FY12 Proposed Uniform Rates and Rules.pdf

For Official Use Only

26 AUG 11

MEMORANDUM FOR ALL CARRIERS

FROM: USTRANSCOM/TCAQ-P

508 Scott Drive Scott AFB IL 62225-5357

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

International Service – Solicitation Number HTC711-11-R-C002

(SUSPENSE: 26 SEP 11)

1. The FY12 rates are based on fuel pegged at $3.87 per gallon for cargo and combi and $3.47 for passenger. The proposed 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 $0.12783 Medium Class Passenger $0.14297 Small Class Passenger $0.16367 $2,000 Large Class Cargo $0.48811 Medium Class Cargo $0.63571 $2,000 Combi Service $29.80854 L100 Service $1.20618

2. The FY12 rates propose the use of a Live Mile rate for passenger service, as discussed in the introduction of the FY12 Proposed Uniform Rates and Rules for International Service, attached.

In the case of a live mile rate, the effective rates for passenger classes of service are as follows:

Effective Rate Large Class Passenger $0.12873 Medium Class Passenger $0.14411 Small Class Passenger $0.17588

3. Carriers providing cost data for the rate review should provide comments and supporting documentation to USTRANSCOM/TCAQ-P, 508 Scott Drive, Scott AFB IL 62225-5357 by close of business 26 SEP 11. It is imperative carriers identify all issues of concern prior to this deadline. Under no circumstances will an extension be granted. If specific information is required on individual cost elements, analysts will provide detailed step-by-step treatment upon carrier request.

UNITED STATES TRANSPORTATION COMMAND

508 SCOTT DRIVE

SCOTT AIR FORCE BASE, ILLINOIS 62225-5357

For Official Use Only

4. Carriers may also request USTRANSCOM provide copies of the DCAA audit reports of their proposals and/or TCAQ-P work papers (i.e., analyst cutsheets). Requests shall be made in writing to Lucretia Sanchez at Lucretia.Sanchez@ustranscom.mil and your designated analyst, Susan Wickell, Todd White, or Scott Rader no later than 19 Sep 11.

5. 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

Chief, Pricing Branch

1 Attachment 26 Aug 11 FY12 Proposed Uniform Rates and Rules for International Service

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

UNITED STATES

TRANSPORTATION COMMAND

PROPOSED

UNIFORM RATES AND RULES

FOR

INTERNATIONAL SERVICE

FISCAL YEAR 2012

INTRODUCTION

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

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

Acquisition Regulation (FAR), Memorandum of Understanding (MOU) for FY08 through

FY12, as amended, 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 contracting officer for the CRAF contract has determined the services provided under

CRAF are not commercial, in accordance with the definition at FAR 2.101; and it is being procured under FAR Part 15, Contracting by Negotiation, procedures. As such, in accordance with FAR 15.403-1(b), there is no exception to the requirement for certified cost and pricing data. Part 15 requires the application of Cost Accounting Standards (CAS) and Truth in

Negotiation Act (TINA). USTRANSCOM has proposed legislative language, contained within the FY12 National Defense Authorization Bill, to establish USTRANSCOM as the rate setter for the International CRAF. If passed, this would provide statutory exemptions from

CAS and the requirement for certified cost and pricing data. In addition, USTRANSCOM is currently seeking a class exemption from CAS for CRAF participants. This action is taken to relieve CRAF carriers from the requirements of CAS in the event Congress fails to pass the proposed legislative language.

Late information.

Certain information, while received too late for inclusion in this rate, will be evaluated and negotiated with individual carriers for consideration in the final rate.

Transparency.

Carriers have been invited to meet with TCAQ-P analysts during the week of 6-9 Sep, before comments are due. At this time, nine carriers have accepted this invitation. This meeting is intended to provide an opportunity for face to face discussions related to carrier-specific cost/statistical data as well as general items of interest. In addition, for the first time, USTRANSCOM is making available, upon written request, analyst cut sheets. These cut sheets provide detailed information related to adjustments made by the analyst to a contractor’s costs and/or statistical data.

Participation.

USTRANSCOM rates are based on carriers’ historical costs, projected into the contract year, plus a profit element. Carrier’s rates are weight averaged (based on USTRANSCOM revenues for a two-year period) into a single worldwide rate per seat-mile and ton-mile for each of the USTRANSCOM rate categories. The FY12 rates were developed on experienced base year cost and statistical data from twenty-two carriers who provided forty cost proposals for the base year ending 30 Jun 10. In order to remain compliant with TINA, the current

MOU requires carriers receiving more than $650K of USTRANSCOM charter business, as calculated by USTRANSCOM’s internal database, i to submit their actual cost data. Effective

FY10, the requirements of TINA increased to $700K. Therefore, this statute calls for carriers with $700K revenues to submit cost and pricing data for the annual rate reviews.

