Order 2010

- 7

- 9 Served: July

15, 2010 

### UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION 

### OFFICE OF THE SECRETARY WASHINGTON, D.C.

Is sued by the Department of Transportation on the 15 th of July , 2010 Essential Air Service at ADAK, ATKA, AND NIKOLSKI, ALASKA Under 49 U.S.C. 41731 et seq
. DOCKET OST - 2000 - 8556 DOCKET OST - 1995 - 363 DOCKET OST - 1995 - 363

ORDER RESELECTING CARRIER S Summary By this order , the Department is reselecting Alaska Airlines to provide essential air service (EAS) at Adak, Alaska, at an annual subsidy rate of $1,675,703 , and Peninsula Airway s , Inc. (PenAir), for $290,780 at Atka and $639,008 at Nikolski. The three rates extend through June 30, 2012

. 1 Background Order 2008

- 3

- 36 re selected Alaska Airlines to provide two one

- stop ro und trips a week with Boeing 737

- 400 aircraft between Adak and Anchorage, for the two
- ye ar period end ing June 30 , 20 10 , at the annual subsidy rate of $1,483,122

. Th at order also reselected PenAir to provide Atka with four nonstop round trips per week to D utch Harbor with Piper T

- 1040 aircraft for $ 513,803 annual subsidy , and Nikolski with two nonstop round trips per week to Dutch Harbor for $ 469,786 annual subsidy , both through June 30, 20 10

. By Order 2009

- 6

- 28 we approved an alternate service pattern at Atka, whereby the community

would receive a reduced frequency of three round trips per week but with a larger Metro I II aircraft. 2 Inanticipation of the end of the current contract s on July

1, b y Order 20 10

- 2

- 5 we requested proposals at all three communi ties , with proposals due April 14. We received timely filed proposals from Alaska Airlines (for
1 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of appropriated funds. 2 PenAir configures the aircraft with eight seats, but the aircraft can be certified for up to 19 seats.- 2

-

Adak) and PenAir (for all three communities) , and requested comments from the communities

. On April 6 the state of Alaska requested an extension to May 5, 201 0, to submit comments, and by notice dated April 7 we granted the state’s request. On April 16 we received comments from the state, and the issue is ripe for decision. Carrier Proposals Adak Alaska Airlines proposes to operate two nonstop or one - stop round trips per week to Anchorage with B

- 737

- 400 aircraft for $1,675,703 annual compensation

. This reflects the same frequency and aircraft that Alaska Airlines currently provides Adak. PenAir proposes to operate five (four combis and one all

- cargo) one - stop round trips per week to Anchorage with Saab 340 aircraft for $ 84 9,435 annual subsidy

. Atka PenAir was the only

carrier to submit a proposal at Atka. PenAir submitted two proposals at Atka. Under Option 1, the carrier would provide three nonstop round trips per week to Dutch Harbor with Metro I II aircraft for $290,780 annual subsidy

. This reflects the same level of service PenAir currently

provides Atka. Under Option 2, PenAir would provide two nonstop round trips per week to Dutch Harbor with Me tro I II aircraft for $154,215 annual subsidy

. Nikolski PenAir was the only

carrier to submit a proposal at Nikolski. PenAir proposes to operate two nonstop round trips per week to Dutch Harbor with 9

- seat Grumman Goose aircraft for $639,008 annual subsidy. This reflects the same level of service PenAir currently provides Nikolski. 3 Community Comments W e have received community comment s regarding the carrier selection at Adak , and PenAir’s two proposals at Atka. There was only one option for considerati on at Nikolski, where only PenAir submitted a proposal , and after the deadline for proposals, we received a number of c omment s . Adak At Adak, we received comments from the Adak Community Development Corporation, The Boeing Company , Adak Eagle Enterprises , Aleut Corporation, Mr. Dave Fraser, M/V Savage, In c., The Adak General Store, The Fishing Company of Alaska, and the Alaska Department of Transportation and Public Facilities. There was unanimous support for Alaska Airlines. The Adak Community

