### Order 2015

- 1

- 4

Served: January 5, 2015



## UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

Issued by the Department of Transportation

on the 5 th 

### day of January , 201 5

ORDER ESTABLISHING NEW SUBSIDY RATE ON A TEMPORARY BASIS

Summary

By this O rder, the Department is establishing a new subsidy rate for SeaPort Airlines, Inc.

( SeaPort) to provide Essential Air Service (EAS) on a temporary basis at Jackson, Tennessee,

from October 1 , 2014, until further Departmental a ction , but no later than February 28 , 201 5

. SeaPort will continue to provide Jackson with 12 nonstop round trips per week to Nashville

International Airport and 6 nonstop round trips per week to Memphis International Airport

, 1



### using nine

- seat Cessna Grand Caravan aircraft

, at an annual subsidy rate of $ 1,687,696

. 2



### Background

By Order 2011

- 12

- 15, issued on December 22, 2011, the Department selected SeaPort to

provide subsidized EAS at Jackson with nine

- seat Cessna Grand Caravan aircraft for a one

- year

period through the end of the 12 th 

### month thereafter , at an annual subsidy rat e of $1,149,703.

SeaPort inaugurated service at Jackson on January 22, 2012, thus making the original

expiration date of service January 31, 2013. By Order 2013

- 2

- 23, issued on February 25, 2013,

the Department extended SeaPort’s contract at Jackson for an additional year, from

February 1, 2013, through January 31, 2014 , at a subsidy rate of $1,115,210, as described in

SeaPort’s original proposal to serve Jackson , which was submitted to the Department in

October of 2011. 3 

### Subsequently , by Order 2014

- 1

- 23 , issued on January 31, 2014, the

Department extended SeaPort’s service contract through September 30, 2014 , at the same

1 SeaPort currently provides six additional round trips per week to Memphis on a subsidy

- free basis.

2 Subsidy is calculated and distributed on a fiscal year basis, subject to the availability of funds.

3 See Order 2013

- 2

- 23 for a full discussion. At one time, Jackson’s eligibility was uncertain because of a new

statutory requirement that would have made EAS communities ineligible if they were within 90 miles of the

nearest large or medium hub, which would have affected Jackson. That statute was subsequently repealed

. 

### Essential Air Service at

JACKSON, TENNESSEE

Under 49 U.S.C. § 41731 et seq

. DOT

- OST

- 200 0

- 7857

### - 2

-

subsidy rate of $1,115,210 , and by Order 2014

- 10

- 2, issued on October 9, 2014, the

Department further extended SeaPort’s contract throu gh February 28, 2015.

By notice dated September 30, 2014, SeaPort requested a compensation adjustment for

providing EAS at Jackson . In that notice, SeaPort explained that the cost of providing air

service at Jackson ha s escalated since SeaPort’s original proposal submitted to the Department

in 2011

. Seaport identified several reasons for the escalating costs at Jackson, including t he

fact that the Transportation Security Administration (TSA) no longer has a presence at Jackson

. The absence of T SA requires SeaPort to deplan e its passengers at the Fixed Base Operator at

the Nashville International A irport , resulting in increased expenses associated with ground

handling and shuttle bus service s to transport passengers to the main concourse. Seapor t

submitted a proposal indicating an annual subsidy rate of $1,687,696.

SeaPort’s notice, as well as t he complete public file for EAS at Jackson

, may be accessed

online through the Federal Dockets Management System at: http://www.regulations.gov by

entering “DOT

- OST

- 2000

- 7857” in the “SEARCH for: Rules, Comments, Adjudications or

Supporting Documents:” field.

Legislative Changes that Affected Jackson

The Federal Aviation Administration (FAA) Modernization and Reform Act of 2012 (Public

Law No: 112

- 95) amended 49 U.S.C. § 41731(a)(1)(B) to change the definition of “eligible

place” for the purpose of receiving EAS. The amendment states that to be eligib le, a

community must maintain an average of 10 enplanements or more per service day, as

determined by the Secretary, during the most recent fiscal yea r beginning after

September 30, 2012. T he legislation exempts locations in Alaska and Hawaii and communit ies

that are more than 175 driving miles from the nearest large

- or medium

- hub airport. As

Jackson is located 86 miles from Memphis International Airport, which is a medium

- hub

airport, it is required to meet the 10

- enplanement

- a

- day thresho ld for EAS to continue or

otherwise face termination of its eligibility to receive EAS, barring a waiver from the Secretary.

