April 16, 2014 | Incorporating the Inter-Island News
BUSINESS, COMMUNITY

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July 1, 2006
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FLYING HIGH
Penobscot Island Air thrives in a difficult environment

by Sally Noble

As time flies, so grows the story of Penobscot Island Air.

Only two years ago last dead of winter, the tale of this feisty new airline began with more chutzpah than capital, more spirit than spreadsheet. Kevin Waters, the former manager of Maine Atlantic Aviation, put up his home and 401K plan as collateral, qualifying for one Cessna 206 to start up an air-taxi service in the bitter off season, shuttling mail, packages, groceries and passengers between Knox County Airport in Owls Head to the islands of North Haven, Vinalhaven, Matinicus and Criehaven.

Then, after a year of flying by the seat of its pants, the fledgling airline received a $555,000 three-year grant from the federal Transportation Department's Small Community Air Service Development Program. Last April, Waters and his three partners finally felt solvent enough to begin issuing themselves modest paychecks. And PIA increased its fleet fourfold; now the airline flies two purchased Cessna 207 Stationairs and two Cessna 206's leased from Telford Aviation (which sold Maine Atlantic Aviation to Rockland Airport Partners, departing the flying business to focus solely on pumping fuel and aircraft maintenance).

"We still run things tight and we don't make a lot of money," asserts Waters.

Stretching every penny and irked at having to pay for a trailer that charged $2,700 a year in terrorism insurance, recently Waters and his partners combed the local dumpsters, hunting for leftover two-by-fours and pulling nails from pallets. For $50 they purchased four sets of windows from the thrift store in Tenants Harbor. Then they set about constructing a 16-by-20 foot airport terminal called "The Gathering Place" to replace their rented trailer.

Putting systems in place to get the DOT grant money to flow in PIA's direction has proven to be yet another humbling lesson in both patience and federal paperwork. "On paper it looks simple, but in reality, there's a lot of bureaucracy involved," explains Waters.

The fine-print mechanics of getting federal subsidy money to flow in PIA's direction has proven to be somewhat challenging. Jeff Northgraves said the program requires Penobscot Island Air to first spend money -- incur runway maintenance and insurance costs and keep vigilant count of every passenger -- and then, after filing the exhaustive-but requisite DOT forms, the airline qualifies to receive reimbursement funds. Furthermore, the $555,000 grant only subsidizes passenger flights for three years; to gradually reduce the fledgling airline's present dependence on DOT funds, the reimbursement rate currently covers $15 per flight (or $30 roundtrip), but in year two this subsidy drops to $10 and in year three it's down to $5.

More fine print translated into the need for a special checking account through which all federal funds must flow. So in the dead of winter, as expenses mounted, Knox Country stepped in as the official conduit for the DOT grant; initial deposits, according to Jeff Northgraves, airport manager in Owls Head, included some airport reserve funds and the $35,000 long ago donated to Waters by investors, primarily residents of the Plantation of Matinicus, according to Northgraves. The Island Institute, initially considered the perfect institution to manage the flow of grant money, wasn't allowed to do so: a nonprofit organization helping a for-profit airline doesn't qualify.Fully confident that the DOT would send reimbursement checks by early summer, last spring Knox County issued a check to PIA for "just under $50,000 to reimburse the airline costs incurred from October through February, including $23,000 to cover the down payment of an aircraft," according to Northgraves.

Waters hopes the subsidy program will prove a pivotal part of making PIA an independent air taxi business. At a time when gas prices are going up, the subsidy program has enabled Waters to lower his ticket prices. Like practically everyone else in America, Penobscot Island Air struggles with paying the current price of fuel. "We're paying $1.60 more a gallon now than we were in December 2004, when we started," said Waters.

Still, PIA's passenger traffic is up 20 percent, now accounting for approximately 45 percent of its current revenue, estimates Waters. PIA currently charges $40 per person (or $80 per passenger flying solo) for flights between Knox County Airport and North Haven, Vinalhaven, Matinicus and Criehaven. Rates climb slightly for trips to Islesboro and Stonington, while longer flights to Blue Hill and beyond fall into PIA's charter-rate category. A considerable source of summer revenue for the airline comes from charters; PIA gladly accommodates weekend-getaway travelers, charging $375 to charter passengers from the Portland Jetport to the islands of Penobscot Bay.

Passenger traffic went up 20 percent, estimates Waters, thanks to lowered ticket prices. Waters further speculates that fishermen make up the increased passenger count, explaining that as the price for diesel fuel rises, so does the cost of running a boat from island to mainland. "Time is money and forty bucks for a fifteen-minute flight looks fairly reasonable to a lobsterman looking to save time at the height of the season," Waters said.

The transfer of freight comprises a 55 percent of PIA's business; the airline maintains exclusive contracts with the U.S. Postal Service, Federal Express and United Parcel Service. Transporting groceries continues to be a service offered by PIA, for $8 a box. And finally, PIA proudly maintains a brisk rescue business: In 2005, the airline counted 120 medical evacuations, with LifeFlight helicopters continuing to provide acute emergency service to the islands. "We're in the lower echelon of medical evacuations, like broken shoulders," explains Waters. q

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