USTRANSCOM’s objective is to include a pool of accurate cost data that fairly represents the cost of providing DoD charter service. Carrier’s cost data was audited and USTRANSCOM analyzed carrier’s forecast operating cost projections in the development of the FY12 rates.

Adjustments made to carriers forecast costs were based on past ratemaking practices, findings reported by the Defense Contract Audit Agency (DCAA), the FAR, and the MOU.

Explanatory notes are provided in Appendix J to identify individual carrier adjustments. The more significant items of interest for all carriers are explained in the following paragraphs.

Stop Charges.

Stop charges were initially introduced as an attempt to better align carrier’s revenues with the cost of operations where certain DOD missions had significantly more revenue stops and stage length among carriers reflected significantly different averages. At that time, there were two rate classes in each type of service – narrowbody and widebody. Carriers contended that missions such as the Mediterranean channel produced a short stage length, low speed and significantly higher operating costs than the typical long range DoD mission. Carriers operating the inefficient routes with short stage lengths and low utilization experienced higher operating costs per mile, but were receiving the same compensation under the uniform rate.

Stop charges were introduced in an effort to curve the revenues to accommodate for those inefficient routes with short stage lengths.

Since USTRANSCOM changed the classes of rates from two (narrowbody and widebody) to five (Passenger large, medium and small and Cargo large and medium) USTRANSCOM maintains our position that stop charges are no longer necessary. A thorough review of the base year data indicates USTRANSCOM mission requirements have remained the same as last year and the average stage lengths for most classes are greater than 2,000 miles. The linehaul rate is a mathematical equation derived from the effective rate, using average stage length, average tons/seats per mission and the stop charge rate ii . Provided that the average stage length for all carriers within a rate category remains approximately 2,000 miles and there are no extreme differences between the stage lengths of carriers within the same class, paying the effective rate versus the linehaul/stop charge should be revenue neutral. This year’s analysis continues to support the addition of stop charges for the small passenger and medium cargo classes only iii

. The requirements for these category aircraft are significantly different in volume and areas of operation. Many of these missions are short range and mid range in nature and can cause a significant variation in average stage length in carrier aircraft.

The stop charge used to develop the linehaul rate for the passenger small and cargo medium class categories will be $2000 for FY12.

Capital Compensation.

The methodology established in the MOU for ROI encompasses a number of key elements such as the industry capital structure, depreciation policies, industry’s leased equipment (both capital and operating), working capital considerations, and profit risk. USTRANSCOM understands that CRAF participants should receive a fair and reasonable ROI for their capital investment and business risk for their efforts to provide transportation services for DOD customers. The capital compensation component has been studied extensively in the past by industry and government groups.

The Capital Asset Pricing Model (CAPM) was used to calculate the cost of equity in the full

ROI calculation. The CAPM methodology is directed by the MOU and uses several elements to develop a percentage indicative of carriers receiving the full ROI. The MOU reads: “ROI for USTRANSCOM service will be computed using the capital structure of CRAF carriers that receive full ROI from their flight equipment investment base.” As no carriers received full ROI in FY09, the FY10 full ROI rate calculation per the MOU could not be accomplished. As an alternative for FY10, so as not to inadvertently eliminate the full ROI computation altogether, the FY10 full ROI calculation reverted to the previous MOU’s intent of providing a full ROI rate that is representative of the airline industry as a whole, and not specific to CRAF carriers. This same methodology was used for the FY12 proposed rate calculation. The FY12 proposed rate full ROI calculation included 8 major carriers whose revenues represented approximately 90 percent of all major carriers’ revenues. The carriers that met these criteria were: American Airlines, Continental Airlines, Delta Air Lines, Federal Express, Jet Blue, Southwest Airlines, United Air Lines and United Parcel Service.

This analysis resulted in a full ROI rate of 10.70 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 10.70 percent full ROI for the FY12 Rates.

USTRANSCOM applies a minimum return allowance for those carriers who have no flight equipment assets or capital assets that are fully depreciated. The minimum return provision is consistent with former ratemaking practices. Therefore, in cases where a carrier’s investment base no longer yields a return on investment equal to or greater than 11 percent of total operating costs, a minimum return (profit) of 11 percent has been provided.

