Cost of Capital Study

COST OF CAPITAL STUDY

YIELD CAPITALIZATION 2009 ASSESSMENT YEAR APPENDIX C

AIR TRANSPORT-FREIGHT

EQUITY RATE

CAPITAL ASSET PRICING MODEL CAPM Ex Post CAPM Ex Ante DIVIDEND GROWTH MODELS Value Line, based on Dividends Growth Value Line, based on Earnings Growth 7.45% 8.45% 7.40% 9.00%

8.75%

PAGE 5 6

8 9

DEBT RATE

7.3%

10

MARKET CAPITAL STRUCTURE

Equity Operating Leases Debt Subtotal Financing portion of structure Marginal Tax Rate 85% 5% 10% 38% x x x = 8.75% 8.8% 7.3% (1-.38) = 0.4% 0.7% 1.2% 1.2% 7.44%

= = x

0.7%

WEIGHTED AVERAGE COST OF CAPITAL

8.2%

1

SUPPORT FOR GUIDELINE COMPANIES

WASHINGTON STATE DEPARTMENT OF REVENUE 2009 ASSESSMENT YEAR AIR TRANSPORT

INDUSTRY OVERALL

Company Name

MP MP RP MP RF MP MP RP MF MP MP MP MP RP RP MP MP MF AirTran Hldgs Inc Alaska Air Group Inc Allegiant Travel AMR Corp Atlas Air Worldwide Continental Airlines Inc Delta Air Lines Express Jet FedEx Corporation Hawaiian Holdings JetBlue Airways Mesa Air Group Pinnacle Airlines Republic Airways Holdings, Inc. Sky West Southwest Airlines Co. United Airlines, Inc. United Parcel Svc

Ticker

AAI ALK ALGT AMR AAWW CAL DAL XJT FDX HA JBLU MESA PNCL RJET SKYW LUV UAUA UPS

Beta

1.20 1.20 0.85 1.65 1.50 1.60 NMF 1.50 0.85 0.95 1.05 1.15 1.15 0.70 1.15 0.90 1.65 0.75

P/E Ratio

9.5 7.7 19.3 6.5 6.2 4.6 14.9 NMF 11.5 NMF 14.3 NMF 1.7 3.3 6.8 14.3 NMF 15.3

Div'd Yield

NIL NIL NIL NIL NIL NIL NIL NIL 0.9% NIL NIL NIL NIL NIL 1.4% 30.0% NIL 4.2%

Mean

1.16

9.7

9.1%

AIR TRANSPORT-FREIGHT

Company

RF MF MF Atlas Air Worldwide FedEx Corporation United Parcel Svc

Ticker

AAWW FDX UPS

Beta

1.50 0.85 0.75

P/E Ratio

6.2 11.5 15.3

Div'd Yield

NIL 0.9% 4.2%

Mean

1.03

11.00

2.6%

Source: ValueLine

2

SUPPORT FOR CAPITAL STRUCTURE

MARKET VALUE

WASHINGTON STATE DEPARTMENT OF REVENUE 2009 ASSESSMENT YEAR AIR TRANSPORT

INDUSTRY OVERALL

Company Name

MP MP RP MP RF MP MP RP MF MP MP MP MP RP...