By Rob Stapleton
Alaska Journal of Commerce

Highly awaited amendments to the Rural Services Improvement Act were passed by the U.S. Senate Feb. 9, and were passed surprisingly fast, according to aviation industry leaders.

Attached to the U.S. Postal Reform bill, the amendments will remove a mandate that could have forced smaller air carriers to convert to a larger operation to keep their mail-rate status for carrying U.S. Postal Service bypass mail.

The amendments still need to be passed by the House of Representatives.

One controversial provision that is now gone, being dubbed the "121 hammer," was part of the RSIA that stated carriers that fly aircraft carrying fewer than 10 people, who have a larger carrier enter into their service area, must upgrade to a larger operation or have their mail rate reduced or equalized to the larger carriers' lower rate.

The amended rule will also allow additional provisions for current and new larger carriers, known as Part 121 carriers, to carry more mail, but at a lower rate.

The provisions of one amendment allows the postal service to assign a larger share of mail to air carriers offering Part 121 airline-certified passenger service to rural Alaska. The amendments also change qualifications for mail delivered by Bush air carriers.

Previous legislation stipulated that passenger air carriers retain 20 percent of a market that has at least two carriers to qualify to deliver bypass mail. Before RSIA, only one qualified passenger air carrier served many rural communities. However, to increase the passenger air service to rural Alaska, RSIA now stipulates that the postal service may also assign mail to other passenger air carriers that service a minimum of 10 percent of the passenger share.

According to a press release by Sen. Ted Stevens, R-Alaska, the change ensures that rural Alaska communities will have at least a minimum level of their passenger air service needs met.

The amendments will also help lower the costs to the postal service's bypass mail system by reducing the costs of "Bush bypass mail," which is the highest of all bypass mail rates. This means that when a Part 121 carrier enters a smaller carrier's market, the mail rate is "equalized" to the lower rate for both carriers.

Part 121 carriers are paid a lower mail rate than that paid to smaller carriers, known as Part 135 carriers.

The postal service has been losing an estimated $100 million yearly delivering mail in Alaska.

Part 121 carriers may legally operate aircraft with 10 or more seats and require a director of operations, and dispatch and maintenance departments with airline experience. Part 135 operators may only carry nine passengers and operate with less stringent standards.

The 2008 mandate in RSIA, which has been scrapped with the amendments, would have required Part 135 carriers to upgrade to Part 121 status by November 2008 should they have a Part 121 carrier enter their market. If the smaller carriers did not upgrade they would no longer receive mail.

Industry leaders and the Federal Aviation Administration estimate that the conversion to Part 121 status can cost as much as $2.5 million for a smaller carrier.

"I am happy to see that the conversion is out of the RSIA language, this will greatly aid the passenger carriers," said Wilfred "Boyuck" Ryan, president of Arctic Circle Air. "Wow, this really blindsided me, I had no idea that these amendments were even being considered."

Stevens' press secretary, Courtney Boone, told the Journal Feb. 3 that the amendments were not moving, and there was no plan or schedule for them to move in the near future.

"These amendments moved very fast. Last week I didn't know this was going to happen," Boone said, after the legislative move.

The Senate unanimously voted Feb. 9 to pass the U.S. Postal Reform Bill.

Stevens crafted RSIA with the idea of improving safety and service to rural Alaska. The major tenants of RSIA are a mandate to save the postal service money in terms of cost paid to carriers and to improve the Alaska air transportation safety record.

A Fairbanks-based carrier believes that service has improved in rural Alaska since RSIA was enacted.

"Ask any carrier operating today, and they will tell you that since RSIA passed, both service and prices have benefited their passengers," said Craig Kenmonth, general manager of Frontier Flying Service.

Not all carriers agree.

"The only good that RSIA has done is to remove those carriers that were only taking bypass mail and not adding any service to the village communities," said Art Warbelow, president of Warbelow's Air Ventures in Fairbanks. Warbelow's, a smaller, Part 135 carrier, is in the process of upgrading to the airline status.

"What (RSIA) has done, from a business perspective, is created an environment of uncertainty. I just bought and paid for a hangar and a Beechcraft 1900 to convert to Part 121, and now these amendments are removing that. How can you plan your business in this type of environment?"

Warbelow said that he will continue to convert after spending $3 million on the project.

"We are not in support of these amendments," Warbelow said.

The amendments allow new Part 121 carriers equal access to the mail business as Part 135 carriers as long as they carry 5 percent of the passenger pool in the first year of entering a market, 10 percent in the second year and 20 percent in the third year.

While the amendment aids Part 121 carriers entering into new markets, it takes a share of the mail from the existing freight carriers.

"The good thing is that (the amendment) takes out the mandatory Part 121 conversion requirement, but it does so by taking away 5 percent of the mail from the freight pool," Arctic Circle Air's Ryan said.

Ryan points out that dwindling mail proportions and declining loads will increase costs for rural Alaska construction projects and will make the cost of living even higher.

"I can't support taking anything out of the freight pool's portion, it is already hard enough to make any revenue from carrying mail, and diminishes the value of the dollar," he said. "This makes it really skinny for Arctic Circle and Alaska Transportation Services, who compete in the Bethel market for mail from the same freight pool."

State Sen. Don Olson of Nome is empathetic with Part 135 carriers. "We lost our business of 50 years (Olson Air) over RSIA," Olson said. "We couldn't hold on to the mail because we had less than 20 percent of the passenger market on the Seward Peninsula."

Olson said that a large number of carriers statewide are opposed to the amendments, which he says favor the Part 121 carriers.

"This obviously favors the 121 carriers because they immediately qualify for a full share of mail in any new market they enter."

According to Olson, this is history relived from a similar situation in the 1980, when MarkAir and Alaska Airlines were fighting for market share.

"Eventually seat fares will increase, but not until all the smaller (Part) 135 carriers are weeded out, when seat fares hit rock bottom and they go out of business, leaving only the dominant 121 carrier," Olson said. "Then watch the seat fares jump up to astronomical levels."

Rob Stapleton can be reached at rob.stapleton@alaskajournal.com.