Cost Escalation.

Whenever possible, the carriers and USTRANSCOM use factual information such as future 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

L. USTRANSCOM’s first preference has always been review of actual documentation. As a default, however, the cost escalation model was developed by USTRANSCOM and coordinated with industry prior to being incorporated into the 2008-2012 MOU. The original model used three indices that included the Air Transport Association Index (ATA), PPI-

Nonscheduled Air Transportation Index and Global Insight Incorporated (GII) Index. The

ATA index was weighted at 34 percent. The PPI and GII were both given a weighting of 33 percent. After the FY11 final rates were published, USTRANSCOM received an appeal of the rate, questioning this methodology. In efforts to reach resolution, USTRANSCOM amended the MOU to remove the PPI Index and re-weight the ATA and GII to 50 percent each. The amended methodology was continued for the FY12 rate process. The ATA and

GII indices are adjusted to remove certain elements that are not recognized in the

USTRANSCOM ratemaking process, such as fuel, interest, etc iv

As a result of the 3-month extension to the FY11 contract, the FY12 proposed escalation factor represents a 28.5 month (vs. 27 month) mid-point to mid-point calculation. The normal

27-month calculation would have been based upon midpoint of the base year (YE Jun 10) to the midpoint of the forecast year (Oct 11 - 30 Sep 12), or 31 Mar 2012. With the extension, however, the midpoint of the forecast year is changed to 15 May 2012. The FY12 proposed annual cost escalation factor is 2.19 percent, resulting in a 28.5 month escalation factor of

5.29 percent. This is based on the calculations agreed upon in the FY08-12 MOU, as amended. The factor of 5.29% is up from the 3.09% used in the FY11 Rates.

USTRANSCOM will review and update these indices as needed for the final rate.

Working Capital.

Working capital represents the timeframe from which services have been provided under

CRAF until the date those services are paid, notwithstanding the carrier’s working capital on hand. Working capital became part of the investment base under the MOU negotiations for

FY88-FY93. The number of days used in the calculation was changed to 23 days from 21 days during the FY03-FY07 MOU negotiation process. This change was carried into the

FY08-FY12 MOU.

Since publication of our last proposed rate, USTRANSCOM received an extension to the

CRAF early payment class deviation, which supports the 23 days cash operating expense in the working capital calculation. This extension now expires on 31 March 2013.

Fuel.

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

Carriers’ fuel reports for the period Jul 09 – Mar 11 conclude cargo carriers receive 68 percent of their fuel at military installations and are charged the rate set by the Defense

Energy Support Center (DESC), which fluctuates dependent on gains and losses within the

Defense Working Capital Fund. Conversely, passenger carriers receive 77 percent of their fuel commercially, which fluctuates up and down with the fuel market.

For the period Jul 09 – Mar 11, commercial fuel prices for USTRANSCOM service averaged

$2.33 and $2.38 for passenger and cargo, respectively. The monthly Spot Market analysis from OPIS Worldwide Jet Fuel Report for Jul 11, along with the average of the Platts Market

International Air Transport Association (IATA) Fuel Price Analysis for Jul 11 indicates average commercial fuel prices at $3.03. Further analysis of fuel prices in USTRANSCOM service showed CRAF carriers experience approximately 8% higher commercial prices due to mission locations which are outside the SPOT markets recognized by OPIS and IATA. DESC has projected JP-5 and JP-8 fuel effective 1 Jun 11 at $3.05 and $3.03, respectively. The weightings between commercial fuel and military fuel along with projected DESC fuel price and current commercial market prices resulted in a proposed USTRANSCOM pegged fuel price of $3.47 and $3.87 per U.S. gallon, for passenger and cargo (combi will use cargo price), respectively. The pegged price includes into-plane fees and taxes. The projected

DESC fuel prices and commercial fuel prices will be reviewed again for inclusion in the FY12 final rate.

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/under the pegged prices in the established rate. The solicitation addresses the fuel adjustment procedure.

Ferry.

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 FY12 will remain at 90 percent of the effective rate for cargo and passenger.

v See below paragraph on Passenger Live Mile and Paid Ferry Return for new application of the ferry rate for passenger missions. Also see Appendix A for ferry rates.

One-Way Rates.

