Order: 2014-9-18 Served: September 25, 2014



### UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OF FICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 25 th day of September, 2014

Essential Air Service at

VICTORIA, TEXAS DOT-OST-2005-20454

DOT-OST-2004-18715

under 49 U.S.C. 41731 et seq.



### ORDER SETTING ANNUAL SERVICE LEVEL AND TOTAL COSTS

UNDER THE ALTERNATE ESSENT IAL AIR SERVICE PROGRAM

Summary By this Order, we approve Victoria County’ s (Victoria) applica tion under the Alternate Essential Air Service (AEAS) Program. The De partment will enter into a Grant Agreement with the community to provide funding for regu larly scheduled charter service consisting of at least 1,032 annual nonstop f lights between Victoria Region al Airport (Victoria) and Dallas/Fort Worth International Airport (DFW), and Austin-Bergstrom International Airport (AUS), for a two-year period from Novemb er, 1, 2014, when the Part 135 and/or Part 121 direct air carrier inaugurates service at Victoria through Octo ber 31, 2016. By the terms of the Grant Agreement, service will be provided utilizing 19-passenger tw o-pilot, twin-engine

aircraft at an annual rate of not more than $2,288,152.

Background By Order 2012-7-17 (July 13, 2012), the Department selected Sun Air Express, LLC d/b/a Sun Air International (Sun Air) to provide EAS at Victoria to George Bush Intercontinental Airport (Houst on or IAH) using 9-passenger, twin engine Piper Chieftain- 2 -

aircraft for a two-year period beginning when the air carrier commenced full EAS. 1 Under that Order, Sun Air provides Victoria w ith 24 weekly nonstop round trips for an annual subsidy of $2,294,036.

As the end of the contract was approachi ng, we issued Order 2014-3-6 (March 11, 2014) requesting proposals from air carriers interest ed in providing EAS at the community for a new term. In response to that Order, Bouti que Air, and Sun Air submitted proposals. Both air carriers’ proposals and the community ’s comments may be accessed online at www.regulations.gov by entering DOT-OST-2005-20454 in the search block.

Proposal of Boutique Air Boutique Air submitted a proposal with three options, all using 9-passenger, single-engine Pilatus PC-12 aircraft. Option 1 proposed 12 nonstop round trips to DFW and 12 nonstop round trips to IAH (for a total of 24 round tr ips a week) for an annual subsidy of $2,201,715. Option 2 proposed 24 nonstop round trips to ju st IAH for an annual subsidy of $1,941,403. Option 3 proposed 18 nonstop round trips to DFW for an annual subsidy of $1,958,613.

Proposal of Sun Air Sun Air submitted a proposal to provide f our round trips each weekday and weekend (24 per week) to IAH using 9-passe nger, twin-engine Piper Chieft ain PA-31 aircraft for an annual subsidy of $1,996,978.

Community Comments On May 5, 2014, Mr. Jason Milewski, the Mana ging Director of th e Victoria Regional Airport, with support from the community of Victoria, submitted comments on this air

carrier selection case. Mr. Milewski’s letter rejected the proposals put forth by Boutique Air and Sun Air and submitted an application for AEAS.

Regarding Sun Air’s proposal, the community based its decision not to support their proposal on numerous maintenance cancellati ons during the course of the current EAS contract, as well as aircra ft baggage limitations and a steep decline in passenger enplanements since the carrier started serving Victoria. With respect to Boutique Air’s proposal, Mr. Milewski stated the community was unwilling to waive its right to twinengine aircraft at this time

The community supports air transportation c onducted by Public Charters, Inc. (Public Charters), an indirect air carrier, which woul d contract with Corpor ate Flight Management, a Federal Aviation Administration (FAA) approve d direct air carrier for an annual subsidy of $2,288,152. Public Charters proposed one serv ice option, with one on e-stop round trip to DFW via AUS, which would operate every day except Sunday. A second nonstop round trip to AUS would operate th ree days a week. Public Ch arters would use 19-passenger

Jetstream 31/32 aircraft.

1 Sun Air started full EAS on October 1, 2012, thus making the contract expiration date September 30, 2014.- 3 -

Alternate Essential Air Service Background On December 12, 2003, President Bush signe d into law the Vision 100—Century of Aviation Reauthorization Act, P.L. 108- 176 (Vision 100), which, among other things, directed the Department to establish certain Community and Regional Choice Programs. 2

One of those is AEAS. Congress establishe d this Pilot program to provide communities

with an alternative to the tr aditional EAS-type service. Typically, the EAS program pays subsidy to regional air carriers to provide two or three round trips a day to a major hub airport with twin-engine aircraft. The AEAS program is designed to allow communities to forego their EAS for a prescribed amount of time in exchange for receiving a grant to spend in a variety of ways that might better suit their individual needs. 3 These options are spelled out in statute and include more frequent serv ice with smaller aircraft, on-demand air taxi service, scheduled or on-demand surface tran sportation, regionalized air service, or purchasing an aircraft. Each community awar ded a grant must execute a grant agreement with the Department before it begins spendi ng funds under a grant award. By notice dated July 27, 2004, the Department established AEAS and invited communities to submit proposals under the program.