Developm ent Corporation notes that it “has been discussing plans with [Alaska Airlines] for the shipment of live crab ...that could conceivably begin as early

as in the coming year. [Alaska Airlines’ jet service] will greatly help towards the development of Adak as

3 In Order 2008

- 3

- 36 w e allowed PenAir to substitute other, less expensive aircraft for the Grumman Goose, albeit at a prescribed lower subsidy rate. PenAir has since disposed of those aircraft. PenAir indicates it will no longer substitute any aircraft for the Goose.- 3

-

a major economic hub for the Western Aleutians

– and a major crossroad fo r the continents that it was meant to be.” The Boeing Comp any noted that it ha d a presence in Adak and found that Alaska Airline’s service met its freight and passenger requirements with “ freight, mail, and cargo capacity that a non

-

jet carrier simply

cannot provide. All of these jet service capabilities are critical to the success of the Adak community in maintaining and growing our economy .” Mr. Dave Fraser notes that Alaska Airl ines ’ service “is truly essential to the survival and economic development of Adak as a struggling community in the Aleutian I slands.” The Adak G eneral Store notes that “especially in the absence of barge service at Adak, all grocery and other needs are p rovided at Adak through air s ervice. We have had PenAir service in the past and they proved they

could not handle the mail, let alone freight. The y promised their Saab would come at least once a week, and it never came, except for perhaps three times during their whole contract period.” The Fishing Company of Alaska states that picking PenAir “would cause Adak to cease to exist as a community [because] we would lose the housing and emergency medical services that this remote location provides. This community is part of the community /industry that feeds the world and provides thousands of jobs for people all over this country . [Alaska Airlines ’ jet service] provides freight, mail, and cargo capacity that a non

-

jet carrier simply cannot provide. The 737

- 400 combi aircraft is equipped with Required N avigation P erformance Technology , which enables the airline to reliably access the airport during inclement weather, thus reducing divers ions and cancellat i ons and, in turn enabling people and products to depen dably

reach the community .” M/V Savage, Inc., utilizes “Adak Is l and for all of our logistical support while we are fishing in the Aleutian I slands. Adak has the only reliable air service in the Aleutian I sland fisheries management area. [The company] de pends on Alaska Airlines to do large crew changes and shipping foods and parts into Adak. [ Alaska Airlines’ 737

- 400 ] has been very

reliable in making it into Adak in the adverse weather conditions which are so common in Adak. ” Finally , the State of Alask a maintains that Alaska Airlines’ service provides “critical connection s to one of the most remote communities in our nation. [T] he community

is the best judge of the level and ty pe of service required to meet the essential needs of the people.” Atka W e received comments from the City support ing PenAir’s Option 1, three round trips a week to Dutch Harbor. It notes that regular air service is essential to the community

. Nikolski After the deadline for comments had expired, w e received comments from the Chaluka Corporation, the village corporation of Nikolski , and from Four Mountains, LLC

. While those comments had been addressed to the State of Alaska and subsequently forwarded to us , we will consider them on the record

. We also received responses from the State of Alaska and from PenAir to those comments

. Four Mountains states that

“ We have worked in the Aleutians since 1994 and certainly understand the problems with weather and equipment, but since [the beginning of ] PenAir’s Goose

- only

flights to Nikolski, there has been a dramatic degradation of service. No one in Nikolski is happy- 4

-

with PenAir. One resident said that this winter and spring PenAir has had on average one flight every

three weeks. It is remarkable to us when we read the Essential Air Service requirements that PenAir gets paid whether they really service Nikolski or not. ” 4 Chaluka Corporation confirms the difficulty PenAir encounters operating in the area. They note that a flight was attempted on March 29, but turned around 15 mi nutes after departure due to a massive snow squall. Pursuant to that cancellation , Chaluka notes the following : “Due to bad weather between Dutch Harbor and Nikolski, the [next day] flight never happened until April 13 , 2010. Itis difficult for people in Nikolski to make their doctor appointments, get their medication refilled, and even pay their bills on time. The only times that people are able to get out of Nikolski is when a charter shows up. That can get c ostly for individuals. ” Inresponse, the state indicates that they have met with PenAir to discuss options for increased reliability of service, notwithstanding inadequate airfield maintenance and facilities at Nikolski beyond the control of it or PenAir.

