FY12 Final Uniform Rates and Rules.pdf

For Official Use Only

17 Nov 11

MEMORANDUM FOR ALL CARRIERS

FROM: USTRANSCOM/TCAQ-P

508 Scott Drive Scott AFB IL 62225-5357

SUBJECT: Notice of Final Fiscal Year 2012 (FY12) Uniform Rates and Rules for International

Service – Solicitation Number HTC711-11-R-C002

1. The FY12 rates are based on fuel pegged at $3.30 for passenger and $3.77 per gallon for cargo, combi, and L100. The final rates for the various classes of service are as follows. All passenger rates are expressed per seat mile. All cargo rates are per ton mile; while, combi is per plane mile.

Effective Rate Linehaul Rate Stop Charge Large Class Passenger $0.13082 Medium Class Passenger $0.14729 Small Class Passenger $0.16482 $2,000 Large Class Cargo $0.49898 Medium Class Cargo $0.66065 $2,000 Combi Service $29.97613 L100 $1.21646

2. In accordance with our Memorandum of Understanding, please direct any questions or concerns to me at Lucretia.Sanchez@ustranscom.mil or 618-220-7119.

//SIGNED//

LUCRETIA A. SANCHEZ

Supervisory Price/Cost Analyst

1 Attachment FY12 Final Uniform Rates and Rules for International Service

UNITED STATES TRANSPORTATION COMMAND

508 SCOTT DRIVE

SCOTT AIR FORCE BASE, ILLINOIS 62225-5357

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

UNITED STATES

TRANSPORTATION COMMAND

FINAL

UNIFORM RATES AND RULES

FOR

INTERNATIONAL SERVICE

FISCAL YEAR 2012

INTRODUCTION

The Final FY12 USTRANSCOM Uniform Rates and Rules (hereafter referred to as

“Rates”) were developed using ratemaking procedures in compliance with the Federal

Acquisition Regulation (FAR), Memorandum of Understanding (MOU) for FY08 through FY12, and methodologies previously established by the Civil Aeronautics Board

(CAB). 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).

The large passenger, small passenger and medium cargo class rates are lower than the current FY11 rate, while the medium passenger and large cargo classes are higher.

Although TCAQ has reviewed these costs extensively, the decreases can be briefly explained as follows:

Large Passenger Class:

Excluding fuel, the large passenger class rate is down 0.86%. The two highest weighted carriers in this class are World’s MD11 and Omni’s DC10 aircraft, accounting for 93% of this rate. While World’s costs within our uniform rate have remained relatively constant since FY10, Omni’s costs have decreased approximately 4.5%. Omni’s decreases are evidenced by their Department of Transportation reporting, where Omni’s total overall fixed costs between the FY11 base period and FY12 base period decreased over 19% and their indirect, fleet-wide, costs were down 8%. Another large driver to the decrease in this rate is the removal of World’s DC10 aircraft. In FY11, World’s DC10 was a high cost driver, which carried a weighting of almost 19%. At the onset of calendar year 2011

World parked their DC10 aircraft and so these costs were excluded in the FY12 ratemaking process, affecting the rate by a decrease of more than 3%. Because of the weighting process within the rate, this is intuitively logical, as the older, less efficient aircraft are parked, the uniform rate would expect to decrease. This is the first time we have actually observed the phenomenon USTRANSCOM had planned to achieve with the use of more modern, fuel efficient aircraft. We expect this same effect in other classes in the future, as older aircraft are parked and more fuel efficient aircraft are utilized.

Small Passenger Class:

Excluding fuel, the small passenger class rate is down 19.27%. This is a direct result of the addition of more carriers involved in this rate, as well as the highest weighted carrier, Miami Air, costs declining. This decrease was expected, as the FY11 rate included costs that should not have been incorporated. This high rate in FY11 made the medium class

B757 aircraft cheaper to operate than the B737. With coordination between Miami Air and Ryan, this issue was corrected for FY12.

Medium Cargo Class:

Excluding fuel, the medium cargo class rate is down 8.38%. This decrease can be attributed to better allocation of USTRANSCOM versus commercial costs. These changes were coordinated with ASTAR Air Cargo and ABX Air.

The proposed rates were issued on 26 Aug 11 with carrier comments due no later than 26

Sep 2011. Carriers were invited to meet with TCAQ before comments were due and

USTRANSCOM made available, to those requesting the information, individual analyst cut sheets. The cut sheets provided detailed information related to adjustments made by the analyst to an individual contractor’s costs and/or statistical data. Twelve carriers representing 26 proposals requested this data; and 10 of those carriers, representing 22 proposals, requested meetings with TCAQ-P. After the meetings, the following carriers provided written comments to the proposed rate: ASTAR Air Cargo (ASTAR), Air

Transport International (ATI), Atlas Air (Atlas), Evergreen International Airlines

(Evergreen), Lynden Air Cargo (Lynden), North American Airlines (North American), Omni Air International (Omni) and World Airways, Inc (World). Although many carrier comments related to carrier-specific issues, general comments received related to:

1) Cargo one-way rate

2) Passenger live rate

3) Older aircraft impact on large passenger class rate

4) Legacy carrier impact on rates

5) Volatility of fuel prices

Other issues brought to light during discussions with carriers:

6) Increased costs as a result of contractual requirement for increased reliability

7) Increased activity to Bishkek not in the base period costs

Each of the carrier’s general comments and issues will be addressed in the appropriate subject paragraphs which follow:

1) Cargo One-Way Rates

Evergreen and Atlas commented the one way rate of 160 percent was not providing incentive for the long-term and did not reflect the current economic outlook. Both carriers requested an increase in the rate based on their most current S2 data, along with consideration for current market performance and expectations. Based on their independent analyses, Atlas requested USTRANSCOM consider a 5 percent increase, while Evergreen requested an increase of 11 percent.

