Order: 2012

- 6

- 18

Served June 22, 2012

U N

I T E D S

T A T E S O F A

M E R I C A D E P A R T M E N T O F T R A N S P O R T A T

I O

N UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

Issued by the Department of Transportation

on the 22 nd day of June , 20 1 2

Essential Air Service at

CHI S A N A

, A L A S K A

HEALY LAKE, ALASKA

Under 4 9 U.S. C. 47131 et seq. DOCKET DOT

- OST

- 1998

- 4574

DOCKET DOT

- OST

- 1998

- 3546



### ORDER RE

- SELECTING CARRIER

AND ESTABLISHING SUBSIDY RATES

Summary

By th is O rder, the Department is (a) re

- selecting 40

- Mile Air, Inc., (“40

- Mile Air”) to continue

prov iding Essential Air S ervice (EAS) at Chisana and Healy Lake, Alaska, and (b) establishing

annual subsidy rates of $81,0 40 and $ 104,703 , respectively, for a new two

- year period, through

May 31, 2014. 1

Background

By Order 2010

- 4

- 15, April 23, 2010, the Depa rtment selected 40

- Mile Air to continue providing

EAS at Chisana and Healy Lake for the two

- year period through May 31, 2012. That Order

established an annual subsidy rate of $74,345 for two nonstop round trips per week between

Chisana and Tok with 3

- seat Cessna 185 or 4

- seat Cessna 206

- 207 aircraft, and $98,915 for two

nonstop round trips per week between Healy Lake and Fairbanks with 5

- seat Cessna 206 or 207

aircraft.

Chisana and Healy Lake are guaranteed to receive at least a minimum level of air ser vice under

the EAS program by virtue of the fact that it appeared on a certificated carrier’s Civil

Aeronautics Board

- issued certificate on October 24, 1978, the date the Airline Deregulation Act

of 1978 was signed into law. (See 49 U.S.C. 41731

- 41744 for the EAS program’s governing

statutes.) In keeping with our normal procedure , in anticipation of the end of the rate term, the

Department issued Order 2012

- 2

- 5, February 6, 2012, requesting proposals from air carriers

interested in providing replacement s ervice at the communities, with subsidy support if

necessary, for a new two

- year period beginning June 1, 2012.

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

Carrier Proposals

In response to our request, 40

- Mile Air submitted one inseparable proposal, offering to continue

to provide the same level of service it currently operates, consisting of two round trips per week

between Chisana and Tok with 3

- seat Cessna 185 or 4

- seat Cessna 206

- 207 aircraft; and two

nonstop round trips between Healy Lake and Fairbanks with 5

- seat Cessna 206 or 207 aircraft.

The air carrier proposes to provide this service at the annual subsidy rates of $81,0 40 for

Chisana and $104,703 for Healy Lake , for a total subsidy of $185,742 for service at both

communities

.

Wright Air Services, Inc. (“Wright Air”), submitted one pr oposal, offering to provide EAS

, consisting of two nonstop round trips per week between Healy Lake and Fairbanks with 4

- seat

Cessna 206 or 3

- seat wheel

- ski equipped Helio Courier aircraft. Wright Air proposes to provide

this service at an annual subsidy r ate of $87,360 . Wright Air did not submit a proposal to serve

Chisana.

Community Comments

On March 22, 2011 , we requested community comments regarding this carrier

- selection case. In

response, we received two letters from Mr. Steven D. Hatter, Deputy Commissioner of Aviati on

for the State of Alaska. Those letter s expressed support for the continuation of EAS at both

communities ; however

, Mr. Hatter did not take a position on which air carrier should be

selected.

