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BEFORE THE

DEPARTMENT OF TRANSPORTATION

WASHINGTON, D.C.

Application of

HARRIS AIRCRAFT SERVICES, INC.

For a certificate of public convenience and

necessity pursuant to 49 U.S.C. § 41102 to

engage in interstate scheduled air transportation

of persons, property, and mail

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Docket DOT-OST-2014-0145

MOTION FOR LEAVE TO FILE AND RESPONSE OF AIR EXCURSIONS LLC

Communications with respect to this document should be addressed to:

Kent Craford

AIR EXCURSIONS LLC

1873 Shell Simmons Dr.

Suite 110

Juneau, AK 99801

Robert E. Cohn

Patrick R. Rizzi

HOGAN LOVELLS US LLP

Columbia Square

555 Thirteenth Street, NW

Washington, DC 20004

+1 202 637 4999/5659

robert.cohn@hoganlovells.com

patrick.rizzi@hoganlovells.com

Counsel for Air Excursions LLC

October 6, 2014
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BEFORE THE

DEPARTMENT OF TRANSPORTATION

WASHINGTON, D.C.

Application of

HARRIS AIRCRAFT SERVICES, INC.

For a certificate of public convenience and

necessity pursuant to 49 U.S.C. § 41102 to

engage in interstate scheduled air transportation

of persons, property, and mail

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)

)

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Docket DOT-OST-2014-0145

October 6, 2014

MOTION FOR LEAVE TO FILE AND RESPONSE OF AIR EXCURSIONS LLC

Air Excursions LLC seeks leave to file this brief Response to the

Consolidated Reply of Harris Aircraft Services, Inc. (“Harris Air”), dated

September 29, 2014.

I. Motion for Leave to File.

Air Excursions requests leave to file this response to Harris Air’s Reply.

Good cause exists for the Department to accept and consider this brief, narrowlytailored Response to address obfuscations and inaccuracies in Harris Air’s

Reply, and to ensure that the Department has a more accurate and complete

record on which to reach a decision.

II. Harris Air’s Reply Has Failed to Address, Much Less Resolve, Its

Financial Fitness Deficiencies.

Air Excursions’ Answer to Harris Air’s application discussed several

reasons why Harris Air failed to demonstrate that it possessed sufficient financial

fitness for the issuance of certificate authority. Harris Air’s Reply makes a failed
Motion and Response of Air Excursions

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attempt to rebut those points by highlighting irrelevant data from its financial

statements and overlooking its own DOT application history. (HAS Reply at 4-8.)

First, Harris Air attempts to explain the substantial 44% reduction in the

financial fitness threshold from its 2013 application ($999,000 to $558,000) by

reiterating the claim that it has no pre-operating or start-up expenses because it

is merely continuing its current operations. (HAS Reply at 5-6.) That assertion is

not credible and is contrary to the position Harris Air took in 2013 when it filed for

commuter authority, based on merely continuing its existing service. In its

previous application, Harris Air itself included over $350,000 in start-up costs and

DOT agreed in its Show Cause Order issued this year that such costs needed

to be accounted for in calculating the financial fitness threshold. See DOT Order

2014-3-2, at 6. Although Harris Air now claims no expenses related to “certain

outstations, training employees and operating aircraft” (HAS Reply at 5), those

were among the express categories Harris Air itself factored into the financial

fitness threshold calculation in its earlier application. See Harris Air Information

Response, August 2013 (Docket DOT-OST-2013-0089). Moreover, there is no

showing that such expenses have already been incurred and paid for in the

current financial statements. Ironically, Harris Air quotes a Scott Air decision to

support its newfound “no pre-operating/start-up expenses” position, but

conveniently overlooks its very own Show Cause Order from earlier this year

where the Department clearly included start-up and pre-operating expenses in

calculating Harris Air’s financial fitness threshold. DOT Order 2014-3-2, at 6.

Second, it is clear that Harris Air artificially reduced its projected first-year

expenses in order to conform to its limited line of credit. Its 2013 presentation
Motion and Response of Air Excursions

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showed total expenses of $2.584 million, but here, total expenses are only

$2.231 million – a nearly 14% reduction. (Compare Harris Air Application, Exhibit

HAS-7 with Exhibit HAS-14.) It claims that this difference relates to having one

fewer aircraft in its fleet. (HAS Reply at 6-7.) But, that doesn’t hold water for two

reasons. First, that aircraft had been used for the Southeast Alaska Regional

Health Consortium, which arrangement was terminated before the Department

issued its Show Cause Order on Harris Air’s request for commuter authority.

Second, the 14% reduction in projected expenses cannot be reconciled with

Harris Air’s other claim that it will simply be “continuing with its existing intra-state

services” under its certificate (if granted). (HAS Reply at 5 (emphasis in the

original).)

Third, Harris Air contends that its Balance Sheet and other financial

statements are “sound”. It asserts that “Harris Air’s August 14, 2014 Balance

Sheet shows total current assets of $997,276 and total current liabilities of

$213,096 giving the air carrier positive working capital of $784,180.” (HAS Reply

at 7-8.) That response is both wrong and misses the point. Assets minus

liabilities does not translate into having enough liquidity to cover the cost of

operations. Assets, especially those which comprise most of Harris Air’s balance

sheet assets, are not liquid. Harris Air cannot pay its employees or fuel bills with

aircraft assets. Thus, Harris Air’s claim of having positive working capital does

not address having sufficient funds available to meet its expense requirements,

which is the Department’s financial fitness requirement.

