Order 2012-1-17 Served: January 23, 2012

UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation on the 23rd of January, 2012 Essential Air Service at JAMESTOWN, NORTH DAKOTA Under 49 U.S.C. 41731 et seq. DOCKET OST-1997-2785

ORDER SELECTING CARRIER Summary By this Order, the Department is selecting Great Lakes Aviation, Ltd. (Great Lakes) to provide Essential Air Service (EAS) at Jamestown, North Dakota, for an annual subsidy of $1,987,655, 1 effective with the start of service by Great Lakes. We anticipate that Great Lakes will start service on or about March 12, 2012. Background By Order 2009-8-6, we selected Mesaba Aviation, Inc., and Pinnacle Airlines, d/b/a Delta Connection (Delta), to provide EAS at Jamestown through September 30, 2011, with 34-seat Saab 340 aircraft. The annual subsidy level was $1,963,220 for two round trips per day, seven days per week to Minneapolis, operated with a mixture of one-stop and nonstop service. On July 15, 2011, Delta filed 90-day notices of intent to suspend service at Jamestown, as well as at 23 other EAS communities, effective October 13, 2011.2 By Order 2011-9-5, we prohibited Delta from terminating service at Jamestown and requested proposals for replacement service by October 21, 2011.

1 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of appropriated funds. 2 This order addresses only Jamestown.

-2Carrier Proposals In response to our request for proposals, we received proposals from Great Lakes and Sovereign Air.3 Great Lakes proposes to operate eighteen nonstop round trips per week to Minneapolis with 19seat Beech 1900 aircraft, with upline service to Devils Lake, and requested $1,987,655 annual subsidy for this service.4 Sovereign Air submitted four options. Option 1A proposed fourteen nonstop round trips per week to Minneapolis with 30-seat Dornier 328 jet aircraft, with upline service to Devils Lake, and requested $2,312,388 annual subsidy for this service. Option 1B proposed the same level of service as Option 1A above. However, this option requests only $1,728,375 annual subsidy. Sovereign requests reduced subsidy from Option 1A because it assumes we would select them at International Falls and Hibbing. Option 2A proposed fourteen nonstop round trips per week to Minneapolis with 30-seat Jetstream 41 turboprop aircraft, with upline service to Devils Lake, and requested $1,822,848 annual subsidy for this service. The only difference from Option 1A is the aircraft type proposed. Option 2B proposed the same level of service as Option 2A above. However, this option requests only $1,628,375 annual subsidy. Sovereign requests reduced subsidy from Option 2A because it assumes we would select them at International Falls and Hibbing.
Community Comments On October 21, the staff sent letters to Jamestown requesting comments regarding the proposals and on November 17, 2011, we received a single letter jointly signed by Jamestowns Mayor, airport manager, and airport authority As you know, our sole air carrier service is currently provided by Mesaba Airlines, d/b/a Delta Connection with a 34-seat Saab 340, operating twice daily to Minneapolis/St. Paul (MSP). For the past eight years we have been very pleased with this level of service and our passenger usage levels have increased exponentially. We feel that a continued relationship with Delta Airlines in the form of a seamless and integrated marketing agreement which allows us to remain in their network is imperative to our future success. The proposal as submitted by Great Lakes Aviation including three nonstop flights to Minneapolis/St. Paul, a partial Code Share marketing agreement with Delta that enables

3 Sovereign Air submitted a number of options. We summarize above the option that requires the least subsidy. All of Sovereign Airs proposals, our letters to the community requesting comment, and the communitys comments can be seen on www.regulations.gov in the Docket as listed on the front page of this order.. 4 By Order 2011-12-6, December 14, 2011, we selected Great Lakes at Devils Lake on an expedited basis.

-3customers to purchase tickets on Delta.com, and participation in Deltas frequent flyer program is vastly preferable to the proposals proffered by Sovereign Air. On November 21, 2011, we received comment from the North Dakota Aeronautics Commission, recommending that we select Great Lakes. According to the local FAA Flight Standards District Office, Sovereign Air does not currently hold an air carrier certificate. In contrast, Great Lakes Aviation has a history of providing air service to both of the Devils Lake and Jamestown communities, and we are confident that they can accomplish the air service needs of these communities. Decision The carrier-selection decision is straightforward. Great Lakes requests $1,987,655 annual subsidy, approximately the same level of subsidy set by Order 2009-8-6 that expired on October 31, 2011, and all of this service would operate on a nonstop basis. On the other hand, Sovereign Air has no operating authority from either the FAA or the Department and no immediate prospect of receiving any.5 When selecting a 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, Public Law 110-161, provides that when selecting a 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. Great Lakes has a clear advantage on all four criteria, especially as Sovereign is not an operating carrier, and does not have the requisite operating authority from either the Federal Aviation Administration or the Department.

