Order 2012

- 5

- 24 Served: May 24, 2012



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

Issued by the Department of Transportation on the 24 th of May, 2012

Essential Air Service at :

Adak , Alaska

under 49 U.S.C. 41731 et seq

. DOCKET DOT

- OST

- 200 0

- 8556

ORDER RE

- SOLICITING PROPOSALS

Summary By this Order , the Department is re

- soliciting proposals from all interested carriers to provide subsidized Essential Air Service (EAS) at Adak

, Alaska

. Proposals are due by June 26, 2012

. (See Appendix A for a map.)

Background By Order 2 01 0

- 7

- 9, July 15, 2010, the Department selected Alaska Airlines, Inc. to provide two nonstop or one

- stop round trips per week between Adak and Anchorage with Boeing 737

- 400 aircraft for $1,675,703 annually through June 30, 2012. The Order als o selected Penin su la Airways, Inc., (PenAir) at Atka and Nikolski, Alaska

, for $290,780 and $639,008 annually, respectively.

As the end of the current rate term was approaching, by Order 2012

- 2

- 8, February 10, 2012, we requested proposals from carriers interested in providing service at all three communities no later than Mar ch 9, 2012. On March 1, 2 0 12, PenAir requested a two

- week extension, until March 23, 2012, to submit proposals, and by notice dated March 2, 2012, we granted that request

. On March 21, 2012, Grant Aviation, Inc.

, requested a one

- week extension to March 3 0, 2012. By notice dated March 22, 2012, we granted that request.

On March 30, 2012, w e received proposals at all three communities. At Adak, we received a proposal from only one carrier, PenAir

. PenAir requests $3,440,097 annual subsidy to provide f

our nonstop round trips per week between Adak and Anchorage with a 34

- seat Saab 340 aircraft. PenAir ’s proposal contemplates a stop at Cold Bay, not to pick up any additional traffic

, but for the purpose of fueling the aircraft required by the long haul b etween Adak and- 2

-

Anchorage. At Atka and Nikolski

, Order 2012

- 5

- 20, May 23, 2012, select ed Grant Aviation to serve those communities. This Order addresses Adak only. 1

Community Comments We received comments from the City of Adak on May 11, 2012. The city indicates the follow ing :

“ The cargo capacity of Pen Air ' s aircraft

, the Saab 340, is substantially smaller than what is available with our current carrier and causes the most concern regarding this proposal. With the reopening of the local fish processing plant by Icicle Seafoods, we have seen firsthand the increased needs and capacity utilization by the community. In January 2012

, the community saw an influx of approximately 150 personnel for the fish plant. With the Saab 340's capacity of 30 passengers per f light, a minimum of five flights would be booked with no mail and freight on the flights during this time period. With the proposed schedule, the community could realistically encounter a situation of having no mail and frei ght f or at least a week

. If we multiplied this several times during the year, the effects seen would be severe.
It should also be noted that Adak Island does not have regular barge service and the community is entirely dependent on air service for all items, including but not limited to

, dry goods, groceries, medicine, perishable and other time

sensitive goods.

The community is furthe rm ore concerned with the ability of PenAir to complete its proposed schedule. It is no secret that the weather on Adak is fluid at best and for all intents and purposes unpredictable. We are concerned that the actual completion percentage will be similar to Atka (approximately 65%). As a result, the community is concerned that flight cancellations will result in similar situations experienced in Dutch Harbor and Cold Bay with long standby lists and the unexpected financial costs travelers will incur. ”

Decision The community is concerned that the level of service proposed by PenAir is inferior to what Adak currently receives , and that sufficient cargo capacity will not always be available

. 2 However, PenAir’s propo sal meets the statutory provisions of 49 U.S.C. §4173 1 et seq , for providing basic EAS

. We believe many of the community’s concerns with PenAir’s proposed service are misplaced. Much of the feared unreliability and insufficiency of PenAir’s proposal relate to PenAir’s performance at nearby Atka and Nikolski, where we have confirmed that PenA ir completes approximately two thirds of its scheduled flights. PenAir’s proposal would

1 While Alaska Airlines chose not to submit a notice to suspend service, under our rules, incumbent carriers are eligible for compensation after the end of the contract until we find a replacement carrier. We anticipate issuing an order setting a final rat e for Alaska Airlines service for their service for the period from July 1, 2012, until further notice. Only a fter we select a carrier and it actually begins the replacement service, the incumbent carrier’s obligation to provide EAS at the community ends.
2 Capacity levels should reasonably accommodate historical traffic, but need not ensure that there never be insufficient lift to accommodate unusual fluctuations.- 3

-

bypass Dutch Harbor altogether and instead land at Cold Bay, where PenAir’s completion factor is much better.