By Order 2014

- 4

- 26, issued on April 24, 2014 , t he Department issued a show

- cause Order

directing interested parties to submit objections to the Department’s tentative findings that

Jackson enplaned fewer than 10 passengers per day

. In response to that Order, the Department

received objections from the community, but none of those objections dispute d our findings

that J ackson enplaned fewer than 10 passengers per day during FY 2013

.

Therefore, b y Order 2014

- 6

- 6, issued on June 24, 2014, the Department made final its tentative

decision in Order 2014

- 4

- 26, thereby terminating the EAS eligibility of Jackson. On

August 24, 2014, the McKellar Sipes Regional Airport submitted an application for a waiver on

behalf of the community of Jackson.

By Order 2014

- 9

- 21, issued on September 26, 2014, the Department gra n ted the waiver petition

submitted on behalf of Jackson. That Order states that Jackson’s compliance with 49 U.S.C. §

41731(a)(1)(B) will be re

- assessed based on Fiscal Year 2015 data (October 1, 2014, through

September 30, 2015).

In o rder to maintain c ontinuous service at Jackson, the Department issued Order 2014

- 10

- 2 on

October 9, 2014, temporarily extending SeaPort’s current contract through February 28, 2015.

### - 3

-

B y Order 2 0 14

- 10

- 21, issued on October 24, 2014, the Department, among other things,

reques ted proposals from air carriers interest in providing EAS at Jackson for a new term.

Those proposals were due November 24, 2014, and the Department is in the process of

complet ing this carrier selection case

, which will establish a new long

- term EAS contr act

.

Decision

As described above , the Department has issued a series of Orders extending SeaPort’s service

obligation so that the community of Jackson did not suffer from a service hiatus and because

SeaPort has been serving Jackson nearly a full year longer than originally contemplated without

a rate adjustment to its 2011 proposal, the Department wil l provide a new subsidy rate to

SeaPort, 4 

### until the pending carrier

- selection case has been finalized and a new contract has

been issued to provide EAS at Jackson.

The Department selected Sea P ort based on its October 2011 proposal . SeaPort’s proposal

contemplated a two year term, after which point the Department would typically initiate a new

carrier selection proceeding. Fo r the reasons described in this Order, however, SeaPort is now

in its third year of service at Jackson. SeaPort has agreed to c ontinue service to this community

during the pendency of the Department ’s proceedings related to Jackson’s continued eligibility

for EAS and, now, the carrier selection proceeding . During this time, the Department has

subsidize d SeaPort at SeaPort’s 2011 proposed rate , although SeaPort has experienced an

almost 25 percent increase in expenses for this service.

Because of the delay in initiating a carrier selection proceeding, SeaPort has continue d to serv e

Jackson long beyond the period originally contemplated in SeaPort’s 2011 proposal . During

this additional service period, SeaPort has experienced s ignificantly increased costs

. Therefore,

t he Department , in accordance with SeaPort’s September 30, 2014 request for a subsidy

increase, will e stabli sh a new annual subsidy rate of $1,687,696 (as further detailed in

Appendix B of this Order) for SeaPort’s service at Jackson . This new subsidy rate is needed to

enable SeaPort to continue to provide EAS at Jackson during the pendency of the carrier

select ion proceeding

. 5 

### This subsidy rate is effective as of October 1, 2014 and will continu e

for the duration of the term of service established by Order 2014

- 10

- 2 ( extending SeaPort’s

service term until the earlier of further action by the Department or February 28, 2015).

This Order is issued under authority delegated in 49 CFR Part 1. 25 a( b ).

ACCORDINGLY,

1. SeaPort Airlines, Inc. will to continue to provide E ssential A ir S ervice at Jackson,

Tennessee , until further Departmental action , but no later than February 28 , 2015 ;

2

. The Department set s the rate of compensation for SeaPort Airlines, Inc., for the provision of

E ssential A ir S ervice at Jackson, Tennessee, as described in Appendix B ;

3. The Department direct s SeaPort Airlines, Inc. to retain all books, records, and other source

and summary documentation to support claims for payment, and to preserve and maintain such

4 In accordance with its request dated September 30, 2014, the Department will set SeaPort’s annual subsidy rate

at $1,687,696.