Decision After careful consideration, incl uding the comments of the local officials, the Department has decided to approve Vict oria Regional Airport’s a pplication for AEAS, pending execution of a Grant Agreement.

We base this decision on two factors. Fi rst, the community has been unhappy with the service provided by the incumbent air carrier , Sun Air. Indeed, service provided by the airline was not satisfactory, and, as a result, tra ffic levels dropped signi ficantly. Therefore, we ruled out re-selecting Sun Air for a new c ontract term. Second, Boutique Air proposed service using single-engine aircraft, and the co mmunity was not willing to waive its right to twin-engine aircraft.

The community strongly supports inclusion in the AEAS program, and the proposed

indirect air carrier and direct air carrier, Public Charters a nd Corporate Flight Management, respectively, both have a proven tr ack record of providing AEAS.

We are concerned that Public Charters proj ected passengers seems highly ambitious. The proposal “anticipates” a 71% increase over 2012 calendar year passenger levels. That would mean that Public Charters expects to exceed passenger levels when Colgan Air served the community, which not only code-sha red with Continental Airlines and operated as Continental Express (later United Air lines and United Express), it used larger, 34- passenger Saab 340 aircraft. We are not entirely convinced this is rea listic, even though the passenger usage estimates would ensure that Vi ctoria’s subsidy per passenger go below the $200 cap. As stated earlier, service provide d by Sun Air was not satisfactory, and, as a

2 See Appendix A for a copy of the statute.

3 Under no circumstances could a community participate in both the traditional EAS Program and the AEAS Program at the same time. Communities choosing to withdraw from the AEAS Program may request to be reinstated in the traditional EAS program, but there could be a hiatus in service.- 4 -

result, traffic levels dropped significantly, and its per passen ger subsidy is currently above the cap at $369 (based on 12 months of data ending March 31, 2014). The community said they completed three studies to understand its traffic patterns and air service needs and they believe this to be a promising proposal, and has requested a four-yea r term for the AEAS grant. However, given the high passenger projec tions and other uncertainties, we will select this proposal for an init ial two-year period.

Eligibility discussion To maintain eligibility in th e AEAS program, communities must comply with all eligibility requirements that communities subsidi zed by traditional EAS are subject to. The Department of Transportation and Relate d Agencies Appropriations Act 2000, prohibits the Department from subsidizing EAS to co mmunities located within the 48 contiguous States receiving per passenger subsidy amount s exceeding $200, unless the communities are located more than 210 miles from the nearest large or medium hub. 4 Victoria is within 210 miles of IAH, a large hub airport, and ther efore subject to the $200 cap. The Department fully expects the community and Public Charters to work cooperatively to ensure subsidy rates are in compliance with the $200 per pa ssenger cap to remain eligible for EAS. 5

Additionally, the community must maintain an average of 10 enplanemen ts per service day. Public Law No. 112-95 amended 49 U.S.C. §417 31(a)(1)(B) to change the definition of “eligible place” for the purpose of receiving EAS. The amendment states that to be eligible, a community must maintain an average of 10 enplanements or more per service day, as determined by the Secretary, during the most recent fiscal year beginning after September 30, 2012. 6

In summary, although we are selecting this AE AS application for a period of two years, with a possible two-year exte nsion, the community must main tain eligibility requirements like other communities in the AEAS/EAS programs. Victoria must enplane more than 10 passengers per service day for each fiscal year and have a per passenger subsidy cap of less than $200 (based on FY2015, which is October 1, 2014, through September 30, 2015).

Service Transition To ensure a smooth carrier transition, the De partment will extend Sun Air’s service period at Victoria through October 31, 2014 , or until the direct air carri er begins operations. This

will allow extra time for Sun Air to wind dow n its existing operations and give the incoming air carrier additional time to start its se rvice. We expect Sun Air to maintain its

4 Congress first established the $200 ceiling under P.L. 101-164 for fiscal year 1990, and reestablished it in fiscal years 1994-1999. The ceiling was made permanent by P.L. 106-69, the Department of Transportation and Related Agencies Appr opriations Act of 2000.

5 On May 1, 2014, a Notice of Proposed Enforcement Policy on the $200 per passenger subsidy cap was published in the Federal Register (Volume 79, Issue 84). It outlined the Department’s proposed policy on this issue, which would use traffic data from October 1, 2014, through September 30, 2015, to measure compliance. The Department solicited public comments on the policy and they were due June 30, 2014. A final document on the subject will be released in the near future. Refer to www.regulations.gov and search

“DOT-OST-2014-0061” for more information.

