Order 2012

- 9

- 10 Served: September 11, 2012



### UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION



### OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 11 th day of September, 2012

Essential Air Service at

ADAK

, ALASKA

Under 49 U.S.C. 41731 et seq

. DOCKET DOT

- OST

- 2000

- 8556

ORDER RE

- SELECTING CARRIER Summary By this Order

, the Department is re

- selecting Alaska Airlines, Inc. to provide E ssential A ir S ervice (EAS) at Adak

, Alaska

, consisting of two nonstop or one

- stop round trips per week with Boeing 737 combi aircraft between Adak and Anchorage for an annual rate of $1,675,703

. 1 2
However, th at rate would not be for the typical two

- year period but would extend for only a one

year period.

Background
By Order 2 01 0

- 7

- 9, July 15, 2010, the Department selected Alaska Airlines, Inc. to provide two
nonstop or one

- stop round trips per week between Adak and Anchorage with Boeing 737

- 400 aircraft for $1,675,703 annually through June 30, 2012. 3

As the end of the current rate term was approaching, by Order 2012

- 2

- 8, February 10, 2012, we requested proposals from carriers interested in providing service to Adak no later than March 9,

2012. By notice dated March 2, 2012, we granted an extension unt il March 23, 2012, to submit

1 The $1,675,703 rate is the same as the rate set by Order 2010

- 7

- 9, July 15, 2010, that expired June 30, 2012, but

less than the hold

- in rate set by Order 2012

- 6

- 17, June 22, 2012, of $2,023,313, effective July 1, 2012 . Alaska Airlines indicates the decrease in subsidy is from lower fuel prices.

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

3 That Order also selected PenAir at Atka and Ni kolski, Alaska. By Order 2012

- 5

- 20, May 23, 2012, we selected Grant to replace PenAir. This Order discusses Adak only.- 2

-

proposals. By notice dated March 22, 2012, we granted an additional extension to March 30, 2012, to submit proposals at Adak.

On March 30, 2012, we received a proposal from only one carrier, Peninsula Airways, Inc., ( PenAir ) . PenAir request ed $3,440,097 annual subsidy to provide four nonstop round trips per
week between Adak and Anchorage with a 34

- seat Saab 340 aircraft. 4 On May 11, 2012, the community expressed dissatisfaction with the level of service proposed by PenAir , especially compared to that historically provided by the incumbent, Alaska Airlines . Order 2012

- 5

- 24

, May 24, 2012, rejected PenAir’s proposal, the only proposal before the Department , and re

solicited proposals , with proposals due June 26, 2012 . As th e Order indicated:

“ We have decided to re

- bid proposals for Adak. While both the community and Department are dissatisfied with the current options before us, we wish to highlight the

fact that the sources of our dissatisfactions are different. We are c oncerned that the level of subsidy PenAir requests is very high

-- more than twice the level we have been paying Alaska Airlines for its current contract provided with full

- sized jet aircraft. Based on all of the above, we have decided that the best optio n is to re

- solicit proposals. ”

On June 19 , 2012, we received a request from Tatonduk Outfitters, Ltd., d/b/a Everts Air Cargo (Everts Air) for an extension to July 12, 2012, to submit a proposal. By notice dated June 21

, 2012

, we granted that request. On July 11, 2012, Alaska Airlines requested an extension to July 24, 2 0 12. By notice dated July 12, 2012, we granted that request as well . In response to

Order 2012

- 5

- 24

, we received timely

- filed proposals from Everts Air; Nort hern Air Cargo, Inc. (NAC); Era Aviation, Inc., (Era Alaska), and from Alaska Airlines, Inc. PenAir did not submit a proposal.

Proposal, Everts Air Option 1 Everts Air proposed one round trip per week between Anchorage and Adak for all

- cargo service with DC

- 9

- 33 jet aircraft. Everts Air requested $1,822,496 annual subsidy for this service

, subject to certain revenue

- sharing provisions

.

Option 2 Everts Air proposed one round trip per week between Anchorage and Adak for all

- cargo service with DC

- 9

- 33 jet aircraft and reques ted $2,155,216 annual subsidy, subject to certain

revenue

- sharing provisions.

