Order 2014-10-15

Served: October 16, 2014

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

Issued by the Department of Transportation

on the 16th day of October, 2014

ORDER TEMPORARILY EXTENDING CURRENT SUBSIDY

Summary

By this Order, the Department is extending the service period for Great Lakes Aviation, Ltd. 

(“Great Lakes”) to provide Essential Air Service (“EAS”) at Merced and Visalia, California, 

from October 1, 2014, until further Departmental action, but no later than February 28, 2015.

Great Lakes will continue to provide Merced with 12 weekly nonstop round trips to Los 

Angeles (LAX), at an annual subsidy rate of $2,779,116. At Visalia, Great Lakes will continue 

to provide 12 weekly nonstop round trips to LAX, at an annual subsidy of $2,145,917.1 

Background

By Order 2012-9-9, issued on September 10, 2012, the Department re-selected Great Lakes to 

provide subsidized EAS at Merced and Visalia using 19-passenger Beechcraft aircraft, for the 

two-year period from October 1, 2012, through September 30, 2014. Under that contract, Great 

Lakes has provided Merced with 12 weekly nonstop round trips to Los Angeles (LAX), at an 

annual subsidy rate of $1,698,878. At Visalia, Great Lakes has provided 12 weekly nonstop 

round trips to LAX, at an annual subsidy of $1,697,929.

As the end of that rate term approached, the Department issued Order 2014-5-9, on 

May 21, 2014, requesting proposals from air carriers interested in providing EAS at Merced 

and/or Visalia for a new term, with proposals due no later than June 27, 2014. 

On June 26, 2014, Mokulele Airlines requested an extension to that deadline, until 

July 11, 2014. In that request, Mr. Ron Hansen, Chief Operating Officer of Mokulele Airlines, 

explained that the air carrier needed additional time to evaluate Visalia’s market. By Notice 

dated June 26, 2014, the Department granted the extension request and set the due date for 

proposals at July 11, 2014. On that date, five air carriers submitted proposals to serve Merced 

 1 Subsidy is calculated and distributed on a fiscal year basis, subject to the availability of funds. 

Essential Air Service at

 MERCED, CALIFORNIA

 VISALIA, CALIFORNIA

Under 49 U.S.C. § 41731 et seq.

 DOT-OST-1998-3521

 DOT-OST-2004-19916
2

and Visalia: Great Lakes, Boutique Air, Makani Kai Air, SeaPort Airlines, Inc., and Mokulele 

Airlines.

Those proposals, as well as the complete public file for EAS at Merced and Visalia, may be 

accessed online through the Federal Docket Management System at

http://www.regulations.gov, by entering “DOT-OST-1998-3521” for Merced and “DOT-OST2004-19916” for Visalia in the “SEARCH for: Rules, Comments, Adjudications or Supporting 

Documents:” field.

Community Comments

On July 14, 2014, the Department requested community comments regarding this air carrier 

selection case. On August 14, 2014, both communities requested an extension of the deadline 

to submit formal comments. On August 15, 2014, the Department granted both extension

requests and set the due date for formal comments at September 29, 2014. However, we will 

not have finalized this air carrier selection case before the end of the current contract period. In 

accordance with 49 U.S.C. § 41734(c), we must extend the service obligation of Great Lakes 

until this carrier selection case has concluded. 

Legislative Changes Which May Affect Future EAS Eligibility at Merced

The Federal Aviation Administration (FAA) Modernization and Reform Act of 2012 (Public 

Law No: 112-95) amended 49 U.S.C. § 41731(a)(1)(B) to change the definition of “eligible 

place” for the purpose of receiving EAS. The amendment states that to be eligible, a 

community must maintain an average of 10 enplanements or more per service day, as 

determined by the Secretary, during the most recent fiscal year beginning after 

September 30, 2012. The legislation exempts locations in Alaska and Hawaii and communities 

that are more than 175 driving miles from the nearest large- or medium-hub airport. As Merced 

is within 175 miles of Mineta San Jose International Airport (SJC), a medium-hub airport, it

must meet the 10-enplanement-a-day threshold for EAS to continue after FY2013 or otherwise 

face termination of its eligibility to receive EAS, barring a waiver from the Secretary. 

