2013-2-26_Order_Selecting_Carrier_and_Establishing_Subsidy_Rates.pdf

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Order 2013-2-26Served: February 27, 2013

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATIONOFFICE OF THE SECRETARYWASHINGTON, D.C.

Issued by the Department of Transportationon the 27 day of February, 2013

Essential Air Service at

MACON, GEORGIA DOCKET DOT-OST-2007-28671

under 49 U.S.C. 41731et seq.

ORDER SELECTING CARRIERAND ESTABLISHING SUBSIDY RATES

SummaryBy this Order, the Department is selecting Silver Airways (Silver) to provide EssentialAir Service (EAS) at Macon, Georgia, for an annual subsidy of $1,998,696.1 The serviceto be provided will be one nonstop round trip per weekday and one per weekend (six aweek) to Atlanta, Georgia, and one nonstop round trip per weekday and one per weekend(six a week) to Orlando, Florida, using 34-passenger Saab 340B aircraft for the two-yearperiod beginning when Silver commences full EAS.

BackgroundThe Departments FY 2012 appropriation (P.L. 112-55) limited eligibility in the EASprogram in the lower 48 states to certain communities, including those that receivedsubsidized EAS at any time between September 30, 2010, and September 30, 2011,

inclusive. Macon is eligible for subsidized service because it was receiving service on asubsidized basis from Pacific Wings, L.L.C., d/b/a Georgia Skies (Pacific Wings)through January 24, 2011, and subsidy-free service starting January 25, 2011. However, onApril 26, 2012, Pacific Wings filed a 90-day notice of its intent to terminate itsunsubsidized service at Macon, which triggered this carrier-selection case.

1 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of funds.


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Pacific Wings proposed termination of service at Macon would have left the communitywith no scheduled air service. As a result, the Department issued Order 2012-5-25, onMay 24, 2012, which prohibited Pacific Wings from terminating service for 30 daysbeyond the end of the 90-day notice period, i.e. August 25, 2012, and requested proposals

from air carriers interested in providing EAS at Macon, with or without subsidy. Inresponse to that Order, we received two proposals.

By Order 2012-9-6, issued on September 6, 2012, the Department selected Sun AirExpress, L.L.C. d/b/a Sun Air International (Sun Air) to provide subsidized EAS atMacon for a two-year contract. However, on December 20, 2012, Sun Air sent an e-mail tothe Department withdrawing from the case and encouraging the re-solicitation of proposalsfor EAS at Macon. Sun Air explained that it is undergoing an aggressive expansion,experiencing challenges in completing pilot recruiting and training, and establishingmaintenance bases in Texas, Maryland, and Pennsylvania that has proven more difficultthan anticipated. In response to Sun Airs notification, we contacted the community, and it

supported our issuance of a new request for proposals. As a result, we issued Order2013-1-5 on January 4, 2013, soliciting proposals from air carriers interested in providingEAS at Macon. In response, we received four proposals.

Carrier ProposalsAs noted above, the Department received four proposals, all of which may be accessedonline through the Departments Dockets Management System at:http://www.regulations.govby entering DOT-OST-2007-28671 in the Enter Keywordor ID field. We have summarized the proposals in table form below:

Proposal of American Aviation Group, Inc. d/b/a Sky King Airlines, Inc.American Aviation Group, Inc. (AAG), which is not a certificated air carrer, submitted aproposal claiming to be doing business as Sky King Airlines, Inc. (Sky King), which is acertificated air carrier. However, on February 7, 2013, Sky King submitted an answer inthe docket to AAGs proposal advising the Department that it disavows any connectionwith AAG. Among other things, the answer states that Sky King had no knowledge ofAAG, and all claims and representations made in that proposal in reference to Sky King isfalse and made without the Sky Kings consent. This matter has been referred to theDepartments Office of the Assistance General Counsel for Aviation Enforcement andProceedings and will not be considered further in this carrier-selection case.

Carrier Annual Subsidy Hub Round Trips Per Week Aircraft

American Aviation Group, Inc. d/b/a Sky KingAirlines

$1,555,825 1/ ATL 42 nonstop Jetstream31 (19 seat)

$1,184,714 2/ ATL 42 nonstop Jetstream31 (19 seat)

SeaPort A irlines, Inc. $2,499,837 CLT/BNA12.5 nonstop to CLT, 6 one-stop to

BNA (via AHN)Cessna Grand Caravan (9 seats)

Silver A irways $1,998,696 ATL/MCO 6 nonstop to ATL, 6 nonstop to MCO Saab 340B (34 seats)

Sovereign Air, Inc. $1,514,940 ATL 28 nonstopJ etstream31 (19 seat) or

Beechcraft 99 (15 seat)

1/ First year rate.