“ The State of Alaska has no operation al interest at the Nikolski a ir strip; this is a community

- owned facility and resources for airfield maintenance and improvements are nonexistent. The extreme weather conditions prevalent in the area contribute further to the challenges faced by

air carri ers attempting to operate regular service in this remote region of Alaska. We have met with PenAir to discuss options for increased reliability of service and after careful consideration of the issues, it is our position that the air carrier is providing the best service currently available. Several efforts are in process that might contribute to improved service, reliability , and competition. It is unclear when the Automated Weather Observing Sy stem (AWOS) will be certified and even these changes will n ot overcome the extreme weather conditions that make regular scheduled service to Nikolski problematic. Should we discover changes that improve reliability of service to Nikolski, we will communicate them to USDOT. ” Department s taff discussed the situation with PenAir as well. In a letter to the Department, PenAir states: “We share the frustration of the commenters... The recent cancellations to which Chaluka and Four Mountains refer are the direct result of the harsh weather. Adverse weather is, of c ourse, beyond PenAir’s control. And, PenAir’s Grumman Goose is the only aircraft in its fleet that can saf e ly operate to that community because it has oversized tires that are designed to be used on harsh gravel runways. PenAir cannot operate any

other a ircraft ty

pe to Nikolski without the serious risk of causing damage to the aircraft. ”

4 We note th at c om

pensation under the EAS program is paid on a completed

- flight basis, so the concern that PenAir wa s being paid regardless of w hether it completed its flights or not is unfounded.- 5

-

PenAir goes on to note that in 2009, out of 102 flights scheduled to Nikolski, 39 operated as scheduled, while 63 were cancelled for reasons beyond PenAir’s control. Ho wever, PenAir undertook extra efforts and made up those flights, so that 92 its 102 scheduled operations were eventually

completed. Decision - Adak As we have previously

stated, while required by statute to give great weight to community preferences, the Department has traditionally given even more significant weight to the desires of Alaska communities vs. non

- Alaska communities since they are more dependent on air service. 5 Inthis case , the community is unanimous in its support for Alaska Airlines ’ servi ce because of the long distances involved and the jet’s extra freight capacity that can address the special needs of Adak’s fishing industry

. While PenAir’s proposed subsidy is $826,268 less than Alaska’s , the community ’s desire to continue to have Alaska Airlines provide EAS carries great weight with us. When we first selected Alaska Airlines to provide service to Adak in 2003 , we noted that the $749,095 difference in subsidy request, while substantial, was overridden by the community ’s desire to have Al aska Airlines as their carrier. We also cautioned that if either traffic did not increase or the level of subsidy support needed did not decline, we would not be receptive to making a similar decision in future cases . Since then, the traffic generated by Alaska Airlines has almost doubled, from 3,913 passenger equivalents 6 in 2003 to 7,769 in 200 9

. T raffic appears to have plateaued in recent years and subsidy has increased slightly

. Finally , we have reviewed Alaska Airlines proposal, and it appears reas onable for the level of service proposed. Therefore, even though we remain concerned by the high level of subsidy required for Adak service, the additional subsidy

is justified under these circumstances and we will therefore reselect Alaska Airlines for an additional two years. Decision - Atka PenAir ’s Option 1 proposes to continue the same three round trips per week with Metro III aircraft that it currently

provides

-- Order 2009

- 6

- 28 allowed for alternate service from what had been selected

. Option 2 w ould reduce this level of service to two round trips per week with a Metro III for $154,215 annual subsidy . PenAir’s proposed annual subsidy at Atka under Option 1, status quo service, reflects a decrease of $223,023 from the current rate. Moreover, the community

