Order 20 1 2

- 9

- 11
Served: September 11 , 20 1 2



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

Issued by the Department of Transportation
on the 11 th day of September , 20 1 2

ORDER SELECTING CARRIER AND SETTING FINAL SUBSIDY RATES

Summary By this O rder, we are selecting SkyWest Airlines (SkyWest ), operating with a Delta Air Line, Inc. (Delta) code

- share, to provide subsidiz ed Essential Air S ervice (EAS) with 50

- passenger Canadair Regional Jet 200 (CRJ200) aircraft

, between each of the four communities captioned above and Minneapolis

- St. Paul International Airport (MSP)

, for the

two

- year period beginning when the carrier initiates full EAS at all four communities

. The annual subsidy rate s will be set at $2,512,971, $1,356,764, $1,107,900, and $1,519,619

, for

Iron Moun tain/Kingsford (Iron Mountain), Michigan, Brainerd and International Falls,

M innesota, and Rhinelander, Wisconsin , respectively

, or a combined total of $ 6,497,25 4

. See Appendix A for a map.

Background On July 15, 2011, Mesaba Aviation, Inc. (Mesaba) , and Pinnacle Airlines (Pinnacle)

, subsidiaries of Pinnacle Airlines Corporation, d/b/a Delta Connection, filed 90

- day notices of their intent to suspend their joint service at Iron Mountain , Brainerd and International Falls,

M innesota, effective October 13, 2 011. 1 By Order 2011

- 9

- 5, September 13, 2011, the Department prohibited Delta from terminating service at these three communities in
accordance with 49 U.S.C. § 41734(b), and requested proposals for replacement service by October 12, 2011, later extended t o October 14, 2011. The notices at these three

1 Delta filed notice at twenty four (24) communities. This order addresses only three of those communities plus Rhinelander, Wisconsin, where Chautauqua Airlines, Inc. filed notice to suspend service.

Essential Air Service at

IRON MOUNTAIN/KINGSFORD, MICHIGAN; BRAINERD, MINNESOTA; INTERNATIONAL FALLS, MINNESOTA; and RHINELANDER, WISCONSIN

Under 49 U.S.C. 41731 et seq

. DOT

- OST

- 1999

- 5175;
DOT

- OST

- 2011

- 0135;
DOT

- OST

- 2009

- 0304; and
DOT

- OST

- 2011

- 0109- 2

-

communities were triggered by Mesaba/Pinnacle’s retirement of its 34

- seat Saab aircraft

. As

a result of the larger jet aircraft replacing t he smaller Saab 340 aircraft , Order 2011

- 9

- 5, required Mesaba/ Pinnac le to continue to provide service as follows :

Community Hub Weekly Frequencies Stops Annual Subsidy Established by Order

Iron Mountain MSP/DTW 21 1 $2,090,534 2010

- 6

- 7

Brainerd MSP 14 none subsidy

- free

- International Falls MSP 14 none $1,309,886 2010

- 5

- 18

During the pendency of this carrier selection case, we are requiring Mesaba/Pinnacle to provide 12 round trips a week at each of these three communities. Brainerd and International
Falls connect to MSP , while Iron Mountain connects to Detroit (DTW). 2

At Rhinelander, on September 12, 2011, Chautauqua Airlines, Inc., a wholly owned subsidiary of Republic Airways Holdings and doing business as Frontier Airlines (Chautauqua) filed a 90

- day notice with the Department of its intent to terminate its then unsubsidized service, effective December 11, 2011 . By Order 2011

- 10

- 15 (October 20, 2011 ) , the Department prohibited Chautauqua from suspending service through
December 11, 2011

, and requested proposals from carriers interested in providing replaceme nt service. By several subsequent Orders, 3 the Department has require d Chautauqua to maintain the statutory frequency requirement of two round trips a day, six days a week, i.e., twelve round trips a week, utilizing Embraer 135 (37

- seats) or Embraer 145 ( 50

- seats) at an annual rate of $1,837,638. 4 We are also currently negotiating an updated
hold

- in subsidy rate with Chautauqua for its provision of EAS at Rhinelander.

By Orders 2011

- 11

- 30 (November 23, 2011), 2012

- 3

- 5 (March 7, 2012) and 2012

- 4

- 8 (April 5, 2012), the Department selected Great Lakes Aviation, Ltd. (Great Lakes) to provide EAS
at all four of communities for a two

- year period beginning when it inaugurates full service at the communities through the end of the 24 th month thereafter.

