BEFORE THE

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

__________________________________________

)

In the matter of the )

Application of )

)

SCOTT AIR, LLC ) Docket DOT-OST-2012-0178

)

For a certificate of public convenience )

and necessity under 49 U.S.C. § 41102 )

to engage in interstate scheduled air )

transportation of persons, property and mail )

__________________________________________)

RESPONSE OF THE KETCHIKAN CARRIERS

TO THE REPLY OF SCOTT AIR, LLC

Communications with respect to this document should be addressed to:

 Hank Myers

P.O. Box 7142

 Bellevue, WA 98008-1142

 (425) 830-4265

 hank@mtcworld.com

February 22, 2013
BEFORE THE

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

__________________________________________

)

In the matter of the )

Application of )

)

SCOTT AIR, LLC ) Docket DOT-OST-2012-0178

)

For a certificate of public convenience )

and necessity under 49 U.S.C. § 41102 )

to engage in interstate scheduled air )

transportation of persons, property and mail )

__________________________________________)

RESPONSE OF THE KETCHIKAN CARRIERS

TO THE REPLY OF SCOTT AIR, LLC

Pacific Airways, Inc. and PM Air, LLC (Ketchikan Carriers) respond to the reply of Scott 

Air, LLC (Scott) dated February 12, 2013. The Scott Reply, 14 pages of frothing rhetoric, 

contains several material misstatements of fact and regulation, and fails to address the 

most salient objections of the Ketchikan Carriers. Furthermore, presented herein is new 

and additional evidence that Scott lacks compliance disposition and is not in compliance 

with State of Alaska corporate laws and regulations. We ask that this response be 

accepted although otherwise unauthorized. 
DUE DATE

Scott asserts that the due date for Answers to the Show Cause Order was February 1, 

2013. (Scott Reply, page 2, line 10). Department regulations require that official filing 

be done directly to the Docket section during specified business hours. In filing the 

Answer, the Ketchikan Carriers argued that the Certification case was intertwined with 

the Enforcement case. The timing of the Answer was constrained both by the need to 

give Scott a reasonable amount of time to comply with the Consent Order, and the need 

to obtain approval from carrier managers who were sometimes unavailable. Not being 

sure of the exact date that the filing would be officially received, and in an abundance of 

caution, The Ketchikan Carriers styled their Answer as a Petition for Reconsideration 

(which has a longer filing period) and the motion to be accepted late.

As it turns out, the Answer was filed before close of business, Friday, February 1, 2013 

as evidenced by the automatic receipt generator from Regulations.gov. 14 CFR 302 

recognizes First Class Mail as being an acceptable method of service. Not having email 

addresses for all parties, we served all Answers via US Mail, with mailings to the 

Applicant and its attorney being sent by Priority Mail with return receipt requested. 

Regulations do not require that all parties receive the filing on the day it was officially 

filed.
We apologize for filing what now may be unnecessary petitions and motions, but had 

the Answer not be docketed in a timely fashion those requests would have been 

mandatory. 

DELAYS, HARRASMENT, ABUSE

Scott’s Reply goes to great lengths to disparage both the intent and content of the 

filings of the Ketchikan Carriers. On page one, Scott says, “In that connection, as the 

Department is well aware, Pacific and PM through their representative Myers have for 

the past 6 months repeatedly used the regulatory process to engage in a campaign of 

harassment directed at Applicant, involving substantive misrepresentations of fact, 

which applicant has been obliged to address and rebut at each stage.” On page 3, Scott 

asserts, “In view of this fact, the nature of the “objection” raised, and the fact that the 

filing was deliberately filed late to string the application process out as long as possible, 

Applicant submits that the late-filed “objection” should be dismissed. Based on their 

prior conduct, it is to be anticipated the [sic] sur-reply upon sur-reply is now going to be 

attempted to be filed in this case. This should not be permitted and the continuing 

abuse of the regulatory process should not be permitted.” On page 11, Scott concludes, 

“For reasons unstated, Objectors are clearly desperate to prevent, in any way they see 

fit apparently, the issuance to Applicant to the certificate authority applied for herein, 

and seek to tie this proceeding to the §302.404 formal complaint proceeding they have 

recently attempted to initiate [and which has since been formally docketed] against 