Response: To calculate the one-way rate, TCAQ reviewed one-way missions reported on carrier S2 reports. Carriers report empty miles associated with the 2 legs before

USTRANSCOM one-way missions originating outside CONUS or, conversely 2 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. For FYs 10 and 11, USTRANSCOM hypothesized there should be noted efficiencies associated with planning time. The greater the lead-time, the more time a carrier has to align their commercial services, resulting in more efficient operations. This would be the opposite for ad-hoc missions, where little planning time is available. During the FY11 and FY12 analyses, it was noted this was not the case, as carriers appeared to simply assign commercial missions closely tied to their USTRANSCOM mission at the time of operation. This analysis indicated a single one-way rate would be appropriate.

Therefore, as part of the FY12 rate, USTRANSCOM proposed a single one-way rate of

160 percent for all cargo. During FY11 one way rates were established at 175 percent/165 percent for ad-hoc and expansion, respectively. During FY11 the ad-hoc missions were 63 percent of the total miles, while the expansion missions accounted for

37 percent. Weighting of these one way rates would have equated to a blended rate of

171 percent. However, data considered for the FY12 rate indicated the live to empty ratios were 4 percent lower than FY11, justifying a reduction from the blended rate of

171 percent to 167 percent for FY12. This information is provided at Appendix N to these rates. Furthermore, an analysis of the most current S2 data available, through

August 2011, indicates a live to empty ratio of 57 percent. Based on the above data, the final FY12 rate includes a one-way rate of 167 percent of the cargo round trip rate.

USTRANSCOM believes this is fair and reasonable compensation for missions performed in one-way service.

The FY12 one-way rates are as follows:

One Way Rates (Percent of round-trip seat/ton mile rate)

Cargo

Large Class

Cargo

Medium Class

Passenger

Combi

One-Way

Missions

167%

167%

N/A

185%

Contingency Rate

(per Appendix A, Para G)

195%

195%

N/A

193%

2) Passenger Live Rate

For FY12, TCAQ introduced a live mile rate for all passenger missions. TCAQ proposed use of this single rate for all live miles, regardless if the miles were one-way or round trip. Empty backhaul miles associated with one-way missions would be considered

“front/backhaul ferry” and would be paid at the ferry rate, in addition to positioning ferry.

To make a distinction between these, USTRANSCOM suggests front/backhaul ferry should be considered those miles that are “inter-continental” miles, while positioning ferry should be considered those miles that are “intra-continental”.

North American and World provided written comment, while Delta and Omni provided verbal agreement on the methodology. North American and World commented on their concern for potential lost revenue as a result of the live mile rate. As such, they requested USTRANSCOM consider a phased approach to determine the “paid miles” divisor in the ratemaking equation. They requested USTRANSCOM consider use of an

88 percent factor in the rate calculation for FY12, based on a 90 percent ferry rate;

increasing by one percent in FY13 until finally at the full calculation in FY14. This phased approach is intended to act as a protection from potential negative revenue implications of this new methodology.

Response: During discussions with carriers, USTRANSCOM agreed, in order for carriers to receive full compensation of their total costs when utilizing the proposed 90 percent ferry rate, USTRANSCOM would be required to adjust the “paid miles” divisor in ratemaking. USTRANSCOM proposed to adjust ferry miles in the ratemaking based upon the ferry rate paid. So for instance, with a ferry rate of 90 percent, USTRANSCOM would only apply 90 percent of the carrier’s ferry and empty backhaul miles in the divisor of the calculation for “paid miles” i . USTRANSCOM agrees this “live rate” methodology is innovative. As such, we agree some flexibility in the calculations over the next two years should be allowed. As such, instead of utilizing 90 percent of the carrier’s empty and ferry miles in the “paid miles” calculations, USTRANSCOM utilized

88 percent, slightly lowering the paid miles. Additionally, with the live mile rate calculations, the 250-mile rule utilized by TCAQ-C on one-way missions is also no longer applicable. Because of USTRANSCOM’s desire to move to the live rate methodology, we believe these actions are in the best interest of both parties.

Live mile rate application for euro control and cancellation fees:

USTRANSCOM was required to develop methodologies for the application of euro control and cancellation fees until the Commercial Operations Integrated System

(COINS) is updated to accommodate live mile rates. In the interim, TCAQ will utilize the FY11 rate of 185% to calculate miles with which to calculate these reimbursement amounts. For example, a carrier has a one way mission of 5000 miles - for purposes of calculating euro control and cancellation fees, the associated front/backhaul will be presumed to be 4250 miles (5000 x 85%). COINS will automatically calculate euro control on the live mile cost, for the 5000 miles. It will not, however, calculate euro control on ferry miles, because euro control does not currently apply to ferry. As such, until FY13, the TCAQ-C buyers will be required to make a miscellaneous adjustment for this as follows:

4250 miles x live rate x ACL = calculated cost x 0.024 (Eurocontrol

Percentage) = euro control for front/backhaul ferry

This same type of calculation will be used for the calculation of cancellation fees:

4250 miles x live rate x ACL = calculated cost to be added to live cost for calculation of cancellation fee."

3) Older Aircraft Impact on Large Passenger Class Rate:

North American and World expressed concern over the low cost of the older aircraft within the large passenger class. Their concern was that this aircraft’s costs are driving the rate down for operators of modern aircraft, which should be more efficient. To accommodate for this, North American and World suggested 1) a separation for modern passenger aircraft within the ratemaking process or 2) application of an “ownership premium” for modern aircraft.

Response: USTRANSCOM is confident in the accuracy of Omni’s DC10 data and would not discuss the particulars of one carrier’s costs with other carriers. However, in reviewing costs for all carriers within this class, it appeared the issue may not necessarily be the low cost of the older aircraft, but potentially the higher cost of World’s MD11.

