BEFORE THE DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, DC

____________________________________ ) In the matter of the application of ) ) WINGS AIRWAYS ) DOCKET DOT

- OST

- 2010

- 0023 ) For a certificate o f publ ic convenience ) And necessity under 49 USC 41102 ) ____________________________________)

REPLY OF AIR EXCURSIONS, LLC

TO ANSWER OF WINGS AIRWAYS

AND PETITION FOR LEAVE TO FILE

AN OTHERWISE UNAUTHORIZED DOCUMENT

Communications with respect to this document should be addressed to:

Mike Loverink Air Excursions, LLC

Suite 115 1873 Shell Simmons Drive Juneau, AK 99801 (907) 789

- 5591 mloverink@yahoo.com

March 15 , 20101 BEFORE THE DEPARTMENT OF TRANSPO RTATION OFFICE OF THE SECRETARY WASHINGTON, DC

____________________________________ ) In the matter of the application of ) ) WINGS AIRWAYS ) DOCKET DOT

- OST

- 2010

- 0023 ) For a certificate o f public convenience ) And necessity u nder 49 USC 41102 ) ____________________________________)

REPLY OF AIR EXCURSIONS, LLC TO ANSWER OF WINGS AIRWAYS AND PETITION FOR LEAVE TO FILE AN OTHERWISE UNAUTHORIZED DOCUMENT

Air Excursions, LLC (Air Ex) replies to the answer of Wings Airways (A irways) filed February 26, 2010. In its answer to the Application of Airways, Air Ex showed that Airways does not have access to the five aircraft it claims in its application, has overestimated both the traffic and revenue it will receive from its propos ed operations, has underestimated the expenses, including startup expenses for the operation, and provided incomplete information in its application and did not meet the requirements of

Section 204.3 . In its filing, Airways makes a number of general and u nsupported claims

as refutation of Air Ex’s specific claims. More importantly, Airways answers raise additional concerns about the relationships among Airways, Alaska Juneau Aeronautics (AJA) and Wings Airline Service s (Airline Services)

.2

As will be show n below, the filing of Airways in response to Air Excursions ’ filing is vague, misleading and unsubstantiated. Furthermore, it continues to gloss over relationships between it and other closely associated companies which have a bearing on

its fitness and ability to operate on its own. The filing of Wings Airways raises new issues of fact not included in the initial application, and contradicts known facts

elsewhere. The owner of Air Excursions has been away attending the Alaska Air

Carriers Association C onvention and on personal business for the last two weeks, and could not have addressed the Airways filing earlier.

PROTECTION OF MARKETS

Airways styles its application as a minimal risk, “contingency” request citing the possibility that Alaska Juneau Ae ronautics might cease service at Juneau. There is no evidence that might occur, and AJA strongly denied the possibility in its response to a petition to reopen carrier selection for the Juneau area Essential Air Service currently provided by AJA. Regardl ess of the potential end of Juneau service by AJA, the idea of prospectively certificating a carrier as a contingency, and using substandard fitness criteria is neither necessary nor legal.

While the specifics of the profit projections will be addressed b elow, the plain fact is that Airways cannot operate profitably if it faces more than one competitor. All of its traffic projections require at least a 50% market share to make money, and the load factors are extraordinarily high. If one takes Airways at its word, it does not plan to begin service in3

the proposed markets unless and until AJA departs. The Airline Deregulation Act requires the reliance on market forces to the maximum extent possible. Airways admits

that in the current market of two other c ompetitors it cannot make money.

The theory of prospective certification for market protection is equally dubious. In the last thirty years, the market s at issue have been served by as few as one carrier and as many as four (L.A.B. Flying Service, AJA, H aines Airways and Skagway Air Service). In each of those certification cases, the applicant was able to prove that it could make a profit in the existing market conditions, something that Airways cannot do. From August, 2008 through December, 2009 the ma rkets were served by a single carrier. During that period Airways showed no interest in the markets, or their need for “protection”. At that time, if AJA ceased operations, the markets would have no certificated service at all. The “market protection” a rgument is sophistry and no basis for

certification.

INTER

- RELATED COMPANIES

When t he Airways certificate application was filed, Wings Air line Services was negotiating a new aircraft lease deal with Alaska Juneau Aeronautics. The lease was due to expire on April 1, 2010. Airways felt so sure that the lease would not be renewed that it included the covered aircraft by tail number in its fleet or aircraft to be used. To cover the possibility of a lease between Wings Airline Serv ices and Wings Airways, th e application included a letter from Wings Airline Services principal owner Robert4

Jacobsen. Mr. Jacobsen is also the third largest shareholder in Wings Airways. The application goes so far as to list the financials of Airline Services as a supporting

do cument. Clearly Airline Services is an affiliated company of Airways and qualifies on its own as a “person substantially engaged in the business of aeronautics”. §204.3(f)(5) and §204.3(g)(4)(ii) require listing of any shareholdings of key personnel of t he applicant in another business substantially engaged in the business of aeronautics, and the holdings of any person owning a substantial interest in another business substantially engaged in

the business of aeronautics. The Department should require a l ist of shareholders of Wings Airlines Service, not only to comply with §204 requirements, but to judge the veracity of Airways statement that, “ Wings Airways is not privy to copies of current lease agreements [between Airline Services and AJA] , as they are between two private

entities

. ”

The Department must also examine any existing business and/or management relationship between Airways and AJA. Not only does Airways propose to use aircraft currently under lease to AJA, it shares a common hangar, freight handling and storage facility, ramp, and office space with AJA under a lease with the principal shareholder of AJA. Airways says that most if its pilots are also employed by AJA and have received training and currency certification from AJA. Previously, AJA and Airways shared common ownership.

