Order 2012

- 5

- 14 Served: May 17, 2012



### UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION


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

Issued by the Department of Transportation

on the 17 th of May, 2012

Essential Air Service at

BAR HARBOR

, MAINE

P RESQUE IS LE /HOULTON, MAINE PLATTSBURGH, NEW YORK

Under 49 U.S.C. 41731 et seq

. DOCKET DOT

- OST

- 20 11

- 0185

DOCKET DOT

- OST

- 200 0

- 8012

DOCKET DOT

- OST

- 2003

- 14783

ORDER SETTING FINAL RATES

Summary

This Order sets final past

- period and prospective rates for the forced service of Colgan Air, Inc., d/b/a USAirways Express, (Colgan), at Bar Harbor and Presque Isle , Maine, and Plattsburgh, New York

.

Background

On September 9 , 20 11, Colgan file d 90

- day notices of intent to suspend its subsid ized service

at the three above

- captioned communities

. By Order 20 11

- 11

- 26 we requested proposals and requir ed Colgan to maintain the level s of service it had been selected to provide. See the

chart below

.

Colgan is entitled under 49 USC, Section 41734 (d), to increased compensation at these

communities effective 180

- days after it filed notice, i.e., March 6, 2012. The following chart details the subsidy rates set by the three earlier selection Orders, Colgan’s initially requested subsidy, the level of subsidy it has agreed to, and the differences

. Selection Effective Weekly Intermediate Aircraft
Community Order Thru Hub Trips Stops Type

Bar Habor 2010-9-28 10/31/2012 Boston 14 0 Saab 340
Plattburgh 2010-3-27 6/30/2012 Boston 12 0 Saab 340
Presque Isle 2010-6-5 5/31/2012 Boston 19 0 Saab 340- 2

-

1 2

Decision

T he EAS staff contacted Colgan because its subsidy r equest s had increased so dramatically from what it had proposed during the earlier competitive carrier

- selection proceeding s , especially at Presque Isle

. During discussion s with the staff, Colgan

documented that its expenses and subsidy had increased in p art because of increased fuel

expenses , but that t he bulk of the increase in expenses were caused by the carrier’s shrinking operations at the Boston hub

. In brief, the carrier provided a substantial amount of subsidy

- free service to its Boston hub w hen the earlier orders select ing Colgan to provide EAS were issued

. Colgan indicated that

, since that time, in response to competitive pressures, it ha d virtually eliminated its subsidy

- free operations in the Boston

are a , leaving only the subsidized service t o these three communities

. As a result, Colgan’s aircraft, flight crew, maintenance, and overhead for this “stranded” subsystem

had to be spread over far fewer operating elements . I ts unit costs

, thus

, were substantially higher than reflected in the carr ier’s system averages reported in its Form 41

.

We have confirmed that Colgan’s subsidy

- free operations at Boston have been largely

eliminated

, thus driving up the cost of the subsidized service to levels substantially higher than its system averages , and have agreed to unit costs that reflect those increases. Nonetheless, C olgan has agreed to significantly reduce its subsidy request from its initial

hold

- in proposal

. At Presque Isle, t he carrier reduced its projected block times and block

hours

, which drive most direct expenses such as fuel and maintenance. Also, it recognized that some of its overhead items were not as significantly affected by its reduced Boston operations as it had initially projected

. As a result , Colgan reduce d its
requeste d annual subsidy as shown in the chart above

. We have reviewed the subsidy rates the carrier has agreed to and find them reasonable.

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

A CCORDINGLY ,

1. We set the final rates for Colgan Air, Inc. , for its provision of Essential Air Service at Plattsburgh, New York, and Bar Harbor and Presque Isle, Maine

, as descri bed in Appendices B and C ;

2. These rates are in lieu of, and not in addition to, those set by Order 2010

- 3

- 27,

2010

- 6

- 5, and 2010

- 9

- 28 ;

1 These rates will be effective until Colgan is replaced. See Order 2012

- 3

- 2 selecting Peninsula Airways, Inc., and Cape Air.