Decision

We have decided to select 40

- Mile Air to continue to provide service at Chisana and Healy Lake

for the two

- year period through May 31, 2014, at an annual subsidy rate of $81,0 39 and

$104,703, respectively. The selection of 40

- Mile Air will ensure the citizens of Chisana

continue t o have access to the National Air Transportation system. 40

- Mile Air will maintain its

current level of service, consisting of two nonstop round trips per week between Chisana and

Tok with 3

- seat Cessna 185 or 4

- seat Cessna 206

- 207 aircraft; and two nonst op round trips

between Healy Lake and Fairbanks with 5

- seat Cessna 206 or 207 aircraft. This also provides

certainty to both community’s EAS needs for the next two years

. S electing Wright Air for EAS

at Healy Lake would require us to re

- solicit proposals for service at Chisana because 40

- Mile

Air’s proposal is a two

- community, inseparable package, which would leave Chisana’s EAS

future uncertain. W e find that the proposal rates are reasonable and the air carrier’s performance

continues to be satisfactory

.

Carrier Fitness

49 U.S.C. 41737(b) and 41738 require that we find an air carrier fit, willing, and able to provide

reliable s ervice before we may subsidize it to provide EAS

. 40

- Mile Air is subject to the

Department’s continuing fitness require ments, and no information has come to our attention tha t

would cause us to question the air carrier ’ s fitness at this time. We have contacted3

the Federal Aviation Administration, and it has raised no concerns that would negatively affect

our fitness find ing. We therefore conclude that the air carrier is fit t o conduct the operations

proposed here.

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

ACCORDINGLY,

1. The Department select s 40

- Mile Air, Inc.

, to continue to provide subsidiz ed Essential Air

S ervice at Chisana and Healy Lake , Alaska, as described in Appendix B , for a new two

- year

term, through May 31, 2014; 2

2. The Department finds that 40

- Mile Air, Inc., is fit, willing and able to operate as a

certificated air carrier an d capable of providing reliable Essential Air S ervice at Chisana and

Healy Lake, Alaska;

3

. We direct 40

- Mile Air, Inc., to retain all books, records, and other source and summary

documentation to support claims for payment, and to preserve and mainta in 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 reco rds 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 ;

4. These docket s will remain open pending further Department action; and

5. The Department will serve a cop y of this Order on the Alaska Department of Transportation

and Public F acilities and 40

- Mile Air, Inc.

B y:

S USAN L. KURLAND

Assistant Secretary for

Aviation and International Affairs

(SEAL)

An electronic version of this document is ava ilable at

http://www.regulations.gov

2 See Appendix C for the calculation of the subsidy rates, which assumes the use of the aircraft designated. If the

air carrier report a significant number of aircraft substitutio ns, a revision of this rate may be required.Appendix A

40

- Mile Air, Inc.

Annual Compensation Requirement for Essential Air Service at

Chisana, Alaska

Route TKJ

- CZN

- TKJ

Frequency: Two Round Trips per

Week

Aircraft Type: Cessna 185 (3

- Seat), 206 or 207 (4

- Seat)

Annual Block Hours 3 190.7

Revenue Rate 4 Amt/lbs. Revenue

Passenger $97.67 95 $9,278.65

Cargo $0.42 2,000.00 $840.00

Spa ce Available Cargo $0.16 26,000.00 $4,160.00

Mail $0.89 8,000.00 $7,135.90

Total Operating Revenue $21,414.55

Direct Operating Expenses Unit Cost Expenses

Pilot & Co

- pilot $96 per BH $18,307.20

Fuel & Oil $102 per BH $19,451.40

Maintena nce $93 per BH $17,735.10

Depreciation $22.85 per BH $4,357.49

Insurance 47.25 per BH $9,010.58

Agent Fee $20.00 per CZN dept. $2,080.00

Total Direct Operating Expenses $70,941.77

Indirect Operating Expenses @ 40% of Direct Net of Depr eciation $26,633.71

Total Operating Expenses $97,575.49

Operating Loss $76,160.94

Profit Element @ 5% of Total Operating Expenses $4,878.77

Subsidy Need @ 100% $81,039.71

3 Block hour = (TKJ

- CZN

- TKJ, 1.83 hours) x 2 flights/week x 52 = 190.7 hours

4 Passenger and Cargo Rates Before Excise Tax2

40

- Mile Air, Inc.