Additionally, the Department is prohibited from subsidizing air service at a community where 

the subsidy per passenger exceeds $200, unless the community is more than 210 highway miles 

from the nearest large- or medium-hub airport. This applies to Merced due to the fact that it is 

located less than 210 miles from SJC, a medium-hub airport.2

By Order 2014-4-26, issued on April 24, 2014, the Department issued a show-cause Order 

directing interested parties to submit objections to the Department’s tentative findings that 

Merced enplaned fewer than 10 passengers per day. In response to that Order, the Department 

received objections from the community, but none of those objections disputed our findings 

that Merced enplaned fewer than 10 passengers per day during FY 2013.

 2 Congress first established the $200 ceiling under P.L. 101-164 for fiscal year 1990, and re-established it in fiscal 

years 1994-1999. The ceiling was made permanent by P.L. 106-69, the Department of Transportation and Related 

Agencies Appropriations Act of 2000. The $200 cap also applies to Visalia as it is located less than 210 miles 

from Bob Hope Burbank Airport (BUR), also a medium-hub.
3

Therefore, by Order 2014-6-6, issued on June 24, 2014, the Department made final its tentative 

decision in Order 2014-4-26, thereby terminating the EAS eligibility of Merced. On 

June 3, 2014, the Merced Regional Airport submitted an application for a waiver on behalf of 

the community of Merced. 

By Order 2014-9-21, issued on September 26, 2014, the Department granted the waiver petition 

submitted by Merced Regional Airport. That Order states that Merced’s compliance with 

49 U.S.C. 41731(a)(1)(B) will be re-assessed based on Fiscal Year 2015 data (October 1, 2014, 

through September 30, 2015). The Department will continue to process the carrier-selection 

case at hand, however, to ensure that Merced and Visalia do not suffer from a service hiatus, we 

must extend Great Lakes current contract from October 1, 2014, until further Departmental 

action, but no later than February 28, 2015. 

Decision

We will extend Great Lakes’ service period until further Departmental action, but no later than 

February 28, 2015. Consistent with past practice, we will set this contract extension at annual 

subsidy rates of $2,779,116 for Merced, and $2,145,917 at Visalia, as described in Great Lakes’ 

most recent service proposal dated July 11, 2014, and further detailed in Appendix B of this 

Order. 

This Order is issued under authority delegated in 49 CFR Part 1.25a(b).

ACCORDINGLY,

1. The Department requires Great Lakes Aviation, Ltd., to continue to provide Essential Air 

Service at Merced and Visalia, California, until further Departmental action, but no later than 

February 28, 2015;

2. We set the rate of compensation for Great Lakes Aviation, Ltd., for the provision of 

Essential Air Service at Merced and Visalia, California, as described in Appendix B; 

3. The Department directs Great Lakes Aviation, Ltd. 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 issuance date of this Order 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. Dockets DOT-OST-1998-3521 and DOT-OST-2004-19916 will remain open until further 

order of the Department; and
4

5. The Department will serve copies of this Order on the civic officials of Merced and 

Visalia, California, the Managers of Merced Regional Airport/Macready Field and Visalia 

Municipal Airport, Great Lakes Aviation, Ltd., Boutique Air, Makani Kai Air, SeaPort 

Airlines, Inc., and Mokulele Airlines and the service list for this docket.

By:

SUSAN L. KURLAND

Assistant Secretary for

Aviation and International Affairs

(SEAL)

An electronic version of this document is available online at

www.regulations.gov
Appendix A

Page 1 of 2

Great Lakes Aviation, Ltd.

Annual Compensation Requirements for Essential Air Service at 

Merced, California to Los Angeles (LAX)

Two Round Trips - B1900 - 9 seat - (at 98 percent completion)

Departures: 1,227

Block Hours: 1,534

Revenue Passenger Miles: 1,820,000

Available Seat Miles: 2,871,180

Operating Revenues:

Passenger: MCE-LAX 7,000 psgrs at $92.27 $645,890

Other: (at 0.62% of passenger revenue) $4,005

Total Operating Revenues: 

$649,895

Operating Expenses:

Direct: Aircraft and Hull Insurance $365,710

Fuel and Oil $911,917

Flying Operations $302,565

Maintenance $483,092

Total Direct Expenses: $2,063,284

Total Indirect Expenses: $1,202,440

Total Operating Expenses: $3,265,724

Operating Loss ($2,615,829)

Profit Element (5.0% of Total Operating Expenses) $163,286

Annual Compensation Requirement: $2,779,116

All Merced – Los Angeles – Merced service is Non-Stop

This Proposal is submitted with no upline scheduling restrictions.
Appendix A

Page 2 of 2

 Great Lakes Aviation, Ltd.

