Order 20 12

- 3

- 9 Served: March 16, 2012



### UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation on the 16 th day of March , 20 1 2

ORDE R S ETTING ANNUAL SERVICE LEVEL AND TOTAL COSTS UNDER THE ALTERNATE ESSENTIAL AIR SERVICE PROGRAM

Summary By this Order , we are selecting Service Option #2

, as detailed in the Manistee County Blacker Airport Authority’s (Airport Authority) application under the Alt ernate Essential Air Service (AEAS) Program

. T he Department will enter into a Grant A greement with the community to provide funding for regularly scheduled charter service consisting of at least 1 ,019 annual nonstop one

- way flights between the Manistee Co unty Blacker Airport and Chicago Midway International Airport (MDW), for a two

- year period beginning when the Part 135 and/or Part 121 direct air carrier inaugurates service at the community through the end of the 24 th month thereafter

. By the terms of the Grant Agreement , s ervice will be provided utilizing two

- pilot, twin

- engine aircraft with 30 seats for the first six months of service and with 19 seats for the remaining 18 months, at an annual rate of no more than $2,143,294 (which includes a one

- time payment of $200,000 for start

- up costs) for the first

- year and $2,055,782 for the second year

. Background By Or der 2011

- 1

- 16, January 22, 2011 , the Department selected Chautauqua Airlines, Inc., a wholly owned subsidiary of Republic Airways Holdings and doing business as Frontier Airlines (Chautauqua) , utilizing 37

- seat Embraer 135 aircraft, to provide subsidized Essential Air Service ( EAS ) at Manistee /Ludington, Michigan (Manistee), consisting of 1 3 non stop round trips a week to Milwaukee, Wisconsin, for an annual subsidy of $1, 694

, 794

. With the

concurrence of the community, the carrier cease d operations at Manistee , following 180 days’ notice to the Department and communit y

. Chauta uqua inaugurated service at the community on April 18

, 2011. Alternate Essential Air Service at :
MANISTEE/LUDINGTON, MICHIGAN

Under 49 U.S.C. 41731 et seq

. and 41745 DOT

- OST

- 1996

- 1 711 DOT

- OST

- 2004

- 18715- 2

-

On Septemb er 12, 2011, Chautauqua filed both a 180

- day notice of its intention to discontinue operations at Manistee and Ironwood, Michigan/Ashland, Wisconsin

, 1 effective March 10

, 2012 , and a 90

- day notice of its intention to suspend its subsidy

- free service at Rhinelander, Wisconsin, effective December 11 , 201 1

. 2

By Order 2011

- 10

- 15, issued O ctober 20, 2011, the Department request ed proposals from carriers interested in providing EAS at Manistee for a two

- year period, with or without subsidy

. Th at Order stated that the community wa s not entitled to service with 15

- seat or larger aircraft

. 3 However, the community is entitled to service with twin

- engine aircraft operated by two pilots. W ith the advent of Chautauqua’s two round trips a day with regional je ts, the community averaged 58 passengers per day, in each direction, making it difficult to quantify the actual demand and the service levels that the Department would be willing to subsidize. Given that the EAS program ensures onl y a safety

- net level of service and not necessarily all the service that a community wants, we requested proposals for three or four round trips a day (18 or 24 a week) with 8

- or 9

- seat aircraft or two round trips a day (12 a week) with 15

- seat or larger aircraft. Carriers were encouraged to propose more than one service option if they chose and were not limited to those requirements if they envisioned other, potentially more attractive possibilities

– different hubs, for example

– with subsidy requirements that remain competiti ve.

Multi

- Aero Inc., d/b/a Air Choice One Airlines (Air Choice One) was the only applicant to submit a proposal for traditional EAS at the community

. Air Choice One’s proposal utiliz ed 9

- seat, single

- engine Cessna Grand Caravan aircraft and included service between Manistee and Chicago O ’ Hare International Airport. The carrier proposed two distinct levels of service for both two

- and four

- year rate terms, as summarized below

.

Service Option # Level of Servi ce (round trips a week) Annual Subsidy Required

2

- Year Term 4

- Year Term

1 18 $1,593,658 $1,545,848 2 24 $1,889,368 $1,832,687

However, during a regularly scheduled meeting on December 12, 2011, the Airport Authority voted unanimous ly not to waive the two

- pilot, twin

- engine requirements for EAS

, thereby rejecting Air Choice One’s proposal. During the meeting, the Airport Authority also unanimously voted to pursue its options under the AEAS Program

.