This particular aircraft costs 5-8 percent more than B747 aircraft and between 11-28 percent more than other modern aircraft (B777 and A330) within the same rate class.

Additionally, even a comparison of Worlds’ own MD11 aircraft operating in the two different service categories (passenger and cargo) indicates World’s cargo MD11 operates at $37/mile, while their passenger MD11 operates at $49/mile. With the addition of World’s passenger service expense of $7.10/mile, World’s passenger MD11 is still 10% higher than their cargo MD11. The economic theory of the uniform rate is a carrier who is more efficient will make more profit while a carrier who is less efficient, or operating aircraft that are no longer competitive within their class, will make less. Either one of the proposals offered by North American and World would appear to bypass this economic theory. Nevertheless, USTRANSCOM reviewed the suggestions to separate the modern aircraft in the ratemaking process or apply an ownership premium for modern aircraft.

If USTRANSCOM were to apply the concept modern aircraft should be extracted in the rate process, it would stand true that theory should be applied across the board - to the cargo classes as well. However, the opposite trend is occurring in the large cargo class, where the modern aircraft are actually lowering the rate. If USTRANSCOM were to extract the modern aircraft, we would not only be going against the economic principle of the rate process, but we would also be incentivizing the older aircraft in the large cargo class by paying them a higher rate than the modern aircraft. This is counterintuitive to

USTRANSCOM’s intent to incentivize more modern, fuel efficient aircraft and the economic theory behind the ratemaking process.

As for application of an ownership premium, it is USTRANSCOM’s position this premium already exists in the calculation of the full return on investment. Unfortunately, because high fuel prices are driving up a carrier’s total operating cost and the ratemaking process applies the greater of 1) full return on the net book value of the assets, or 2) a minimum return applied to a carrier’s total operating costs, most carriers are simply seeing the minimum return in their rate versus the full return on investment. Again, this is not necessarily because the calculation for full ROI is not considering the higher capital costs of new aircraft, but because carrier’s total operating costs are high as a result of the impact of fuel. Additionally, USTRANSCOM does not believe it would be appropriate to artificially inflate the price paid by DOD to compensate for modern aircraft. It is

USTRANSCOM’s intent more modern, fuel efficient aircraft will eventually provide for a lower cost to the government.

4) Legacy Carrier Impact on Rates:

North American and World also expressed concern that the legacy carrier’s costs are not reflective of the true cost of operating in USTRANSCOM service. They specifically discussed the legacy carrier’s high utilization and low passenger service costs.

Response: Again USTRANSCOM is confident in the accuracy of the legacy carrier’s data and would not discuss the particulars of one carrier’s costs with other carriers.

However, it can be pointed out that, with few exceptions, there is little disparity between the legacy carriers and the charter carriers in the medium class rate. Although it is true the legacy carriers are more problematic in the rate process, simply as a result of the volume of data, USTRANSCOM analysts work diligently to ensure fair and reasonableness. Additionally, the legacy carrier weightings are generally lower than the charter carriers, so the inherent risk of any negative impact is relatively low.

5) Volatility of Fuel Prices:

North American and World also expressed concern over the recent volatility of fuel prices. As such, they requested USTRANSCOM consider maintaining the current FY11 fuel peg rates of $3.90 for passenger and $3.98 for cargo, to provide carriers with a buffer from future spikes in the cost of fuel.

Response: USTRANSCOM must follow Department of Defense (DOD) guiding principles. DOD cost and pricing guidelines require the use of the most accurate data available when establishing the baseline for an economic price adjustment.

6) Costs Associated with Increased Reliability:

During discussions, Evergreen commented they had incurred additional costs associated with the contractual change to increase reliability which were not included in the base period used to calculate the FY12 rate. They requested USTRANSCOM consider additional costs associated with this new requirement.

Response: USTRANSCOM agreed and requested data from all carriers. Carriers representing 93 percent of the large passenger class weighting, 87 percent of the medium passenger class and 83 percent of the large cargo class responded to the request.

USTRANSCOM evaluated the individual proposals for additional costs associated with this change and incorporated them into the FY12 uniform rate.

7) Bishkek Station Charges:

North American and World claimed costs associated with increased activity to Bishkek were still not appropriately accounted for in the base period used for the FY12 rate. This was a result of increased activity to the area. Additionally, they claimed excessive costs for the over flight of Kazakhstan began in the summer of 2011 and were also not in the base period.

Response: USTRANSCOM evaluated the increased activity and confirmed passenger missions increased by an average of 26.3 percent from the base period. USTRANSCOM also requested invoices from all carriers to support the claim regarding the navigation fees charged for Kazakhstan. USTRANSCOM was also able to confirm Kazakhstan charges, on an average, were $4000 per flight. As a result of the analysis, USTRANSCOM agreed to include station charges for additional Bishkek station charges that were not included in the base period. In conjunction with this analysis, Delta commented the stations charges should be commensurate to the weight of the aircraft rather than the ACL and requested USTRANSCOM calculate the station charges accordingly. USTRANSOCM concurred and agreed to weigh station charges based on aircraft weight rather than on ACL. The weighting used was provided in the FY12 cost package for use in allocation of Aircraft and Traffic Service costs. Station charges for the FY12 Uniform Rates and Rules were then determined using the increase in Bishkek stops by 26.3 percent and the $4,000 allowance for Kazakhstan navigation fees. These station charges are provided at Appendix A.

Fuel

TCAQ 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.

A review of carriers’ recent monthly fuel reports conclude cargo carriers receive 66 percent of their fuel at military installations and are charged the rate set by Defense

Energy Support Center (DESC). Conversely, passenger carriers receive 76 percent of their fuel commercially, which fluctuates up and down with the commercial fuel market.

