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 of public 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, 2010
1

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 of public 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

Air Excursions, LLC (Air Ex) replies to the answer of Wings Airways (Airways) 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 proposed 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 unsupported 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 Services (Airline Services).
2

As will be shown 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 Convention 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 Aeronautics 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. Regardless 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 below, 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 in 
3

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 competitors it cannot make money.

The theory of prospective certification for market protection is equally dubious. In the 

last thirty years, the markets at issue have been served by as few as one carrier and as 

many as four (L.A.B. Flying Service, AJA, Haines 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 markets 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” argument is sophistry and no basis for 

certification.

INTER-RELATED COMPANIES

When the Airways certificate application was filed, Wings Airline 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 Services and Wings Airways, the 

application included a letter from Wings Airline Services principal owner Robert 
4

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 

document. 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 the 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 list 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 the 
5

downtown waterfront facility of Airways by AJA 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, even if only 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 asserted that it jointly employs many people with AJA. In addition to training and 

certification, what common employee services are enjoyed by Airways and AJA 

together? These personnel services could include solicitation, screening, testing, 

combined payroll, common payments to benefit programs subject to a cap, government 

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. Airways 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 operations, 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 Services 
6

and AJA, and the contingent nature of its request would lead one to believe that the real 

purpose of the application 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 alternate 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 

claims, counter-claims and business plans of the three entities. According to statements 

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 leaseholder 

(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 preferred lease, and 

a possible settlement to the law suits between AJA and Airline Services. This 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 certification, 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 full 
7

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 transportation 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 experience. Air Ex 

countered with the yields it assumed in its certification and has been experiencing in the 
8

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 monopolist 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 current 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 Airways 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 assumed 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 the 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 

dismissed for lack of foundation and fitness.

Respectfully submitted,

Air Excursions, LLC

_________________________

By Mike Loverink, owner

March 15, 2010
10

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