1 See DOT

- OST

- 1996

- 1266.
2 See DOT

- OST

- 2011

- 0109. 3 Until very recently, communities that averaged 11 or more enplanements per day during any calendar year from 1976

- 1986 we entitled to service with 15

- seat or larger aircraft. 49 U

. S

. C . 41732 (b)(3). Subsequently, Congress repealed that provision. See Consolidated and Further Continuing Appropriations Act, P.L. 112

- 55, November 18, 2011.- 3

-

Alternate Essential Air Service Background On December 12, 2003, President Bush signed 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. 4

One of those is the AEAS

. 5 By notice dated July 27, 2004, the Department established AEAS and invited communities to submit proposals. 6 Congress established this Pilot Program to provide communities with an alternative to the traditional 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 19

- seat 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. 7 These options are spelled out in statute and include more frequent service with smaller aircraft, on

- demand air taxi service, scheduled or on

- d emand surface transportation, regionalized air service, or purchasing an aircraft

. Each community awarded a grant must execute a grant agreement with the Department before it begins spending funds under a grant award.

On January 5, 2012, the Airport Mana ger of the Manistee County Blacker Airport, with support from the Airport Authority , Manistee County Board of Commissioners , Manistee Area Chamber of Commerce, and the Manistee County Visitors Bureau, submitted an application for AEAS.

The Airport Authority propos ed air transpor tation conducted by a Part 380 i ndirect air c arrier contracting with a F ederal Aviation Administration (F AA ) approved Part 135 and/or Part 121 direct air carrier

. Service would be provided utilizing twin

- engine aircr aft conducting a minimum number of regularly scheduled charter flights each year

, but may vary to reflect seasonal fluctuations in demand for service

. A summary of the various options proposed are summarized in the table on the next page

. The entire public file regarding federally subsidized air service at the community may be accessed online through the Federal Docket Management System at: http://www.regulations.gov

, by doing a keyword or ID s earch on: DOT

- OS T

- 1996

- 1711.

4 See Appendix A for a copy of the statute. 5 AEAS was originally establ ished by Congress in 2004 in the Wendell H. Ford Aviation Investment and Reform Act for the 21 st Century (AIR

- 21) as a pilot program, but was made permanent in Section 405 of Vision 100. 49 U

. S

. C . 41745.
6 See DOT

- OST

- 2004

- 18715.
7 Under no circumstances c ould a community participa te in both the traditional EAS P rogram 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 serv ice.- 4

-

Service Option # Aircraft Type

- Seats 1 Level of Service 2 (round trips a week) Minimum Yearly Round Trips Total Annual Federal Funding Required

1 Embraer 120

– 30 12 (May

- August) and 7 ( Sept.

- April ) 500 $2.3M (ea. yr

. )

2 Embraer 120

- 30 and Jetstream 3100

– 19 10 ( first 6 months of service ) and 10 ( remaining 18 months of service ) 520 3 $2.1M (1 st yr.) $2.056M (2 nd yr.) 3 Jetstream 3100

- 19 10 (year

- round) 520 $2.0M (ea. yr.) Note s : 1. Equivalent service with substitute aircraft is allowed. 2. Actual frequency may vary to accommodate seasonal fluctuations in demand for service. 3. At a 98% completion percentage or a total of 1,019 one

- way flights.

Under its application , t he Airport Authority would contract with a Part 380 indirect air c arrier to provide charter air service nonstop between Manistee and MDW with customer funds

esc rowed until flight completion. Tickets would be available for purchase through st andard channels, including the indirect air c arrier’s website, one or more Global Distribution Systems, one or more Online Travel Agents, and by phone. In addition, the indirect c arrier will work towards standard industry e

- ticketing interline and baggage agreements with other carriers based at MDW, where possible. The application also states that indirect c arrier will expend resources to promote and market the new service. 8

Decision After careful consideration, including the comments of local officials, the Department has decided to approve the Airport Authority ’s application for A EA S, specifically Service O ption # 2 above

, pending execution of a Grant Agreement

.
First, we cannot select Air Choice One’s proposal for traditional EAS because the community has affirmatively not waived its right to two

- pilot , twin

- engine aircraft.

