### O rder 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 16 th 

### day of October , 201 4

ORDER TEMPORARILY EXTENDING CURRENT SUBSIDY

Summary

By this O rder, 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 a ction , but no later than February 28, 2015

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

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

to provide 12 weekly nonsto p round trips to LAX, at an annual subsidy o f $ 2,145,917

. 1



### Background

By Order 2012

- 9

- 9, issued on September 10, 2012, the Department re

- selected Grea t 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 tri ps 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 is sued 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 p roposals due no later than June 27, 2014

.

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

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 exten s ion req uest 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 we ll as t he 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

- OST

2004

- 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, 201 4, 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 f ormal comments at September 29, 2014. H owever, we will

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

accordance with 49 U.S.C. § 41734(c), we mus t 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 yea r beginning after

September 30, 2012. T he legislation exempts loc ations 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

- enplane ment

- 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 s ubsidy 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 , t he 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 D epartment

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

- es tablished 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 Ho pe 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 t hat 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, t o 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 Departmenta l

action, but no later than February 28

, 2015

.

Decision

W e will extend Great Lakes’ service period until f urther Departmental action , bu t no later than

February 28, 2015

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

sub sidy 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 Par t 1. 25 a( b ).

ACCORDINGLY,

1. The Department requires Great Lakes Aviation, Ltd.

, to continue to provide E ssential A ir

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

February 28, 2015 ;

2

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

E ssential A ir S ervice at Merced and Visalia, California , as described in Appendix B ;

3. The Department direct s Great Lakes Aviation, Ltd

. to retain all books, records, and other

sourc e 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 year s 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 c laim that is not supported under the

terms of this O rder;

4

. Docket s 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 cop i es of this Order on the civic offic i als 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.

B y:

SUSAN L. KURLAND

Assistant Secretary for

Aviation and International Affairs

(SEAL)

An electronic version of this document is available on line 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



# G reat 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

Availab le 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.

E ss e n t ial Air S er vi c e t o b e P rovided at Merced, CA

E ffec tive Pe r iod : October 1 , 2014, until February 28, 2015

S c h e dul ed S er vi ce : 12 weekly nonstop round trips to Los A ngeles ( LAX)

Ai rcr a f t : 9

- Seat Beechcraft 1900

R a te p er El i g ible F l i g h t 1 

### : $2,2 72

W ee k l y C e ilin g 2 

### : $54, 528

The air c a rr i e r un d er st a nds t h a t it m a y f o rfe it its c omp e ns a tion f or a n y f li g hts th a t it do e s not op era te in c o n f o r m a n c e

with the t er ms a nd stipul a tions of th e ra te Order

, i n c luding the s er vi c e pl a ns outlin e d in the Order a nd a n y oth e r

s i g ni f i c a nt e l e m e nts of the re qui re d s er vi ce , without p r ior a p p r ov a l. The air c arr i e r und e r st a nds th a t a n a i r cr a f t t a k e

o f

f a nd l a nding a t its s c h e du l e d d e stin a tion c onstitut e s a c ompl e t e d f li g ht; a bs e nt a n e x pl a n a tion suppo r ting subsi d y

e li g i b ili t y f o r a f l i g ht th a t h a s n ot b ee n c ompl e t e d, su c h a s cer t a in w ea th e r ca n ce ll a tions, o n l y c ompl e t e d f li g hts a r e

c onsid ere d e l i g ible f or su b si d y

. I n a ddition, if the air carr i e r d o e s not s c h e dule or o p era t e its f li g hts in f ull

c on f o r m a n c e with the Order f o r a s i g ni f i ca nt p e r iod, it m a y j e op ar di z e its e nti r e subsi d y c l a im f or t he p er iod in

qu e stion. I f the air c a rr i e r c ont e mpl a t e s a n y su c h c h a ng e s b e y ond the s c ope o f the Order du r ing the a ppli ca ble