As for its discussion about historic revenues and net income, those data

are simply irrelevant because the Department’s financial fitness determination is
Motion and Response of Air Excursions

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a zero revenue/income standard. DOT Order 2014-3-2, at 5 (“Further, in

calculating available resources, projected revenues may not be used.”) In any

event, Harris Air failed to even acknowledge, much less address, the specific

points Air Excursions actually made about the Balance Sheet – e.g., sizeable

negative retained earnings, and high leverage in terms of high ratio of loans to

total equity. (Air Excursions Answer at 5-6.)

In sum, Harris Air has not demonstrated the requisite financial fitness for

certificate authority, and nothing in its Consolidated Reply changes that

conclusion.

III. Harris Air Has Not Demonstrated A Proper Compliance Disposition.

Harris Air reiterates that it has an appropriate compliance

disposition. (HAS Reply at 8-10.) For example, it argues that it is a Part 135

intra-state commuter, and not a Part 298 carrier. But, DOT Order 2014-3-2

(page 1) described Harris Air as “an on-demand air taxi serving the Southeastern

Alaska area operating under 14 CFR Part 298 . . .,” and, moreover, Harris Air’s

current operations surely involve at least a de minimis amount of interstate

passenger traffic. As regards to connecting passengers to the national air

transportation (interstate) system, here is what Harris Air recently told the

Department: “With regard to getting passengers into the major airline system,

Harris Air is unique with its base in Sitka. With aircraft departing from Sitka we

are able to offer a secondary access point to the major airlines, . . . .” Harris Air

Proposal to Provide Essential Air Service, Docket DOT-OST-2008-0217 (April 28,

2014). To the extent that it operates more than four scheduled flights per week
Motion and Response of Air Excursions

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on routes carrying more than a de minimis amount of interstate traffic (as its

Winter Schedule showed, see Air Excursions Answer, Attachment), Harris Air is

required to hold either a DOT certificate or commuter authority.

In addition, Harris Air did not even attempt to confront the apparent

impossibility of operating its Illustrative Schedule, which Air Excursions detailed

in its Answer (pages 8-9), choosing instead to simply parrot that it will be

continuing its current operations. (HAS Reply at 9.) But merely avoiding the

issue raised altogether does not resolve it, particularly when it goes to the core of

the air carrier–passenger relationship and the applicant’s compliance disposition.

As proposed, Harris Air’s schedule for its wheel-plane markets appears

logistically impossible to execute with only two wheel-aircraft operating on an IFR

platform. For example, it schedules four flights in wheel-plane markets operated

with the Navajo aircraft departing Sitka at the same time, 7:30 a.m. (SitkaKlawock; Sitka-Hoonah; Sitka-Gustavus; Sitka-Juneau), but Harris Air only has

two such aircraft. As another example of the scheduling impossibility being

proposed here (detailed in Air Excursions’ Answer, but which Harris Air did not

address),

First Wheel-Aircraft SIT – KLA: 0730 – 0815

KLA – SIT: 0830 – 0930

Second Wheel-Aircraft SIT – JUN: 0730 – 0800

JNU – SIT: 0810 – 0915

GST – JNU: 0825 – 0840

HNH – JNU: 0835 – 0850

HNH – GUS: 0835 – 0850

GUS – HNH: 0900 – 0915
Motion and Response of Air Excursions

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There has been no showing of how Harris Air could actually operate all of the

near-simultaneous wheel-plane flights with only two wheel-aircraft in its fleet.

These examples of unrealistic scheduling demonstrate a fundamental lack

of compliance fitness here. Holding out a schedule to the traveling public that is

not logistically feasible and thus cannot be relied upon to any reasonable degree

is a disservice to the traveling public, violates the Department’s regulations, 14

C.F.R. § 399.81, and is tantamount to a deceptive business practice in that

Harris Air knows, with a high degree of certainty, that it cannot operate its

published and marketed schedule. Unrealistic scheduling harms not only local

passengers, but also interstate travelers relying on the dependability of the

scheduled service in order to make connections at Juneau to the national air

transportation network beyond. The Department should not condone and

approve this unrealistic scheduling by granting Harris Air’s application for

certificate authority.

IV. Conclusion.

For the reasons detailed above and explained in Air Excursions’ Answer,

Harris Air has not demonstrated financial fitness or proper compliance disposition

for certificate authority. Its Consolidated Reply did not resolve any of the

dispositive flaws with its Application. Its Application should be denied.
Motion and Response of Air Excursions

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Respectfully submitted,

______________________________________

Robert E. Cohn

Patrick R. Rizzi

HOGAN LOVELLS US LLP

555 Thirteenth Street, NW

Washington, DC 20004

+1 202 637 4999/5659

Counsel for

Air Excursions LLC
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CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing Motion for Leave and Response of

Air Excursions has been served this 6th day of October 2014, upon each of the

following:

pmurphy@lopmurphy.com

scott@harrisair.com

hank@MTCWorld.com

info@flypacificairways.com

Patrick R. Rizzi