We have decided to re

- bid proposals for Adak. While both the community and Department are dissatisfied with the current options before us, we wish to highlight the fact that the sources of our dissatisfactions are different. We are concerned that the level of subsidy PenAir requests is very high

-- more th an twice the level we have been paying Alaska Airlines for its current contract provided with full

- sized jet aircraft

. Based on all of the above, we have decided that the best option is to re

- solicit proposals. 3

Request for Proposals Carriers interested in filing proposals for Adak

-- with or without subsidy

-- should

e

- mail them to our staff at EAS@dot.gov

, no later than June 26 , 2011. Our staff will then docket the proposals, thereby making them p ublic, and we suggest that each applicant serve a copy of its proposal on the civic parties and other applicants. Shortly thereafter w e will provide a summary of the proposals to the community officials and ask them to submit their final comments two week s later . We will give full consideration to all proposals filed in a timely manner. 4

Interested carriers should prepare their proposals with every expectation that their initial proposals will also be their final and only proposals. 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 unrealis tic proposals and solicit a new round of proposals.

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. We expect proposals to adequat ely 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 as well as support ing 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 Department. We do not anticipate an y change in our selection criteria, or in the general provisions governing subsidy payments for Essential Air Service

. 5

3 49 U.S.C. §41734(f) directs the Department, when prohibiting a carrier from terminating service, “to make every effort to find another carrier” to provide basic EAS as quickly as possible.
4 Carriers should not expect the Department to accept late filings. In cases where a carrier proposes to provide EAS without subsidy and we determine tha t 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.
5 In selecting a carrier to provide subsidized E ssential A ir S ervice in Alaska , 49 U.S.C. 41733(c) (1) directs us to consider f ive factors. (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) experience of the applicant in providing, in Alaska, scheduled air service or significant non

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

- 161

, provides that when selecting a car rier to provide EAS, the Department may consider the relative subsidy requirements, thus codifying a factor that we have considered since the inception of the program. Interested carriers should also be aware that our general provisions governing Essentia l Air Service will be included in the selection Order as part of our authorization of subsidy for the selected service. Appendix C of this Order contains those general provisions.- 4

-

With specific respect to Adak, Alaska Airlines provide s service consisting of two nonstop round trips per week

, but with very large Boeing 737

- 400 aircraft

, and that level of service appears to have exceeded the amount of capacity reasonably required to accommodate traffic

. We expect proposals consisting of a minimum of three round trips
per week for nonstop service with smaller aircr aft than the jet equipment operated by Alaska Airlines, with sufficient capa city to reasonably accommodate the historical traffic deplaning a t Adak, 6 as shown in Appendix B. 7 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 possibilitie s

– different hubs, or longer terms for the contracted service

– with subsidy requirements that remain competitive. 8

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 the y can craft them to best meet the communit y’s needs. As always, we will fully consider the community’s views before making a long

- term carrier

- selection decision.

Notwithstanding some concern about relying on Dutch Harbor, we will not dismiss proposals involving Dutch Harbor, either as an intermediate stop or as a connecting hub, that provides reasonable access to the national air transportation system.

However, we would not dismiss any proposal out of hand without first consulting with

commun ity officials. We encourage any proposal that would simultaneously satisfy the community’s needs and minimize taxpayer expenditures.

In order to assist carriers in makin g their passenger and revenue forecasts, we have includ ed historical passenger , mai l, and freight data in Appendix B. We note that Adak is a reasonably strong traffic generator for the EAS program in Alaska

, although its level of subsidy is far above the averag e in Alaska.

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 published on Regulations.gov, each page should be formatted to be viewed online.