The inquiry should be wide ranging and include such issues as common aircraft use or maintenance (Airways employees maintaining AJA aircraft and vice versa), use of the5

downtown waterfront facility of Airways by AJ A aircraft, or use of the JNU airport floats and ground handling by AJA for Airways operations. The element of joint use of line and clerical support employees is vital. What employees have provided beneficial service to both AJA and Airways, eve n if onl y one company paid the individuals? What offices and equipment are used on behalf of both AJA and Airways? Are the computer hardware and software used to store, process and report data for both carriers? Airways

has a sserted that it jointly employ s many people with AJA. In addition to training and certification, what common employee services are enjo yed by Airways and AJA together? These personnel services could include solicitation, screening, testing, combined payroll, common payments to benefit prog rams subject to a cap, govern ment reporting, drug testing, records retention, flight and duty time records, and FAA inspections.

These questions not only bear on the control relationship between AJA and Airways, but also Airways cost projections. Airway s states that its expense projections are based on current AJA expenses including the economies of scale of joint use of aircraft, facilities and personnel. If Airways is to operate a truly independent service, or if AJA does cease its Juneau area operati ons, the current economies of scale would be lost.

The lack of definitive information about the three

- way relationship among the applicant Airways, the already certificated carrier AJA, and the aircraft leasing business Airline Services leads to a couple of plausible motivations. The timing of the Airways application, and its repeated reference to the stalled negotiations between Airline Services6

and AJA, and the contingent nature of its request would lead one to believe that the real purpose of the appli cation is to gain better lease terms for commonly owned Airline

Services from AJA. The fact that AJA has denied it is giving up the five aircraft, combined with the continued pursuit of certification by Airways seems to weigh against this theory.

An alte rnate possibility is that this application is simply the result of cooperation among Airways, AJA and Airlines Services to provide a lowest cost resolution of all of the

cl aims, counter

- claims and business plans of the three entities. According to stateme nts made by Airways, Airline Services leases aircraft to AJA, but would like to lease the same aircraft to Airways if AJA ceases service in Juneau. AJA serves Juneau, but its primary pool of business is in the lower

- 48, including Essential Air Service in three states. A principal investor in AJA owns the Juneau hangar jointly used by AJA and Airways. Airline Services has sued AJA over the terms of its current leases, and one of the aircraft was returned. A third Caravan used by AJA was returned to its l easeholder (Kenmore Aviation). It appears that AJA is scaling back its operations in Juneau and may be preparing to abandon service there. By having a preferred successor, AJA can coordinate a changeover of service . Airlines Services would have its pref erred lease, and a possible settlement to the law suits between AJA and Airline Services. T his theory of cooperation among the three entities is underscored by the increased number of AJA employees who have left to assist Airways in preparation for certif ication, and the fact that AJA has not objected to the certification of Airways. When Air Excursions applied for a certificate, AJA objected loud and long. The Department needs to know the full7

extent of the relationships between the three businesses now and in the future, if only to determine the validity of the services proposals and forecasts.

QUANTITATIVE ANALYSIS

Air Excursions had criticized the pro forma estimates of Airways for predicting too much traffic at unrealistically high yields. Traffic in Juneau area markets has been declining for a number of years. The trend preceded the current economic downturn, and is primarily related to loss of year around private industry jobs at the out points, loss of population, and competition for other tran sportation services such as the State of Alaska’s fast ferries up the Lynn Canal.

To partially correct for the traffic decline trend, Air Ex used the 12 months ended November, 2009 as a traffic base. The market share results are based on that most recent data. The 12 months ended November, 2009 was the latest final form data issued by the Bureau of Transportation Statistics. All scheduled passenger and all

- cargo flights were included in the market base. Airways has simply reverted to the older data to support its share assumptions . Airways makes it absolutely clear that it assumes a two

- carrier market for its estimates, not the three

- carrier competition that would be in place if AJA

remains.

Airways states that the expenses and yields come from AJA ex perience. Air Ex countered with the yields it assumed in its certification and has been experiencing in the8

competitive market. Airways revenue yields are based on what AJA observed as a monopoly carrier. It is no wonder that the AJA yields as a monopol ist are higher than the Air Ex yields in a competitive market. Airways will not be able to sustain the higher monopoly service yields, particularly if it wants to achieve is predicted market shares. Simply correcting for current traffic levels and curren t revenue yields eliminates all profits for Airways.

As noted above, AJA enjoys economies of scale through joint operation with Airways of facilities and personnel. We don’t know the extent of those cooperative agreements, but if AJA leaves Juneau Airway s will have to pay for the entire hangar, and it would lose the other efficiencies of scale it enjoys from the cooperative venture.

In summary, Airways used older, inflated traffic data, unrealistically high yields reflective of monopoly operation, and as sumed that it would experience the AJA unit costs. It made each of these assumptions because that is what is necessary to generate a profit.

SUMMARY

The application of Wings Airways fails to meet the minimum information requirements of §204. Some of th e original statements are false, misleading or incomplete. Airways has covered up its close relationship with Airline Services, and not explained its apparent cooperative relationship with AJA. The economic forecasts are unrealistically optimistic.9

For all of these reasons it fails to prove its financial and managerial fitness, or its necessary compliance disposition.

WHEREFORE , Air Excursions, LLC asks that the Application of Wings Airways be

di smissed for lack of foundation and fitness.

Respectfully submitted, Air Excursions, LLC

_________________________ By Mike Loverink, owner

March 15 , 201010 CERTIFICATE OF SERVICE

I hereby certify that I have this day caused a copy of the Answer in Opposition of Air Excursions, LLC to be mailed to all persons listed on the certificate of service appended to the Application of Wings Airways filed January 25, 2010.

____________________ Mike Loverink

March 15 , 2010