strongly supports the continuation of the three

- round

- trip

- a - week service, and Atka is an extremely

isolated island with no other access to the national transportation system. We have reviewed PenAir’s proposal, and it appears reasonable for the level of service proposed. Under these circumstances, we will not reduce Atka’s level of service. Decision - Nikolski As all parties agree, operating bush aircraft out of Dutch Harbor is very difficult . The three subsidized bush communities with Dutch Harbor as a hub, as well as Dutch Harbor itself , face the notorious Aleutian weather conditions and are extreme ly isolat ed . D utch Harbor, the regional hub, is 792 miles from PenAir’s hub at Anchorage, while Akutan , Nikolski , and Atka are 35, 116, and 340 miles, respectively , beyond Dutch Harbor from Anchorage

. Each of the three

5 See Order 2003

- 1

- 8. 6 200 pounds of mail or freight is one passenger equivalent.- 6

-

communities faces different operating problems from the others. Akutan, the largest bush community , can only

be served with a seaplane, and PenAir’s Grumman Goose is the best seap lane available for the task. 7 At Atka a new runway was completed in 2009 , allowing PenAir to replace its slower, less weather

- capable Piper T

- 1040 aircraft with larger Metro I II aircraft , allowing PenAir to dispose of its Piper T

- 1040 aircraft which until then had been subsidized. 8 Unfortunately , as PenAir indicates , PenAir’s Metro I II cannot serve Nikolski. W e are very concerned with the poor service at Nikolski highlighted by the community ’s comments
. PenAir indicates that it completed 92 of 102 op e rations at Nikolski in 2009, which is commendable given the operating conditions. However, as Four Mountains asserted, and as confirmed by

PenAir’s monthly

billings, PenAir’s service has deteriorated since then . For the six months from May

2009 thru Octo ber 2009, PenAir completed almost 80 percent of its flights at Nikolski , but f

or the following six months, November 2009 thru April 2010, only slightly more than a third of its flights. Because no other carrier submitted a bid at Nikolski, we are required to continue to rely on PenAir to provide service at the community for the foreseeable future. While a 37 percent completion factor is very

poor, the state of Alaska has indicated that PenAir is doing as good a job as possible, and notes that “[s]everal efforts are in process that might contribute to improved service, reliability , or competition” such as certification of an Automated Weather Observing Sy stem (AWOS). We will therefore reselect PenAir for a two

- ye ar period at the rate it has proposed at N ikolski. We encourage the carrier, community , and state to continue to work together to provide improved service. We will, of course, work with the parties to work out any possible air service improvements. Carrier Fitness 49 U.S.C. 41737(b) requires th at DOT find an air carrier fit, willing, and able to provide reliable service before DOT may

subsidize it to provide essential air service. Alaska Airlines, Inc., and Peninsula Airway s, Inc., are subject to the Department’s continuing fitness requirements , and no information has come to our attention that would cause us to question the carriers ’ fitness at this time. DOT has contacted the Federal Aviation Administration, and it has raised no concerns that would negatively

affect our fitness finding s . DOT therefore concludes that the carrier s remain fit to conduct the operations proposed here. This order is issued under authority delegated in 49 CFR 1.56a(f).

7 The Grumman Goose was first certificated in the 1930’s, and thus has extraordinarily high maintenance costs. Nevertheless, its operating characteristics

– it is essentially a flying boat

– that allow it to land and takeoff reliably and safel y from Dutch Harbor to nearby Akutan’s relatively rough open water that more modern seaplanes could not. A landing strip is under construction at Akutan, which would allow operations with wheeled aircraft, but it is not clear w hen that landing strip will be completed. 8 Order 2009

- 6

- 28, June 30, 2009, allow ed PenAir to replace its Piper T

- 1040 aircraft with the Metro III. Until then, the Piper T

- 1040 was able to not only serve Atka but provide backup at Nikolski when the Grumman Goose wa s unavailable.- 7

-

ACCORDINGLY, 1. We re select Alaska Airlines, In c., to provide essential air service at Adak, Alaska, as described in Appendix C