2/ Second year rate.
http://www.regulations.gov/http://www.regulations.gov/http://www.regulations.gov/


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Proposal of SeaPort Airlines, Inc.SeaPort Airlines, Inc. (SeaPort) proposed twelve and a half nonstop round trips per weekto Charlotte and six one-stop round trips to Nashville (via Athens) using 9-passengerCessna Caravan aircraft for an annual subsidy of $2,499,837.

Proposal of Silver AirwaysSilver proposed one nonstop round trip per weekday and one per weekend (six a week) toAtlanta and one nonstop round trip per weekday and one per weekend (six a week) toOrlando using 34-passenger Saab 340B aircraft for an annual subsidy of $1,998,696.

Proposal of Sovereign Air, Inc.Sovereign Air, Inc. proposed four nonstop round trips per day (28 a week) to Atlanta usinga 19-passenger Jetstream 31 aircraft for an annual subsidy of $1,514,940. However,Sovereign Air does not have the requisite operating authority from either the Department orthe Federal Aviation Administration, and would therefore not be in a position to commence

service in a reasonable period of time. Thus, we will not consider Sovereigns proposalfurther.

Community CommentsBy letter dated February 11, 2013, the Honorable Robert Reichert, Mayor of Macon,provided support for Silvers application. The Mayor points out the advantages of Silversproposal, in that it will connect passengers to both Atlanta and Orlando, thereby providingexcellent access to the national air transportation system. The Mayor states that this willbe attractive to both the local business community and the citizens of Macon.Additionally, Silvers proposal has the potential to transport more than 20,000 passengers,which aligns well with Macons plans to participate more fully in the Federal Aviation

Administrations Capital Improvement Program.

DecisionWhen selecting an air carrier, 49 U.S.C. 41733(c)(1) directs us to consider four factors:(1) service reliability; (2) contractual and marketing arrangements with a larger carrier atthe hub; (3) interline arrangements with a larger carrier at the hub; and (4) communityviews. In addition, The Consolidated Appropriations Act, 2008,2 provides that whenselecting an air carrier to provide EAS, the Department may consider the relative subsidyrequirements, thus codifying a factor that we have considered since the inception of theprogram.

Between the two eligible proposals, this case is very straight forward: Silvers requires lesssubsidy and has the full support of the community. The core objective of the EASprogram is to connect smaller communities to the national transportation system, andSilvers proposal fully meets that objective. Silver is a well-established air carrier thatprovides EAS at many communities and maintains interline baggage and ticketing

2Public Law 110-161.


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agreements with most of the major air carriers. Additionally, we find that both the serviceand subsidy levels are reasonable.

We shall make this selection of Silver at Macon contingent upon the Departmentsreceiving properly executed certifications from the air carrier that it is in compliance with

the Departments regulations regarding drug-free workplaces and nondiscrimination, aswell as the regulations concerning lobbying activities.3

Service TransitionWe expect Pacific Wings and Silver to work together to make a smooth transition atMacon. In that regard, before Pacific Wings suspends its service it must notify anypassengers holding reservations for travel after the suspension date, assist those passengersin making alternate air transportation arrangements, or provide a refund of the ticket price,without penalty, if requested.

Legislative Changes Which May Affect Future EAS Eligibility at Macon

The FAA Modernization and Reform Act of 2012 (Public Law No: 112-95) amended49 U.S.C. 41731(a)(1)(B) to change the definition of eligible place for the purpose ofreceiving EAS. The amendment states that to be eligible, a community must maintain anaverage of 10 enplanements or more per service day, as determined by the Secretary,during the most recent fiscal year beginning after September 30, 2012.4 The legislationexempts locations in Alaska and Hawaii and communities that are more than 175 drivingmiles from the nearest large or medium hub airport. As Macon is only about 81 miles fromthe Atlanta airport, the community must meet the 10 enplanements per service daythreshold for EAS to continue after FY2013, barring a waiver from the Secretary.

