### u.s. Departmentof Transportation OfficeoftheSecretary ofTransportation

The Honorable Matt Waligora Mayor, City ofAlpena 208 North First Ave. Alpena, MI 49707

DearMayorWaligora: , ..... ?

'---'**~** 1200 NewJersey Avenue, SE Washington, DC 20590

Febmary 17, 2012

This letter is regarding essential air service (EAS) at Alpena. My purpose in writing is to inform you ofthe results ofthe service and subsidyproposal we received inresponse to ourthird request for proposal (RFP) before we submit arecommendation onthe carrier-selection issue to the Assistant Secretary for Aviation and Intemational Affairs for decision.

As you know, Mesaba/Pinnacle, cllb/a Delta Connection, filed notice to leave Alpena onJuly 15. Order 2011-9-5, September 13, 2011, prohibited that suspension and requested proposals by October 12, 2011. By notice dated October 12 we extendedthe deadline for proposals to October 14, 2011.

As background, in response to that first RFP, we received proposals from Gulfstream Intemational Airlines, Inc. The carrierhas since changed its name to SilverAirways, Corp, and from Intrepid. SilverAirways proposed 18 nonstop round trips per week to Cleveland with 19- seat Beech 1900 aircraft for $3,243,009 annual subsidy; Intrepid proposed 4 nonstop round trips per week to Lansing with 19-seatJetstream 31 aircraft for $911,800. As discussed in Order 2011-11-20, November 17,2011, (the second RFP) we rejected both proposals. We rejected Intrepid's proposal because it did not meet basic EAS levels requiring a minimum of twelve round trips per week to a medium orlarge hub. We rejected SilverAirways' proposal because we were concemed that "thelevel ofsubsidy Gulfstreamrequests is very high

-- more than twice the program average." In response to the second RFP, SilverAirways chose not to submit a proposal, and we received aproposal from only one carrier, Intrepid. Intrepid's second proposal requested $3,024,000 annual subsidy, but its proposed service often round trips per week to Lansing and Grand Rapids still did not meet basic EAS standards; it still did not have any authority to provide the service it proposed; and it was thus not selectable.

Mostrecently, by Order 20012-1-6, January 10, 2012, we requested proposals a third time, with proposals due January 31, 2012. At the request ofthe City ofAlpena, byNotice issued January 30, we extended the deadline for proposals to February 14, 2012. In response, we received a proposal from only one carrier, Multi-Aero, Inc., cllb/a Air Choice One. We emailed that proposal to the community, and it canbe viewed at the Federal Docket Management System, http://www.rcgulations.gov under DOT-OST-2009-0300, so I will only summarize that proposal.

Air Choice One is currentlyproviding subsidized service to Burlington, Iowa, and Decatur, Illinois, and clearlyhas the required operating authority to provide the proposed service. Ofthe five options submittedby the carrier, the first three proposed service with single-engine Cessna 208 Caravan aircraft. Basic EAS requires service with twin-engine aircraft, and those

### three options thus are not selectable without community support. However, Options 4 and 5
assume service with twin-engine Piper Navajo aircraft. Theirproposed service would go to a large hub, Chicago O'Hare, and that airport fully meets the basicEAS requirement that service be to a medium or large hub airport. Option4proposed 18 nonstop round trips per week to O'Harewith 9-seatPiper Navajo aircraft for $2,107,332 annual subsidy; Option 5 was the same except for increased service/subsidy of24 nonstop round trips perweek for $2,708,478 annual subsidy. SeeAppendix A for the summary ofall ofthe options proposedby AirChoice One. In brief, those two options ofAir Choice One meetbasic EAS requirements, and the subsidy levels they requested for Options 4 and 5 are significantly less than that earlierrequested by Silver Airways. All ofAirChoice One's options are stand alone, i.e., the carrier does notneed to be selected at any other community for the Department orthe community to consider its proposal. We reiterate that the Departmenthas an obligation to relieve Delta ofits obligation to provide EAS at Alpena.

Please note that the average passenger fares in the carrier's proposal shown in the docket and Appendix A do not necessarilyreflect the average local fares passengers would pay, but, rather, reflect the proratedportion ofthe total ticketprice, e.g., the Alpena- Chicago portion ofan Alpena to New York ticket. Also, the fare shown is net ofcertain charges such as federal transportation security fees, excise orticket taxes, and passengerfacility charges. Ofcourse, carriers have the discretion to charge fares they deem appropriate, and the passenger fares presented in theirproposals have beendeveloped for subsidyrate computationpurposes only. Based on the cost elements incorporated in the carrier's computation summaries, the carrier would have to realize passengerfares comparable to the averages shown in theirproposals in orderto achieve break-even orprofitable operations even with subsidy.

You should also note that the schedules that the carrierhas submitted and that are shown in the docket are illustrative only, and that the carrier may make schedule changes to reflect changing conditions, e.g., to better meet shifting connectingbank times at the hub(s). The Department expects subsidized air carriers to maintain well-timed and well-spaced flights in orderto ensure full compensation.

We know this matter is important to you and we will act as quickly as possible uponreceipt of your letter. You canexpedite matters by responding as soon as possible and by email to EAS@dot.gov, butnot later than March 15. Ifyou have any questions or do not wish to submit formal comments, please contact Kevin Adams at (202) 366-1047.



# • Sincerely,

# )JJ~t1**IJ~**

# y: /

Dennis J. De\frr;y 

# 7 Chief, Essential Air Service Division Office ofAviation Analysis

cc: Air Choice One, Delta, SilverAirways, IntrepidOgtion 1 Ogtion 2 Aircraft Caravan Caravan Hub ORD ORD Weekly Nonstop Round Trips 18 21 O&D Passengers 7,800 9,500 Projected Passenger Fares $99 $99 Projected Revenue $779,922 $949,905 Projected EconomicCost $3,068,014 $3,550,187 Annual Subsidy, Two-YearTerm $2,288,092 $2,600,282 Discounted Four-YearTerm Subsidy $2,265,211 $2,574,279

All options project approximately 103 minutes perone-wayflight. All options would base the aircraft in Alpena. Appendix A

Ogtion 3 Ogtion 4 Ogtion 5 Caravan Navajo Navajo ORD ORD ORD

24 18 24 10,500 7,800 8,500

$99 $99 $99 $1,049,895 $779,922 $849,915 $3,841,873 $2,887,254 $3,558,393 $2,791,978 $2,107,332 $2,708,478 $2,764,058 $2,086,259 $2,681,393