As among the three service options under AEAS , we have decided to select Service O ptio n #2. The AEAS statute presumes that, rather than pay an airline a certain amount per year to provide EAS , we would pay the community that same amount and the community would secure its own service. The proposed amount of subsidy under Service Option #2 is appropriate

. Chautauqua’s current rate is approximately $1.7 million, but the carrier found it so inad equate that it filed notice to suspend service. Air Choice O ne’s proposals ranged from $1.6 million to $1.9 million , but neither meets the EAS specifications for twin

- engine service, which, presumably, would require more subsidy. We have also examined pa st subsidy rates that did conform to the EAS requirements. Three years ago, effective February 1, 2009, we were compensating Great Lakes Aviation at $1.8 million per year to provide two daily round trips (14 a week) with 19

- seat Beech 1900Ds. We would ex pect that the required subsidy to duplicate the service of three years ago would be higher. Therefore, based on all of the above, we find the community’s request for $2.1 million for the first

- year and $2.056 million for the second are reasonable and repr esent fair proxies for what we would have to pay in subsidy for EAS that meets the statutory criteria

.

8 These and other specifics related to AEAS at Manistee will be finalized in a Grant Agreement agreed to by the Department and the Airport Authority.- 5

-

Under service option #2, once a Grant Agreement has been executed, the community will receive regularly scheduled charter service consisting of at least 1 ,019 annual nonstop one

- way flights between the Manistee County Blacker Airport and MDW

, for a two

- year period beginning when the Part 135 and/or Part 121 direct air carrier inaugurates service at the community through the end of the 24 th month thereafter . Service will be provided utilizing
two

- pilot , twin

- engine aircraft with 30 seats for the first six months of service and with 19 seats for the remaining 18 months, for a first

- year rate of $2,143,294 (which includes a one

- time payment of $200,000 for st art

- up costs) and $2,055,782 for the second

- year.

ACCORDINGLY ,

1

. We select Service Option #2 included in Manistee /Ludington, Michigan’s application, as submitted by the Manistee County Blacker Airport Authority

, for Alte r n a te Essential Air Service

, for two years upon execution of a Grant Agreement with the Department and beginning when the Part 135 and/or Part 121 direct air carrier inaugurates full service at the community through the end of the 24th month thereafter ;

2 . The Department directs Man istee County Blacker Airport Manager and the Part 380 indirect air c arrier contracted as part of the AEAS Grant Agreement to retain all books, records, and other source and summary documentation to support claims for payment, and to preserve and maintain s uch 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 O rder or until the Department indicates that the records may be des troyed, whichever comes first.

3 . Th e s e Docket s will remain open until further Order of the Department; and

4 . Docket Operations will serve copies of this Order on the parties listed in Appendix B

. By:

SUSAN L. KURLAND Assistant Secretar y for Aviation and International Affairs
(SEAL)
An electronic version of this document is available on the World Wide Web at: http://www.regulations.gov/Appendix A

Sec. 41745. Community and regional choice programs (a) ALTERNATE ESSE NTIAL AIR SERVICE PILOT PROGRAM (1) ESTABLISHMENT

- The Secretary of Transportation shall establish an alternate essential air service pilot program in accordance with the requirements of this section. (2) ASSISTANCE TO ELIGIBLE PLACES

- In carrying out the program, the Secretary, instead of paying compensation to an air carrier to provide essential air service to an eligible place, may provide assistance directly to a unit of local government having jurisdiction over 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 any 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 frequency of service using such smaller equipment if the S ecretary determines that passenger safety 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 ot her units of local government in the same region, to provide transportation services to and from all the eligible places in that region at an airport or other transportation center that can serve all the eligible places in that region. (E) To purchase airc raft to provide transportation to and from the eligible place or to purchase a fractional share in an aircraft to provide such transportation after the effective date of a rule the Secretary issues relating to fractional ownership. (F) To pay for other transportation or related services that the Secretary may permit.Appendix B

SERVICE LIST

Manistee Blacker County Airport , Barry Lind Michigan Department of Transportation, Matthew Brinker Public Char ters, Inc., Jim Gallagher