Order 2012

- 8

- 39 Served: August 31, 2012



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

Issued by the Department of Transportation
on the 31 st of August, 2012

Ninety

- day Notice of Peninsula Airways, Inc., to terminate service at:

AKUTAN, ALASKA

under 49 U.S.C. 41731 et seq

. Docket DOT

- OST

- 200 0

- 7068

ORDER PROHIBITING SUSPENSION OF SERVICE
AND REQUESTING PROPOSALS

Summary By this Order , the Department prohibit s Peninsula Airways, Inc., (PenAir) from terminating its subsidized Essential Air Service (EAS) at Akutan, Alaska, and request s proposals be submitted no later than October 3 , 2012

.

Background
Order 20 11

- 3

- 31 , M arch 25, 2011 , re

- se lected PenAir to provide EAS at Akutan for an annual subsidy rate of $654,964 through April 30, 201 3

. Under that contract, Akutan receives eleven nonstop round trips per week year round to Dutch Harbor with 9

- seat Grumman Goose aircraft. O n August 2, 2012, PenAir filed a 90

- day notice of its intent to suspend its subsidized EAS at Akutan.

Subsequent Developments On August 6, 2013, t he State of Alaska submitted the following comments:

“I want to inform you that the Alaska Department of Transportation and Public Facilities built a new airport in the Aleutian Islands called Akutan airport. The runway is paved and is 4,500 feet long by 75 feet wide. 1

.... We anticipate that [the new] Akutan airport will begin operations on or about September 1, 2012, and will serve the community of Akutan, Alaska. ....Therefore I request that Essential Air Service change the air service location from Akutan Seaplane Base

1 The current airport serving the community of Akutan (KQA), is a seaplane base at Akutan. The new airport with a paved runway is located on Akun Island (7AK). The community has informally indicated that Akutan passengers will be shuttled by hovercraft fr om Akutan to nearby Akun.- 2

-

(KQA) to our new ground based Akutan airport (7AK). I believe our new airport will greatl y improve access to the community of Akutan, Alaska. ”

On August 7, 2012, t he City of Akutan submitted the following comments:

“[T]the new Akutan Airport is scheduled to begin operations on 1 September 2012. This $71 million project is the result of sign ificant Federal, State, local and private investment, and in no small measure PenAir’s consistent commitment to provide air service, including continuation of its existing EAS contract with the U.S. Department of Transportation.

The City of Akutan also expressed concern about the likelihood of finding replacement
service for the Grumman Goose “ in time for the 1 September opening of Akutan Airport

. ” It is also concerned with the level of service that we will require of PenAir
after Se ptember 1. However, i n the community’s view, “ continuation of service by the Grumman Goose beyond 1 September is not a reasonable option, other than as a backup to a new service plan. ”

Hold

- In
PenAir’s proposed termination of service would leave the community of Akutan with no
scheduled air service

. Consistent with our governing statutes, the Department must prohibit the carrier from terminating such service at the end of its 90

- day notice period, i.e., November 3 , 201 2

. W e will require PenAir t o continue providing the level of service specified in Order 2011

- 3

- 31 outlined above , and to maintain that level of service for
successive 30

- day periods until we have completed processing the carrier

- replacement case and the selected carrier has actually started service.

Request for Proposals Carriers interested in filing proposals for Akutan

-- with or without subsidy

-- should e

mail them to our staff at EAS@dot.gov

, no later than October 3 , 201 2

. Our staff will then docket the proposals, thereby making them public, and direct each carrier to serve a copy of its proposal on the civic parties and other applicants. Shortly afterwards, we will provide a summary of the proposals to the community officials and ask the m to submit their final comments. We will give full consideration to all proposals filed in a timely

manner. 2

Interested carriers should prepare their proposals with every expectation that their initial proposals will also be their final and only propo sals. We retain the discretion to negotiate proposals with carriers when we deem it desirable. In such cases, of course, we will give all applicants the same opportunity. We also retain the discretion to reject outright all unreasonable or unrealistic p roposals and solicit a new round of proposals.

