BEFORE THE

OFFICE OF THE SECRETARY

U.S. DEPARTMENT OF TRANSPORTATION

WASHINGTON, DC

________________________________________________

)

In the matter of the )

)

Application of HARRIS AIRCRAFT SERVICES, INC. ) Docket 2013-0089

For Authority to Conduct Scheduled Passenger )

Operations as a Commuter Air Carrier )

Under 49 USC 41738 )

________________________________________________)

OBJECTIONS OF PACIFIC AIRWAYS, INC.

TO ORDER 2014-3-2,

AND PETITION TO DISMISS APPLICATION

FOR FAILURE TO COMPLY WITH

14 CFR 204 AND 14 CFR 302

Correspondence in reference to this document should be sent to:

Hank Myers Steve Montanus

MTC Pacific Airways, Inc.

P.O. Box 7142 P.O. Box 5158

Bellevue, WA 98008-1142 Ketchikan, AK 99901-0158

(425) 249-3454 (907) 225-3500

March 18, 2014
BEFORE THE

OFFICE OF THE SECRETARY

U.S. DEPARTMENT OF TRANSPORTATION

WASHINGTON, DC

________________________________________________

)

In the matter of the )

)

Application of HARRIS AIRCRAFT SERVICES, INC. ) Docket 2013-0089

For Authority to Conduct Scheduled Passenger )

Operations as a Commuter Air Carrier )

Under 49 USC 41738 )

________________________________________________)

OBJECTIONS OF PACIFIC AIRWAYS, INC.

TO ORDER 2014-3-2,

AND PETITION TO DISMISS APPLICATION

FOR FAILURE TO COMPLY WITH

14 CFR 204 AND 14 CFR 302

Pacific Airways, Inc. (Pacific) objects to the findings of Order 2014-3-2, and renews its 

motion to dismiss the Application of Harris Air (Harris) for a commuter air carrier 

authority. Harris has not proven that it is fit to be certificated, indeed, its actions 

demonstrate that it fails to have the financial fitness and compliance disposition 

required. Most troubling, the Department not only enabled these violations, they 

adopted some of them.

HARRIS AIR IS NOT FINANCIALLY FIT

At page 6, the Order states that the minimum financial fitness working capital 

requirement would be $999,294. This amount significantly understates the working 
capital that will be needed, as it is based on the existing operations Harris proposes to 

convert to scheduled service, not the enormously expanded service it proposes. As will 

be shown below, it is impossible to know what the working capital requirement for the 

proposed operation because Harris failed to present an actual operating schedule. 

Harris provided no actual financial data more current that March, 2013, at which time it 

had only $530,133, a shortfall of $469,131 (47% of minimum requirement) for the 

current operation. As at March 31, 2013 Harris reported bank balances totaling 

$148,721. By December 20, 2013, had dropped to $113,197, a $35,000 reduction with 

the loss operations of winter to come. Clearly Harris is not financially fit, its needed 

working capital is now approximately half a million dollars short.

This issue of Sitka Aircraft and Support Services (Sitka Aircraft) was glossed over in the 

Order. Sitka Aircraft is owned by the same shareholders as Harris Air. Sitka Aircraft has 

one customer, Harris Air. Clearly they are commonly owned entities within the meaning 

of the Act, and the financial position of Sitka Aircraft must be considered as part of 

Harris’ fitness. In its most recent three years of actual operations, Sitka Aircraft has had 

operating losses of $86,557. Sitka Aircraft charged its one customer, Harris Air, $86,557 

less than Sitka Aircraft needed to cover its operating expenses. This is a direct subsidy 

to Harris Air, regardless of what Harris claims. Sitka Aircraft has no current assets, but 

does have the current portion of long term debt due, which it did not specify. Sitka 

Aircraft currently has a negative shareholder equity of $210,335. The total shareholder 
equity of Harris Air as at March 31, 2013 was only $176,535. The total shareholder 

equity for the two Harris corporations is approximately a NEGATIVE $35,000.

HARRIS AND THE DEPARTMENT VIOLATED SERVICE REQUIREMENTS

14CFR302.203(b)(1)(A)(1) requires that all applicants for domestic scheduled service 

must serve a copy of the application upon the airport authority of each point proposed 

for service. This has been interpreted from the beginning to mean the local authority in 

charge of the airport, i.e. the airport manager or person with similar authority. Harris 

proposes to schedule service at Sitka, Juneau, Petersburg, Wrangell, Haines, Skagway,

Kake and Klawock airports, all of which have airport managers. In the past the 

Department has rejected applications that did not list service to airport managers at all 

points, even if there was no actual airport but simply a water landing area. 