On June 11, 2012, however, Great Lakes sent an e

- mail to the Department encouraging the

re

- solicitation of proposals for EAS at Iron Mountain, Brainerd, International Falls and
Rhinelander. G reat Lakes explained that it had recently experienced an aggressive

expa nsion, is in the process of re

- engineering its business model (including its approach to
code

- sharing and the associated reservation system infrastructure), has concerns regarding availability of gates and facilities to expand further at MSP , and does not want to hinder

2 By several subsequent Orders, the Department required Delta to maintain the level of service detailed in the table above at Brainerd and International Falls. By Order 2011

- 12

- 25, the level of service at Iron Mountain was
reduced to a total of 1 2 nonstop round trips per week and the subsidy for nonstop and one

- stop service between the community (and Escanaba, Michigan) and MSP was terminated. By Order 2012

- 4

- 20, April 16, 2012, the Department set the annual subsidy rate at Iron Mountain at $2,08 6,854, for 12 one

- stop round trips a week to DTW only, for the period January 11, 2012 through March 23, 2012. Similarly, Order 2012

- 4

- 20 also set Iron Mountain’s prospective annual subsidy rate, from March 23, 2012, until further notice, at $1,920, 693, for the

same 12 one

- stop round trips a week to DTW. We are currently negotiating hold

- in subsidy rates with Delta for
its Brainerd and International Falls service.

3 See Orders 2012

- 4

- 1, 2012

- 5

- 3, 2012

- 5

- 26, 2012

- 6

- 9, 2012, 7

- 2 and 2012

- 7

- 32.

4 See Order 2012

- 3

- 5.- 3

-

communities from considering other alternatives. In response to Great Lakes’ notification,
we contacted all four communiti es and they support ed the issuance of a new request for proposals. By Order 2012

- 6

- 9

, June 15, 2012

, the Department s olicit ed proposals to provide
efficient EAS , with subsidy support if necessary, at any or all of the four communities

.

Proposals

The Department received proposals from the three carriers whose proposals are described
below . Copies of the proposals may be accessed online through the Federal Docket Management System at: http://www.regulations.gov , by typing “ DOT

- OST

- 1999

- 5175 ” (Iron Mountain), “ DOT

- OST

- 2011

- 0135 ” (Brainerd), “ DOT

- OST

- 2009

- 0304 ” (International Falls), or“ DOT

- OST

- 2011

- 0109 ” (Rhinelander) in the “SEARCH for: Rules, Comments, Adjudications or Supporting Documents : ” field.

Great Lakes Great Lakes submitted “stand alone” service options for nonstop service between each of the
four communities and MSP , utiliz ing 19

- passenger Beech 1900D aircraft and its code

- share agreements where applicable, as summarized in the table below.

Community Daily Round Trips Annual Subsidy Requirement

Iron Mountain 3 (18 weekly) $1,857,610

Brainerd 4 (24 weekly) $1,785,221

International
Falls 3 (18 weekly) $1,797,644

Rhinelander 3 (18 weekly) $1, 667

, 947

SkyWest SkyWest, operating with a Delta code

- share and utilizing Canadair Regional Jet 200 (CRJ200) aircraft, submitted two inseparable package bids for service to MSP. O ne inseparable package bid includes service at both Iron Mountain and Rhinelander, and the
other inseparable package bid includes Br ainerd and International Falls. Iron Mountain would receive a minimum of 13 (7 nonstop) round trips a week and Rhinelander would receive a minimum of 14 nonstop round trips a week, for a combined annual subsidy rate of $4,032,589 ($2,512,9 71 at Iron Mountain and $1,519, 61 8 at Rhinela nder). 5 Brainerd would receive a minimum of 12 nonstop round trips a week, and International F alls would receive a minimum of 12 (7 nonstop) round trips a week, for a combined annual subsidy rate of $2,464,663 ($1,356,764 at Brainerd and $1,107,900 at International Falls).

Sovereign Air Sovereign Air Inc. submitted service options at all of the co mmunities

, as summarized in the
table below.