Historically, USTRANSCOM carriers claim commercial backhaul opportunities for

USTRANSCOM missions are nonexistent. Passenger and cargo missions are obviously different. Cargo generally moves in one direction and is consumed; while passengers generally require round trip service. Therefore, the ability to find a one-way commercial passenger charter to parallel USTRANSCOM’s one-way requirements does not exist.

USTRANSCOM cargo charter carriers, however, are afforded significant USTRANSCOM expansion missions operating into Southwest Asia that appear to parallel their commercial operations, where they are able to coordinate aircraft flow and achieve commercial backhaul.

A thorough analysis of carrier provided S1/S2 data has resulted in the Proposed FY12 one-way rates as follows:

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

Cargo Passenger Combi

Fixed & Expansion 160% 175% (See Below) 185%

Contingency 195% 193% (See Below) 193%

Cargo:

The above one-way cargo rates are based on the round-trip rate, adjusted to reflect certain savings and economies. The adjustments for the one-way rates 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 a 10 percent savings of flying an empty aircraft in the earlier paragraph concerning the “ferry” rate. This savings also holds true for flying an empty aircraft in the reverse segment of a one-way mission.

Historical data for cargo carriers suggests efficiency in aircraft scheduling resulting in fewer miles flown in empty backhaul service. Appendix N reflects the cargo carrier data associated with empty backhaul service for USTRANSCOM missions, excluding quarterly-buy expansion data incorporated at Appendix O.

Large Class Cargo: In Fiscal Years 10 and 11, USTRANSCOM introduced a new semi-annual/quarterly expansion one-way rate based on USTRANSCOM analysis of carrier S2 data of the quarterly expansion awards. During FY10, this rate was applied by mutual agreement only. However, even though the government provided a semi-annual requirement, few carriers offered these missions at the lower rate. So, for FY11 two separate one-way rates were developed. One was utilized for all fixed buy, semi-annual and quarterly expansion missions; while the other was applied to ad-hoc missions. As a result of the same type of analysis for FY12, USTRANSCOM proposes a single one-way rate, based on the discussion that follows.

Again this year, USTRANSCOM reviewed one-way expansion 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. Appendix N reflects samples of the calculation for all cargo missions and then ad-hoc missions only; while Appendix O reflects samples of the calculation for the quarterly awards for the period Jul 09 through Mar 11. This year’s results reflect the carriers’ ability to work the flow of DoD one-way missions with their commercial one-way business to create an efficient operation regardless of the lead time provided by USTRANSCOM. The overall ratio of empty miles to one-way live revenue miles for the large cargo class was

58.02%, while the Quarterly/Semi-Annual calculation resulted in a ratio of 60.57% empty miles to one-way live revenue miles. The statistical ratio of base year paid empty flown miles to paid one-way miles reflects, on average, 40 percent efficiency in the scheduling of aircraft in empty reverse segments. This savings in conjunction with the 10 percent savings for flying an empty aircraft reflects an average of 50 percent savings for one-way cargo missions.

Realizing not all carriers achieve a 40% savings in empty backhaul, USTRANSCOM is proposing a one-way rate of 160 percent for FY12, allowing for the 10% savings associated with flying empty in conjunction with a 30% savings due to efficiencies in scheduling aircraft in empty reverse segments. This is 15% lower than the FY11 Ad-Hoc rate and 5% lower than the FY11 Fixed/semi-annual/quarterly expansion rate.

Medium Class Cargo: In FY10, USTRANSCOM separated the medium class and large class cargo categories due to the negligible amount of USTRANSCOM one way missions offered the medium class category. This year’s medium cargo class ratio of empty miles to one-way live revenue miles was 46.36%, reflecting some efficiency in their one-way operations. The statistical ratio of base year paid empty flown miles to paid one-way miles for the medium class reflects, on average, 54 percent efficiency in the scheduling of aircraft in empty reverse segments. This savings in conjunction with the 10 percent savings for flying an empty aircraft reflects an average of 64 percent savings for one-way cargo missions. It is noted, however, that two carriers operating over 50% of USTRANSCOM business in this category did not achieve this efficiency in their operations. Because the proposed rate must consider all carriers within this category, USTRANSCOM is proposing a one-way cargo rate for the medium class of 160 percent for FY12, allowing for the 10% savings associated with flying empty in conjunction with a 30% savings due to efficiencies in scheduling aircraft in empty reverse segments. This is 25% lower than the FY11 one-way rate.