Both options allowed for up to two intermediate stop s, one stop to pick up additional fuel for the almost 1,200 mile flight between Adak and Anchorage, and another stop if opportunities to pick up revenue materialized. Option 1 differed from Option 2 by assuming that the Postal Service would tender a significant amount of mail to Everts Air

. Everts Air recognized that its selection would require the additional selection of a passenger carrier to transport Adak passengers, and

that passenger carrier’s presumably more frequent service might lead the Postal Service to tender

more time

- sensitive delivery mail to that carrier

.

4 Alaska Airlines chose not to submit a proposal during this initial round of proposals.- 3

-

Proposal, NAC NAC proposes to provide 34 one

- stop round trips a year to Anchorage for all

- cargo service with

B

- 737

- 200 aircraft, and requests $1,017,790 annual subsidy subject to certain revenue sharing provisions. For five months of the year of heavier demand

, the carrier would provide four round trips per month ; during the remaining seven months of the year NA C would provide two round trips per

month. NAC recognized that its selection would require the additional selection of a passenger carrier to transport Adak passengers, and that passenger carrier’s presumably more frequent service might lead the Postal Se rvice to tender more time

- sensitive delivery mail to that carrier.

Proposal, Era Alaska

Era Alaska proposed two round trip s per week between Anchorage and Adak with 37

- seat Dash 8 combi aircraft transporting passengers. Era Alaska requested $ 2,208,808 annual subsidy for this

service. The carrier noted that mail and freight revenues were excluded from its revenue estimates because it assumed that that traffic would be transported by an all

- cargo operator. 5

Alaska Airlines Alaska Airlines proposed two nonstop round trips per week between Adak and Anchorage with B

- 737 aircraft and request ed $1,675,703 annual subsidy.

Community Response

On August 7, 2012, we received comments from the community of Adak, including a letter from the city council endorsing the proposal of Alaska Airlines. The letter incorporate d by reference a n earlier letter dated May 11, 2012. Th at earlier letter noted that Alaska Airlines’ service was highly reliable and require d far less time to transport passengers to Anchor age than non

- jet service. In addition, it noted the following:

“ Adak Island does not have regular barge service and the community is entirely dependent on air service for all items, including but not limited to dry goods, groceries, medicine, perishable and other time

- sensitive goods. While the community expects regular b arge service in the future, this is a long

- term expectancy .”

In its letter dated August 7, 2012, the community noted that it strongly supported the proposal of

Alaska Airlines. It f urther recognized that the only logical choice for the Department would be Alaska Airlines because “for the first time, Alaska’s proposal is the lowest cost proposal, something we feel is in USDOT’s best interest to recognize and therefore accept.” The co mmunity’s letter specially thanked Everts Air , NAC, and Era Alaska for their efforts in submitting proposals when it had appeared that Alaska would not submit a proposal.

On August 16, 2012, Offshore Systems, Inc., voiced its support for Alaska Airlines . On August 20, 2012, the Adak Community Development Corporation supported Alaska Airlines, noting that its pattern of service “is critical for the continued access and economic well being of Adak as well as that of the entire region of the state.” On Au gust 20, 2012, Icicle Seafoods, Inc., supported Alaska Airlines, indicating that “Our needs require a reliable airline to move freight, fresh seafood,

5 The staff had informed Era Alaska that it could propose full service to Adak, i.e., that it would transport all of the

historical traffic

-- passengers, freight, and mail

-- by itself . However, it could choose, in the interest of perhaps providing Adak with better service and lower subsid y, to also submit a proposal that would provide passenger

- only

service in conjunction with service from an all

- cargo operator.- 4

-

employees, and fishermen.” On August 2 1 , 2012, the State of Alaska expressed its strong support for the EAS program. Though it did not endorse any particular carrier, it noted that it usually deferred to the wishes of the community, which would in this instance indicate support for the proposal of Alaska Airlines. On August 22, the electric utility at Adak supported Alaska Airlines. “Barge service is generally limited to one trip annually, thus our ability to move larger equipment and material is severely hampered without jet service.”

Decision Other than the proposal by Alaska Airlines, Era Alaska propos es the only passenger service, and it must be coupled with the all

- cargo options of either NAC or Everts. Thus the options before the Department in terms of annual subsidy are as follows: 1. Era A laska and Everts Air Option 1

for a total of $4,031,304 ; 2. Era A laska and Everts Air Option 2 for a total $ 4,364,416 ; 3. Era Alaska and NAC for a total of $ 3,226,598 ; and 4. Alaska Airlines by itself for a total of $ 1,675,703

. In view of the strong community support for Alaska Airlines and its significantly lower subsidy need, the decision to select Alaska is straightforward.