The purpose of the service requirement is for transparency and public notice. Harris 

contends that its public notice requirements for eight communities have been met by 

sending the application to Juneau. Harris is wrong in its interpretation of regulations. It 

is noteworthy that Harris could have chosen to cure the deficiency and meet the public 

notice requirement by simply serving eight copies on the communities it proposes to 

serve, but it chose not to. Incidentally, the authority to operate state airports is vested 

in the Alaska Department of Transportation, Office of Aviation, in Anchorage. Harris did 

not even serve the correct agency in the State.
So the travelling public, even at its own base of operations, was kept in the dark. 

Moreover, after Pacific had filed its protest and motion to dismiss, it became a party to 

the proceeding under 14CFR203.7. When Harris filed its amended certificate application 

and answer, it did not serve Pacific as required by regulation. Not surprisingly there was 

no answer from Pacific to the false or dubious claims made by Harris. Adding insult to 

injury, the Department itself did not serve a copy of Order 2014-3-2 on Pacific Airways, 

as can be confirmed by the Service List attached to the Order. Not only did Harris 

violate regulations related to the service of its application on Airport Managers and 

Pacific Airways, the Department itself violated those regulations.

HARRIS AIR DO NO PROVIDE EVEN THE MINIMUM REQUIRED INFORMATION TO 

ENABLE THE DEPARTMENT TO DETERMINE FITNESS

It is the affirmative responsibility of the applicant to provide the data required to prove 

it is fit. 14CFR302.202 requires all applications to meet the requirements of parts 201 

and 204 along with any additional information the applicant wishes to Department to 

consider. §302.205 requires “Whenever economic data or other facts are provided in 

any pleading, such information shall include enough detail so that the final results can 

be obtained without further clarification. Sources, bases and methodology used in 

constructing exhibits, including any estimates of judgments, shall be provided.” Harris 

provided a revenue and expense estimate with no underlying detail at all. No flight 
schedule, no aircraft hours, no unit costs, no estimate of station days or labor 

requirements, no estimate of fuel consumption or of fuel cost per gallon or hour. The 

revenue forecast includes no information about passengers to be carried, net fares, 

pounds of freight transported, or expected net yields. Harris violated the most basic 

evidence requirement, without even going to the specific requirements of part 204.

Appendix A lists fitness requirements in 14CFR204.3 that Harris Air did not meet, and 

refused to provide by saying, “Harris Air contends that it has provided enough detail to 

satisfy the requirement...” Even the most cursory examination of the application shows

that contention to be untrue. These requirements are detailed in 14CFR204.3, and the 

Department provides copies of compliant applications as templates. There is no reason 

why Harris could not file a complete application if that is its intention.

There is no provision for staff to waive the requirements of 14CFR204.3, indeed, part 

204.1 says, “This part sets forth the fitness data that must be submitted by applicants...” 

(emphasis added) Section 204 also authorizes the request additional information as 

may be needed to prove fitness. The requirements of 204.3 are the minimum, and 

Harris failed to comply. These regulations are not simply a paper chase or set of 

bureaucratic hurdles for the applicant to overcome. This level of detail is necessary to 

determine if the financial projections have any basis in fact, and the management has 

the necessary knowledge and skills to operate a certificated carrier. By not complying 

with 204.3, Harris has effectively prevented the Department from finding it fit.
ORDER 2014-3-2 MISSTATES HARRIS’ COMPLIANCE WITH IRS EXCISE TAX 

REQUIREMENTS

Order 2014-3-2 says that Harris stated that the IRS had previously told it that excise 

taxes did not apply to the Harris operations. This strains credulity, if for no other reason 

than the IRS specifically informed Harris in writing that it should have been collecting 

the taxes. The IRS has been enforcing the excise tax regulations on air taxi operations 

for years, and other air taxis in Sitka and across southeastern Alaska has been audited 

and fined if noncompliant. In regard to the Piper Navajo operations, the excise tax 

regulations specifically state that all commercial operations by aircraft with a maximum 

gross takeoff weight of 6,000 lbs. or greater are subject to excise tax collection. The 

Piper Navaho has a maximum gross takeoff weight of 6,500 lbs., and higher weights are 

possible through equipment modifications. There is no question in the regulations that 

all commercial operations of Piper Navajo are subject to federal excise tax.

Order 2014-3-2 states that Harris agreed to pay the taxes “in full” with a loan from 

Alaska Pacific Bank. That is not true and misrepresents Harris compliance disposition.