Passenger One-Ways “Live Rate” Incorporated “Live Rate” not Incorporated

Fixed and Expansion 0% 175%

Contingency 0% 193%

Passenger: The one-way passenger rate has historically been based on the round-trip rate, adjusted to reflect savings and economies, as discussed above. Over the past few years, passenger carriers in USTRANSCOM service have been receiving ferry based upon a formula derived by TCAQ-C. This ferry formula has made it complex for carriers attempting to report live miles, ferry miles and empty backhaul miles on passenger one-way missions. Not to mention that it has also become increasingly complicated for TCAQ buyers and administrators. Appendix N reflects the passenger carrier data associated with empty backhaul service as reported by passenger carriers. The paid ferry miles reported, which are based on this formula, not only contain elements of ferry, but also empty backhaul.

Consideration of the statistical ratio of empty backhaul miles in the one-way rate calculation, as performed on the Cargo one-way rate above, has resulted in a one-way rate of 175% for passenger carriers. Should the live rate proposal, as discussed below, not be incorporated into the FY12 rate, USTRANSCOM proposes a one-way rate for all passenger classes of 175%.

Live Rate: Because of the nature of passenger missions, USTRANSCOM acknowledges an anomaly may be occurring as a result of the ferry formula and realizes the historic method for determining the one-way rate may no longer be fully accurate for passenger missions. As a result, USTRANSCOM once again introduces a live mile rate for all passenger missions for

FY12. USTRANSCOM’s proposal has been discussed at two meetings with industry, on 8

Apr 11 and again on 14 Jul 11.

USTRANSCOM proposes one rate for all live miles, regardless if the miles are one-way or round trip. For one-way missions, carriers will also receive a “paid ferry return”, based on the ferry rate, for positioning or depositioning miles. Because this is considered ferry, carriers will be required to file ferry declarations with each paid ferry return.

After this methodology was initially introduced in the FY11 proposed rates, USTRANSCOM, along with World Airways, recognized a problem. When developing the round trip rate, USTRANSCOM uses all pay miles (live, ferry and empty backhaul) to calculate the per mile rate for direct variable and indirect costs. If carriers were paid only the “live rate” for live miles and 90% of that rate for ferry and empty return, their reimbursement could be understated and costs not fully covered. To make an allowance for this, USTRANSCOM adjusted the ferry and empty backhaul miles used in calculating the live mile rate incorporated herein. We did this by reducing the empty reverse and ferry miles by 10% to account for a

90% ferry rate. The new “Live Mile Rate” was established based on these adjusted miles.

This new rate is provided in red ink on page 1 of Appendix A. Other rates have been provided in the event this methodology is again rejected by industry.

The application is intended as provided in the example below.

Example:

For one way missions, a carrier will be paid the live miles at the live mile rate and the empty backhaul at the ferry rate.

Route is KATL-OKBK, 7120 live miles

1) Carrier A:

Aircraft positions from BWI, 576 miles (KBWI-KATL) and 6543 empty backhaul miles

(OKBK-EINN-KBWI). This mission would be paid 7120 miles x live mile rate x ACL PLUS

7119 miles (576 + 6543) x paid ferry return rate x ACL.

2) Carrier B is sitting at KATL:

Empty backhaul return is to KATL, 7120 miles (OKBK-EINN-KATL). This mission would be paid 7120 miles x live mile rate x ACL PLUS 7120 miles x paid ferry return rate x ACL for the empty backhaul.

3) Carrier C:

Ferry is from and to KMEM, 332 miles (KMEM-KATL) and 7277 miles ferry return (OKBK-

EINN-KMEM). This mission would be paid 7120 miles x live mile rate x ACL PLUS 7609

(7277+332) miles x paid ferry return rate x ACL for the empty backhaul and positioning ferry.

Standard Allowable Cabin Loads (ACL).

In FY92, USTRANSCOM implemented the concept of maximum standard ACLs for aircraft performing USTRANSCOM business. 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.

The 2008 IDA study recognized that ratemaking and carrier business models do not always result in fuel efficient, modern aircraft performing on USTRANSCOM missions. As a result, USTRANSCOM has adjusted certain business practices to encourage more modern, fuel efficient aircraft. In concert with that effort, TCAQ performed a thorough review of the standard pay ACLs used in the ratemaking process in an effort to create more stratification of the rates to recognize fuel efficiency, range and capacity. The objective of this review was to determine reasonableness of our current standard pay ACL in relation to aircraft productivity, weight sensitivity, cube sensitivity, range capability, and actual payloads achieved by DoD.

This analysis is an on-going process.