2 The annual subsidy at Presque Isle has increased dis proportionately more than at the other two

communities while u nit costs in creased consistently at all three. However, large increase s in revenue at Bar Harbor and Plattsburgh somewhat offset th ose higher costs . Presque Isle’s revenue increased, but only slightly. Bar Harbor Plattsburgh Presque Isle 2/

Subsidy Rates per Earlier Selection Orders $2,298,533 $2,117,101 $2,812,853
Intiallly Requested Subsidy $2,825,436 $2,834,864 $5,565,274
Agreed Subsidy 1/ $2,531,807 $2,654,135 $4,359,821
Decrease in Subsidy from Requested $293,629 $180,729 $1,205,453- 3

-

3 . We direct Colgan Air, Inc., to retain all books, records, and other source and summary documentation to support claims for payment and to preserve and maintain such documentation in a manner that readily permits the audit and examination by representatives of the Department. Such documentation shall be retained for seven years

from the service date of this Order

, or until the Department indicates that the records may be destroyed, whichever comes first. Copies of flight logs for aircraft s old 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 . These Dockets will remain open until further Department action; and

5 . The Department will serve copies of this O rder on Colgan Air, Inc.

By:

Susan Kurland Assistant Secretary for

Aviation and International Affairs

(SEAL)

An electronic version of this document is available on the World Wide Web at http://www.regulations.govAppendix A

Nonstop Great Circle Miles to Boston Bar Harbor (BHB), 196 Plattsburgh (PBG), 201 Presque Isle (PQI), 333Appendix B

Essential Air Service to be Provided by Colgan Air, Inc.,

Bar Harbor Plattsburgh Presque Isle

Docket 2011-0185 2003-14783 200-8012

Effective From March 6, 2012 March 6, 2012 March 6, 2012

Effective To: April 14, 2012 UFN 2/ UFN

Distance 196 201 332
Weekly Round Trips 14 12 19
Segments 1/ 1,417 1,214 1,923

Saab 340, 34 Seats 48,178 41,276 65,382

Block Times 1.28 1.34 1.78

Block Hours 1,814 1,627 3,423

Wtd. Blk. Hrs. 61,676 55,318 116,382

ASMs 9,442,888 8,296,476 21,706,824

Pax. 17,000 15,000 29,000

Fare $130.00 $95.00 $128.00

Revenue $2,210,000 $1,425,000 $3,712,000

Directs $3,410,303 $3,118,945 $6,259,223

Indirects $1,105,704 $765,945 $1,428,226

Operating $4,516,007 $3,884,890 $7,687,449

Profit @ 5% $225,800 $194,245 $384,372

Economic $4,741,807 $4,079,135 $8,071,821

$/Hr.

Requested Subsidy @ 97% $2,531,807 $2,654,135 $4,359,821

1/ BHB: 14 trips x 2 directions x 52 weeks x 313/312 x .97 = 1,417

PBG: 12 trips x 2 directions x 52 weeks x 313/312 x .97 = 1,214

PQI: 19 trips x 2 directions x 52 weeks x 313/312 x .97 = 1,923

2/ UFN, until further notice, i.e., when Colgan is replaced by Peninsula Airways, Inc.Appendix C

- 1

Subsidy Rate Agreement for the Provision of Essential Air Service by Colgan Air, Inc., at Bar Harbor, Maine, Docket 2011

- 0185

EFFECTIVE: March 6, 2012, thru April 14, 2012, when Cape Air inaugurated service. 1

SERVICE: 14 nonstop round trips per week to Boston (BOS) AIRCRAFT TYPE: Saab 340, up to 34 seats TIMING OF FLIGHTS: Flights must be well

- timed and well

- spaced to ensure full compensation.

ANNUAL SUBSIDY RATE: $2,531,807

FLIGHTS: 2 1,417

RATE PER FLIGHT: $1,787 3

WEEKLY CEILING: $50,036 4

Note: The carrier understands that it may forfeit its compensation for any flights that it does not operate in conformance wi th the terms and stipulations of the rate Order, including the service plans outlined in th e 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 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 Ord er 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 this rate, it must first notify

the Office of Av iation 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 complete all flights that can be safely operated; flights that overfly points for lack of traffic will not be compensated. I n determining whether subsidy payment for a deviating flight should be adjusted or disallowed, the Department will consider the ext ent 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 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 do es make payments in the stipulated amounts or at the stipulated service levels, the carrier may cease to provide se rvice to that specific location without regard to any requirement for notice of such cessation. Those adjustments in the levels of subsidy and/or service th at are mutually agreed to in writing by the Department and carrier do not constitute a total or par tial reduction or cessation of payment.

