEIGHTED BY REVENUES 15.279

Per Seat Mile Stage Seats Per Directed Seat Mile

15.279 1900 150 $2,000 14.577

USTRANSCOM

ADJUSTED FY06 FY07

RATE PER CARGO CARGO WEIGHTED

AIRCRAFT TON MILE REVENUES REVENUES RATE

CARRIER TYPE (CENTS) [000] [000] (CENTS)

Atlas Airlines B-747-200/300/400 $42.387 $322,932 $331,290 Evergreen Int'l Airlines B-747-100/200 $38.582 $412,335 $320,233 Fed Express Corp MD-11 $50.605 $4,007 $4,354 Gemini Air Cargo DC-10-30 $37.272 $22,808 $6,908 Kalitta Air B-747-100/200 $38.574 $47,959 $49,970 Polar Air Cargo B-747-200/300/400 $40.880 $73,521 $0 United Parcel Service B-747-100/200 $37.811 $11,015 $6,185

RATE -- WEIGHTED BY REVENUES 40.259

Effective Rate Average Average Rate Per Per Paid Per Ton Mile Stage Tons Per Directed Ton Mile

40.259 2786 89.0 $2,000 39.452

Note: The weighted average stage length and weighted average tons

COMPUTATION

USTRANSCOM UNIFORM RATE

ROUND-TRIP CARGO SERVICE

LARGE CLASS AIRCRAFT

USTRANSCOM

ADJUSTED FY06 FY07

RATE PER CARGO CARGO WEIGHTED

AIRCRAFT TON MILE REVENUES REVENUES RATE

CARRIER TYPE (CENTS) [000] [000] (CENTS)

Air Transport Int'l DC-8-63/71/73 50.719 $29,337 $5,230

ASTAR DC-8-73F 61.194 $29,344 $9,357

RATE -- WEIGHTED BY REVENUES 56.252

Effective Rate Average Average Rate Per Per Paid Per Ton Mile Stage Tons Per Directed Ton Mile

(cents) Length Mission Landing (cents)

56.252 2449 45.0 $2,000 54.437

Note: The weighted average stage length and weighted average tons are based on international base year data.

COMPUTATION

USTRANSCOM UNIFORM RATE

ROUND-TRIP CARGO SERVICE

MEDIUM CLASS AIRCRAFT

USTRANSCOM UNIFORM RATE

ROUND-TRIP COMBI SERVICE

COMBI AIRCRAFT

USTRANSCOM FY06 FY07

ADJUSTED PASSENGER PASSENGER WEIGHTED

AIRCRAFT RATE PER REVENUES REVENUES RATE

CARRIER TYPE PLANE MILE [000] [000] (CENTS)

Air Transport International DC-8-62/61 $22.7926 $78,873 $76,025

RATE--WEIGHTED BY REVENUES $22.793

Effective Rate Average Rate Per Per Paid

Per Plane Mile Stage Directed Plane Mile

(cents) Length Landing (cents) $22.793 2,231 $2,000 $21.897

Note: The average stage length is the stage length carrier proposed for USTRANSCOM operations.

APPENDIX C

AMERICAN AIRLINES

LARGE CLASS AIRCRAFT Aircraft Type B777-200ER

FY08 RATE REVIEW Passenger Service

FORECAST YEAR FY08

USTRANSCOM FINAL

PROPOSED ADJUSTED

TOTAL REVENUE & BACKHAUL/PAID MILES (000) 164 164

AVERAGE DAILY AIRCRAFT UTILIZATION 7.7 7.7

COST PER REVENUE/PAID AIRCRAFT MILE

Direct Variable:

Crew $2.7442 $2.7504 Fuel, Oil, & Aircraft Supplies 9.8261 D 9.1713 Flight Equipment Maintenance 2.4269 2.4326

Total Direct Variable 14.9972 14.3543

Direct Fixed:

Hull, Public Liability, & Property Damage Insurance 0.3966 0.3974 Aircraft Rentals & Miscellaneous 0.0000 0.0000 Flight Equipment Depreciation & Obsolescence 4.6493 4.6493 Amortization of Preoperating Expense 0.0000 0.0000

Total Direct Fixed 5.0459 5.0467

Indirect:

Maintenance & Depreciation-General Ground Property 0.4864 0.4867 Aircraft & Traffic Servicing 8.1629 8.1821 Passenger Service 3.9899 3.9993 General & Administrative 1.0348 1.0118

Total Indirect 13.6740 13.6799

TOTAL OPERATING COST 33.7171 33.0809

Return on Investment 7.5666 6.9700

TOTAL COST $41.2837 $40.0509

Average Investment for FY08 Working Capital 1.8082 1.7682 Owned Flight Equipment (net) 44.8385 44.8385 Long Term/Capital Leased Flight Equipment (net) 0.0000 0.0000 Ground Property & Equipment (net) 3.8643 3.8643 Deferred Preoperating Expense/Other 0.0000 0.0000 Annual Operating Lease Expense 0.0000 0.0000

Allowable Cabin Load 330 330

RATE PER SEAT MILE $0.12510 $0.12137

AMERICAN TRANS AIR

LARGE CLASS AIRCRAFT Aircraft Type L-1011-500

FY08 RATE REVIEW Passenger Service

FORECAST YEAR FY08

USTRANSCOM FINAL

PROPOSED ADJUSTED

TOTAL REVENUE & BACKHAUL/PAID MILES (000) 5,772 5,779

AVERAGE DAILY AIRCRAFT UTILIZATION 7.4 B 6.8

COST PER REVENUE/PAID AIRCRAFT MILE

Direct Variable:

Crew $3.3744 C $3.3780 Fuel, Oil, & Aircraft Supplies 11.4929 D 10.7267 Flight Equipment Maintenance 2.0177 E 2.0705

Total Direct Variable 16.8850 16.1752

Direct Fixed:

Hull, Public Liability, & Property Damage Insurance 0.1907 F 0.2082 Aircraft Rentals & Miscellaneous 0.4342 G 0.4735 Flight Equipment Depreciation & Obsolescence 3.6741 H 4.3036 Amortization of Preoperating Expense 0.0000 0.0000

Total Direct Fixed 4.2990 4.9853

Indirect:

Maintenance & Depreciation-General Ground Property 0.3810 0.3810 Aircraft & Traffic Servicing 2.1574 2.1598 Passenger Service 6.2682 6.2826 General & Administrative 2.3283 2.2722

Total Indirect 11.1349 11.0956

TOTAL OPERATING COST 32.3189 32.2561

Return on Investment 3.5551 3.5482 *

TOTAL COST $35.8740 $35.8043

Average Investment for FY08 Working Capital 1.9154 1.8692 Owned Flight Equipment (net) 20.7739 22.6332 Long Term/Capital Leased Flight Equipment (net) 0.0000 0.0000 Ground Property & Equipment (net) 0.4315 R 0.3890 Deferred Preoperating Expense/Other 0.0000 0.0000 Annual Operating Lease Expense 0.2858 T 0.3114

Allowable Cabin Load 300 300

RATE PER SEAT MILE $0.11958 $0.11935

* Allows minimum return at 11 percent of operating cost.

OMNI AIR INTERNATIONAL

LARGE CLASS AIRCRAFT Aircraft Type DC-10-30

FY08 RATE REVIEW Passenger Service

FORECAST YEAR FY08

USTRANSCOM FINAL

PROPOSED ADJUSTED

TOTAL REVENUE & BACKHAUL/PAID MILES (000) 8,189 8,189

AVERAGE DAILY AIRCRAFT UTILIZATION 7.1 7.1

COST PER REVENUE/PAID AIRCRAFT MILE

Direct Variable:

Crew $4.7488 $4.7595 Fuel, Oil, & Aircraft Supplies 12.8715 D 12.0134 Flight Equipment Maintenance 5.7609 5.7745

Total Direct Variable 23.3812 22.5474

Direct Fixed:

Hull, Public Liability, & Property Damage Insurance 0.3061 0.3065 Aircraft Rentals & Miscellaneous 2.0719 2.0719 Flight Equipment Depreciation & Obsolescence 0.0589 0.0589 Amortization of Preoperating Expense 0.0000 0.0000

Total Direct Fixed 2.4369 2.4373

Indirect:

Maintenance & Depreciation-General Ground Property 0.0485 0.0485 Aircraft & Traffic Servicing 2.0481 2.0529 Passenger Service 3.1767 3.1842 General & Administrative 1.4377 M 1.3694

Total Indirect 6.7110 6.6550

TOTAL OPERATING COST 32.5291 31.6397

Return on Investment 3.5782 3.4804 *

TOTAL COST $36.1073 $35.1201

Average Investment for FY08 Working Capital 2.0426 1.9865 Owned Flight Equipment (net) 0.7645 0.7645 Long Term/Capital Leased Flight Equipment (net) 0.0000 0.0000 Ground Property & Equipment (net) 0.6651 0.6651 Deferred Preoperating Expense/Other 0.0000 0.0000 Annual Operating Lease Expense 2.0427 2.0427

Allowable Cabin Load 330 330

RATE PER SEAT MILE $0.10942 $0.10642

UNITED AIRLINES

LARGE CLASS AIRCRAFT Aircraft Type B-747-400ER

FY08 RATE REVIEW Passenger Service

FORECAST YEAR FY08

USTRANSCOM FINAL

PROPOSED ADJUSTED

TOTAL REVENUE & BACKHAUL/PAID MILES (000) 224 224

AVERAGE DAILY AIRCRAFT UTILIZATION 11.6 11.6

COST PER REVENUE/PAID AIRCRAFT MILE

Direct Variable:

Crew $4.5146 C $4.1605 Fuel, Oil, & Aircraft Supplies 14.9760 D 14.4790 Flight Equipment Maintenance 4.2664 4.2765

Total Direct Variable 23.7570 22.9160

Direct Fixed:

Hull, Public Liability, & Property Damage Insurance 0.2637 0.2643 Aircraft Rentals & Miscellaneous 1.3300 1.3326 Flight Equipment Depreciation & Obsolescence 1.1068 1.1068 Amortization of Preoperating Expense 0.0000 0.0000

Total Direct Fixed 2.7005 2.7037

Indirect:

Maintenance & Depreciation-General Ground Property 0.1700 0.1701 Aircraft & Traffic Servicing 7.7226 K 7.7404 Passenger Service 7.5489 7.5666 General & Administrative 2.1775 2.0947

Total Indirect 17.6190 17.5718

TOTAL OPERATING COST 44.0765 43.1916

Return on Investment 4.8484 4.7511 *

TOTAL COST $48.9249 $47.9427

Average…