In the most recent fiscal year for which data are available, FY2012 (October 2011-

September 2012), Pacific Wings generated a total of 1,389 passengers (inbound andoutbound), or an average of fewer than 3 enplanements per day.5 Silver and Macon shouldbe aware that the Department will continue to monitor Macons eligibility to receive EASin light of these new requirements throughout the life of any executed contract. TheDepartment may cancel a contract for any community receiving EAS if enplanementsremain below 10 per day during FY 2013, barring a waiver from the Secretary.

Additionally, communities are not eligible for subsidized air service if its per passengersubsidy exceeds $1,000.6The estimated subsidy per passenger based on FY12 origin anddestination passengers at Macon is $998. However, that figure is based on unsubsidized airservice provided by Pacific Wings. In its proposal, Silver states that it will maintain low

local air fares, which will be comparable to those offered by low-cost carriers. This has the

3 The certifications are available on the Web athttp://ostpxweb.dot.gov/aviation/index.html.

4 The Secretary also has authority to waive the 10 enplanements requirement, on an annual basis, if the

community can demonstrate to the Secretarys satisfaction that the reason the location averages fewer than 10

enplanements per service day is due to a temporary decline in enplanements.See49 U.S.C. 41731(e).

5 Source: Bureau of Transportation Statistics; Form 41, Schedule T-100. Daily averages are based on one-

half of the O&D passengers, divided by 313 service days (314 during leap years).6 See49 USC 41731(a)(1)(C).
http://ostpxweb.dot.gov/aviation/index.htmlhttp://ostpxweb.dot.gov/aviation/index.html


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potential to increase enplanements, thereby decreasing the subsidy per passenger rate. TheDepartment strongly encourages Macon and Silver to work together to increaseenplanements and bring its rate of subsidy per passengers into compliance in order to avoidtermination of eligibility for subsidy under the EAS program. We will monitor both thesubsidy per passenger rate and the 10 enplanements per service day threshold during this

upcoming contract to ensure compliance with the statute.

Carrier Fitness49 U.S.C. 41737(b) and 41738 require that we find an air carrier fit, willing, and able toprovide reliable service before we may subsidize it to provide EAS. Silver is subject to theDepartments continuing fitness requirements, and no information has come to ourattention that would cause us to question the air carrier's fitness at this time. We havecontacted the Federal Aviation Administration, and it has raised no concerns that wouldnegatively affect our fitness finding. We therefore conclude that the air carrier remains fitto conduct the operations proposed here.

This Order is issued under authority delegated in 49 CFR Part 1.56a(f).

ACCORDINGLY,1. The Department selects Silver Airways at Macon, Georgia, and establishes the subsidyrate, as detailed in Appendix B;

2. We direct Silver Airways to retain all books, records, and other source and summarydocumentation to support claims for payment, and to preserve and maintain suchdocumentation in a manner that readily permits its audit and examination byrepresentatives of the Department. Such documentation shall be retained for seven yearsfrom the service date of this Order or until the Department indicates that the records may

be destroyed, whichever comes first. Copies of flight logs for aircraft sold or disposed ofmust be retained. The air carrier may forfeit its compensation for any claim that is notsupported under the terms of this Order;

3. We find that Silver Airways is fit, willing and able to operate as a commuter air carrier,and capable of providing reliable Essential Air Service at Macon, Georgia;

4. Docket DOT-OST-2007-28671 will remain open pending further Department action;and


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5. We will serve copies of this Order on the parties listed in Appendix C.

By:

SUSAN L. KURLANDAssistant Secretary for

Aviation and International Affairs

(SEAL)

An electronic version of this document is available athttp://www.regulations.gov
http://www.regulations.gov/http://www.regulations.gov/http://www.regulations.gov/


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Appendix A

Silver AirwaysAnnual Compensation Requirements for Essential Air Service at

Macon, Georgia to Atlanta, Georgia and Orlando, Florida

Four daily round trips per weekday and four round trips per weekend (24 a week)