p e r iod of th e se ra t e s, it must f i r st noti f y the O ff i c e of Avi a tion An a l y sis in w r iti n g a nd r ece ive w r itt e n a pp r o v a l f r om

the D e p a r tm e nt to be e nsu re d o f f ull c omp e ns a tion. S hould c i rc umst a n ce s w ar r a n t , the D e p ar tm e nt m a y l o c a te a nd

s e l e c t a re pl a ce m e nt air c arr i e r to p r ovide s er vi c e on th e se r out e s. The air c a rr i e r must c ompl e te a ll f li g hts th a t ca n

b e s a f e l y op era t e d; f l i g hts th a t ov e rf l y points f o r l ac k of t r a f f ic will not be c omp e ns a t e d. I n d e t er mi ning wh e t h e r

subsi d y p a y m e nt f o r a d e v i a ting f l i ght should be a djust e d or dis a llow e d, t he D e p a r tm e nt will c onsid e r the e x t e nt to

whi c h the g o a ls of the p r og ra m a r e m e t a nd the e x t e nt of acce ss to the n a tion a l a ir t ra nspo r t a tion s y s t e m p r ovid e d to

the c ommuni t y

.

I f the D e p ar tm e nt unil a t e ra l l y

, e ith e r p a r ti a l l y or c ompl e t e l y , t er min a t e s or re du ce s p a y m e nts f or s e r vi c e or c h a ng e s

s er vi c e r e qui re m e nts a t a sp ec i f ic lo c a tion p r ovid e d f or und e r this Order, th e n, a t the e nd of the p e r iod f or whi c h the

D e p ar tm e nt d o e s m a ke p a y m e nts in the stipul a t e d a mounts or a t the stipul a t e d s er vi c e l e v e ls, the air c a rr i e r m a y

cea se to p r ovide s er v i c e t o th a t sp ec i f ic lo c a tion without re g a r d to a n y r e qui re m e nt f or noti c e of su c h c e ss a tion.

Those a djustm e nts in the l e v e ls of subsi d y a nd/or s er vi c e th a t ar e mutu a l l y a g r ee d to in w r iting b y the D e p ar tm e nt

a nd air ca r r i e r do not c on s titute a tot a l or p ar ti a l re d u c tion or ce ss a tion of p a y m e nt.

Funds may not be available for performance under this Order beyond September 30 , 2014

. The Government’s

obligation for performance un der 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.

S ubsi d y c ont r a c ts ar e su b j ec t to, a nd in c o r po r a te b y r ef e re n c e

, r e l e v a nt st a t ut e s a nd D e p ar tm e nt r e g ul a tions, a s th e y

m a y be a m e nd e d fr om time to tim e . How e v er

, a n y su c h st a tut e s, r e g ul a tions, or a m e ndm e nts th ere to sh a ll not

op era te to c ont r o v er t the f o r e g oi n g p ar a g r a ph.

All claims for payment, including any amended claims, must be submitted within 9 0 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

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

E ss e n t ial Air S er vi c e t o b e P rovided at Visalia , CA

E ffec tive Pe r iod : October 1 , 2014, until February 28, 2015 1



### S c h e dul ed S er vi ce : 12 weekly nonstop ro und trips to Los A ngeles (LAX)

Ai rcr a f t : 9

- Seat Beechcraft 1900

R a te p er El i g ible F l i g h t 2 

### : $ 1,7 5 5

W ee k l y C e ilin g 3 

### : $ 4 2,120

The air c a rr i e r un d er st a nds t h a t it m a y f o rfe it its c omp e ns a tion f or a n y f li g hts th a t it do e s not op era te in c o n f o r m a n c e

with the t er ms a nd stipul a tions of the ra te Order

, i n c luding the s er vi c e pl a ns outlin e d in the Order a nd a n y oth e r

s i g ni f i c a nt e l e m e nts of the re qui re d s er vi ce , without p r ior a p p r ov a l. The air c arr i e r und e r st a nds th a t a n a i r cr a f t t a k e