Certifications We shall make these selections contingent upon the Departments receipt of properly executed certifications from Great Lakes that it is in compliance with the Departments regulations regarding drug-free workplaces and nondiscrimination, as well as the regulations governing lobbying activities. Carrier Fitness 49 U.S.C. 41737(b) requires that we find an air carrier fit, willing, and able to provide reliable service before we may subsidize it to provide Essential Air Service. Great Lakes is subject to the Departments continuing fitness requirements, and no information has come to our attention that would cause us to question the carriers 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 carrier remains fit to conduct the operations proposed here.

5 Order 2010-10-21, issued on October 27, 2010, dismissed Sovereigns application for authority to operate scheduled passenger service, and Order 2011-2-3, issued on February 3, 2011, affirmed that decision after Sovereign petitioned for reconsideration.

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Carrier Transition We expect Delta and Great Lakes to work together to make a smooth transition at these communities. In that regard, before Delta suspends its service we expect it to notify any passengers holding reservations for travel after the suspension date, to assist those passengers in making alternate air transportation arrangements, or to provide a refund of the ticket price, without penalty, if requested. In this regard, the EAS staff will be working with Delta to establish new hold-in subsidy rates as the current contracts become eligible for renegotiation. This Order is issued under authority delegated in 49 CFR 1.56a(f). ACCORDINGLY, 1. We select Great Lakes Aviation, Ltd., to provide EAS at Jamestown, North Dakota; 2. We set the final rate of compensation for Great Lakes Aviation, Ltd., for the provision of Essential Air Service at Jamestown, North Dakota, as described in Appendix C; 3. We direct Great Lakes Aviation, Ltd., 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 date it begins providing EAS 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 carrier may forfeit its compensation for any claim that is not supported under the terms of this Order; 4. We find that Great Lakes Aviation, Ltd., continues to be fit, willing and able to operate as a commuter carrier and capable of providing reliable EAS at the these communities; 5. This docket will remain open until further order of the Department; and

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6. We will serve copies of this Order on the Mayors and Airport Managers of Jamestown, North Dakota. By:

Susan Kurland Assistant Secretary for Aviation and International Affairs (SEAL) An electronic version of this document is available on the World Wide Web at http://www.regulations.gov

Appendix A

Nonstop Great Circle Miles Devils Lake (DVL) to Minneapolis (MSP) Jamestown (JMS) to Minneapolis (MSP) Grand Forks (GFK) to Minneapolis (MSP) Fargo (FAR) to Minneapolis (MSP) Jamestown to Grand Forks (GFK) Jamestown to Fargo (FAR) Jamestown to Devils Lake

351 299 284 223 100 88 83

Appendix B

Great Lakes Aviation, Ltd.

Annual Compensation Requirements for Essential Air Service at

Jamestown, North Dakota to Minneapolis/St. Paul ( MSP )

Three Round Trips - B1900
98.0% completion factor

Departures: Block Hours: Revenue Passenger Miles: Available Seat Miles:

1,840 2,531 4,559,750 10,453,040

Operating Revenues: Passenger: JMS-MSP

15,250

psgrs at

$132.75 $2,024,438

Other:

(at 0.62% of passenger revenue)

$12,552 $2,036,990

Total Operating Revenues:

Operating Expenses: Direct:

Aircraft and Hull Insurance Fuel and Oil Flying Operations Maintenance

$365,710 $1,331,293 $443,279 $611,761 $2,752,043 $1,080,951 $3,832,994 $1,796,005 $191,650 $1,987,655

Total Direct Expenses: Total Indirect Expenses: Total Operating Expenses: Operating Loss Profit Element (5.0% of Total Operating Expenses) Annual Compensation Requirement:

No Upline Scheduling Restrictions

Appendix C Great Lakes Aviation, Ltd. Essential Air Service to be Provided to Jamestown, North Dakota Effective Period: Two-year period beginning when Great Lakes begins service through the 24th month thereafter. Service: 18 nonstop round trips per week to Minneapolis (MSP). Aircraft: Beech 1900D, 19 seats. Rate per Eligible One-Way Flight: $1,080 1 Weekly Ceilings: $38,880 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 amounts or at the stipulated service levels, the carrier may cease to provide service to that specific location without regard 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 are not currently available for performance under this order beyond September 30, 2012. The Governments obligation for performance under this order beyond September 30, 2012, is subject to the availability of appropriated 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 September 30, 2012, until funds are made available to the Department for performance. If funds are not made available for performance beyond September 30, 2012, 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.

1 Annual compensation of $1,987,655 divided by 1,840 estimated annual completed departures and arrivals: 18 flights/week x 2 directions x 52 weeks x 313/312 days x 98 percent completion. 2 $1,080 x 36 flights per week = $38,880.