5 We would typically authorize subsidy for only 12 round trips a week; however, in this case, the flight are shared by two communities.- 4

-

Option Community (ies) Hub(s) Served/
Service Pattern Aircraft Type (Seats) Daily
Round Trips Annual Subsidy Requirement

1 International Falls
and Brainerd one

- stop (at Brainerd) to MSP Jetstream 41 (29) 4 (24 weekly) $1,472,093

2 Brainerd one

- stop (at St. Cloud) to Chicago O’Hare International Airport (ORD) Dornier 328 (30) 3 (18 weekly) $1,302,781

3 Iron Mountain and
Rhinelander one

- stop (at Rhinelander) to Chicago O’Hare International Airport (ORD) Dornier 328 (30) 5 (30 weekly) $1,960,453

We also note that Sovereign Air Inc. has not obtained the required operating authority from either the Federal Aviation Administration or the Department.

Community Comments

On Ju ly 31 , 2012

, the Department sent correspondence to the airport managers an d other
civic officials of the four communities summarizing the proposals and requesting comments
on the carrier

- selection decision.

In response , the Department received comments from numerous potential EAS customers

, civic and elected officials, including t he Chairman of the Dickinson County Board of Commissioners (Iron Mo untain ), the Michigan Department of Transportation

– Office of Aeronautics Division, the Crow Wing County Board of Commissioners (Brainerd), the Mayor of Brainerd, the President of the Brainerd City Council, the Chair of the Brainerd
Lak es Regional Airport Commission , the Interim Airport Manager of the Brainerd Lakes Regional Airport, the Mayor of International Falls, the Falls International Airport Commission, the Governor of Wisconsin, the Chair of the Rhinelander/Oneida County Airport Commission, and the Mayor of Rhinelander

. All of the parties specifically noted
above strongly endorsed SkyWest

. Most comments supporting SkyWest included mention of its proposed aircraft size, the code

- share relationship with Delta, and/or the carrier’s recently established presence in the region.

Decision on Carrier Selection After careful consideration, including the comments of local government officials and potential users of the air service , the Department has decided to select SkyWest to provide

EAS between each of the four communities captioned above and MSP , in accordanc e with its proposal summarized above, for the two

- year period beginning when the carrier initiates full
EAS at all four communities . The annual subsidy ra te s will be set at $2,512,971, $1,356,764, $1,107,900, and $1,519,619 at Iron Mountain, Brainerd, Int ernational Falls, and Rhinelander, respectively, or a combined total of $6,497,25 4

.

When selecting a carrier, 49 U.S.C. § 41733(c)(1) directs us to consider four factors: (1) service reliability; (2) contractual and marketing arrangements with a larger c arrier at the hub; (3) interline arrangements with a larger carrier at the hub; and (4) community views. In
addition
, The Consolidated Appropriations Act, 2008, Public Law 110

- 161, provides that when selecting a carrier to provide EAS, the Department may consider the relative subsidy- 5

-

requirements, thus codifying a factor that we have considered since the inception of the

program. SkyWest has a good track record in providing EAS. It is proposing nonstop service at both
Brainerd and Rhinelander and mix of nonstop and one

- stop service at Iron Mountain and International Falls. It will connect the four communities to MSP, a hub fo r its code

- share
partner, De lta and will provide robust access to the national air transportation system. Furthermore, it has stro ng support from the elected officials and the vast majority of the commenting public at each community

.

All of the above mandatory carrier

- selection criteria favor the selection of SkyWes t. Given the alternatives available, t he communities overwhelmingly endorse SkyWest’s proposal s

. However, we also have to take into consideration the burden imposed on taxpayers.

Sovereign Air ’s proposal projects the largest taxpayer savings

, but we are not able to select it because the applicant does not have operating authority from either the Department or the

F ederal A viation A dministration , leaving only SkyWest and Great Lakes as viable applicants

.

Great La kes ’ annual subsidy request at Iron Mountain is approximate ly $655,000 less than SkyWest’s; however, SkyWest’s proposal at the community also i ncludes service at Rhinelander, and the two communities are a n inseparable package bid . Thus, selecting Great Lakes at Iron Mountain would require us to either re

- bid Rhinelander or select Great Lakes at
Rhinelander too. If we were to re

- bid Rhinelander on a stand

- alone basis, the apparent savings at Iron Mountain would be illusory because the cost of serving Rhinelander on a
stand

- alone basis would almost certainly be higher than via the linea r routing proposed by SkyWest

. In addition , both communities strongly support the selection of SkyWest, a statutorily mandated selection criterion. Furthermore

, SkyWest’s pr oposal utilizes the same type of aircraft that is currently being operated at Iron Mountain and may offer more capacity, thereby providing greater potential in reducing the subsidy per passenger, when compared to Great Lakes. While not decisional, Great Lakes also encouraged the Department to re

- solicit proposals at the four communities

, due in part to its concerns regarding the availability of gates and facilities to expand further at MSP

.