New Standard ACLs: USTRANSCOM was requested to evaluate a charter configured B777 passenger aircraft and a B777 Freighter, both considered to be modern, fuel-efficient. As with the cargo B747-400 aircraft, the initial proposed ACLs are subject to change as other data becomes available.

The charter-configured B777 passenger aircraft has been added at a proposed ACL of 380.

This ACL is based on a consideration of the enhanced performance capability of this B777, as well as actual seats available on this charter-configured aircraft. The dimensional differences between the B777 and the MD11 and DC10 were also taken into consideration in establishing this ACL.

USTRANSCOM was also requested to develop a standard ACL for the B777 Freighter. This aircraft is considered to be in the contoured class of wide body cargo aircraft. This aircraft has greater capability and more overall cubic feet in comparison to the MD11. The B777F payload capability, over greater distances, is comparable to the B747-400. Based on this information we propose establishing the ACL for the B777F at 88 tons.

Appendix A provides the maximum ACLs by rate aircraft category.

Eurocontrol.

USTRANSCOM provides a Eurocontrol surcharge to compensate carriers for the extra high costs of missions through Eurocontrolled airspace. USTRANSCOM analyzed actual

Eurocontrol invoices for specific routes shown in Appendix K. For the FY12 proposed rate, USTRANSCOM evaluated fifty representative routes for passenger missions and seventeen for cargo. The current Eurocontrol charges (converted to U.S. dollars) were calculated as a percent of the trip revenues using the FY12 proposed effective rate, for all but the small class passenger and medium class cargo categories. For the small class passenger and medium class cargo categories, Eurocontrol charges (converted to U.S. dollars) were calculated as a percent of the trip revenues using the FY12 proposed line haul rate (without stop charge).

USTRANSCOM is proposing the FY12 Eurocontrol surcharge of 2.4 percent for passenger,

3.1 percent for cargo missions, .43 percent for combi and $458 for the L-100 KWRI-LPLA-

KWRI routes. This is a change from the FY11 Eurocontrol of 2.8 percent, 3.0 percent and .57 percent for passenger, cargo and combi, respectively. The L-100 rate of $458 for the specified route remains unchanged.

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. USTRANSCOM proposes $192 for the FY12

Incremental Passenger Rate, an increase from $151 in FY11. During the FY11 ratemaking cycle, a number of carriers questioned how this rate was developed. It is based on the weighted passenger service cost applied to the average miles per trip vi

. See Appendix A for details.

Aeromedical.

In FY10 USTRANSCOM proposed to utilize the medium class passenger negotiated uniform rate for the aeromedical per mile rate (Rate x 240ACL). No comments were received and so, for FY12, the Aeromedical Evacuation Proposed rate will be based on the medium class rate proposed herein. USTRANSCOM will establish the reconfiguration daily and under utilization hourly rates and publish those in the proposed Aeromedical Airlift Uniform Rates and Rules document.

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 L-100 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 and

Rate of Return on Investment Computations, respectively. While Appendices N and O provide Backhaul Operational Data for USTRANSCOM Services excluding one-way cargo large class long-term expansion, and Backhaul Operational Data for USTRANSCOM One-

Way Cargo Large Class Long-Term Expansion, respectively. Per carrier requests, Appendix

P was added to the rates this year to demonstrate the FICA calculation.

i The Commercial Operation Integrated System (COINS) database supports contracting of commercial airlift.

The database for contract dollars is maintained by USTRANSCOM/TCAQ-C.

ii Linehaul rate = Effective Rate - (Stop charge/(Average Stage Length * ACL)) iii