o f

f a nd l a nding a t its s c h e du l e d d e stin a tion c onstitut e s a c ompl e t e d f li g ht; a bs e nt a n e x pl a n a tion suppo r ting subsi d y

e li g i b ili t y f o r a f l i g ht th a t h a s n ot b ee n c ompl e t e d, su c h a s cer t a in w ea th e r ca n ce ll a tions, o n l y c ompl e t e d f li g hts a r e

c onsid ere d e l i g ible f or su b si d y

. I n a ddition, i f the air carr i e r d o e s not s c h e dule or o p era t e its f li g hts in f ull

c on f o r m a n c e with the Order f o r a s i g ni f i ca nt p e r iod, it m a y j e op ar di z e its e nti r e subsi d y c l a im f or t he p er iod in

qu e stion. I f the air c a rr i e r c ont e mpl a t e s a n y su c h c h a ng e s b e y ond the s c op e o f the Order du r ing the a ppli ca ble

p e r iod of th e se ra t e s, it must f i r st noti f y the O ff i c e of Avi a tion An a l y sis in w r iti n g a nd r ece ive w r itt e n a pp r o v a l f r om

the D e p a r tm e nt to be e nsu re d o f f ull c omp e ns a tion. S hould c i rc umst a n ce s w ar r a n t , the D e p ar tm e nt m a y l o c a te a nd

s e l e c t a re pl a ce m e nt air c arr i e r to p r ovide s er vi c e on th e se r out e s. The air c a rr i e r must c ompl e te a ll f li g hts th a t ca n

b e s a f e l y op era t e d; f l i g hts th a t ov e rf l y points f o r l ac k of t r a f f ic will not be c omp e ns a t e d. I n d e t er mi ning wh e t h e r

subs i d y p a y m e nt f o r a d e v i a ting f l i ght should be a djust e d or dis a llow e d, t he D e p a r tm e nt will c onsid e r the e x t e nt to

whi c h the g o a ls of the p r og ra m a r e m e t a nd the e x t e nt of acce ss to the n a tion a l a ir t ra nspo r t a tion s y s t e m p r ovid e d to

the c ommuni t y

.

I f the D e p ar tm e nt unil a t e ra l l y

, e ith e r p a r ti a l l y or c ompl e t e l y , t er min a t e s or re du ce s p a y m e nts f or s e r vi c e or c h a ng e s

s er vi c e r e qui re m e nts a t a sp ec i f ic lo c a tion p r ovid e d f or und e r this Order, th e n, a t the e nd of the p e r iod f or whi c h the

D e p ar tm e nt d o e s m a ke p a y m e nt s in the stipul a t e d a mounts or a t the stipul a t e d s er vi c e l e v e ls, the air c a rr i e r m a y

cea se to p r ovide s er v i c e t o th a t sp ec i f ic lo c a tion without re g a r d to a n y r e qui re m e nt f or noti c e of su c h c e ss a tion.

Those a djustm e nts in the l e v e ls of subsi d y a nd/or s er vi c e th a t ar e mutu a l l y a g r ee d to in w r iting b y the D e p ar tm e nt

a nd air ca r r i e r do not c on s titute a tot a l or p ar ti a l re d u c tion or ce ss a tion of p a y m e nt.

Funds may not be available for performance under this Order beyond September 30, 2014

. The Government’s

ob ligation 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.

S ubsi d y c ont r a c ts ar e su b j ec t to, a nd in c o r po r a te b y r ef e re n c e

, r e l e v a nt st a t ut e s a nd D e p ar tm e nt r e g ul a tions, a s th e y

m a y be a m e nd e d fr om time to tim e . How e v er

, a n y su c h st a tut e s, r e g ul a tions, or a m e ndm e nts th ere to sh a ll not

op era te to c ont r o v er t the f o r e g oi n g p ar a g r a ph.

All claims for payment, including any amended claims, must be submitted within 9 0 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

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

1 If the Department select s 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 9 8

percent completion).

3 24 flights per week multiplied by $ 1,7 5 5 per flight.