2 Carriers should not expect the Department to accept late filings. In cases where a carrier proposes to provide EAS without subsidy and we determine that service can be provided reliably without such compensation, we typically do not proceed with the carrier

- selection case. Instead, we simply rely on that carrier’s subsidy

- free service as proposed.- 3

-

We are here providing interested carriers with some basic information to serve as guidance when they prepare their proposals, but we will not prescribe a precise format for their proposals. We expect propo sals to adequately describe the service being proposed and the annual amount of subsidy being requested. The applicants can make their own judgments as to the level of detail they wish to present; however, they might want to include proposed schedules and routings as well as supporting data for their subsidy requests, such as projected block hours, revenues and expenses. We strongly encourage clear, well

- documented proposals that will facilitate their evaluation by the affected community and the Departmen t. 3

We encourage proposals that meet the communit y’s requirements in an efficient manner. Carriers are also welcome to propose more than one service option, if they choose; they need not limit themselves to the current service pattern if they envision other, potentially more attractive service possibilities with subsidy requirements that remain competitive

– different hubs, linking service to the hubs with service to other communities, or longer
terms for the contracted service.

The state and community ha ve indicated they favor proposals that would use the airport located at nearby Akun Island (7AK), rather than the seaplane base located on Akutan Island, (KQA). 4 In that regard, the community and State have informally indicated that they w ill be able to secure transportation for passengers, as well as freight and mail, between Akutan and the new airport on Akun Island without EAS funding. Under the EAS program, communities are guaranteed EAS

– access to national transportation system, not specific airports. Carriers should be aware of this fact when they submit their proposals. We fully anticipate that the proposals will avail themselves of this new opportunity for providing access between Akutan and the national transportation system
via 7 A K

. We note that for many years we have indicated that EAS to the community of Akutan would require little or no subsidy, but for the fact that the only aircraft able to
serve Akutan reliabl y has been the very old and very expensive Grumman Goose.
Howe ver, we cannot require that carriers only propose service to Akun (7AK). Carriers are free to propose service to either airport, and we will select a carrier based on the usual
carrier

- selection criteria.

We encourage carriers to work with the communit y in advance of the due date for proposals when proposals can still be adjusted so that they can craft them to best meet the

3 In selecting a carrier to provide subsidized E AS in Alaska , 49 U.S.C. §4 1733(c) (1) directs us to consider
f ive fa ctors: (1) service reliability; (2) contractual and marketing arrangements with a larger carrier at the hub; (3) interline arrangements with a larger carrier at the hub; (4) community views; and (5) experienc e of the applicant in providing, in Alaska, scheduled air s ervice or significant non

- scheduled air service. In
addition , The Consolidated Appropriations Act, 2008, Public Law 110

- 161

, provides that when selecting a carrier to provide EAS, the Department may consider the relative subsidy requirements, thus codifyi ng a factor that we have considered since the inception of the program. Interested carriers should also be aware that our general provisions governing E AS will be included in the selection Order as part of our authorization of subsidy for the selected ser vice. Appendix C of this Order contains those general provisions.

4 That airport , 7AK, is not currently listed in general airport data bases, but we it is on a separate island approximately five miles from the community of Akutan.- 4

-

communit y’s needs. As always, we will fully consider the communit y’s views before making a long

- term carrier

- selection decision.

At Akutan

, as with most of Alaska, freight and mail volumes on the outbound leg from the hub to the community far exceed those volumes in the other direction. Proposals for
EAS at Akutan should provide sufficient capacity so that passengers, mail, and freight can be accommodated at a reasonable load factor on the critical outbound leg. We encourage any proposal that would simultaneously satisfy the community’s needs and minimize taxpayer expenditures.

Carriers are also welcome to propose more than one service option, if they choose . T hey need not limit themselves to the current service pattern if they envision other, potentially more attractive service possibilities

-- different hubs o r lengths of term

-- with subsidy requirements that remain competitive. In order to assist carriers in makin g their passenger and revenue forecasts, we have included historical traffic data in Appendix B.