Average

Stage

Length

Large Class Pax Weighted Avg 2712

OAE DC10 2706

WOA MD11 2743

Medium Class Pax Weighted Avg 2432

NOA B767 2852

OAE B767 3045

RYN B767 2214

Small Class Pax Weighted Avg 1421

COA B737 657

DAL B737 876

BSK B737 1779

Large Class Cargo Weighted Avg 3080

GTI B747-200 3136

GTI B747-400 3994

EIA B747-200 2921

SOO B747 3120

WOA MD11 2654

Medium Class Cargo Weighted Avg 1646

DHL DC8 1438

NAC 2051

iv

ATA USTC

USTC Adjusted

Elements Index

Labor 24.70% 24.70% 42.01%

Fuel* 25.40%

Aircraft Ownership 6.70% 6.70% 11.39%

Non-Aircraft Ownership 4.40% 4.40% 7.48%

Professional Services 8.30% 8.30% 14.12%

Food & Beverage 1.60% 1.60% 2.72%

Landing Fees 2.20% 2.20% 3.74%

Maintenance Material 1.70% 1.70% 2.89%

Aircraft Insurance 0.10% 0.10% 0.17%

Non-Aircraft Insurance 0.40% 0.40% 0.68%

Passenger Commissions* 1.20%

Communication 1.00% 1.00% 1.70%

Advertising & Promotion* 0.70%

Utilities & Office Supplies 0.60% 0.60% 1.02%

Transport Related 13.90%

Other Operating Expenses 7.10% 7.10% 12.07%

Interest* 0.00%

Composite 100.00% 58.80% 100%

GII USTC

USTC Adjusted

Elements Index

LABOR

Transportation and Warehousing 25.00% 25.00% 34.25%

MATERIALS

Aircraft Parts and Equipment Note Elsewhere Classified 7.00% 7.00% 9.59%

Jet Fuel* 27.00%

Supplies for Nonmanufacturing Industries 18.00% 18.00% 24.66%

INDIRECT COSTS

Compensation, Private, Management, Business, Financial 6.00% 6.00% 8.22%

Compensation, Private, Professional, Scientific, Technical 6.00% 6.00% 8.22%

Capital Equipment 11.00% 11.00% 15.07%

COMPOSITE 100.00% 73.00% 100%

v The analysis of the Passenger ferry rate was performed using the Proposed FY12 Large Class passenger rate of

$0.12783 (effective rate) per seat mile. The proposed passenger ferry rate and paid ferry return rate will be 90% of the effective rate. The analysis of the Cargo ferry rate was performed using the Proposed FY11 Large Class cargo rate of $0.48811

PASSENGER Wgt'd Percentage Cost Ferry

Cost Category Cost Allowed Allowed Rate %

Crew 0.8961 100% 0.8961

Fuel 5.7443 88% 5.0263

Maintenance 1.5621 100% 1.5621

Insurance 0.0677 99% 0.0670

Rent 0.4339 100% 0.4339

Depreciation 0.2123 100% 0.2123

Preop 0.0000 100% 0.0000

Grd Property 0.0209 100% 0.0209

Aircraft & Traffic Service 0.7204 85% 06.123

Passenger Service 1.5384 65% 0.9999

G&A 0.3175 100% 0.3175

Profit 1.2697 100% 1.2697

Total 12.783 11.418 0.8932

CARGO Wgt'd Percentage Cost Ferry

Cost Category Cost Allowed Allowed Rate %

Crew 4.1055 100% 4.1055

Fuel 28.5009 85% 24.2258

Maintenance 4.9921 100% 4.9921

Insurance 0.1511 100% 0.1511

Rent 1.6998 100% 1.6998

Depreciation 0.9630 100% 0.9630

Preop 0.0000 100% 0.0000

Cap Gains/Losses -0.0785 0% 0.0000

Grd Property 0.1154 100% 0.1154

Aircraft & Traffic Service 2.2134 85% 1.8814

G&A 1.2599 100% 1.2599

Profit 4.8889 100% 4.8889

Total 48.8115 44.2829 0.9072 vi

One-Way Round-Trip Total

Weighted Avg Pax Svc Cost/seat mile .01538372

Avg Live Pay Miles 2,335,117 12,366,135 14,701,252

FY12 Proposed Pax Seat Mile Rate 0.22370 0.12783

Total Dollars $181,785,286 $550,105,537 $731,890,823

Total Trips 1,180

Total Passengers 410,640

Avg Passenger per Trip 348

Avg Price Per Trip $620,246.46

Avg Seat Miles Per Trip 4,335,623

Avg Miles Per Trip 12,459

Additional passenger service cost per trip 192

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 10

K Eurocontrol Surcharge 5

L Cost Escalation Factor 2

M Rate of Return on Investment 3

N Backhaul Operational Data for USTRANSCOM Service Excluding One-Way Cargo Large Class Quarterly Expansion 2

O Backhaul Operational Data for USTRANSCOM Service One-Way Cargo Large Class Quarterly Expansion 1

P 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

RATE EFFECTIVE DATES 1 Jan 12 – 30 Sep 12

Passenger Large

(Effective)

Medium

(Effective)

Small

(Linehaul)

Round Trip $0.12783 $0.14297 $0.16367

One-Way 175% $0.22371 $0.25019 $0.28643

Contingency Rate (Per Para G) 193% $0.24672 $0.27593 $0.31589

Ferry Rate (Base – Effective Rate) 90% $0.11505 $0.12867 $0.15583

*Proposed Live Rate (Effective Rate) $0.12873 $0.14411 $0.17588

*Proposed Ferry Rate 90% $0.11586 $0.12970 $0.15829

Stop Charge (per directed landing) $2,000

Incremental Passenger Each $192

Fuel Pegged Rate $3.47 $3.47 $3.47

* USTRANSCOM has proposed the use of a live rate vs. round trip/one-way rates. See Introduction.