5 The Department may adjust subsidy rates established for a carrier when the adjustment is in the public interest.

14 CFR 271.8(b); see also 49 U.S.C. 41737(e).

### - 4

-

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 issuance date

of this Order or until the Department indicates that the records may be destroyed, whichever

comes first. Copies of flight logs for aircraft sold or disposed of m ust be retained. The carrier

may forfeit its compensation for any claim that is not supported under the terms of this O rder;

4

. Docket DOT

- OST

- 200 0

- 7857 will remain open until further order of the Department; and

5

. The Depart ment will serve a copy of this O rder on the M ayor of Jackson, the A irport

M anager of McKellar

- Sipes Regional Airport

, SeaPort Airlines, Inc

. , and the service list of this

Docket.

By:

BRANDON M. BELFORD

Deputy Assistant Secretary for

Aviation and International Affairs

(SEAL)

An electronic version of this document is available on line at

www.regulations.gov

### SeaPort Airlines, Inc. 

### Appendix A

6 Weekly Roundtrips: Jackson, TN

– Memphis, TN

12 Weekly Roundtrips: Jackson, TN

– Nashville, TN

Operations Projections

Average Sector Length (sm) 111

Scheduled Departures 1,872

Scheduled Block Hours 1,768

Projected Completion Factor 99%

Projected Completed Departures 1,853

Projected Completed Block Hours 1,750.30

Passenger Projections

Projected Passengers 5,051

Passengers per Departure 2.7

Projected Average Fare $47.85

Revenue Passenger Miles (RPMs) 560,661

Available Seat Miles (ASMs) 1,851,427

Projected Load Factor 30.30%

Financial Projections

Revenues

Passenger Ticket Revenues $241,677

Ancillary Revenues $6,042

Total $247,719

Expenses

Flight Operations $173,282

Aircraft Ownership/Lease $294,000

Fuel & Oil $401,698

Sales & Marketing $25,000

Traffic Servicing $371,036

Insurance $31,506

Maintenance $306,306

Sub

- Total

- Direct $1,602,828

Indirect $240,424

Total Expenses $1,843,253

Projected Operating Profit/(Loss) ($1,595,534)

Subsidy Calculations

Operating Loss $1,595,534

Economic Return @ 5% $92,163

Required Subsidy $1,687,696

### Appendix B

S e a P o r t Ai r li n e s, I n c.

E ss e n t ial Air S er vi c e t o b e P rovided at J a c k so n , T e nn e ss ee

E ffec tive Pe r iod : October 1 , 2014

, through February 28 , 2015

S c h e dul ed S er vi ce : 12 n o nstop r ound t r ips p e r w ee k to N a shville I n t er n a ti o n a l Ai r po r t a nd

6 nonstop r ound t r ips p e r w ee k to M e mphis I nt er n a tion a l Ai rpo r t

Ai rcr a f t : C e ssna G r a nd C ara v a n, 9 s ea ts

R a te p er El i g ible F l i g h t 1 

### : $ 9 11

W ee k l y C e ilin g 2 

### : $ 3 2,796

The air c a rr i e r un d er st a nds t h a t it m a y f o rfe it its c omp e ns a tion f or a n y f li g hts th a t it do e s not op era te in c o n f o r m a n c e

with the t er ms a nd stipul a tions of the ra te Order

, i n c luding the s er vi c e pl a ns outlin e d in the Order a nd a n y oth e r

s i g ni f i c a nt e l e m e nts of the re qui re d s er vi ce , without p r ior a p p r ov a l. The air c arr i e r und e r st a nds th a t a n a i r cr a f t t a k e

o f

f a nd l a nding a t its s c h e du l e d d e stin a tion c onstitut e s a c ompl e t e d f li g ht; a bs e nt a n e x pl a n a tion suppo r ting subsi d y

e li g i b ili t y f o r a f l i g ht th a t h a s n ot b ee n c ompl e t e d, su c h a s cer t a in w ea th e r ca n ce ll a tions, o n l y c ompl e t e d f li g hts a r e

