Order: 2012

- 3

- 2

Served: March 2, 2012



### UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 2 nd day of March , 20 1 1

Essential Air Service at

BAR HARBOR, MAINE PRESQUE ISLE/HOULTON, MAINE PLATTSBURGH, NEW YORK DOCKET DOT

- OST

- 2011

- 0185

DOCKET DOT

- OST

- 2000

- 8012

DOCKET DOT

- OST

- 2003

- 14783

under 49 U.S.C. 41731 et seq.



### ORDER SELECTING CARRIER S

Summary By th is O rder, the Department is making Essential Air Service (EAS) air carrier selection s at Bar Harbor and Presque Isle, Maine, and Plattsburgh, New York. At Bar Harbor, Hyannis Air Service Inc., operating as Cape Air (Cape Air)

, and P eninsula Airways, Inc. (PenAir) will jointly provide EAS for a four

- year term beginning when either carrier begins providing full EAS

. Pen Air will operate only the peak summer months from Memorial Day t hrough Labor Day

, and will operate two daily nonstop round trips to Boston using 34

- seat Saab 340 aircraft subsidy free. Cape Air will operate on a year

- round basis, providing one daily round trip (seven a week) from Memorial Day through Labor Day, and three daily round trips (21 a week) from September through May using 9

- seat Cessna 402 aircraft for an annual subsidy rate of $1,631,223.

We are also selecting PenAir to provide EAS at Presque Isle and Plattsburgh using 34

- passenger Saab 34 0 aircraft. At Presque Isle, PenAir will provide 19 weekly round trips

for an annual subsidy rate of $4,341

, 967 for the first 6 months after full EAS commences

and an annual subsidy rate of $3,892,174 for the 18 months thereafter. A t Plattsburgh

,- 2

-

PenAir will provide 12 weekly rou nd trips for an annual subsidy of $2,685,207 for the firs t

6 months after full EAS commences and $2,470,834 annually for the 18 months thereafter

. 1

Background Colgan Air Inc., operating as US Airways Express (Colgan)

, has served Presque Isle for several years and was re

- selected in 2010 to provide EAS for another two

- year contract

, through May 31, 2012 . Colgan replaced Cape Air in 2010 at Bar Harbor and Plattsburgh as the communities’ EAS carrier. On September 9, 201 1, Colgan filed notice s of its intent to terminate its subsidized service at all three communities, as summarized below:

Community Annual Subsidy Order Thru Hub Weekly

Round Trips Stops Aircraft

Bar Harbor $2,298,533 2010

- 9

- 28 10/31/12 B oston 14 0 Saab 340 Plattsburgh $2,117,101 2010

- 3

- 27 06/30/12 B oston 12 0 Saab 340 Presque Isle $2,812,853 2010

- 6

- 5 05/31/12 B oston 19 0 Saab 340

As a result of Colgan’s termination notice , we issu ed Order 2011

- 11

- 26

, November 22

, 2011, prohibiting suspension of service and re questing proposals from

airlines interested in providing EAS at any or all of the communities. In response to that

Order , we received proposal s from Cape Air, Multi

- Aero Inc. d/b/a Air Choice One (Air Choice One), PenAir

, and Sovereign Air (Sovereign)

. On February 6, 2012, Sovereign formally withdrew its proposal and, therefore, i t was not considered as part of the selection

process

.

Each carrier’s complete proposal and community comments may be accessed online at http://www.regulations.gov/ by entering each community’s Docket number in the search block: Bar Harbor, DOT

- OST

- 2011

- 0185, Presque Isle, DOT

- OST

- 2000

- 8012, and Plattsburgh, DOT

- OST

- 2003

- 14783

.

Carrier Proposals

While t he chart s below summarize the critical elements of each carrier’s propo sal , there are

some other considerations. Air Choice One ’s proposal was submitted as an inseparable “package”

– meaning that their proposal to pr ovide EAS is on the condition that they are awarded the EAS contract for all three communities. PenAir also submitted their proposal as a package on the condition that they are selected for both Presque Isle and Plattsburgh

. Furthermore

, Pen Air’s proposal to provide subsidy

- free service at Ba r Harbor during the peak summer season is contingent on Cape Air ’s being selected to provide EAS in the off

peak season. A ddition ally, Air Choice One proposed to serve all three communities to

Portlan d, a small hub airport, with single

- engine aircraft . T his does not meet the minimum EAS statutory level s of service. Currently, EAS statu t es guarantee communities in the

lower 48 States service to a medium

- or large

- hub airport with two

- engine aircraft

. 2

1 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of appropriated

funds.

