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

UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.
Issued by the Department of Transportation on the 27th day of February, 2013

Essential Air Service at MACON, GEORGIA DOCKET DOT-OST-2007-28671

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

ORDER SELECTING CARRIER AND ESTABLISHING SUBSIDY RATES

Summary By this Order, the Department is selecting Silver Airways (Silver) to provide Essential Air Service (EAS) at Macon, Georgia, for an annual subsidy of $1,998,696. 1 The service to be provided will be one nonstop round trip per weekday and one per weekend (six a week) 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-year period beginning when Silver commences full EAS. Background The Departments FY 2012 appropriation (P.L. 112-55) limited eligibility in the EAS program in the lower 48 states to certain communities, including those that received subsidized 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 a subsidized 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, on April 26, 2012, Pacific Wings filed a 90-day notice of its intent to terminate its unsubsidized 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 community with no scheduled air service. As a result, the Department issued Order 2012-5-25, on May 24, 2012, which prohibited Pacific Wings from terminating service for 30 days beyond 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. In response to that Order, we received two proposals. By Order 2012-9-6, issued on September 6, 2012, the Department selected Sun Air Express, L.L.C. d/b/a Sun Air International (Sun Air) to provide subsidized EAS at Macon for a two-year contract. However, on December 20, 2012, Sun Air sent an e-mail to the Department withdrawing from the case and encouraging the re-solicitation of proposals for EAS at Macon. Sun Air explained that it is undergoing an aggressive expansion, experiencing challenges in completing pilot recruiting and training, and establishing maintenance bases in Texas, Maryland, and Pennsylvania that has proven more difficult than 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 Order 2013-1-5 on January 4, 2013, soliciting proposals from air carriers interested in providing EAS at Macon. In response, we received four proposals. Carrier Proposals As noted above, the Department received four proposals, all of which may be accessed online through the Departments Dockets Management System at: http://www.regulations.gov by entering DOT-OST-2007-28671 in the Enter Keyword or ID field. We have summarized the proposals in table form below:
Carrier American Aviation Group, Inc. d/b/a Sky King Airlines Annual Subsidy $1,555,825 $1,184,714 SeaPort Airlines, Inc. Silver Airw ays Sovereign Air, Inc. $2,499,837 $1,998,696 $1,514,940 1/ 2/ Hub ATL ATL CLT/BNA Round Trips Per Week 42 nonstop 42 nonstop 12.5 nonstop to CLT, 6 one-stop to BNA (via AHN) Aircraft Jetstream 31 (19 seat) Jetstream 31 (19 seat) Cessna Grand Caravan (9 seats) Saab 340B (34 seats) Jetstream 31 (19 seat) or Beechcraft 99 (15 seat)

ATL/MCO 6 nonstop to ATL, 6 nonstop to MCO ATL 28 nonstop

1/ First year rate. 2/ Second year rate.

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 a proposal claiming to be doing business as Sky King Airlines, Inc. (Sky King), which is a certificated air carrier. However, on February 7, 2013, Sky King submitted an answer in the docket to AAGs proposal advising the Department that it disavows any connection with AAG. Among other things, the answer states that Sky King had no knowledge of AAG, and all claims and representations made in that proposal in reference to Sky King is false and made without the Sky Kings consent. This matter has been referred to the Departments Office of the Assistance General Counsel for Aviation Enforcement and Proceedings and will not be considered further in this carrier-selection case.

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Proposal of SeaPort Airlines, Inc. SeaPort Airlines, Inc. (SeaPort) proposed twelve and a half nonstop round trips per week to Charlotte and six one-stop round trips to Nashville (via Athens) using 9-passenger Cessna Caravan aircraft for an annual subsidy of $2,499,837. Proposal of Silver Airways Silver proposed one nonstop round trip per weekday and one per weekend (six a week) to Atlanta and one nonstop round trip per weekday and one per weekend (six a week) to Orlando 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 using a 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 or the 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 proposal further. Community Comments By letter dated February 11, 2013, the Honorable Robert Reichert, Mayor of Macon, provided support for Silvers application. The Mayor points out the advantages of Silvers proposal, in that it will connect passengers to both Atlanta and Orlando, thereby providing excellent access to the national air transportation system. The Mayor states that this will be 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. Decision When 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 at the hub; (3) interline arrangements with a larger carrier at the hub; and (4) community views. In addition, The Consolidated Appropriations Act, 2008, 2 provides that when selecting an air carrier to provide EAS, the Department may consider the relative subsidy requirements, thus codifying a factor that we have considered since the inception of the program. Between the two eligible proposals, this case is very straight forward: Silvers requires less subsidy and has the full support of the community. The core objective of the EAS program is to connect smaller communities to the national transportation system, and Silvers proposal fully meets that objective. Silver is a well-established air carrier that provides EAS at many communities and maintains interline baggage and ticketing