Specific Response to C omments of the City of Ak utan The city is concerned that there be no hiatus in service with the transfer of service to a replacement carrier . At the same time, the community would like to receive more air service than we currently subsidize as quickly as possible, and it would like that service to be through the new airport.

As we have stated, w e can assure the community that PenAir will n ot be permitted to terminate service until replacement service has been secured. We cannot require PenAir to provide more service than Order 2011

- 3

- 31 required it to provide, and the carrier understands that it must provide the level of service it contrac ted to provide. Because PenAir is subsidized, it will not be eligible for increased compensation until 1 80 days
after it filed notice. 5 However, we anticipate resolving this case before then. We share the community’s concern that replacement service to the new airport begin as soon as possible. We will accordingly expedite our request for proposals, and require that proposals be submitted no later than October 3 , 2012. W e will not specify the required
level of service because carriers may propose diffe rent

- sized aircraft , except that it be
sufficient to accommodate historical traffic flows at reasonable load factors. As we indicated, the community will have an opportunity to comment on the proposals from carriers once they are received, and we will giv e their position great weight when we
make our carrier

- selection decision.

New Filing Procedures Carrier proposals should be submitted to the Department with all materials merged into a single document. In addition, because the document will be publish ed on Regulations.gov, each page should be formatted to be viewed online.

5 See 49 U.S.C. § 41734( d).- 5

-

Other Carrier Requirements The Department is responsible for implementing various Federal statutes governing lobbying activities, drug

- free workplaces and nondiscrimination. 6 Consequently, all carriers receiving Federal subsidy to support EAS must certify that they are in compliance with Department regulations regarding drug

- free workplaces and nondiscrimination, and those carriers whose subsidies exceed $100,000 over the lif e of the rate term must also certify that they are in compliance with the regulations governing lobbying activities. All carriers that plan to submit proposals involving subsidy should submit the required certifications along with their proposals. Intere sted carriers requiring more detailed information regarding these requirements, as well as copies of the certifications, should contact the Office of Aviation Analysis at (202) 366

- 5903. The Department is prohibited from paying subsidy to carriers that do not submit these
documents. 7

Community Comments
The communit y and State are welcome to submit comments on the proposals at any time. As noted earlier, we will provide a summary of the proposals to the civic parties and
State s and ask them to submit th eir final comments shortly after October 3 , the due date for carrier proposals.

This Order is issued under authority delegated in 49 CFR Part 1.56a(f).

ACCORDINGLY;

1. The Department requests proposals from carriers interested in providing E ssential A ir
S ervice, with subsidy if necessary, by October 3 , 201 2

. Proposals should include all the data required by section 204.4 of the Department’s Regulations (14 CFR Part 204.4). Proposals should be emailed to EAS@dot.gov and be entitled “Proposals to Provide
Essential Air Service ” at Akutan

. Questions regarding filings may be directed to Kevin.Adams@dot.gov or 202

- 366

- 1047 ;

2

. W e prohibit Peninsula Airways, Inc., from suspend ing service at the end of its 90

- day notice period and require it to continue providing service consistent with the level we are currently subsidizing through November 3 , 201 2 , or until a carrier capable of providing reliable E ssential
A ir S ervice actually begins service, whichever comes first; 8

6 The regulations applicable to these areas are: (1) 49 CFR Part 20

– New restrictions on lobbying; (2) 49 CFR Part 21

– Nondiscrimination in federally

- assisted programs of the Department of Transportation

– Effectuation of title VI of the Civil Rig hts Act of 1964; 49 CFR Part 27

–

n ondiscrimination on the basis of disability in programs and activities receiving or benefiting from Federal financial assistance; and 14 CFR Part 382

– Nondiscrimination on the basis of disability in air travel; and (3) 4 9 CFR Part 29

– Government

- wide debarment and suspension (non

- procurement) and government

wide requirements for drug

- free workplace (grants).