2 See 49 USC417329(b)(5)- 3

-

Bar Harbor, Maine

Air Choice One Cape Air PenAir

Annual Subsidy (2

- year) $2,018,142 $1,669,932 $0

Annual Subsidy (4

- year) $1,997,961 $1,631,223 $0

Hub Portland Boston Boston Stops 0 0 0 Weekly Round Trips 24 21 14

Period Year

- round Year

- round Memorial Day through Labor Day Aircraft Cessna Caravan Cessna 402 Saab 340

Seats 9 9 34
Engines 1 2 2

Presque Isle, Maine

Air Choice One PenAir

Annual Subsidy (2

- year) $2,018,142 $4,381,014

Annual Subsidy (4

- year) $1,997,961 N/A

Hub Portland Boston Stops 0 0 Weekly Round Trips 24 19

Period Year

- round Year

- round Aircraft Cessna Caravan Saab 340

Seats 9 3 3 Engines 1 2

Plattsburgh, New York

Air Choice One PenAir

Annual Subsidy (2

- year) $2,018,142 $2,713,149

Annual Subsidy (4

- year) $1,997,961 N/A

Hub Portland Boston Stops 0 0 Weekly Round Trips 24 12

Period Year

- round Year

- round Aircraft Cessna Caravan Saab 340

Seats 9 34 Engines 1 2- 4

-

Community Comments

On January 9, 2012 , we requested community comments regard ing this carrier

- selection

case. In response, we received letters from all three communities

.

Steven E. Joy, Chairman of the Hancock County Commissioners, which represents the community of Bar Harbor, state s in his letter that the county fully supports the joint proposal of Cape Air and PenAir, stating that “Cape Air’s relationship with J etBlue, its interline agreements, and the ability to offer competitive pricing and a higher frequency of flights with smaller aircraft fits well with the needs of our community.” He adds, “ The

combi nation of these two air carriers will be a good match for BHB’s seasonal market.”

Both Plattsburgh and Presque Isle also submitted letters supporting PenAir’s proposal. Plattsburgh spec ifically mentioned in their letter that they believe PenAir will prov ide the right combination of product and service to enha nce passenger air service in their community, adding, “...we see PenAir as a key component of our future success.”

Decision After reviewing all the airlines’ proposals and the communities’ comments

, th e Department has decided to select PenAir at Presque Isle and Plattsburgh, and the joint proposal of Cape Air and PenAir at Bar Harbor. The communities support the proposals put forth by PenAir and Cape Air/PenAir and we find the service levels proposed a re r esponsive to our Request for Proposals

. At Bar Harbor, Cape Air’s annual subsidy rate will be $1,631,223 for four years, as proposed by the carrier. We were concerned th at PenAir’s proposed subsidy at Presque Isle and Plattsburgh was excessive. We, therefore, reached out to the airline to see if it would reduce its proposed subsidy. 3 The agreed upon annual subsidy at Presque Isle

will be $4,341,967 for the first 6 months of the contract period and $3,892,174 annually for

the 18 months thereafter. The agreed upon annual subsidy at Plattsburgh will be $2,685,207 for the first 6 months and $2,470,834 annually for the 18 months thereafter.

Regarding Air Choice One’s proposal

, two key elements of their bid do not meet mi nimum program requirements. Air Choice One proposed service with single

- engine aircraft, and

the E AS program ensures communities of service with twin

- engine aircraft. 4 In addition, Air Choice One’s routing to Portland, a small hub, does not meet the stat utory minimum of

service to a medium

- or large

- hub airport.

3 The Department negotiated subsidy rates with PenAir, but not Air Choice One. Air Choice One’s proposal is not selectable without community support for statutory reasons.

4 See 49 U.S.C. 41732(b)(5) . Our procedures call for carriers’ initial proposals to be their best and final proposals, but allow the Department to either re

- bid or negotiate with the parties. While PenAir has been able to view the competing proposals before nego tiating with the Department, no party is aggrieved. As we mentioned, Air Choice One’s proposals cannot be selected. Also, the rates PenAir has agreed to are lower than their original bids which were, in fact, subject to our procedures ensuring competitiv e bids.- 5

-

With respect to Presque Isle, under EAS regulations the community qualifies for the program’s maximum guarantee of 67 seats per day in each direction, which would be accommodated by two round tri ps each day. However, due to the very long stage length to Boston and the resultant need to carry a full load of fuel, under Instrument Flight Rule ( IFR ) conditions, Colgan’s Saab aircraft has been consi stently weigh t limited and able to

carry 28

- 31 passengers
, depending on direction. PenAir is proposing to use the same aircraft type

– 34

- passenger Saab 340

– so we expect it to have the same weight

limitations. Because of this, two round trips a day would not be sufficient to meet Presque

Isle’s EAS determination of 67 seats a day. We therefore find that PenAir’s proposal does not exceed the program guidelines of 67 seats per day in each direction.