Public Law 110-161.

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agreements with most of the major air carriers. Additionally, we find that both the service and subsidy levels are reasonable. We shall make this selection of Silver at Macon contingent upon the Departments receiving properly executed certifications from the air carrier that it is in compliance with the Departments regulations regarding drug-free workplaces and nondiscrimination, as well as the regulations concerning lobbying activities. 3 Service Transition We expect Pacific Wings and Silver to work together to make a smooth transition at Macon. In that regard, before Pacific Wings suspends its service it must notify any passengers holding reservations for travel after the suspension date, assist those passengers in 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) amended 49 U.S.C. 41731(a)(1)(B) to change the definition of eligible place for the purpose of receiving EAS. The amendment states that to be eligible, a community must maintain an average 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 legislation exempts locations in Alaska and Hawaii and communities that are more than 175 driving miles from the nearest large or medium hub airport. As Macon is only about 81 miles from the Atlanta airport, the community must meet the 10 enplanements per service day threshold 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 2011September 2012), Pacific Wings generated a total of 1,389 passengers (inbound and outbound), or an average of fewer than 3 enplanements per day. 5 Silver and Macon should be aware that the Department will continue to monitor Macons eligibility to receive EAS in light of these new requirements throughout the life of any executed contract. The Department may cancel a contract for any community receiving EAS if enplanements remain below 10 per day during FY2013, barring a waiver from the Secretary. Additionally, communities are not eligible for subsidized air service if its per passenger subsidy exceeds $1,000. 6 The estimated subsidy per passenger based on FY12 origin and destination passengers at Macon is $998. However, that figure is based on unsubsidized air service 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 at http://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. See 49 U.S.C. 41731(e). 5 Source: Bureau of Transportation Statistics; Form 41, Schedule T-100. Daily averages are based on onehalf of the O&D passengers, divided by 313 service days (314 during leap years). 6 See 49 USC 41731(a)(1)(C).

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potential to increase enplanements, thereby decreasing the subsidy per passenger rate. The Department strongly encourages Macon and Silver to work together to increase enplanements and bring its rate of subsidy per passengers into compliance in order to avoid termination of eligibility for subsidy under the EAS program. We will monitor both the subsidy per passenger rate and the 10 enplanements per service day threshold during this upcoming contract to ensure compliance with the statute. Carrier Fitness 49 U.S.C. 41737(b) and 41738 require that we find an air carrier fit, willing, and able to provide reliable service before we may subsidize it to provide EAS. Silver is subject to the Departments continuing fitness requirements, and no information has come to our attention that would cause us to question the air carrier's fitness at this time. We have contacted the Federal Aviation Administration, and it has raised no concerns that would negatively affect our fitness finding. We therefore conclude that the air carrier remains fit to 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 subsidy rate, as detailed in Appendix B; 2. We direct Silver Airways to retain all books, records, and other source and summary documentation to support claims for payment, and to preserve and maintain such documentation in a manner that readily permits its audit and examination by representatives of the Department. Such documentation shall be retained for seven years from 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 of must be retained. The air carrier may forfeit its compensation for any claim that is not supported 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. KURLAND Assistant Secretary for Aviation and International Affairs (SEAL)

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

Appendix A

Silver Airways
Annual 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

Stats & Assumptions Aircraft Type Departures Block Hours Passengers Load Factor Avg Fare Fuel Price A/C Miles RPMs (000) ASMs (000) Util - Blk/Day Pax Ticket Revenue Oper. Expenses Fuel Crew Maintenance Station Turns Distribution A/C Ownership Promotion Fixed Overhead Total Operating Loss 5% Profit Margin on Cost EAS Subsidy Subsidy / Pax