(2) CHARTER CARGO SERVICE PER TON MILE

Cargo

Large

(Effective)

Medium

(Linehaul)

Round Trip $0.48811 $0.63571

One-Way: 160% $0.78098 $1.01714

Contingency Rate (Per Para G) 195% $0.95182 $1.23964

Ferry Rate (Base – Effective Rate) 90% $0.43930 $0.59542

Stop Charge (per directed landing) $2,000

Fuel Pegged Rate $3.87 $3.87

(3) CHARTER COMBI SERVICE PER PLANE MILE

Combi Effective Rate

Round Trip $29.80854

One-Way 185% $55.14580

Ferry Rate 90% $26.82769

Fuel Pegged Rate $3.87

(4) CHARTER L-100 SERVICE PER TON MILE

L-100 Live Rate

Round Trip $1.20618

Ferry Rate 90% $1.08556

Fuel Pegged Rate $3.87

(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. The Eurocontrol charge will not be calculated on ferry miles.

Carriers will be paid the applicable rate plus a surcharge of 2.4 percent of trip price for passenger missions, 3.1 percent for cargo missions and 0.43 percent for combi. The L-100 class has a surcharge of $458 per KWRI-LPLA-KWRI mission, while other eurocontrol fees for any expansion missions 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. In the case of a round-trip flight where the ferry awarded exceeds 250 miles, and the ferry declaration indicates actual ferry flown is less than 250 miles, no ferry will be paid.

(c) Should the proposed ―Live Rate‖ methodology for Passenger missions be incorporated, ―Paid ferry return‖ 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 $192 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). The charges are as follows:

Time Frame Service Type 1 Jan 12 – 30 Sep 12

Seven days or less

Passenger and Combi:

Cargo:

26.26%

19.38%

8 to 14 days

Cargo:

16.25%

13.67%

15 to 30 days

Cargo:

13.06%

11.16%

31 to 45 days Passenger and Combi 5.97%

31 to 75 days Cargo 5.54%

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:

16.25%

13.67%

(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 $1,936

B747-400/400ER 100 $2,151

MD11F 86 $1,850

MD11C 86 $1,850

B777F 88 $1,893

DC10-30/40 75 $1,613

A300-600ER 51 $1,747

A300-400F 50 $1,712

B767-200F 48 $1,644

DC8 45 $1,541

L100 23 $1,423

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 passengers and/or cargo are 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. 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 Stops 1/

KCHS#MMCZ-MPTO=1 Paid Stop 2/

KWRI+KCOF-TAPA-FHAW-TAPA-KCOF+KWRI= 4 Paid Stops 3/

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.

G. 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 0.13240$ 1,262$ -$ $1,262 0.09% $0.00011 Continental B777 0.13397$ 1,523$ 574$ $2,098 0.14% $0.00019

Delta Airlines A330 0.12235$ 5,961$ 14,719$ $20,681 1.40% $0.00172 Delta Airlines B747 0.11327$ 39,804$ 15,231$ $55,035 3.74% $0.00423 Delta Airlines B777 0.13214$ 6,201$ 1,105$ $7,306 0.50% $0.00066

Omni DC10 0.12323$ 352,880$ 267,639$ $620,519 42.12% $0.05191Omni DC10 0.12323$ 352,880$ 267,639$ $620,519 42.12% $0.05191 United Airlines B747 0.11938$ 7,237$ 2,263$ $9,500 0.64% $0.00077 World Airways MD11 0.13286$ 371,630$ 385,038$ $756,668 51.37% $0.06825

$1,473,068 1.0000

RATE -- WEIGHTED BY REVENUES $0.12783

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 0.15182$ 2,119$ 443$ $2,562 0.19% $0.00030 Continental B767-400 0.12189$ 2,987$ 3,217$ $6,203 0.47% $0.00057

Delta Airlines B767-300 0.13484$ 7,118$ 43,704$ $50,821 3.86% $0.00520 North…