Annual Compensation Requirements for EAS at

Visalia, California to Los Angeles (LAX)

Two Round Trips - B1900 - 9 seat - (at 98 percent completion)

Departures: 1,227

Block Hours: 1,227

Revenue Passenger Miles: 1,305,000

Available Seat Miles: 1,921,482

Operating Revenues:

Passenger: VIS-LAX 7,500 psgrs at $89.12 $668,400

Other: (at 0.62% of passenger revenue) $4,144

Total Operating Revenues: 

$672,544

Operating Expenses:

Direct: Aircraft and Hull Insurance $365,710

Fuel and Oil $719,515

Flying Operations $242,014

Maintenance $430,051

Total Direct Expenses: $1,757,290

Total Indirect Expenses: $926,959

Total Operating Expenses: $2,684,249

Operating Loss ($2,011,705)

Profit Element (5.0% of Total Operating Expenses) $134,212

Annual Compensation Requirement: $2,145,917

All Visalia – Los Angeles – Visalia service is Non-Stop

This Proposal is submitted with no upline scheduling restrictions.
Appendix B

Page 1 of 2

 Great Lakes Aviation, Inc.

Essential Air Service to be Provided at Merced, CA

Effective Period: October 1, 2014, until February 28, 2015

Scheduled Service: 12 weekly nonstop round trips to Los Angeles (LAX)

Aircraft: 9-Seat Beechcraft 1900

Rate per Eligible Flight 1: $2,272

Weekly Ceiling2: $54,528

The air 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 air carrier understands that an aircraft takeoff 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 air 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 air 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 air carrier to provide service on these routes. The air 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 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 air 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 air carrier do not constitute a total or partial reduction or cessation of payment.

Funds may not be available for performance under this Order beyond September 30, 2014. The Government’s 

obligation for performance under this Order beyond September 30, 2014, is subject to the availability of 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, 2014, until funds are made available to the Department for 

performance. If sufficient funds are not made available for performance beyond September 30, 2014 the Department 

will provide notice in writing to the carrier. 

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.

All claims for payment, including any amended claims, must be submitted within 90 days of the last day of the month 

for which compensation is being claimed. For example, claims for service provided in July must be filed by October 

31st; August claims must be submitted by November 30th, and so on.

 1 Annual compensation of $2,779,116, divided by 1,223 annual departures (4 flights x 6 days x 52 weeks x 98 

percent completion).

2 24 flights per week multiplied by $2,272 per flight.
Appendix B

Page 2 of 2

 Great Lakes Aviation, Inc.

Essential Air Service to be Provided at Visalia, CA

Effective Period: October 1, 2014, until February 28, 20151

Scheduled Service: 12 weekly nonstop round trips to Los Angeles (LAX)

Aircraft: 9-Seat Beechcraft 1900

Rate per Eligible Flight 2: $1,755

Weekly Ceiling3: $42,120

The air 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 air carrier understands that an aircraft takeoff 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 air 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 air 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 air carrier to provide service on these routes. The air 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 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 air 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 air carrier do not constitute a total or partial reduction or cessation of payment.

Funds may not be available for performance under this Order beyond September 30, 2014. The Government’s 

obligation for performance under this Order beyond September 30, 2014, is subject to the availability of 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, 2014, until funds are made available to the Department for 

performance. If sufficient funds are not made available for performance beyond September 30, 2014, the 

Department will provide notice in writing to the carrier. 

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.

All claims for payment, including any amended claims, must be submitted within 90 days of the last day of the month 

for which compensation is being claimed. For example, claims for service provided in July must be filed by October 

31st; August claims must be submitted by November 30th, and so on.

 1 If the Department selects a new carrier for Visalia, the new carrier may begin service prior to February 28, 2015, in 

coordination with Great Lakes’ last day of service. 

2 Annual compensation of $2,145,917, divided by 1,223 annual departures (4 flights x 6 days x 52 weeks x 98 

percent completion).

3 24 flights per week multiplied by $1,755 per flight.