ANNUAL ANNUAL ATL-MCN MCN-MCO 98% 98% SF3 SF3 613 613 460 945 4,513 7,358 22% 35% $ 44.90 $ 116.67 4.10 4.20 49,669 198,064 366 2,377 1,689 6,734 1.3 2.6 202,641 275,677 195,458 238,382 200,279 54,615 33,318 5,000 1,002,728 800,087 50,136 850,223 188 858,480 570,825 401,773 490,006 221,872 89,046 132,862 5,000 1,911,383 1,052,903 95,569 1,148,473 156

ANNUAL EAS Total 98% SF3 1,226 1,405 11,872 28.5% $ 89.38 4.17 247,733 2,742 8,423 3.8 1,061,121 846,502 597,231 728,387 422,150 143,661 166,180 10,000 2,914,111 1,852,990 145,706 1,998,696 168

Appendix B

Silver Airways Essential Air Service to be Provided at Macon, Georgia Effective Period: March 15, 2013, through March 14, 2015 Scheduled Service: Six weekly nonstop round trips to Atlanta Hartsfield International Airport and six weekly nonstop round trips Orlando International Airport Aircraft: Saab 340 B Rate per Eligible Flight: $1,629 1 Weekly Ceiling for each community: $39,096 2
Note: The carrier understands that it may forfeit its compensation for any flights that it does not operate in conformance with the terms and stipulations of the rate Order, including the service plans outlined in the Order and any other significant elements of the required service, without prior approval. The carrier understands that an aircraft take-off and landing at its scheduled destination constitutes a completed flight; absent an explanation supporting subsidy eligibility for a flight that has 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 beyond the scope of the Order during the applicable period of this rate, it must first notify the Office of Aviation Analysis in writing and receive written approval from the Department to be ensured of full compensation. Should circumstances warrant, the Department may locate and select a replacement carrier to provide service on these routes. The carrier must complete all flights that can be safely operated; flights that overfly points for lack of traffic will not be compensated. In determining whether subsidy payment for a deviating flight should be adjusted or disallowed, the Department will consider the extent to which the goals of the program are met and the extent of access to the national air transportation system provided to the community. If the Department unilaterally, either partially or completely, terminates or reduces payments for service or changes service requirements at a specific location provided for under this Order, then, at the end of the period for which the department does 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 service that are mutually agreed to in writing by the Department and carrier do not constitute a total or partial reduction or cessation of payment. Subsidy contract are subject to, and incorporate by reference, relevant statutes and Department regulations, as they may be amended from time to time. However, any such statutes, regulations, or amendments thereto shall not operate to controvert the foregoing paragraph. Funds may not be available for performance under this Order beyond March 27, 2013. The Governments obligation for performance under this Order beyond March 27, 2013, is subject to the availability of funds from which payment for services can be made. No legal liability on the part of the Government for any payment may arise for performance under this Order beyond March 27, 2013, until funds are made available to the Department for performance. If funds are not made available for 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.

Annual compensation of $1,998,696 divided by 1,227 annual departures (four daily departures x 313 days x 98 percent completion). 2 24 arrivals and departures per week multiplied by $1,629 per flight.

Appendix C SERVICE LIST FOR EAS AT MACON GEORGIA

MAYOR ROBERT REICHERT CITY OF MACON 700 POPLAR STREET MACON GA 31201 MR GEORGE BROWN AMERICAN AVIATION GROUP INC 317 EAGLE RIDGE ROAD MACON GA 31216 WJJCME@YAHOO.COM

MR TIM SIBER SEAPORT AIRLINES INC 7505 NE AIRPORT WAY PORTLAND OR 97218

MR MICKEY BOWMAN SILVER AIRWAYS 1100 LEE WAGENER BLVD SUITE 201 FT LAUDERDALE FL 33315 MBOWMAN@GOSILVER.COM

MR. ROBERT KARNS SOBEREIGN AIR INC 5701 KENTUCKY AVENEUE N SUITE 153 MINNEAPOLIS MN 55428 BOB@SOVERSIGNAIRINC.COM