Subsidy contract are subject to, and incorporate by reference, relevant statutes and Department regulations, as they may be a mended 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, 2012. The Government’s obligation fo r performance under this Order beyond September 30, 2012, is subject to t he 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, 2012, until funds are made available to the Department for performance. If funds are not made available for performance beyond September 30, 2012, 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 provi ded under this Order.

1 PenAir will provide subsidy

- free service during the summer p eak season.

2 14 flights x 2 directions x 52 weeks x .97 completion x 313/312 days = 1,417.

3 $2,531,807 ÷ 1,417 annual flights.

4 $1,787 * 28 flights per week.Appendix C

- 2

Subsidy Rate Agreement for the Provision of Essential Air Service by Colgan Air, Inc., at Plattsburgh, New York, Docket 2003

- 14783

EFFECTIVE: March 6, 2012, until further notice. SERVICE: 12 nonstop r ound trips per week to Boston (BOS) AIRCRAFT TYPE: Saab 340, up to 34 seats TIMING OF FLIGHTS: Flights must be well

- timed and well

- spaced to ensure full compensation.

ANNUAL SUBSIDY RATE: $2,654,135

FLIGHTS: 1 1,214

RATE PER FLIGHT: $2,186 2

WEEKLY CEILING: $52,464 3

Note: The carrier understands that it may forfeit its compensation for any flights that it does not operate in conformance wi th 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 eligibi lity 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 this rate, it must first notify

the Office of Aviation A nalysis 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 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 w hich the goals of the program are met and the extent of access to the national air transportation system provided to the comm unity.

If the Department unilaterally, either partially or completely, terminates or reduces payments for service or changes servi ce requirements at a specific location provided for under this Order, then, at the end of the period for which the Department do es 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 th at are mutually agreed to in writing by the Department and carrier do not constitute a total or partial reductio n or cessation of payment.

Subsidy contract are subject to, and incorporate by reference, relevant statutes and Department regulations, as they may be a mended from time to time. However, any such statutes, regulations, or amendments thereto shall not ope rate to controvert the foregoing paragraph.

Funds are not currently available for performance under this Order beyond September 30, 2012. The Government’s obligation fo r performance under this Order beyond September 30, 2012, is subject to the availabili ty 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, 2012, until funds are made available to the Department f or performance. If funds are not made available for performance beyond September 30, 2012, 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 thi s Order.

1 12 flights x 2 directions x 52 weeks x .97 completion x 313/312 days.

2 $2,654,135 ÷ 1,214 an nual flights.

3 $2,186 * 24 flights per week.Appendix C

- 3

Subsidy Rate Agreement for the Provision of Essential Air Service by Colgan Air, Inc., at Presque Isle, Maine, Docket 2000

- 8012

EFFECTIVE: March 6, 2012, until further notice. SERVICE: 19 nonstop round trips per week to Boston (BOS) AIRCRAFT TYPE: Saab 340, up to 34 seats TIMING OF FLIGHTS: Flights must be well

- timed and well

- spaced to ensure full compensation.

ANNUAL SUBSIDY RATE: $4,359,821

FLIGHTS: 1 1,923

RATE PER FLIGHT: $2,267 2

WEEKLY CEILING: $86,146 3

Note: The carrier understands that it may forfeit its compensation for any flights that it does not operate in conformance wi th the terms and stipulations of the rate Order, including the service plans outlined in the Order and any other s ignificant 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 flig ht 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 pe riod, 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 writ ing 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 th at 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 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 spec ific locat ion without regard to any requirement for notice of such cessation. Those adjustments in the levels of subsidy and/or service th at are mutually agreed to in writing by the Department and carrier do not constitute a total or partial reduction or cessation of payment.

Subsidy contract 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 controv ert the foregoing paragraph.

Funds are not currently available for performance under this Order beyond September 30, 2012. The Government’s obligation for performance under this Order beyond September 30, 2012, is subject to the availability of appropria ted 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, 2012, until funds are made available to the Department for performance. If funds are not made available for performance beyond September 30, 2012, 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 19 flights x 2 directions x 52 weeks x .97 completion x 313/312 days = 1,923.

2 $4,359,821 ÷ 1,923 annual flights.

3 $2,267 * 38 flights per week.