Applicant after their §302.403 informal complaint procedure they had initiated in 

June/July 2012 proved unsuccessful.”
There are two DOT proceedings involving Scott. The Enforcement proceeding in Docket 

DOT-OST-2012-0002, and this certification docket. In the Enforcement case, the 

Ketchikan Carrier filed only one document, an informal complaint. The Department 

found that every allegation raised by the Ketchikan Carriers was true. After considering 

a mitigation statement, the Department found that Scott had engaged in unfair and 

deceptive business practices, and had been operating continuously in interstate 

transportation without authority. A fine was imposed, and Scott was directed to comply 

with its mitigation statement. It is hard to call that one filing “unsuccessful”.

In the certification case the Ketchikan Carriers made one filing, an Answer to the Show 

Cause order. 

Scott asserts that objections to the content of its application should have been filed 

earlier, but that was impossible. On November 19, 2012, the end of the 28-day 

response period, the Ketchikan Carriers did not know how the Department would find 

on the complaint. As noted in the Answer in this docket, the primary proof that Scott is 

unfit is its continuing record of violating laws and regulations. This pattern reflects 

poorly on managerial fitness, and there are some questions relating to the 

completeness and accuracy of the application, but those are secondary. Scott’s 

application is being processed under expedited procedures, which is why Order 2013-1-

12 is a Show Cause Order and not a Final Order. Objectors have no requirement to file 
any earlier than the issuance of the Show Cause Order, particularly if pivotal information 

could not be known.

The single filings of the Ketchikan carriers in the separate dockets have been direct and 

concise, without overblown rhetoric or aspersions.

§302.4 FORMAL REQUIREMENTS

The Answer of the Ketchikan Carriers was filed electronically, consistent with the form 

requirements of the Department. It is unfortunate that page numbers did not appear 

on the printed copies, and we accept the pagination assigned in Scott’s Reply. Copies 

served upon parties by mail were printed double sided to reduce paper use. 

CHANGING THE CAPTION OF THE CASE

The caption of the Scott application was “Application of SCOTT AIR, LLC for a certificate 

of public convenience and necessity pursuant to 49 U.S.C. §41102 to engage in 

interstate scheduled air transportation of persons, property and m ail”

The caption of the Ketchikan Carriers Petition and Answer was “Petition and Answer of 

PACIFIC AIRWAYS, INC. [&] PM AIR, LLC In the matter of the application of Scott Air, LLC 

for a certificate of public convenience and necessity under 49 U.S.C. §41102 to engage 

in interstate scheduled air transportation of persons, property and mail”

We fail to see the point.
ISSUES OF FACT

The Ketchikan Carriers asserted that the management of Scott Air did not recognize the 

difference between interstate and intrastate transportation. On page 3 of its 

application, in the last paragraph of the Introduction and Summary, Scott states, 

“...SCA’s intrastate service has been successful and SCA now wishes to apply for 

certificate authority although the nature of its intrastate KLW-KTN services will remain 

unchanged.” (emphasis added) Scott then applied for an exemption pendente lite to 

engage in scheduled intrastate service while its certificate application was being 

considered. In its mitigation statement, Scott agreed to operate only in intrastate 

commerce until it was awarded a certificate authorizing interstate service. As has been 

clearly shown, Scott has engaged in interstate air transportation at the time of its 

application, and has continued to operate in interstate transportation even after the 

issuance of a Consent Order and in contradiction of its mitigation statement.

Scott confirms that it described the enforcement action as a mere investigation. At the 

time of the filing, the Department had already determined that violations had occurred, 

and Scott was engaged in negotiations over the penalty and mitigation. Scott filed a 

request to engage in intrastate transportation pendente lite while it actually continued

to engage in interstate service. None-the-less, while Scott now contends that the 

Ketchikan Carriers had filed charges of unfair and deceptive business practices or anticompetitive business practices in June/July 2012, it states in its application “Neither SCA 

nor any relevant corporation nor any person employed by SCA nor any person having a 
substantial interest in SCA or any relevant corporation has been charged with an unfair 

or deceptive or anti-competitive business practices of fraud, felony or anti-competitive 

business practices...during the past 10 years.” In its February 12 reply, Scott 

acknowledges the charges when it says “This letter was responded to in detail in August 

2012.” Two months before the application was filed. Because Scott has raised the July 

24 letter from the DOT and its August, 2012 reply as defense in this matter, we request 

that Scott place those two letters in this docket.