7 The certifications are also available on the web at http://ostpxweb.dot.gov/aviation/index.html.

8 In accordance with 49 U.S.C. §41734(c)

, we will extend the carrier’s service obligation for successive 30

- day periods as necessary until repl a c e ment service actually begins.- 6

-

3 . The Department directs Peninsula Airways, Inc., to retain all books, records, and other source and summary documents to support subsidy claims for payment and to preserve and maintain
such documentation in a man ner 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 destroyed, whicheve r comes first. Copies of flight logs for aircraft sold or disposed of must be retained. The carrier may forfeit its compensation for any claim that is not supported under the
terms of this Order ;

4 . Th is docket will remain open until further o rder of t he Department; and

5 . The Department will serve a copy of this Order on the civic officials of Adak, on the Alaska Department of Transportation and Public Facilities, and on the carriers in our service list.

By:

Susan L. Kurland Assistant Secretary for
Aviation and International Affairs (SEAL) An electronic version of this document is available

a t http://www.regulations.govAppendix A

Nonstop Great Circle Miles on the Aleutian Chain, Starting
with the F a rthest Community From Anchorage

Adak (ADK)

– Atka (AKB), 107 Atka (AKB)

– Nikolski (IKO), 231 Nikolski (IKO)

– Dutch Harbor (DUT) 116 Dutch Harbor (DUT)

– Akutan (KQA) 35 Akutan (KQA)

– Cold Bay (CDB) 143 Cold Bay (CDB

– King Salmon (AKN) 332 King Salmon (AKN) to Anchorage (ANC) 288Appendix B Historical Scheduled Traffic at Akutan, Alaska, T-100 Segment Report