The average commercial fuel price is derived from the International Air Transportation

Association (IATA) fuel index and OPIS ii

DESC current JP-5 and JP-8 fuel prices, as of 01 Jun 11, are $3.97 and $3.95 respectively. DESC appears to be considering a price change to be effective 1 Jan 12. If that occurs and it is significant, USTRANSCOM may adjust the rates accordingly prior to performance start. USTRANSCOM will continue to closely monitor fuel prices for the

FY12 contract performance period and make appropriate adjustments to the pegged fuel prices as we have done in prior contract periods.

The weightings between commercial fuel and military fuel and the current commercial fuel and military fuel prices results in a pegged fuel price of $3.30 for passenger and

$3.77 per U.S. gallon for cargo, combi, and L100. The pegged price includes into-plane fees and taxes.

Capital Compensation.

The analysis for the FY12 final rate resulted in a full return on investment (ROI) rate of

10.55 percent. The following carriers received the full ROI for FY12: DAL (A330 and

B777) and UPS (B747-400 and MD11). Appendix M provides the details for the development of the 10.55 percent full ROI for the FY12 Rates.

Cost Escalation.

The FY12 annual cost escalation factor is 2.12 percent, resulting in a 28.5 month escalation factor of 5.12 percent. This is based on the calculations agreed upon in the

FY08-12 MOU, as amended. This is an increase from the FY11 annual escalation factor of 1.29 percent and 28.5 month factor of 3.09 percent. Appendix L provides detailed information on this calculation.

Eurocontrol.

The FY12 Euro control surcharges have been calculated as follows: 2.4 percent for passenger, 3.0 percent for cargo missions, .42 percent for combi. L-100 euro control will be on a cost reimbursable basis. This is a change from the FY11 Euro control of 2.8 percent, 3.0 percent and .57 percent for passenger, cargo and combi, respectively. The mission samples and analysis for euro control is provided at Appendix K.

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 in advance for an exercise, SAAM, or contingency. TCAQ updated all factors incorporated into this rate; and the FY12 Incremental Passenger Rate is $206 iii

. See Appendix A for details.

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, combi, and L100 aircraft rates, respectively. Appendices C through I illustrate individual treatment of each carrier’s cost by aircraft type, with explanatory notes provided in Appendix J. Appendices K, L and M provide the Eurocontrol Surcharge, Cost Escalation Factor, Rate of Return on Investment Computations, respectively.

Appendix N provides Backhaul Operational Data for USTRANSCOM One-Way services and Appendix O provides information on the FICA escalation calculation.

Future Items Impacting the Uniform Rate

Statutory Authority

USTRANSCOM has sought, and is very close to receiving, statutory authority to be the rate setter for the international CRAF contract. The impact to this will be to the requirement for certified cost and pricing data (TINA) and cost accounting standards

(CAS). Under this authority, the CRAF contract will receive exemptions from both CAS and TINA.

Fully Depreciated Assets

Fully depreciated assets have generally not been accorded special treatment in the ratemaking process. In general, the presumption has been that the depreciation and return provided over the life of an aircraft are sufficient to provide for its ownership costs throughout its service life. Although carriers do not appear to be operating these aircraft in commercial service, they are operating them in USTRANSCOM service in lieu of retiring them. It appears this is the case because, under the USTRANSCOM rate procedures these aircraft receive some element of depreciation since their costs are weighted by other carrier costs. Additionally, under USTRANSCOM rate procedures, fuel is reimbursed; so there is no true incentive to retire these aging aircraft. Of concern, however, is that, while these aircraft remain in USTRANSCOM service, there is an indirect impact on the rates of all carriers in the program as a result of the weighting procedure for the overall rate determination. Although this impact is mitigated by the higher maintenance and fuel cost of the older aircraft, the issue of depreciation still must be addressed.

For a period of three years, USTRANSCOM has been informing carriers of the

Command’s desire to move toward the operation of more modern, fuel efficient aircraft.

As such, carriers have been put on notice continued operation of older, less efficient, fully depreciated aircraft is not desirable. In such instances where a carrier continues to operate fully depreciated assets, USTRANSCOM will only provide compensation beyond the normal return framework as “usage fees”, in accordance with the Federal Acquisition

Regulation 31.109(h)(2). A usage charge is generally only appropriate when the actual useful life of an asset exceeds its estimated useful life and there has been a significant change in USTRANSCOM’s participation after the asset was fully depreciated. In such cases, the allocation of the cost of the asset usage between USTRANSCOM and commercial contracts may be adjusted by applying the usage charge. In those cases where there has not been a significant change in USTRANSCOM participation, there may be little to no usage fee recovery.

i

History The way we pay ref Pay miles

R/t miles 16,000 a 16000 ow miles 8,000 b 8000

Ferry 2,000 c 6000 assumed 175% oneway rate assumed 90% Ferry total mi 26,000 31,800 total pay miles 350 seats ow rate 175 percent 11,130,000 seat miles seats 350 0.011

$122,430.00 Overpaid cost pool $100,000.00 cost per live mi w MTBH $3.85 a+b+c

Uniform rate cost per seat mile $0.0110

History Proposed ref Adj. miles Pay miles R/t miles 16,000 a 16000 16000 ow miles 8,000 b 7200 7200 Assumed 90% Ferry Backhaul

Ferry 2,000 c 1800 1800 Assumed 90% Ferry

25,000 total pay miles total mi 26,000 25000 350 seats 8,750,000 seat miles Ferry Rate 90 percent $ 0.01143 seats 350 $100,012.50 cost pool $100,000.00 cost per live mi w MTBH $3.85 a+b+c $ 4.00

Uniform rate cost per seat mile $0.0110 $ 0.01143 ii

IATA Fuel Price Analysis: (as of 23 Sep 11)