6 The Secretary also has authority to waive the 10 passenge r requirement, on an annual basis, if the community

can demonstrate that the reason the location averages fewer than 10 passengers per day is due to a temporary decline in enplanements and to waive the $200 subs idy-per-passenger limit. See 49 U.S.C. §41731(e).- 5 -

current service levels at the subsidy rate desc ribed in Appendix B. In addition, before Sun Air suspends its service, we expect it to notif y all passengers holding re servations for travel after the suspension date, to assist th ose passengers in making alternate air transportation arrangements, or to provide a re fund of the ticket price, without penalty, if requested.

ACCORDINGLY, 1. We select the application of Victoria , Texas, as submitted by Victoria County, for Alternate Essential Air Service, for two year s upon execution of a Grant Agreement with the Department and beginning November 1, 2014, ending October, 31, 2016, subject to compliance with all eligibility criteria;

2. At Victoria’s discretion and compliance with all AEAS/EAS program requirements, this contract may be extended up to two additional years;

3. The Department directs Victor ia County and the Part 380 indire ct air carrier contracted as part of the Alternate Es sential Air Service Grant Agreement to retain all books, records, and other source and summary 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 records may be destroyed, whichever comes first.

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

5. The Department will serve a copy of this Or der on the civic officials of Victoria, Texas, the Managing Director at Victor ia Regional Airport, Public Ch arters, Inc., Corporate Flight Management, Boutique Air, and Sun Air E xpress, LLC d/b/a Sun Air International.

By:

SUSAN L. KURLAND Assistant Secretary for

Aviation and International Affairs

(SEAL)

An electronic version of this document is available at www.regulations.govAppendix A

49 U.S.C. § Sec. 41745. Community and regional choice programs (a) ALTERNATE ESSENTIAL AIR SERVICE PILOT PROGRAM (1) ESTABLISHMENT - The Secretary of Transpor tation shall establish an alternate essential air service pilot program in accordance w ith the requirements of this section. (2) ASSISTANCE TO ELIGIBLE PLAC ES - In carrying out the pr ogram, the Secretary, instead of paying compensation to an air ca rrier to provide essential air se rvice to an eligible place, may provide assistance directly to a unit of local government having jurisdiction ove r the eligible place or a State within the boundaries of which the eligible place is located. (3) USE OF ASSISTANCE - A unit of local government or State receiving assistance for an eligible place under the program may use the assistance for a ny of the following purposes: (A) To provide assistance to air carriers that will use smaller equipment to provide the service and to consider increasing the freque ncy of service using su ch smaller equipment if the Secretary determines that passenger sa fety would not be compromised by the use of such smaller equipment and if the State or unit of local government waives the minimum service requirements under section 41732(b). (B) To provide assistance to an air carrier to provide on-demand air taxi service to and from the eligible place. (C) To provide assistance to a person to provide scheduled or on-demand surface transportation to and from the eligible place and an airport in another place. (D) In combination with othe r units of local government in the same region, to provide transportation services to and from all the elig ible places in that region at an airport or other transportation center th at can serve all the eligib le places in that region. (E) To purchase aircraft to provide transportation to and from the eligible place or to purchase a fractional share in an aircraft to provide such tr ansportation after the effective date of a rule the Secretary issues relating to fractional ownership. (F) To pay for other transpor tation or related services that the Secretary may permit.Appendix B

Sun Air Express, LLC d/b/a Sun Air International

Essential Air Service to be Provided at Victoria, Texas

Effective Period: October 1, 2014 through October 31, 2014 Scheduled Service: 24 weekly nonstop round trip s to George Bush Intercontinental Airport (Houston) Aircraft: 9-passenger, twin -engine Piper Chieftain Rate per Eligible Flight: $938 1

Weekly Ceiling for each community: $45,024 2

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 elements of the required service, without pr ior 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 weather cancellations, only completed flights are considered eligible for subsidy. In addition, if the carrier does not schedule or operate its f lights in full conformance with the Order for a significant perio d, it may jeopardize its entire subsidy claim for the period in ques tion. If the carrier contempl ates 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 written approval from the Department to be ensured of full compensation. Should circumstances warrant, the Department may locate and se lect a replacement carrier to provide serv ice 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 shoul d be adjusted or disallowed, the Department will consider the extent to which the goals of the program are met and th e extent of access to the natio nal 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 th e stipulated service levels, the carrier may cease to provid e service to that specific location without regards to any requirement for notice of such cessation. Those adjustments in the levels of subsidy and/or service that are mutually agreed to in writin g by the Department and carrier do not constitute a total or partial reduction or cessation of payment.

Subsidy 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, 2014. The Government’s obligation for performance under this Order beyond September 30 , 2014, is subject to the ava ilability 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, 201 4, until funds are made available to the Department for performance. If funds are not made available for perfor mance beyond September 30, 2014, the Department will provide notice in writing to the carrier.

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

1 Annual compensation of $2,294,036 divided by 2,446 annual departures (48 weekly departures x 52 weeks x 98 percent completion).

2 48 arrivals and departures per week multiplied by $938 per flight.