Annual Compensation Req uirement for Essential Air Service at

Healy Lake , Alaska

Route FAI

- HKB

- FAI

Frequency: Two Round Trips per Week

Aircraft Type: Cessna 206 or 207 (5

- Seat)

Annual Block Hours 5 : 208

Revenue Rate 6 Amt/lbs. Revenue

Passenger $65.12 50 $3,256.00

Cargo $0.47 5,000.00 $2,350.00

Mail $0.97 1,200.00 $1,162.06

Total Operating Revenue $6,768.06

Direct Operating Expenses Unit Cost Expenses

Pilot & Co

- pilot $96 per BH $19,968.00

Fuel & Oil $102 per BH $21,216.00

Maintenanc e $93 per BH $19,344.00

Depreciation $22.85 per BH $4,752.80

Insurance 47.25 per BH $9,828.00

Agent Fee $20.00 per HKB dept. $2,080.00

Total Direct Operating Expenses $77,188.80

Indirect Operating Expenses @ 40% of Direct Net of Deprec iation $28,974.40

Total Operating Expenses $106,163.20

Operating Loss $99,395.14

Profit Element @ 5% of Total Operating Expenses $5,308.16

Subsidy Need @ 100% $104,703.30

5 Block hour = (FAI

- HKB, 1 hour) x 4 flights/week x 52 = 208 hours

6 Passenger and cargo rates before excise taxAppendix B

40

- MILE AIR, INC.

ANNUAL COMPENSATION REQUIREM ENT FOR ESSENTIAL AIR SERVICE AT

CHISANA, ALASKA

Effective period: June 1, 2012, through May 31, 201 4

.

Scheduled service: Two nonstop round trips each week to Tok

Intermediate Stops and

Upline No upline or intermediate service is permitted witho ut prior Department

approval

Aircraft type: Cessna 185 (3

- seats) or Cessna 206/207 (4

- seats)

Timing of flights: Flights must be well

- times and well

- spaced in order to ensure full

compensation

Annual Compensation: $81,0 40

Subsidy Rate Per

Ar rival/Departure : $3 90 7

Weekly Compensation

Ceiling : 8 $1,5 60

7 Annual compensation of $81,0 40 divided by 208 arrivals and departures: 4 flights per week x 52 weeks.

8 The subsidy rate for each arrival/departure ($3 90 ) multiplied by four (4) eligible arrivals and departures each

week.2

40

- MILE AIR, INC.

ANNUAL COMPENSATION REQUIREMENT FOR ESSENTIAL AIR SERVICE AT

HEALY LAKE, ALASKA

9 Annual compensation of $104,703 divided by 208 arrivals and departures: 4 flights per week x 52 weeks.

10 The subsidy rate for each arrival/departure ($503) multiplied by four (4) eligible arrivals and departures each

week. Effective period: June 1, 2012, through May 31, 2014

Scdeduled service: Two nonstop round trips each week to Fairbanks

Intermediate Stops and

Upline No upline or intermediate service is permitted without prior Department

approval

Aircraft type: Cessna 206/207 (5

- seats)

Timing of flights: Flights must be well

- times and well

- spaced in order to ensur e full

compensation

Annual Compensation: $104,703

Subsidy Rate Per

Arrival/Departure : $503 9

Weekly Compensation

Ceiling : 10 $2,01 2Appendix C

General Terms and Conditions for Essential Air Service

The carrier understands tha t 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, witho ut 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 we ather 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 f or the period in question. If the carrier contemplates any such changes beyond

the scope of the Order during the applicable period of these rates, it must first notify the Office

of Aviation Analysis in writing and receive written approval from the Depart ment 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

the carrier do not constitute a total or partial reduction or cessation of payment.

Funds are not currently availab le for performance under this Order beyond September 30, 2012.

The Department’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 le gal 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 Sept ember 30, 2012,

the Department will provide notice in writing to the carrier.

Subsidy contracts are subject to, and incorporate by reference, relevant statutes and Department

regulations, as they may be amended from time to time. However, any such statu tes, regulations,

or amendments thereto shall not operate to controvert the foregoing paragraph.

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

under this Order.