Recently, the Ketchikan Carriers filed new evidence that Scott is engaged in 

transportation of interstate passengers without authority and in contradiction of its 

mitigation agreement. The issue of compliance disposition and managerial fitness 

continue to be central to this docket.

The Ketchikan Carriers did not question the $500,000 bank line of credit, or suggest that 

it was not valid. The question related to the $1.5 million loan that appeared to be 

credited as equity as well. While it is still relevant to understand what strings may be 

attached to the line (e.g. guarantees), and whether the line is sufficient given Scott’s 

history on money losing operations, we do not question the existence of the line.

The Ketchikan Carriers not only raised the issues of data required by 14CFR204(t) 

because those data are vital to the finding of managerial fitness and the financial 

outcome of the proposed service, but because the missing data clearly contradicts a 
direct statement made in the first paragraph of the Proposed Service and Fitness Data 

section. The paragraph states, “SCA’s application and attached Exhibits herein furnish 

SCA’s responses to mandatory information required of all applicants pursuant to §204.3 

of the Department’s Economic Regulations, and are presented in the same sequence as 

those requirements are set forth in §204.3, and cross-referenced to the relevant subsections of §204.3.”

As noted in the Answer of the Ketchikan Carriers, Scott failed to provide data relating to 

departures, aircraft miles, available ton miles, available seat miles, revenue ton miles, 

revenue passenger miles, peak and average load factors, and tallies of traffic predicted 

broken down by quarter. It is possible to estimate some of these data using external 

references or assumptions, but 14CFR302.205 requires, “Whenever economic data or 

other facts are provided in any pleading, such information shall include enough detail so 

that final results can be obtained without further clarification. Sources, bases, and 

methodology used in constructing exhibits, including any estimates or judgments, shall 

be provided.” Not only is there insufficient data to support a finding of fitness, the 

application is formally deficient in its required content.

INCREASING LOSSES WHILE INCREASING EQUITY

The remaining issue is what the true financial record of Scott is, and what the real equity 

number is. The Ketchikan Carriers did not question the validity of the $500,000 line of 

credit. We expressed concerns that due to uncertainties about the owner equity 

position of the carrier, and the historic string of losses, $500,000 might not be sufficient. 
The CPA’s reply does little to clarify the situation other than carefully documenting that 

the structured loan of $1,591,766 net of current amount was not considered equity. 

Unexplained is how a negative owner equity of $47,433 as at December 31, 2009 could 

go to a positive owner equity of $765,580 as at December 31, 2011(a swing of $813,013) 

while experiencing net losses of $361,786? Perhaps to simplify, how could a negative 

ownership equity of $47,433 become a positive ownership equity of $669,775 as at 

December 31, 2010 (a swing of $717,208) while experiencing a net loss of $201,443 in 

one year? If we add the net loss to the owner equity at the end of the year 2010, we 

see that the imputed owner equity at the beginning of operations in 2010 would have 

been $871,218. Looking at the reviewed statement for 2010, we are unable to 

determine the source of the difference between -$47,433 equity on the year end 2009 

statement and the year end 2010 equity of 669,775.

Appendix SCA-6 (financial reports) appears to indicate that Scott Air, LLC was a single, 

continuously operating entity. Appendix SCA-14, the narrative history of Scott Air, LLC 

says that the company was formed in 1998 (Appendix SCA-2, State of Alaska corporate 

records list the formation date as April 5, 2001), and appears to have operated 

continuously unchanged since that time.