As Harris itself explains, the $250,000 was a compromise amount based on only three 

years of operations rather than the seven allowed by law, and only applied to “a select 

few destinations”. Harris did not have assets to pay the compromise penalty, and took 

out a loan for the entire amount. As admitted by Harris, the taxes that should have 

been collected were actually much greater, which led them to agree to the settlement. 
Harris also admitted that it did not agree to the settlement until liens were being placed 

on its assets. (amended application, page 2 of text)

SUMMARY

Harris does not have the compliance disposition necessary to be found fit. It is the 

responsibility of the applicant to show that it can comply with all applicable 

requirements. For a period of at least seven years it did not comply with the IRS’ excise 

tax requirements, a fact it did not admit to until it was brought out by Pacific Airways. It 

claims ignorance of the law, but the regulations are very clear and have been applied to 

every carrier as they are audited. It takes gall to claim that it was the IRS that was the 

source of Harris’ lack of compliance. When faced with improper service of documents, 

Harris invented a novel theory that public notice to eight communities could be served 

by sending a letter to a State aviation policy agency in Juneau. To make matters worse, 

the agency it sent its application to is not the state airport agency. It could have simply 

cured the deficiency by mailing out copies of the application and subsequent filings to 

the eight communities, but it did not. With regard to its failure to collect excise taxes, it 

also states that it was not the intent of the tax laws to tax the type of operations Harris 

has. That opinion has been rejected by the IRS and courts alike. Once Pacific became a 

party to the docket, Harris failed to serve subsequent filings on it. Harris failed to 

provide the minimum data required by 14CFR204.3. When confronted, it replied that it 

had done enough, and did no more.
Order 2014-3-2 shows that Harris is clearly unfit. Even if we assume the unsupported 

financial projections are accurate, Harris is half a million dollars short of the minimum 

working capital requirement of the Department based on the current operation not the 

proposed service, and has negative shareholder equity for the two commonly owned 

companies. Harris has shown that it is not only incapable of, but unwilling to comply 

with specifically published regulations. The review of FAA actions shows that Harris is fit 

to be what it is, an on demand air taxi, and nothing more. Harris has demonstrated that 

it is unwilling and unable to shoulder the additional burdens and higher responsibilities 

required for DOT commuter authority. Consequently, Harris is an undue risk to the 

travelling public, and its application must be dismissed.

WHEREFORE, Pacific Airways requests that the Department find that Harris Aircraft 

Service, Inc. has not proven that it is fit to hold commuter air carrier authority, and 

dismiss the application for not complying with Sections 302 and 204 of the Code of 

Federal Regulations. 

Respectfully submitted,

Pacific Airways, Inc.

____________________________

By Hank Myers, its representative

March 18, 2014
CERTIFICATE OF SERVICE

I hereby certify that I have this day served a copy of the foregoing Objections of Pacific 

Airways to Order 2014-3-2 upon all persons included on the Service List attached to the 

Order.

_________________

Hank Myers

March 18, 2014
Appendix A

Page 1 of 1

REGULATORY REQUIREMENTS FOR COMMUTER AUTHORITY

UNADDRESSED BY HARRIS AIR

The listing below includes all specific content or form requirements for an application 

for commuter authority. General or duplicative requirements are excluded. While the 

application does not conform to the specific format requirements of §302.3, this list 

details the substance and process requirements.

§302.202(b) Notice Requirement on Front Page Did Not Comply

§302.203(b)(1)(A)(1) Requires service on all Airport Managers Did Not Comply

§302.205 Requires complete economic data and other facts Did Not Comply

§204.3(g)(4) Requires current/past involvement in air operationsDid Not Comply

§204.3(h) Requires list of all subsidiaries and description Did No Comply

§204.3(k)(3)(i) Requires statement of GAAP compliance Did Not Comply

§204.3(k)(5) Identification of person preparing statements Did Not Comply

§204.3(l) List of actions and judgments more than $5,000 Did Not Comply

§204.3(m) List of actions and judgments less than $5,000 Did Not Comply

§204.3(t)(1) Projected Balance Sheet with assumptions Did Not Comply

$204.3(t)(2) Estimated aircraft revenue block hours Did Not Comply

§204.3(t)(2) Requires Revenue miles by aircraft type Did Not Comply

§204.3(t)(2) Requires Number of Passengers Transported Did Not Comply

§204.3(t)(2) Requires Number of Tons of Cargo and Mail Did Not Comply

§204.3(t)(2) Requires Estimate of Newly Generated Traffic Did Not Comply

§204.3(t)(2) Requires Statement of Accrual or Cash Accounting Did Not Comply

§204.3(t)(2) Requires Explanation of Basis of Costs & Revenues Did Not Comply

§204.3(t)(2) Requires Description of Manner of Allocation Did Not Comply

§204.3(t)(2) Requires Estimate of Peak & Average Load Factors Did Not Comply

§204.3(u) Requires Signed Counterpart of Agreement 18900 Did Not Comply