25_April_Comments_-_Combined.pdf

25 April, 2017

Scott Rader

USTRANSCOM/TCAQ-P

Chief, Pricing Branch 508 Scott Drive Scott Air Force Base, IL 62225

RE: Atlas Comments to USTC’s most recent Draft FY18-22 MOU

Dear Mr. Rader:

Following are Atlas’ comments to USTC’s most recent Proposed Changes to the FY18-22 Memorandum of Understanding between each of the CRAF carriers and USTRANSCOM.

Atlas would like to reiterate several points discussed at length in its earlier comments to USTC with respect to the potential changes to the FY18-22 MOU as well as during the Small Working Group discussions with respect to the Weighted Guidelines.

Performance Risk – No changes are proposed for the Performance Risk associated with the Contract.

The ranges for both the Technical and Management/Cost Control elements remain at 3% to 7% with the normal value at 5%. Atlas continues to believe performance under the Long Range International Contract for both Technical and Management/Cost Control warrant a higher normal than the current 5%.

Acceptable performance under the Contract requires carriers to provide the following elements of service:

1. highly trained and skilled employees;

2. extremely complex, vital efforts to overcome difficult technical obstacles that require personnel with exceptional abilities, experience, and professional credentials; and,

3. a high degree of production concurrency is required to perform highly critical missions;

When the above elements of service are required to perform services for the U. S. Government, guidance under DFAR 204.404-4 assigns higher than Normal and even Maximum Value for Technical Performance Risk. Currently assigned values for passenger operations at 5% and cargo operations at 4.5% are inconsistent with this guidance.

Likewise performance under the Contract requires highly specialized management systems and a high degree of management involvement. Performance also requires a broadly ranging mix of services to achieve the performance requirements under the Contract from overhaul of the smallest aircraft components to the engines and aircraft themselves, as well as, having all crews, staff, support and logistics on a global scale all synchronized to meet at each mission stop. Performance under the Contract requires a high degree of management effort to meet substantially all of the requirements under DFAR 204.404-4 for the contracting officer to assign a higher than normal value. Those elements are:

1. The contractor's value added is both considerable and reasonably difficult;

2. The effort involves a high degree of integration or coordination;

3. The contractor has a good record of past performance;

4. The contractor provides fully documented and reliable cost estimates;

5. The contractor makes appropriate make-or-buy decisions; or

6. The contractor has a proven record of cost tracking and control.

Atlas Air, Inc. Ronald A. Lane Phone: +1 562 810-2323 2000 Westchester Avenue Special Advisor Email: ron.lane@atlasair.com Purchase, NY 10577-2543

In fact, DFAR 204.404-4 guidance suggests the maximum value be assigned for elements such as the following:

1. Requiring large scale integration of the most complex nature;

2. Involving major international activities with significant management coordination (e.g., offsets with foreign vendors); or

3. Has critically important milestones.

Performance by all carriers meets the above requirements for maximum value.

Facilities Capital Employed – No changes were made to the present MOU provision for Facilities Capital Employed. Atlas continues to believe the present scale is not appropriate for Long Range International Airline operations for USTC. The level of Capital intensity required to perform effectively in the Long Range International airline environment is extremely high, especially when compared to other services procured by the U.S. Government. The equipment utilized by carriers to perform services for USTC under the Long Range International Contract are the most efficient types for cost effective performance. And, all carriers have proven their commitment to improving productivity by investing in as modern equipment as can maintain economic viability in performing under the Contract. Due to the low achievable utilization for highly capital intensive equipment, the entire upper range of the present scale is eliminated from the viable range. The scale should be modified to one that includes a viable range in the segment of the industry that competes in the relevant environment and is reflective of the life cycle of the equipment effective for cost efficient operation.

Cost Efficiency Factor – Atlas agrees the change in the formula to reflect the split of cost savings is a more appropriate sharing of the benefits of any cost efficiency. However, we continue to believe the year over year comparison of each carrier to themselves including the cost escalation factor is a formula that is not consistently achievable. At a minimum, the comparison should not include a comparison to escalated costs. Although rejected summarily, we still believe a better measure of Cost Efficiency and more consistency with Ratemaking Methodology would be a comparison of carriers to each other rather than themselves.

Please advise if you need any additional clarity on the above points.

Sincerely, Atlas Air, Inc.

Ronald A. Lane Advisor