Jet Fuel Price 100%

Asia& Oceania 22% 289.2 63.62

Europe & CIS 28% 291.2 81.54

Middle East &

Africa 7% 283.9 19.87

North America 39% 290.8 113.41

Latin America 4% 299.7 11.99

Average 2.90

OPIS Index: (Mean between 9/26 to 10/3)

New York 287.85

U.S. Gulf 286.87

Los Angeles 292.41

Rotterdam 293.00

Singapore 284.25

Average 2.89 iii

Incremental Passenger Rate calculation

Carrier Aircraft

Type ACL

Passenger Service Cost Per

Mile

Passenger Service Cost

Per Seat

FY10

Passenger

Revenues (000)

FY11

Passenger Revenue

(000)

Total Revenue by Carrier

Weighted Avg for each Carrier

Weighted Avg Pax Svc Cost

AAL B777 330 3.476 0.01053333 1,262 -

1,262

0.0009

0.00000902

COA B777 330 2.8666 0.00868667 1,523 574

2,097

0.0014

0.00001237

DAL A330 310 3.1678 0.01021871 5,961 14,719

20,680

0.0140

0.00014346

DAL B747 400 4.0403 0.01010075 39,804 15,231

55,035

0.0374

0.00037737

DAL B777 330 3.0453 0.00922818 6,201 1,105

7,306

0.0050

0.00004577

OAE DC10 330 4.4647 0.01352939 352,880 267,639

620,519

0.4212

0.00569916

UAL B747 400 4.8752 0.01218800 7,237 2,263

9,500

0.0064

0.00007860

WOA MD11 360 7.0998 0.01972167 371,630 385,038

756,668

0.5137

0.01013040

0.01649615

One-Way Round-Trip Total

Avg Live Pay Miles 2335117 12,366,135 14,701,252 FY12 Final Passenger Seat Mile Rate 0.24856 0.13082 201,983,380 562,972,748 Total Dollars 764,956,128 Total Trips 1,180 Total Passengers 410,640 Avg Passenger per Trip 348 Avg Price Per Trip 648,267.90 Avg Seat Miles Per Trip 4,335,623.47 Avg Miles Per Trip 12,459

Additional passenger service cost per trip 206

INDEX OF APPENDICES

No.

Appendix Title Pages

A USTRANSCOM Uniform Negotiated Rates and Rules 6

B Computation of Uniform Rates: 7

Large Class Passenger Service

Medium Class Passenger Service

Small Class Passenger Service

Large Class Cargo Service

Medium Class Cargo Service

Combi Class Service

L100 Class Service

C Costs Per Seat Mile by Carrier and Aircraft Type

In Large Class Charter Passenger Service 8

D Costs Per Seat Mile by Carrier and Aircraft Type in Medium Class Charter Passenger Service 9

E Costs Per Seat Mile by Carrier and Aircraft Type in Small Class Charter Passenger Service 6

F Costs Per Ton Mile by Carrier and Aircraft Type in Large Class Cargo Service 11

G Costs Per Ton Mile by Carrier and Aircraft Type in Medium Class Cargo Service 4

H Cost Per Plane Mile by Carrier Charter

Combi Service 1

I Cost Per Ton Mile by Carrier Charter

L100 Service 1

J Explanatory Notes 5

K Eurocontrol Surcharge 4

L Cost Escalation Factor 2

M Rate of Return on Investment 3

N Backhaul Operational Data for USTRANSCOM One-Way Services 2

O FICA Escalation 1

APPENDIX A

SCHEDULE OF UNIFORM NEGOTIATED RATES AND RULES

FISCAL YEAR 2012

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) CHARTER PASSENGER SERVICE PER SEAT MILE

Large Live Effective Rate: $0.13082 Ferry Rate (Base - Effective Rate): 90% $0.11774 Incremental Passenger $206 Fuel Pegged Rate $3.30

Medium Live Effective Rate: $0.14729 Ferry Rate (Base - Effective Rate): 90% $0.13256 Incremental Passenger $206 Fuel Pegged Rate $3.30

Small Live Line Haul Rate: $0.16482 Ferry Rate (Base - Effective Rate): 90% $0.15687 Stop Charge (per directed landing) $2,000 Incremental Passenger $206 Fuel Pegged Rate $3.30

(2) CHARTER CARGO SERVICE PER TON MILE

Large Round Trip Effective Rate: $0.49898 One-Way: 167% $0.83330 Contingency Rate: 195% $0.97301 Ferry Rate (Base - Effective Rate): 90% $0.44908 Fuel Pegged Rate $3.77

Medium Round Trip Line Haul Rate: $0.66065 One-Way: 167% $1.10329 Contingency Rate: 195% $1.28827 Ferry Rate (Base - Effective Rate): 90% $0.61787 Stop Charge (per directed landing) 2,000 Fuel Pegged Rate $3.77

(3) CHARTER COMBI SERVICE PER PLANE MILE

Round Trip Effective Rate: $29.97613 One-Way: 185% $55.45584 Contingency Rate: 193% $57.85393 Ferry Rate (Base - Effective Rate): 90% $26.97852 Fuel Pegged Rate $3.77

(4) CHARTER L-100 SERVICE PER TON MILE

Round Trip Effective Rate: $1.21646 Ferry Rate (Base - Effective Rate): 90% $1.09481 Fuel Pegged Rate $3.77

(5) 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. The Eurocontrol surcharge calculation does not include stop charges. On round trip passenger, cargo or combi missions, Eurocontrol will be paid on live miles only. On one way passenger missions, Eurocontrol will be paid on the live miles plus an additional 85 percent of those miles (i.e., 6,000 mile one way passenger mission would be paid 2.4 percent on 6,000 miles + 5,100 miles). Carriers will be paid the applicable rate plus a surcharge of 3.0 percent for cargo missions and

0.42 percent for combi. Eurocontrol fees for the L100 class aircraft will be cost reimbursable.