c onsid ere d e l i g ible f or su b si d y

. I n a ddition, if the air carr i e r d o e s not s c h e dule or o p era t e its f li g hts in f ull

c on f o r m a n c e with the Order f o r a s i g ni f i ca nt p e r iod, it m a y j e op ar di z e its e nti r e subsi d y c l a im f or t he p er iod in

qu e stion. I f the air c a rr i e r c ont e mpl a t e s a n y su c h c h a ng e s b e y ond the s c ope o f the Order du r ing the a ppli ca ble

p e r iod of th e se ra t e s, it must f i r st noti f y the O ff i c e of Avi a tion An a l y sis in w r iti n g a nd r ece ive w r itt e n a pp r o v a l f r om

the D e p a r tm e nt to be e nsu re d o f f ull c omp e ns a tion. S hould c i rc umst a n ce s w ar r a n t , the D e p ar tm e nt m a y l o c a te a nd

s e l e c t a re pl a ce m e nt air c arr i e r to p r ovide s er vi c e on th e se r out e s. The air c a rr i e r must c ompl e te a ll f li g hts th a t ca n

b e s a f e l y op era t e d; f l i g hts th a t ov e rf l y points f o r l ac k of t r a f f ic will not be c omp e ns a t e d. I n d e t er m i ning wh e t h e r

subsi d y p a y m e nt f o r a d e v i a ting f l i ght should be a djust e d or dis a llow e d, t he D e p a r tm e nt will c onsid e r the e x t e nt to

whi c h the g o a ls of the p r og ra m a r e m e t a nd the e x t e nt of acce ss to the n a tion a l a ir t ra nspo r t a tion s y s t e m p r ovid e d to

the c ommuni t y

.

I f the D e p ar tm e nt unil a t e ra l l y

, e ith e r p a r ti a l l y or c ompl e t e l y , t er min a t e s or re du ce s p a y m e nts f or s e r vi c e or c h a ng e s

s er vi c e r e qui re m e nts a t a sp ec i f ic lo c a tion p r ovid e d f or und e r this Order, th e n, a t the e nd of the p e r iod f or whi c h the

D e p ar tm e nt d o e s m a ke p a y m e nts in the stipul a t e d a mounts or a t the stipul a t e d s er vi c e l e v e ls, the air c a rr i e r m a y

cea se to p r ovide s er v i c e t o th a t sp ec i f ic lo c a tion without re g a r d to a n y r e qui re m e nt f or noti c e of su c h c e ss a tion.

Those a djustm e nts in the l e v e ls of subsi d y a nd/or s er vi c e th a t ar e mutu a l l y a g r ee d to in w r iting b y the D e p ar tm e nt

a nd air ca r r i e r do not c on s titute a tot a l or p ar ti a l re d u c tion or ce ss a tion of p a y m e nt.

Funds may not be available for performance under this Order beyond December 11 , 2014

. The Government’s

obligation for performance under this Order beyond December 11 , 2014 , is subject to the availability of funds from

which payme nt 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 December 11 , 2014 , until funds are made available to the Department

for performance. If sufficient funds are n ot made available for performance beyond December 11

, 2014 , the

Department will provide notice in writing to the carrier.

S ubsi d y c ont r a c ts ar e su b j ec t to, a nd in c o r po r a te b y r ef e re n c e

, r e l e v a nt st a t ut e s a nd D e p ar tm e nt r e g ul a tions, a s th e y

m a y be a m e nd e d fr om time to tim e . How e v er

, a n y su c h st a tut e s, r e g ul a tions, or a m e ndm e nts th ere to sh a ll not

op era te to c ont r o v er t the f o r e g oi n g p ar a g r a ph.

All claims for payment, including any amended claims, must be submitted within 9 0 days of the last day of the

month for which compensation is being claimed. For example, claims for service provided in July must be filed by

October 31 st ; August claims must be submitted by November 30 th , and so on.

1 Annual compensation of $ 1,687,696 divided by 1,8 53 annual departures (36 weekly departures x 52 weeks x 9 9

percent completion).

2 36 flights per week multiplied by $ 9 11 per flight.