The decision at Brainerd and International Falls is very straightforward: SkyWest’s subsidy Is $1.1 million less than Great Lakes’ and both communities fu lly support SkyWest.

Based on all of the above, we will select SkyWest at all four communities. We are, nonetheless, concerned with the level of subsidy SkyWest requires at Iron Mountain. While SkyWest’s proposal at the community may offer more capacity and allow for more passengers, we expect the community to proactively work with SkyWest to increase passenger levels and, thus, reduce subsidy levels in the next two years.

The Department shall make this selection at the four communities contingent upon the Department’s receiving properly executed certifications from SkyWest that it is in compliance with the Department’s regulations regarding drug

- free workplaces and nondiscrimination, as well as the regulations governing lobbying activit ies.- 6

-

Carrier Transition We expect Mesaba/ Pinnacle, Chautauqua, SkyWest and Delta to work together to make a smooth transition at these communities. In that regard, before Mesaba/Pinnacle suspends
their service they must notify any passengers holding reservations for travel after the suspension date, to assist those passengers in making alternate air transportation arrangements, or to provide a refund of the ticket price, without penalty, if requested.

Carrier Fitness

49 U.S.C. §§ 41737(b) and 41738 require that we find an air carrier fi t, willing, and able to provide reliable service before we may subsidize it to provide essential air service. SkyWest
is subject to the Department’s continuing fitness requirements, and no information ha s come

to our attention that would cause us to question the car rier's fitness at this time. We have contacted the Federal Aviation Administration, and it has raised no concerns that would negatively affect our fitness finding. We therefore conclude that th e carrier re mains fit to conduct the operations proposed here.

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

ACCORDINGLY,

1. We select SkyWest Airlines , t o provide Essential Air S ervice at Iron Mountain/Kingsford, Michigan, Brainerd and International Falls, M innesota, and Rhinelander

, Wisconsin, and
establish the subsidy rates

, as described in Appendix C

, for 24 months after full EAS

commences at all four communities ;

2 . The Department directs Pinnacle Airlines Corporation d/b/a Delta Connection and Chautauqua Airlines, Inc., d/b/a Frontier Airlines , 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 its 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 fli ght 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;

3 . We find that SkyWest Airlines , continues to be fit, willing and able to operate as a certificated air carrier and capable of providing reliable EAS at Iron Mountain/Kingsford, Michigan, Brainerd and International Falls, M innesota, and Rhinelander, Wisconsin ;

4. We will continue to require Pinnacle Airlines Corporation d/b/a Delta Conn ection to provide EAS at Iron Mountain, Michigan , as described in Appendix B

- 2 of Order 2012

- 4

- 20

, and at Brainerd and International Falls, Minnesota, as described in Order 2011

- 9

- 5

, until SkyWest Airlines inaugurates full service at the four communities;- 7

-

5. We will also continue to require Chautauqua Airlines, Inc., d/b/a Frontier Airlines to provide EAS at Rhinelander, Wisconsin, as described in Appendix A of Order 2012

- 7

- 32

, until SkyWest Airlines inaugurates full service at the four communities;

6 . T h e s e Docket s will remain open until further order of the Department; and

7

. We will serve copies of this order on the parties listed in Appendix D

.

By:

SUSAN L. 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.gov/Appendix A



### AREA MAP

Maps generated by the Great Circle Mapper

- copyright © Karl L. SwartzAppendix B Page 1 of 2

SkyWest Airlines
Provision of Essential Air Service at Iron Mountain/Kingsford

, Michigan, and Rhinelander, Wisconsin Calculation of Compensation RequirementAppendix B Page 2 of 2

SkyWest Airlines
Provis ion of Essential Air Service at Brainerd and International Falls, Minnesota Calculation of Compensation RequirementAppendix C Page 1 of 3

SkyWest Airlines
Provision of Essent ial Air Service at
Iron M ountain/Kingsford, Michigan, and Rhinelander, Wisconsin Summary of Service To Be Provided

Effective Period : Beginning with the start of full EAS at all four communities through the end of the 24th month thereafter.