(6) FERRY. Ferry will be paid based on standard ACL or lesser amount.

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

(b) Positioning and depositioning ferry: Positioning and depositioning ferry shall be included with the offer and negotiated at time of award.

(c) “Front/backhaul ferry” on one-way passenger missions will be applied to empty backhaul miles in addition to, and in the same manner as, positioning/depositioning ferry identified in subparagraph (b) above.

(7) 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 $206 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.

(8) TRIP CANCELLATION. A cancellation charge will be paid on missions canceled with notification given within the time frames noted below (see contract Section H, TRIP CANCELLATION). Times are all prior to scheduled departure. Reference to days means a continuous 24-hour period. All “days” refers to “calendar days.”

The cancellation charge will be applied to the trip price for the route segment only (ferry, stop charges, Eurocontrol surcharge or any other additional charges will not be included). Cancellation of one way passenger missions will be calculated on a trip price made up of the live miles plus 85 percent of those miles at the live mile rate (i.e., 6,000 mile one way passenger mission would be paid the applicable cancellation percentage on 6,000 miles + 5,100 miles times the live mile rate). The charges are as follows:

Time Frame Service Type 1 Jan 12 – 30 Sep 12

Seven days or less

Passenger and Combi:

Cargo:

28.22% 20.33%

8 to 14 days

Passenger and Combi:

Cargo:

17.65% 14.27%

15 to 30 days

Passenger and Combi:

Cargo:

14.40% 11.21%

31 to 45 days Passenger and Combi 6.66% 31 to 75 days Cargo 5.56% Beyond 45 days Passenger and Combi 0% Beyond 75 days Cargo 0% Missions awarded less than 14 days prior to operating date and subsequently cancelled

Passenger and Combi:

Cargo:

17.65% 14.27%

(9) DEMURRAGE. Demurrage will be paid on completed cargo missions when departure is delayed over 3 hours beyond scheduled block time and the delay is Government controlled (see contract Section H, REIMBURSABLE SUBMISSION). Payment of delays of fractions of an hour will be calculated using normal rounding procedures, i.e., 29 minutes or less will be dropped, 30 minutes or more will be rounded to the next whole hour. Demurrage charges are as follows:

Aircraft Type ACL Demurrage B747-100/200 90 $1,983

B747-400/400ER 100 $2,203

MD11F 86 $1,894

MD11C 86 $1,894

B777F 88 $1,939

DC10-30/40 75 $1,652

A300-600ER 51 $1,942

A300-400F 50 $1,904 B767-200F 48 $1,828

DC8 45 $1,714

L100 23 $1,504 B727-100 18 $ 905 B727-200 22 $1,742

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 the fixed buy missions with fewer 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

Aircraft Type Maximum Standard

Payload Aircraft Type Maximum Standard

Payload

Small Aircraft: Small Aircraft:

A319 135 B737-200 14

MD80 140 B727-200 22

B737-400/700 140 L100 23 B737-800 150 A320 150 A321 170

Medium Aircraft: Medium Aircraft:

B757-200/200ER 190 DC8 45

B757-300 200 B767-200F 48

B767-200/200ER 200 A300-B4(F) 50

A310 200 A300-600ER 51

A300 210

B767-300/300ER 240

B767-400ER 260

Large Aircraft: Large Aircraft A330 310 B767-300F 61

B777-200ER 330 DC10-30/40 75

DC10-30 330 MD11 86

A340 345 B777F 88

MD11/MD11ER 360 B747-100/200/300 90

B777 Charter Config. 380 B747-400 100

B747 400

C. FUEL ADJUSTMENTS.

(1) The carrier shall be compensated for variance in fuel prices incurred on USTRANSCOM contracted 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) The solicitation/contract addresses the current fuel adjustment procedures (see PWS, Appendix 3, FUEL

ADJUSTMENT PROCEDURES).

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

E. SEATTLE CHANNELS. Seattle closed as of 1 Oct 05 as a full up commercial gateway and now operates as a channel extension. Channel extension services at Seattle, as directed by the performance work statement, are TBD prior to performance.

F. STATION CHARGE - BISHKEK (Passenger Aircraft Only)

Passenger aircraft landing at Bishkek, Kyrgyzstan (UAFM) are incurring expenses above those included in base period costs utilized to establish the FY12 Rate due to an increased number of stops at Bishkek and the establishment of Kazakhstan navigation fees that were not included in the base period costs. Therefore the following station charges are hereby established for FY12:

Aircraft Aircraft Ferry In/ Live In/ Live In/ Model ACL Live Out Live Out Ferry Out

A330 310 $7,000.00 $7,000.00 $7,000.00 B747-200 400 $8,300.00 $8,300.00 $8,300.00 B747-400 400 $8,300.00 $8,300.00 $8,300.00 B777 330 $7,700.00 $7,700.00 $7,700.00

DC10-30/40 330 $7,000.00 $7,000.00 $7,000.00

MD11 360 $7,600.00 $7,600.00 $7,600.00

757 190 $5,900.00 $5,900.00 $5,900.00 B767 240 $6,400.00 $6,400.00 $6,400.00

B737 150 $5,500.00 $5,500.00 $5,500.00

G. 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:

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

(2) 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 AMC 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.

(3) 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 and Yokota AB, Japan 7. Via Guam

2. Via Anchorage 5. Via Honolulu 8. Via Honolulu and 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.

H. DEFINITIONS.

“Charter Service” means USTRANSCOM contracted airlift for the transportation of passengers in full planeload lots on aircraft chartered from the commercial air industry and paid at the USTRANSCOM negotiated rate.

These international charter flights are scheduled by AMC to and from designated commercial airports and/or AMC 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.

“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 USTRANSCOM contracted missions. 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 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.