6 As shown in Appendix B, outbound traffic, Anchorage to Adak, has histori cally exceeded inbound traffic, Adak to Anchorage, because of the directional imbalance of mail and freight.
7 If carriers wish, they can request longer contract than the typical two

- year period. 8 We note that Adak at one time received subsidized servic e at the same time from two different carriers, Evergreen and PenAir. Evergreen, an all

- cargo carrier, provided the bulk of the cargo lift, while PenAir provided service the passenger service. While this is highly unusual, we would not reject any proposa l out of hand without first seeking community input.- 5

-

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

- free workplaces and nondiscrimination. 9 Consequently, all carriers receiving Federal subsidy to support Essential Air Service must certify that they are in compliance with Departmen t regulations regarding drug

- free workplaces and nondiscrimination, and those carriers whose subsidies exceed $100,000 over the life of the rate term must also certify that they are in compliance with the regulations governing lobbying activities. All car riers that plan to submit proposals involving subsidy should submit the required certifications along with their proposals. Interested carriers requiring more detailed information regarding these requirements, as well as copies of the certifications, shou ld 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. 10

Community Comments The communit y and the State are welcome to submit comments on the proposa ls at any time. As noted earlier, we will provide a summary of the proposals to the civic parties and the State and ask them to submit their final comments approximately two weeks after the carrier proposals are received

.

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

ACCORDINGLY;

1. The Department requests proposals from carriers interested in providing Essential Air Service , with subsidy if necessary, by June 26

. Proposals should be emailed to EAS@dot.gov and be entitled “Proposals to Provide Essential Air Service at Adak

, Docket 200 0

- 8556

. ” Service should be consistent with that discussed in the body of the Order

. Questions regarding filings may be directed to Kevin Adams at 202

- 366

- 1047 ;

2 . Th is docket will remain open until further Order of the Department; and

9 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 Transport ation

– Effectuation of title VI of the Civil Rights 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) 49 CFR Part 29

– Government

- wide debarment and suspension (non

- procurement) and government

wide requirements for drug

- free workplace (grants).
10 The certifications are also available on the web at http://ostp xweb.dot.gov/aviation/index.html.- 6

-

3 . The Department will serve a copy of this Order on the mayor and airport manager of Adak

, Alaska , Pinnacle Airlines Corporation, Gulfstream International Airlines, Inc., Intrepid International, and on the carriers in our service list.

By:

T ODD M. HOMAN Director Office of Aviation Analysis (SEAL) An electronic version of this document is availabl e

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

Nonstop Great Circle Miles from Anchorage (ANC)) Adak (ADK) 1,192 Atka (AKB) 1,100 Nikolski (IKO) 905 Dutch Harbor (DUT) 791 Cold Bay (CDB) 620

Other Nonstop Great Circle Miles ADK

- AKB 107 AKB

- IKO 231 IKO

- DUT 116 ADK

- DUT 445 AKB

- DUT 339 ADK

- CDB 616Appendix B

Alaska Airlines, T-100 Report, Adak, Scheduled Service

Origin of Adak Destination of Adak O&D of Adak

Passenger Equivalents (PEQ) Passenger Equivalents (PEQ) Passenger Equivalents (PEQ) Year Month Pax. Frt Mail Total Pax. Frt Mail Total Pax. Frt Mail Total 2009 4 260 3.2 6.9 270.1 135 168.4 96.3 399.7 395 171.6 103.3 669.8 2009 5 112 14.3 3.8 130.2 176 134.1 111.2 421.3 288 148.4 115.1 551.5 2009 6 135 95.5 2.9 233.4 145 123.7 92.3 361.0 280 219.2 95.2 594.4 2009 7 173 63.1 9.1 245.2 228 223.9 107.8 559.7 401 287.0 116.9 804.9 2009 8 230 82.6 5.3 317.9 200 173.4 104.5 477.9 430 256.0 109.8 795.9 2009 9 198 56.5 15.1 269.6 130 135.3 153.5 418.7 328 191.8 168.6 688.4 2009 10 228 60.4 14.0 302.4 200 190.6 48.9 439.5 428 251.1 62.9 741.9 2009 11 122 26.6 8.5 157.2 104 108.0 50.6 262.6 226 134.7 59.1 419.8 2009 12 82 19.0 4.2 105.2 88 70.5 77.1 235.6 170 89.5 81.3 340.8 2010 1 151 29.0 6.3 186.3 163 156.4 96.5 415.9 314 185.4 102.8 602.2 2010 2 80 7.8 6.1 93.9 107 94.6 73.8 275.4 187 102.5 79.9 369.3 2010 3 208 2.5 6.7 217.2 163 108.5 99.9 371.4 371 111.0 106.6 588.6 YE 3/31/2010 1,979 460.8 88.9 2,528.7 1,839 1,687.3 1,112.4 4,638.7 3,818 2,148.1 1,201.4 7,167.4