Origin of KQA Dest of KQA Origin and Destination

PEQs PEQs PEQs

Year Month Pax. Frt. Mail Total Pax. Frt. Mail Total Pax. Frt. Mail Total

2009 7 109 2.1 18.2 129.3 98 20.2 55.3 173.5 207 22.3 73.5 302.9

2009 8 76 7.0 10.0 93.0 82 10.2 46.6 138.8 158 17.3 56.5 231.8

2009 9 108 4.8 7.1 119.9 80 20.0 56.9 156.8 188 24.8 63.9 276.7

2009 10 294 2.7 14.3 311.0 105 13.9 36.6 155.5 399 16.6 50.9 466.5

2009 11 36 0.0 5.5 41.5 23 4.0 24.9 51.9 59 4.0 30.4 93.4

2009 12 38 0.9 4.7 43.6 92 10.0 46.1 148.1 130 11.0 50.7 191.7

2010 1 32 0.2 4.3 36.4 169 8.3 36.4 213.7 201 8.5 40.6 250.1

2010 2 74 29.3 6.0 109.2 77 19.7 39.9 136.6 151 49.0 45.9 245.8

2010 3 72 12.1 13.6 97.7 60 13.3 45.3 118.6 132 25.4 58.9 216.3

2010 4 150 0.2 11.3 161.5 34 5.3 36.6 76.0 184 5.5 48.0 237.5

2010 5 286 1.2 11.3 298.5 121 22.9 40.2 184.0 407 24.1 51.5 482.5

2010 6 61 0.2 5.2 66.4 243 14.4 50.9 308.3 304 14.6 56.1 374.7

YE 6-30-10 1,336 60.6 111.4 1,508.0 1,184 162.2 515.6 1,861.8 2,520 222.9 627.0 3,369.8

2010 7 95 0.3 10.0 105.3 107 42.2 51.4 200.6 202 42.4 61.4 305.9

2010 8 57 0.0 11.3 68.3 70 15.8 70.3 156.1 127 15.8 81.6 224.3

2010 9 58 0.0 7.4 65.4 56 16.1 43.0 115.1 114 16.1 50.4 180.4

2010 10 170 0.7 6.0 176.6 98 13.9 44.3 156.1 268 14.5 50.3 332.8

2010 11 162 0.0 2.3 164.3 41 8.6 34.5 84.2 203 8.6 36.8 248.4

2010 12 10 0.0 0.9 10.9 30 0.0 20.6 50.6 40 0.0 21.5 61.5

2011 1 47 5.8 5.8 58.6 408 16.2 60.6 484.8 455 22.1 66.4 543.4

2011 2 66 2.3 2.4 70.6 65 9.1 42.5 116.6 131 11.4 44.9 187.2

2011 3 118 17.3 5.0 140.3 131 14.3 56.5 201.9 249 31.6 61.5 342.1

2011 4 111 0.2 4.8 116.0 63 11.0 37.8 111.8 174 11.2 42.5 227.7

2011 5 72 0.3 2.3 74.6 104 28.4 26.6 158.9 176 28.7 28.9 233.6

2011 6 56 0.0 4.9 60.9 277 4.5 40.0 321.5 333 4.5 44.9 382.4

YE 6-30-11 1,022 26.8 62.9 1,111.8 1,450 180.0 528.2 2,158.1 2,472 206.8 591.1 3,269.9

2011 7 133 0.5 9.7 143.2 159 19.4 52.7 231.0 292 19.8 62.4 374.2

2011 8 82 2.7 3.5 88.2 97 18.6 62.6 178.2 179 21.3 66.1 266.4

2011 9 70 0.6 2.0 72.6 98 14.3 42.3 154.6 168 14.9 44.2 227.2

2011 10 79 1.6 8.0 88.5 119 16.9 41.9 177.8 198 18.5 49.8 266.3

2011 11 89 0.6 6.9 96.5 76 9.7 34.9 120.7 165 10.3 41.8 217.1

2011 12 78 0.9 2.6 81.6 99 12.2 35.5 146.7 177 13.1 38.2 228.3

2012 1 14 0.1 2.8 16.9 63 6.6 52.2 121.8 77 6.7 55.0 138.6

2012 2 81 0.1 8.2 89.3 90 9.5 33.2 132.7 171 9.6 41.4 221.9

2012 3 44 0.2 8.5 52.7 53 12.4 53.1 118.5 97 12.6 61.5 171.2

2012 4 50 0.0 4.3 54.3 48 9.3 38.2 95.4 98 9.3 42.5 149.7

2012 5 98 1.2 3.9 103.1 119 21.5 31.9 172.3 217 22.7 35.7 275.4

2012 6 94 0.0 1.4 95.4 202 7.6 67.4 277.0 296 7.6 68.8 372.5

YE 6-30-12 912 8.5 61.7 982.2 1,223 157.9 545.7 1,926.6 2,135 166.4 607.4 2,908.8

Note: PEQs, passenger equivalents, 200 pounds of mail or freight is equivalent to one PEQ.Appendix C

Example of General Terms and Conditions for Essential Air Service 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 prior approval. The carrier understands that an aircraft take

- off and landing at its scheduled destination constitutes a completed flight; absent an explanation supporting subsidy eligib ility 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 flights in full conformance with the
Order for a significant period, it may jeopardize its entire subsidy claim for the period in question. If the carrier contemplates any such changes beyond the scope of the Order during the applicable period of these rates, it must first notify the Office of Aviatio n Analysis in writing and receive written approval from the Department to be ensured of full compensation. Should circumstances warrant, the Department may locate and select a replacement carrier to provide service on these routes. The carrier must compl ete 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 should be adjusted or disallowed, the Department will consider the extent t o which the goals of the program are met and the extent of access to the national air transportation system provided to the communit i es

.

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 the stipulated amounts or at the stipulated service levels, the carrier may cease to provide service to that specific location without regard to any requirement for
notice of such cessation. Those adjustments in the levels of subsidy and/or service that are mutually agreed to in writing by the Department and carrier do not constitute a total or partial red uction or cessation of payment.

Subsidy contracts 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 n ot operate to controvert the foregoing paragraph.

Funds are not currently available for performance under this solicitation beyond [DATE]. The Department’s obligation for performance under this solicitation beyond [DATE], is contingent upon the availabil ity 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 [DATE], until funds are made available to the Department for performa nce. If funds are not made available for performance beyond [DATE], the carrier will receive notice in writing by the Department.

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