- 1; 2. We re select Peninsula Airway s, Inc., to provide essential air service at Atka and Nikolski, Alaska, as described in Appendices C

- 2 and C

- 3 ; 3 . We direct Alaska Airlines, In c., and Peninsula Airway s, Inc., to ret ain all books, records, and other source and summary documentation to support claims for pay ment, and to preserve and maintain such documentation in a manner that readily permits its audit and examination by representatives of the Department. Such documentation shall be retained for seven years or until the Department indicates that the records may be destroyed, whichever 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 . We find that Alaska Airlines, In c., continue s to be fit, willing and able to operate and capable of providing reliable essential air service at Adak, Alaska; 5 . We find that Peninsula Airw ay s, In c., continues to be fit, willing and able to operate and capable of providing reliable essential air service at Atka and Nikolski, Alaska; 6 . Th ese docket s will remain open until further order of the Department; and 7 . We will serve copies of this order on the cit ies of Adak, Atka, and Nikolski, the State Department of Transportation and Public Facilities, Peninsula Airways, In c., and Alaska Airlines, Inc. By : Susan L. Kurland Assistant Secretary

for Aviation and International Affairs (SEAL ) An electronic version of this document is available on the W orld W ide W eb at http://www.regulations.govAppendix A

Nonstop Miles to Anchorage ADK, Adak 1,192 AKB, Atka 1,101 IK O, Nikolski 9 05 DUT, Dutch Harbor 792 CDB, Cold Bay 621 PTH, Port Heiden 424 BET, Bethel 399 AKN, King Salmon 289 Other Mileages Atka to Adak 107 Atka to Nikolski 231 Atka to Dutch Harbor 340 Nikolski to Adak 337 Nikolski to Dutch Harbor 116 Adak to Dutch Harbor 445Appendix B
Annual Subsidy at Adak, Atka, and Nikolski, Alaska

Adak Atka Nikolski Carrier Alaska Airlines PenAir PenAir Docket Numbers 2000-8556 1995-363 1995-363 Hub Anchorage Dutch Harbor Dutch Harbor Weekly Round Trips 2 3 2 Passenger Revenue $1,467,709 $241,695 $62,115 Freight Revenue $391,159 $65,075 $15,337 Mail Revenue $193,899 $167,041 $59,117 Tpt. Related, Other $615,143 $0 $0 Total Revenue $2,667,910 $473,811 $136,569 Flying Ops $838,657 $175,863 $224,407 Fuel $1,080,758 $144,703 $66,649 Maintenance $683,006 $207,820 $252,727 Aircraft $106,030 $20,808 $39,448 Total Directs $2,708,451 $549,194 $583,231 Total Indirects $1,382,087 $178,987 $155,413 Total Operating $4,090,538 $728,183 $738,645 Return @ 5% $204,527 $36,409 $36,932 Interest $48,548 $0 $0 Total Economic Cost $4,343,613 $764,592 $775,577 Annual Subsidy $1,675,703 $290,780 $639,008Appendix C

- 1 Alaska Airlines, Inc., Essential Air Service to be Provided to

Adak, Alaska, Dockets OST - 2000 - 8556 Effective Period : July

1, 20 10 , through June 30, 2012

. Scheduled Servic e : 2 nonstop or one - stop round trips per week to Anchorage. Aircraft : B

- 737

- 400 Rate per Eligible Flight: $ 8,056 1 Weekly Ceiling : $ 32,224 2 Note: The carrier understands that it may forfeit its compensation for any flights that it does not operate in con formance with the terms and stipulations of the rate order, including the service plans outlined in the order and any other significan t 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 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 flights in full conformance with the order for a significant per iod, 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 this rate, it must first notify the Office of Aviation Analysis in wr iting and receive written approval from the Department to be ensured of full compensation. Should circumstances warrant, the Departm ent may locate and select a replacement carrier to provide service 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 should be adjusted or disallowed, the Department will consider the extent to which the goals of the program are met and the extent of access to the national air transportation system provided to the community. If the Department unilaterally, either partially or complete ly , 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 w hich the Department does make payments i n 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 reduction 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 not operate to controvert the foregoing paragraph. Funds are not currently available for performance under this order beyond September 30, 2010 . The G overnment’s obligation for performance under this order beyond September 30, 2010 , is subject to the availability 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, 2010 , until funds are made available to the Department for performance. If funds are not made available for performance beyond September 30, 2010 , 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 $1,675,703 divided by the estimated annual completed departures and arrivals: 4 flights/week x 52 weeks = 208 total. 2 4 flights/week x $ 8,056