Turning to Appendix SCA-1, we find some explanation for a discrepancy, although again 

the numbers can’t be made to balance completely. On April 1, 2010, an “Amended and 

Restated Operating Agreement of Scott Air LLC was entered into with Scott Van Valin 
and Scott Currier as signators. The Agreement assumed a new entity, Ayer Track, would 

be formed on April 30, 2010 with the purpose of investing in Scott Air, LLC. The stated 

initial capital account for the two members was $1,064,000. This figure does not 

correlate cleanly with any other numbers in the financials, but it indicates a significant 

capital contribution was made. Mr. Currier appears to have contributed $532,000 in 

cash. Mr. Van Valin did not necessarily contribute $532,000, or even any new capital 

because his ownership was stated to be “...the capital contribution paid in by Van Valin 

since the organizational date of the Company...”

In its attempt to explain the financial fitness of Scott, its CPA notes, “Further, the stated 

loss in 2010 was after considering depreciation and interest expense. Therefore, if you 

look at the operations before including those items, Scott Air, LLC actually showed a 

modest profit of $46,143.” Capital costs are a vital element in determining the viability 

of an enterprise. For an individual, the CPA’s statement is akin to saying that if I didn’t 

have to pay my mortgage and car payment I would be doing pretty well. Interest is a 

real cash cost, and without depreciation that value of the assets would be greatly 

overstated, giving a false impression of the value of the company and its ability to 

continue as an enterprise.

Where does that leave us? We can’t really know. There is a maze of numbers in the 

Application, with no clear way to correlate them all. 14CFR241 requires that additional 

capital invested be detailed (account 2890), and that, “This account shall also include 
balances of contributions to the business enterprise of individual proprietors or 

partners.” The beauty of double entry bookkeeping is that impact of any change can be 

tracked easily. The applicant has the responsibility to present a clear, clean and 

complete picture of their financial fitness. The paradox of increasing equity in a period 

of increasing total losses still has not been explained. Rather than declaring what the 

numbers do not show, Scott would be better off if it would explain the apparent 

discrepancies and clarify its true financial position.

UNADDRESSED ISSUES

There are three issues raised by the Ketchikan Carriers in its Answer to Order 2013-1-12

which were not addressed by Scott.

First, it has not provided the data required by 14CFR204.3(t). This more than simply a 

formal requirement, these data represent the entire basis of the projected financial 

statements. Paragraph 17 beginning on page 9 of the Application purports to provide 

the required data, and refers to Appendix SCA-8. Neither paragraph 17 nor SCA-8 

provides essential data required by 204.3(t). How can the Department determine the 

veracity or reasonableness of the projected financial statements? Scott has made no 

effort to rectify this shortcoming. It should be a simple job to provide the worksheets 

underlying the projected financial statements, but this has not been done.

Second is the issue of the original charges of unfair and deceptive business practices 

brought by the Ketchikan Carriers in July, 2012. On page 7 of the Application, under 
paragraph 12 Scott says, “Except as stated herein, there are no pending investigations, 

enforcement actions or formal complaints...”. The exception was reduced to a footnote 

in which Scott says it received an undefined letter of investigation from the Department, 

which Scott contends it answered in detail. Case closed. In paragraph 13, Scott says, 

“Neither SCA nor any relevant corporation nor any person employed by SCA nor any 

person having a substantial interest in SCA or any relevant corporation has been 

charged with any unfair or deceptive or anti-competitive business practices, or of fraud, 

felony or antitrust violations during the past 10 years. With the issuance of Order 2012-

12-16, we know that this statement was not correct. Even though a new complaint has 

been filed that includes evidence of continued interstate commerce, Scott is silent on 

the pivotal issue of compliance disposition. The two letters referenced in Scott’s filing 

should be made public.

Third, there is the issue of pre-operating expenses for the proposed operations. As 

noted in the Answer, Scott contends that it has already covered all of the pre-operating 

expenses by virtue of its illegal scheduled operations. While Scott is greatly offended by 

being credited for something gained through illegal means, it remains silent on its 

unmet preoperating expenses. For example, it will have to develop or purchase an 

accounting and reporting system consistent with 14CFR298, as well as a statistical 

reporting system capable of creating T-100 segment and market reports. It will also 

have to significantly upgrade its liability insurance. Finally, if it intends to transport mail, 

Scott will have to establish facilities and a method to provide ground transportation of 
mail which it does not possess now. This, combined with the lack of projected mail 

revenue, clearly indicates that Scott does not intend to carry mail.