98.0% Completion Factor

ANNUAL ANNUAL ANNUAL

ATL-MCN MCN-MCO EAS Total

Stats & Assumptions 98% 98% 98%

Aircraft Type SF3 SF3 SF3

Departures 613 613 1,226

Block Hours 460 945 1,405Passengers 4,513 7,358 11,872

Load Factor 22% 35% 28.5%

Avg Fare 44.90$ 116.67$ 89.38$

Fuel Price 4.10 4.20 4.17

A/C Miles 49,669 198,064 247,733

RPMs (000) 366 2,377 2,742

ASMs (000) 1,689 6,734 8,423

Util - Blk/Day 1.3 2.6 3.8

Pax Ticket Revenue 202,641 858,480 1,061,121

Oper. Expenses

Fuel 275,677 570,825 846,502

Crew 195,458 401,773 597,231

Maintenance 238,382 490,006 728,387

Station Turns 200,279 221,872 422,150

Distribution 54,615 89,046 143,661

A/C Ownership 33,318 132,862 166,180

Promotion 5,000 5,000 10,000

Fixed Overhead - - -

Total 1,002,728 1,911,383 2,914,111

Operating Loss 800,087 1,052,903 1,852,990

5% Profit Margin on Cost 50,136 95,569 145,706

EAS Subsidy 850,223 1,148,473 1,998,696

Subsidy / Pax 188 156 168


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Appendix B

Silver AirwaysEssential Air Service to be Provided at Macon, Georgia

Effective Period: March 15, 2013, through March 14, 2015Scheduled Service: Six weekly nonstop round trips to Atlanta Hartsfield International Airportand six weekly nonstop round trips Orlando International AirportAircraft: Saab 340 BRate per Eligible Flight: $1,6291Weekly Ceiling for each community: $39,0962

Note: The carrier understands that it may forfeit its compensation for any flights that it does not operate in conformancewith the terms and stipulations of the rate Order, including the service plans outlined in the Order and any other significantelements of the required service, without prior approval. The carrier understands that an aircraft take-off and landing at itsscheduled destination constitutes a completed flight; absent an explanation supporting subsidy eligibility for a flight thathas not been completed, such as certain weather cancellations, only completed flights are considered eligible for subsidy.

In addition, if the carrier does not schedule or operate its flights in full conformance with the Order for a significant period,it may jeopardize its entire subsidy claim for the period in question. If the carrier contemplates any such changes beyondthe scope of the Order during the applicable period of this rate, it must first notify the Office of Aviation Analysis inwriting and receive written approval from the Department to be ensured of full compensation. Should circumstanceswarrant, the Department may locate and select a replacement carrier to provide service on these routes. The carrier mustcomplete all flights that can be safely operated; flights that overfly points for lack of traffic will not be compensated. Indetermining whether subsidy payment for a deviating flight should be adjusted or disallowed, the Department will considerthe extent to which the goals of the program are met and the extent of access to the national air transportation systemprovided to the community.

If the Department unilaterally, either partially or completely, terminates or reduces payments for service or changes servicerequirements at a specific location provided for under this Order, then, at the end of the period for which the departmentdoes make payments in the stipulated service levels, the carrier may cease to provide service to that specific location

without regards to any requirement for notice of such cessation. Those adjustments in the levels of subsidy and/or servicethat are mutually agreed to in writing by the Department and carrier do not constitute a total or partial reduction or cessationof payment.

Subsidy contract are subject to, and incorporate by reference, relevant statutes and Department regulations, as they may bamended from time to time. However, any such statutes, regulations, or amendments thereto shall not operate to controverthe foregoing paragraph.

Funds may not be available for performance under this Order beyond March 27, 2013. The Governments obligation foperformance under this Order beyond March 27, 2013, is subject to the availability of funds from which payment for servicecan be made. No legal liability on the part of the Government for any payment may arise for performance under this Ordebeyond March 27, 2013, until funds are made available to the Department for performance. If funds are not made availablefor performance beyond March 27, 2013, the Department will provide notice in writing to the carrier.

All claims for payment must be submitted within 60 days of the last day of service provided under this Order.

1Annual compensation of $1,998,696 divided by 1,227 annual departures (four daily departures x 313 days x 98

percent completion).224 arrivals and departures per week multiplied by $1,629 per flight.


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Appendix C

SERVICE LIST FOR EAS AT MACON GEORGIA

MAY OR ROBERT REICHERTCITY OF MACON700 POPLAR STREETMACON GA 31201

MR GEORGE BROWNAMERICAN AVIATION GROUP INC317 EAGLE RIDGE ROADMACON GA 31216WJJ [email protected]

MR TIM SIBERSEAPORT AIRLINES INC7505 NE AIRPORT WAYPORTLAND OR 97218

MR MICKEY BOWMANSILVER AIRWAYS1100 LEE WAGENER BLVDSUITE 201FT LAUDERDALE FL [email protected]

MR. ROBERT KARNS

SOBEREIGN AIR INC5701 KENTUCKY AVENEUE NSUITE 153MINNEAPOLIS MN [email protected]

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