“Linehaul Rate” The Linehaul rate = Effective Rate - (Stop charge/(Average Stage Length * ACL))

APPENDIX B

COMPUTATION

USTRANSCOM UNIFORM RATE

ROUND-TRIP PASSENGER SERVICE

LARGE CLASS AIRCRAFT

USTRANSCOM FY10 FY11 Total Adjusted Passenger Passenger Passenger

Aircraft Rate Per Revenues Revenues Revenues Weighted Carrier Type Pax Mile [000] [000] [000] Wgt % Rate

American Airlines B777 0.12823$ 1,262$ -$ $1,262 0.09% $0.00011 Continental B777 0.13298$ 1,523$ 574$ $2,098 0.14% $0.00019

Delta Airlines A330 0.12355$ 5,961$ 14,719$ $20,681 1.40% $0.00173 Delta Airlines B747 0.11353$ 39,804$ 15,231$ $55,035 3.74% $0.00424 Delta Airlines B777 0.13391$ 6,201$ 1,105$ $7,306 0.50% $0.00066

Omni DC10 0.12618$ 352,880$ 267,639$ $620,519 42.12% $0.05315$ ,$ ,$ $ , $ United Airlines B747 0.11687$ 7,237$ 2,263$ $9,500 0.64% $0.00075 World Airways MD11 0.13623$ 371,630$ 385,038$ $756,668 51.37% $0.06998

$1,473,068 1.0000

RATE -- WEIGHTED BY REVENUES $0.13082

Exclusive of Fuel $0.07619

USTRANSCOM UNIFORM RATE

ROUND-TRIP PASSENGER SERVICE

MEDIUM CLASS AIRCRAFT

USTRANSCOM FY10 FY11 Total Adjusted Passenger Passenger Passenger

Aircraft Rate Per Revenues Revenues Revenues Weighted Carrier Type Pax Mile [000] [000] [000] Wgt % Rate

Continental B757-200 0.15342$ 2,119$ 443$ $2,562 0.19% $0.00030 Continental B767-400 0.12260$ 2,987$ 3,217$ $6,203 0.47% $0.00058

Delta Airlines B767-300 0.13667$ 7,118$ 43,704$ $50,821 3.86% $0.00527 North American B757-200 0.16871$ 69,846$ 42,201$ $112,047 8.50% $0.01434 North American B767-300 0.14421$ 260,561$ 170,551$ $431,112 32.71% $0.04717

Omni B757-200 0.16942$ 32,658$ 14,870$ $47,528 3.61% $0.00611 O i B767 300 0 13877$ 93 253$ 137 522$ $230 775 17 51% $0 02430Omni B767-300 0.13877$ 93,253$ 137,522$ $230,775 17.51% $0.02430

Ryan International Airlines B757-200 0.15270$ 18,523$ 9,584$ $28,106 2.13% $0.00326 Ryan International Airlines B767-300 0.14818$ 245,323$ 163,645$ $408,967 31.03% $0.04598

$1,318,123 1.0000

RATE -- WEIGHTED BY REVENUES $0.14729

Exclusive of Fuel $0.09932

USTRANSCOM UNIFORM RATE

ROUND-TRIP PASSENGER SERVICE

SMALL CLASS AIRCRAFT

USTRANSCOM FY10 FY11 Total Adjusted Passenger Passenger Passenger

Aircraft Rate Per Revenues Revenues Revenues Weighted Carrier Type Pax Mile [000] [000] [000] Wgt % Rate

Continental B737-800 0.15278$ 2,279$ 6,356$ $8,635 12.23% $0.01868 Continental Micronesia B737-800 0.14921$ 2,245$ 83$ $2,329 3.30% $0.00492

Delta B737-800 0.15694$ 4,870$ 2,364$ $7,234 10.24% $0.01608 Miami Air International B737-800 0.18522$ 29,648$ 15,746$ $45,394 64.28% $0.11905

MN Airlines DBA Sun Country B737-800 0.11714$ 754$ 1,361$ $2,115 2.99% $0.00351 Ryan International Airlines MD82 0 17333$ 3 576$ 1 338$ $4 914 6 96% $0 01206Ryan International Airlines MD82 0.17333$ 3,576$ 1,338$ $4,914 6.96% $0.01206

$70,621 1.0000

RATE -- WEIGHTED BY REVENUES $0.17430

Exclusive of Fuel $0.12743

Average Average Rate Per Linehaul Rate Effective Rate Stage Seats Per Directed Per Paid Per Seat Mile Length Mission Landing Seat Mile

$0.17430 1,421 149 $2,000 $0.16482

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

USTRANSCOM UNIFORM RATE

ROUND-TRIP CARGO SERVICE

LARGE CLASS AIRCRAFT

USTRANSCOM FY10 FY11 Total Adjusted Cargo Cargo Cargo

Aircraft Rate Per Revenues Revenues Revenues Weighted Carrier Type Ton Mile [000] [000] [000] Wgt % Rate

Atlas Air, Inc B747 0.53532$ 188,718$ 242,702$ $431,421 19.74% $0.10567 Atlas Air, Inc B747-400 0.44374$ 191,646$ 78,082$ $269,728 12.34% $0.05476

Evergreen International B747 0.52567$ 371,725$ 325,402$ $697,127 31.90% $0.16767 Federal Express Corp MD11 0.51367$ 60,171$ 57,733$ $117,904 5.39% $0.02771

Kalitta B747 0.50265$ 89,634$ 82,263$ $171,896 7.86% $0.03953 Kalitta B747-400 0.48150$ 31,053$ 19,084$ $50,137 2.29% $0.01105