2010 4 143 1.2 15.8 159.9 101 133.6 62.7 297.4 244 134.8 78.5 457.3 2010 5 131 24.3 6.8 162.1 182 146.5 78.8 407.3 313 170.8 85.5 569.4 2010 6 153 154.1 4.1 311.2 141 125.1 108.2 374.3 294 279.1 112.3 685.5 2010 7 155 144.3 3.4 302.7 155 174.3 67.3 396.6 310 318.6 70.7 699.3 2010 8 240 160.8 8.0 408.8 239 151.4 110.7 501.1 479 312.1 118.7 909.8 2010 9 253 101.0 15.1 369.2 197 196.6 67.0 460.6 450 297.6 82.2 829.8 2010 10 266 82.9 5.3 354.2 235 102.8 104.2 442.1 501 185.7 109.5 796.2 2010 11 161 57.3 5.3 223.6 142 71.7 75.6 289.3 303 129.1 80.9 513.0 2010 12 130 21.5 6.8 158.3 117 56.3 49.0 222.3 247 77.8 55.8 380.6 2011 1 89 14.9 2.7 106.7 97 68.8 36.9 202.7 186 83.8 39.7 309.4 2011 2 85 17.2 4.4 106.6 84 68.7 69.4 222.1 169 85.9 73.8 328.7 2011 3 121 104.6 3.9 229.6 114 84.1 68.2 266.3 235 188.7 72.2 495.9 YE 3/31/2011 1,927 884.1 81.6 2,892.7 1,804 1,380.0 898.2 4,082.2 3,731 2,264.0 979.8 6,974.9

2011 4 88 74.7 1.0 163.7 102 101.2 44.8 248.0 190 175.9 45.8 411.7 2011 5 146 61.5 5.4 212.9 146 173.4 75.7 395.0 292 234.9 81.1 608.0 2011 6 139 77.5 12.8 229.4 177 140.3 47.3 364.6 316 217.8 60.2 594.0 2011 7 176 238.7 11.3 426.0 190 263.1 58.3 511.4 366 501.9 69.5 937.4 2011 8 232 15.1 4.4 251.5 187 135.9 129.9 452.8 419 151.0 134.3 704.3 2011 9 176 96.1 6.7 278.8 188 137.1 60.1 385.2 364 233.2 66.8 664.0 2011 10 230 93.4 4.0 327.4 240 122.0 60.7 422.6 470 215.4 64.6 750.0 2011 11 180 16.7 2.9 199.6 157 94.6 80.5 332.2 337 111.4 83.4 531.8 2011 12 183 21.9 4.2 209.1 174 77.4 51.7 303.1 357 99.3 55.9 512.2 2012 1 131 52.1 5.1 188.2 129 144.2 72.0 345.2 260 196.4 77.1 533.4 2012 2 101 62.2 3.7 166.9 266 119.6 50.7 436.3 367 181.8 54.4 603.2 2012 3 187 237.5 5.3 429.7 181 148.7 70.4 400.1 368 386.1 75.7 829.8 YE 3/31/2011 1,969 1,047.5 66.8 3,083.3 2,137 1,657.5 802.0 4,596.5 4,106 2,705.0 868.8 7,679.7

For payload purposes, 200 lbs. of mail or freight is one passenger equivalent, 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 t he 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 subsid y 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 Or der 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 Aviation 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 mu st 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 communit ies

. 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 p artial 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 there to shall not 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 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 [DATE], until funds are made available to the Department fo r performance. 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