.Appendix C

- 2 Peninsula Airways, Inc., Essential Air Service to be Provided to

Atka , Alaska, Docket OST - 1995 - 363 Effectiv e Period : July

1, 20 10 , through June 30, 2012

. Scheduled Service : 3 nonstop round trips per week to Dutch Harbor. Aircraft : Metro I II, 8

- seats Rate per Eligible Flight: $ 932 1 Weekly Ceiling : $ 5,592 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 significan t elements of the required service, without prior approval. T he 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 flights in full conformance with the order for a significant per iod, it may jeopardize its entire subsidy claim for the period in ques tion. If the carrier contemplates 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 wr iting and receive written approval from the Department to be ensured of f ull compensation. Should circumstances warrant, the Department may locate and select a replacement carrier to provide service on these routes. The carrier must complete all flights that can be safely operated; flights that overfly points for lack of traf fic will not be compensated. In determining whether subsidy payment for a deviating flight should be adjusted or disallowed, the Department will consider the extent to which the goals of the program are met and the extent of access to the national air tra nsportation system provided to the community. If the Department unilaterally, either partially or complete ly , 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 w hich 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. Th ose 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 reduction or cessation of payment. Subsidy contracts are subject to, and incorporate by refer ence, 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 pe rformance under this order beyond September 30, 2010 . The Government’s obligation for performance under this order beyond September 30, 2010 , is subject to the availability of appropriated funds from which payment for services can be made. No legal liabi lity on the part of the Government for any payment may arise for performance under this order beyond September 30, 2010 , until funds are made available to the Department for performance. If funds are not made available for performance beyond September 30, 2010 , 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 $290,780 divided by the estimated annual completed departures an d arrivals: 6 flights/week x 52 weeks = 312 total. 2 6 flights/week x $ 932

.Appendix C

- 3 Peninsula Airways, Inc., Essential Air Service to be Provided to

Nikolski, Alaska, Docket OST - 1995 - 363 Effective Period : July

1, 20 10 , through June 30, 2012

. Scheduled Service : 2 nonstop round trips per week to Dutch Harbor. Aircraft Ty

pe : Grumman Goose, 9

- seats 1 Rate per Eligible Flight: $ 3 , 072 2 Week ly Ceiling : $ 12,288 3 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 o ther 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 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 flights in full conformance with the order for a signific ant 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 this rate, it must first notify the Office of Aviation Analysis i n wr iting 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 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 should be adjusted or disallowed, the Department will consider the extent to which the goals of the program are met and the extent of access to the national air transportation system provided to the community. If the Department unilaterally, either partially or complete ly , terminates or reduces payments for service or changes service requir ements at a specific location provided for under this order, then, at the end of the period for w hich 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 reduction or cess ation 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 not operate to controvert the foregoing paragraph. Funds are not currently available for performance under this order beyond September 30, 2010 . The Government’s obligation for performance under this order beyond September 30, 2010 , is subject to the availability of ap propriated 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, 2010 , until funds are made available to the Department for perfo rmance. If funds are not made available for performance beyond September 30, 2010 , 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 PenAir proposes to operate the Grumman Goose, a very expensive aircraft type for its size. If an aircraft type is substituted more than once a month, an adjustment to the subsi dy rate may be required. 2 Annual compensation of $639,008 divided by the estimated annual completed departures and arrivals: 4 flights/week x 52 weeks = 208 total. 3 4 flights/week x $ 3,072

.