It is clear that the proposals of Everts Air , Era A laska , and NAC were submitted with the express intent of helping the Department secure the best service for Adak at the least cost to taxpayer, as
none of those carriers normally submit proposals. All three assumed that Alaska Airlines would not submit a bid, and that DOT would need to make a selection of an all

- cargo operator to meet Adak’s mail and freight requirements as well as a carrier focused primarily on serving

passengers.

As expressed by Tatonduk in its proposal,

“The Order re

- soliciting proposals for the next period of the EA S subsidy at Adak is attempting to receive alternative bids to what is currently proposed by the previous single respondent, i.e., more lift and less requested subsidy. This is a tall order with the current known aircraft types currently being op er ated in the state. Utilization of Alaska Airlines’ combi jet truly provides a beneficial serv ice to the community of Adak. Everts Air encourages the Department to negotiate with Alaska Airlines’ to determine if there is a possibility for them to continue their j et service to Adak for an additional time period.”

Therefore, along with the community, we wish to express our appreciation to those three carriers

for their efforts.

Carrier Fitness

49 U.S.C. §§ 41737(b) and 41738 require that the Department find an air carrier fit, willing, and able to provide reliable service before Department may subsidize it to provide EAS

. Alaska Airlines, Inc. , is subject to the Department’s continuing fitness requirements

. The Department

has contacted the Federal Avi ation Administration, and it has raised no concerns that would negatively affect our fitness finding s

. The Department therefore concludes that the carrier

remain s fit to conduct the operations proposed here.

This Order is issued unde r authority delegated in 49 CFR Part 1.56a(f).- 5

-

ACCORDINGLY,

1. We select Alaska Airlines, Inc., to provide EAS at Adak

, Alaska ;

2 . We set the final rate of compensation for Alaska Airlines, Inc.

, for the provision of EAS at
Adak

, Alaska

, as described in Appendix B ;

3 . We direct Alaska Airlines, Inc., 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 repres entatives of the Department. Such documentation shall be retained for seven years from the service data 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 carrier may forfeit its compensation for any claim that is not supported under the terms of this Order ;

4 . We find that Alaska Airlines, Inc., continue s to be fit, willing and able to operate as a certificated carrier and capable of providing reliable EAS at the these communities ;

5 . Th is docket will remain open until further o rder of the Department; and

6. We terminate the subsidy rate set by Order 2012

- 6

- 17, June 22, 2012, on the service date of

this Order ; and

7 . We will serve copies of this Order on the civic officials of Adak , Alaska, the Alaska Department of Transportati on and Public Facilities, Tatonduk Outfitters, Ltd, Northern Air Cargo, Inc., Era Aviation, Inc., and on Alaska Airlines, Inc.

By:

Susan L. 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.govOrder 2012

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- 10 Served: September 11, 2012

Appendix A

Nonstop Great Circle Miles from Anchorage (ANC)) Adak (ADK) 1,192 Atka (AKB) 1,100

Adak (IKO) 905

Dutch Harbor (DUT) 791 Cold Bay (CDB) 620

Other Nonstop Great Circle Miles

A dak to Atka 107

Atka to Adak 231

Adak to Dutch Harbor 116

Adak to Dutch Harbor 445

Atka to Dutch Harbor 339Order 2012

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- 10 Served: September 11, 2012

Appendix B

Essential Air Service to be Provided to Adak

, Alaska, Docket 2000

- 8556

Effective Period : Issue date of this Order until the end of the 12 th month thereafter. 1

Scheduled Service : Two one

- stop round trips per week to Anchorage. Aircraft Type : Boeing 737 Combi aircraft. Annual Subsidy $ 1,675,703
Annual Flights 2 208
Rate per Flight 3 $ 8,056
Weekly Ceiling 4 $ 32,224

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 elemen ts 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 b een 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 jeop ardize 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 w ritten 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 ar e 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 lo cation 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 regar d 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.

Subs idy 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 Government’s 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 mad e 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 da y of service provided under this Order

.

1 The interim rate set by Order 2012

- 6

- 17, June 22, 2012, of $2,023,313, terminates with the issuance of this Order

. 2 Two roun d trips per week x two directions x 52 weeks = 208 flights.

3 Annual subsidy of $1,675,703 ÷ 208

. 4 $8,056 per flight x four one

- way flights per week.