Southern Air B747 0.45881$ 95,428$ 82,755$ $178,182 8.15% $0.03740

UPS B747-400 0.44506$ 17,776$ 2,634$ $20,410 0.93% $0.00416$ ,$ ,$ $ , $

UPS MD11 0.49551$ 16,296$ 16,534$ $32,830 1.50% $0.00744

World Airways B747-400 0.48288$ 51,443$ 8,465$ $59,908 2.74% $0.01324 World Airways MD11 0.42512$ 86,580$ 69,519$ $156,099 7.14% $0.03036

$1,200,470 $985,172

$2,185,642 1.0000

RATE -- WEIGHTED BY REVENUES $0.49898

Exclusive of Fuel $0.22028

USTRANSCOM UNIFORM RATE

ROUND-TRIP CARGO SERVICE

MEDIUM CLASS AIRCRAFT

USTRANSCOM FY10 FY11 Total Adjusted Cargo Cargo Cargo

Aircraft Rate Per Revenues Revenues Revenues Weighted Carrier Type Ton Mile [000] [000] [000] Wgt % Rate

ABX Air Inc B767-200F 0.59525$ $1,336 $2,507 $3,843 12.53% $0.07456 Air Transport Int'l DC8 0.58530$ $5,266 $1,810 $7,076 23.06% $0.13497

Astar Air Cargo DC8 0.85259$ $4,236 $5,115 $9,351 30.47% $0.25982 National Air Cargo DC8 0.63987$ $7,154 $3,260 $10,414 33.94% $0.21717

$17 992 $12 691$17,992 $12,691

$30,684 1.0000

RATE -- WEIGHTED BY REVENUES $0.68652

Exclusive of Fuel $0.34476

Average Average Rate Per Linehaul Rate

Effective Rate Stage Tons Per Directed Per Paid

Per Seat Mile Length Mission Landing Seat Mile

$0.68652 1703 45.4 $2,000 $0.66065

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

USTRANSCOM UNIFORM RATE

ROUND-TRIP COMBI SERVICE

COMBI AIRCRAFT

USTRANSCOM FY10 FY11 Total Adjusted Combi Combi Combi

Aircraft Rate Revenues Revenues Revenues Weighted Carrier Type Per Mile [000] [000] [000] Wgt % Rate

Air Transport Int'l DC8-62/72 $29.97613 $84,506 $84,417 $168,922 100.00% $29.97613

$168,922 1.0000

RATE -- WEIGHTED BY REVENUES $29.97613

Exclusive of Fuel $15.32703

USTRANSCOM UNIFORM RATE

ROUND-TRIP SERVICE

LYNDEN L100 AIRCRAFT

USTRANSCOM FY10 FY11 Total Adjusted L100 L100 L100

Aircraft Rate Revenues Revenues Revenues Weighted Carrier Type Per Ton Mile [000] [000] [000] Wgt % Rate

Lynden Air Cargo LLC L100 1.21646$ $24,611 $23,307 $47,918 100.00% $1.21646

$47,918 1.0000

RATE -- WEIGHTED BY REVENUES $1.21646

Exclusive of Fuel $0.83209

APPENDIX C

AMERICAN AIRLINES (AAL) Aircraft Type B777-200ER

LARGE CLASS AIRCRAFT Passenger Service

FY12 RATE REVIEW

FORECAST YEAR FY12

USTRANSCOM FINAL

PROPOSED ADJUSTED

TOTAL REVENUE & BACKHAUL/PAID MILES (000) 32 A 34

AVERAGE DAILY AIRCRAFT UTILIZATION 11.0 11.0

COST PER REVENUE/PAID AIRCRAFT MILE

Direct Variable:

Crew $3.9058 C $3.7611 Fuel, Oil, & Aircraft Supplies 13.8820 D 13.2020 Flight Equipment Maintenance 6.9353 E 6.6712

Total Direct Variable 24.7231 23.6342

Direct Fixed:

Hull, Public Liability, & Property Damage Insurance 0.1681 0.1681 Aircraft Rentals & Miscellaneous 0.0000 0.0000 Flight Equipment Depreciation & Obsolescence 1.8809 1.8809 Amortization of Preoperating Expense 0.0000 0.0000 Capital Gains & Losses 0.0000 0.0000

Total Direct Fixed 2.0490 2.0490

Indirect:

Maintenance & Depreciation-General Ground Property 2.5156 K 2.5156 Aircraft & Traffic Servicing 5.6358 L 5.6358 Passenger Service 3.6106 M 3.4760 General & Administrative 0.8285 N 0.8103

Total Indirect 12.5906 12.4377

TOTAL OPERATING COST 39.3627 38.1209

Return on Investment 4.3299 O 4.1933 *

TOTAL COST $43.6926 $42.3143

Average Investment for FY12 Working Capital 2.2030 P 2.1248 Owned/Capital Leased Flight Equipment (net) 35.7040 35.7040 Long Term Operating Leased Flight Equipment (net) 0.0218 0.0218 Ground Property & Equipment (net) 0.0132 0.0132 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 $0.13240 $0.12823

* Allows minimum return at 11 percent of operating cost.

CONTINENTAL AIRLINES (COA) Aircraft Type B777-200ER

LARGE CLASS AIRCRAFT Passenger Service

FY12 RATE REVIEW

FORECAST YEAR FY12

USTRANSCOM FINAL

PROPOSED ADJUSTED

TOTAL REVENUE & BACKHAUL/PAID MILES (000) 37 A 36

AVERAGE DAILY AIRCRAFT UTILIZATION 13.5 13.5

COST PER REVENUE/PAID AIRCRAFT MILE

Direct Variable:

Crew $2.7832 C $2.8364 Fuel, Oil, & Aircraft Supplies 14.1414 D 13.4486 Flight Equipment Maintenance 8.6555 E 8.8082

Total Direct Variable 25.5802 25.0931

Direct Fixed:

Hull, Public Liability, & Property Damage Insurance 0.2695 0.2695 Aircraft Rentals &…