Scheduled Service : Iron Mountain/Kingsford : Seven nonstop and six one

- stop (at Rhinelander, Wisconsin) round trips each week to Minneapolis

- St. Paul (MSP).
Rhinelander : Fourteen nonstop round trips each week to Minneapolis

- St. Paul (MSP). Intermediate stops and upline
service : No service to any intermediate point is contemplated under the terms of the carrier’s proposal; accordingly, no such service may be provided on subsidized flights without prior Department approval. Aircraft type: Canadair Regional Jet 200 (CRJ200)

- 50

- passenger seats Timing of flights: Flights must be well

- timed and well

- spaced in order to ensure full compensation. Annual compensation: I ron Mountain/Kingsford : $ 2,512,971
Rhinelander : $ 1, 519,619

This rate assumes an annual completion factor of 9 8 percent. A compensation ceiling is to be applied per calendar week such that service above that ceiling in one week cannot make up for service
shortfalls in another week. Subsidy Rate per Flight : Iron Mountain/Kingsford : $ 1,897 1
Rhinelander : $ 1,065 2 Weekly Compensation Ceiling: Iron Mountain/Kingsford : $ 49,322 3
Rhinelander : $ 29,802 4

1 $ 2,512,971 divided by 1,325 annual departures: (4 flights x 6 days x 52 weeks) + (2 flights x 1 day x 52

we eks) x .98 (completion factor) = 1,325.

2 $1,519,609 divided by 1,427 annual departures: 4 flights x 7 days x 52 weeks x .98 (completion factor) = 1,427.

3 26 flights per week multiplied by $1,897 per flight.

4 28 flights per week multiplied by $1,065 per flight.Appendix C Page 2 of 3

SkyWest Airlines
Provision of Essent ial Air Service at
Brainerd and International Falls, Minnesota Summary of Service To Be Provided

Effective Period : Beginning with the start of full EAS at all four communities through the end of the 24th month thereafter.

Scheduled Service : Brainerd : Twelve nonstop round trips each week to Minneapolis

- St. Paul (MSP).
International Falls : Seven nonstop and five one

- stop (at Brainerd, Minnesota) round trips each week to Minneapolis

- St. Paul (MSP). Intermediate stops and upline
service : No service to any intermediate point is contemplated u nder the terms of the carrier’s proposal; accordingly, no such service may be provided on subsidized flights without prior Department approval. Aircraft type: Canadair Regional Jet 200 (CRJ200)

- 50

- passenger seats Timing of flights: Flights must be well

- timed and well

- spaced in order to ensure full compensation. Annual compensation: Brainerd : $ 1, 356,764
International Falls : $1, 107,900

This rate assumes an annual completion factor of 9 8 percent. A compensation ceiling is to be applied per calendar week such that service above that ceiling in one week cannot make up for service
shortfalls in another week. Subsidy Rate per Flight : Brainerd : $ 1,109 1
International Falls : $ 906 2 Weekly Compensation Ceiling: Brainerd : $ 26,616 3
International Falls : $ 21,744 4

1 $ 1,356,764 divided by 1,223 annual departures: 4 flights x 6 days x 52 weeks x .98 (completion factor) = 1,223.

2 $1,107,900 divided by 1,223 annual departures: 4 flights x 6 days x 52 weeks x .98 (completion factor) = 1,223.

3 24 flights per week multiplied by $1,109 per flight.

4 24 flights per week multiplied by $906 per flight.Appendix C Page 3 of 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 other significant elements of the required service, without prior approval. The carrier understands that an aircraft take

- off and landing at its schedu led 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 period, it may jeopardize its entire subsidy claim for the period in question. If the carrier contemplates any such changes beyond the scope of th e 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 loca te 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 unilate rally, 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 stipul ated 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 mutuall y 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 amend ed 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 Department’s obligation for performance under this Order beyond September 30, 2012, 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 perform ance 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.

Al l claims for payment must be submitted within 60 days of the last day of service provided
under this Order.Appendix D

SERVICE LIST

Brainerd Lakes Regional Airport, Rick Adair City of Brainerd, Nik ki Tabaka Crow Wing County Board, Jennifer Simota

Dickinson County, Michigan, Kay Pascoe Ford Airport, Tim Howen

Falls International Airport, Susan Baratono Falls International Airport Commission, Bob Anderson City of International Falls, Betty Bergstrom

Rhinelander /On e i da County Airport, Joe Brauer