NEW EVIDENCE

Attached as Appendix A is the current corporate status report from the State of Alaska, 

Department of Commerce, Community and Economic Development 

(http://commerce.alaska.gov/CBP/Main/CorporationDetail.aspx?id=72721D) which 

shows that Scott Air’s status is listed as non-compliant. We do not know the nature of 

the non-compliance, but it is just another example of the poor compliance disposition of 

Scott.

SUMMARY

Scott’s reply shovels a lot of smoke around an already unclear fitness record. The 

primary concern remains compliance disposition, about which Scott is silent except to 

claim continuous harassment by the Ketchikan Carriers. There is the question of how 

owner equity increased while net losses were suffered. Scott provides no evidence that 

it intends to carry US Mail, raising the issue of whether it should be granted a certificate 

of public convenience and necessity rather than commuter certification. Scott’s Reply is 

filled with petty sniping and internal contradictions. It complains that the service copy it 

received was printed double sided. Scott claims that the due date of the Answer was 

February 1, which was the actual filing date of the Answer. It claims delays through a six 

month pattern of continuous harassment and regulatory abuse, yet the Ketchikan 

Carriers had made only one filing in each of the two dockets. Scott claims that the 

Answer is vague and unsupported, but it is hard to be more specific than providing 
copies of actual reservations for interstate passengers, or showing that while total 

losses grew owner equity increased without explanation, or that Scott specifically 

denied that there were ever any charges of unfair or deceptive or anti-competitive 

business practices, or that Scott is not in good standing with the State of Alaska, or 

showing that Scott has no intention of transporting US Mail and provided no evidence 

that it has the capability to do so.

WHEREFORE, the Ketchikan Carriers request that this Response be accepted although 

otherwise unauthorized. We also request that the Reply of Scott Air, LLC filed February 

12, 2013 be accepted although otherwise unauthorized and not covered by a motion to 

accept. The goal of this proceeding is to determine if Scott Air is actually fit, and all 

relevant evidence and argument should be considered until the record is clear.

Further, the Ketchikan Carriers request the Department take one of three suggested

actions in the disposition of this case. 

1. Assign the application to an Administrative Law Judge who will hold an 

evidentiary proceeding where the veracity and meaning of the Applicant’s 

submissions can be determined. Scott has not shown any inclination to provide 

clear, complete and factual responses to questions relating to their interstate 

transportation or financial condition. Perhaps through cross-examination these 

issues could be clarified.
2. Deny the application on the grounds of continued lack of compliance disposition 

and uncertainty about the carrier’s true financial position and records.

3. Dismiss the application without prejudice until such time as the current 

complaint of continuing transportation of interstate traffic is resolved, and Scott 

files a complete, clear and comprehensive application consistent with all the 

Department’s requirements including 14CFR204, 14CFR241, 14CFR298 and 

14CFR302.

There is no sound basis at this time for the Department to issue a Final Order finding 

Scott fit. Each of the problems illuminated by the Ketchikan Carriers stem from Scott’s 

own words or actions. Scott clearly does not recognize that it has engaged in interstate 

transportation, and continues to claim that it is transporting only local traffic. Its 

financial reports cannot be accepted at face value. It has withheld information 

specifically required by 14CFR204.3(t) necessary to verify its financial projections.

Respectfully submitted,

Pacific Airways, Inc.

PM Air, LLC

____________________________

by Hank Myers, authorized agent

February 22, 2013
CERTIFICATE OF SERVICE

I hereby certify that I have this date served a copy of the foregoing Petition and Answer 

of the Ketchikan Carriers upon all parties served with Order 2013-1-12 by first class mail.

_________________________

Hank Myers

February 22, 2013
Appendix A

Page 1 of 1

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ENTITY D ETAILS 

Entity Type: Limited Liability Company 

Entity#: 727210 

Status: Non-Compliant 

AK Formed Date: 4/5/2001 

Duration/Expiration: Perpetual 

Home State: ALASKA 

Next Biennial Report Due: 1/2/2013 File Biennial Report 

Entity Mailing Address: P 0 Box 1174, Craig, AK 99921