Service Transition We expect PenAir, Cape Air, and Colgan to work together to make a smooth transitio n at these communities. In that regard, before Colgan suspends it s service we expect it to notif y any passengers holding reservations for travel after the suspension date, to assist those passengers in making alternate air transpor t ation arrangements, or to provide a refun d of the ticket price, without penalty, if requested.

Certifications

W e shall make this selection of Cape Air and PenAir at Bar Harbor, and PenAir at Presque Isle and Plattsburgh contingent upon the Department’s receiving properly executed

certifications from the carrier s that they are in compliance with the Department’s regulations regarding drug

- free workplaces and nondiscrimination, as well as the regulations concerning lobbying activities.

Carrie r Fitness

49 U.S.C. 41737(b) and 41738 require that we find an air carrier fit, willing, and able to provide reliable service before we may subsidize it to provide Essential Air Service

. Cape

Air and PenAir are subj ect to the Department’s continuing fitne ss requirements, and no

information has come to our attention tha t would cause us to questio n the carrier 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 s . We therefore conclude that the

carrier s are reliable and remain fit to conduct the operations proposed here.

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

ACCORDINGLY,

1. We select Hyannis Air Service Inc., operating as Cape Air, and Pen insula Airways, Inc. to jointly provide Essential Air S ervice at Bar Harbor

, Maine, an d establish an annual subsidy rate for Cape Air as described in Appendix C;

2. We select Peninsula Airways, Inc. to provide Essential Air Service at Presque Isle, Maine, and at Plattsburgh, New York, and establish annual subsidy rates as described in Appendix C ;- 6

-

3. We direct Hyannis Air Service Inc., operating as Cape Air, and Peninsula Airways, Inc. to retain all books, records, and othe r 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 sev en 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 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 . We f i nd that Hyannis Air Service Inc., operating as Cape Air, and Peninsula Airways,

Inc

. continue to be fit, willing and able to operate as commuter and certificated carrie rs
, respective ly, and capable of providing reliable Essential Air S ervice at B a r Harbor and Presque Isle, Maine, and Plattsburgh, New York ;

5

. These docket s will remain open pending further Department action ; and

6 . We will serve copies of this Order on the Mayor s and Airport Managers of Bar Harbor and Presque Isle, Maine, and Plattsburgh, New York, Hyannis Air Service Inc. , operating as Cape Air, Multi

- Aero, Inc. d/b/a Air Choice One, and Peninsula Airways, Inc.

B y:

SUSAN L. KURLAND Assistant Secretary for

Aviation and International Affairs

(SEAL)

An electronic version of this document is ava ilable at http://www.regulations.govAppendix A



## AREA MAPAppendix B Page 1 of 2Appendix B Page 2 of 2

Appendix B

Agreement of Peninsula Airways, Inc., to Provide Essential Air Service at
Presque Isle Maine, and Plattsburgh, New York

First Six Months, Annual Basis Eighteen Months, Annual Basis
Presque Isle Plattsburgh Presque Isle Plattsburgh

Docket 2000-8012 2003-14783 2000-8012 2003-14783

Hub BOS BOS BOS BOS

Distance 332 201 332 201
Passengers 29,511 20,284 29,511 20,284
Weekly Round Trips 19 12 19 12
Annual Flights 1/ 1,917 1,211 1,917 1,211

Fare $142.00 $70.00 $142.00 $70.00

Block Time 1.75 1.32 1.75 1.32

Block Hours 3,355 1,599 3,355 1,599

Revenue $4,190,562 $1,419,880 $4,190,562 $1,419,880

Flying Ops @ $244.67/hr $820,868 $391,227 $820,868 $391,227

Fuel @ $655.20 & $596.70/hr. 2/ $2,198,196 $1,047,665 $2,001,929 $954,123

Maintenance @ $724.69/hr. $2,431,335 $1,158,779 $2,431,335 $1,158,779

Aviation Insurance @ $6.54/hr. $21,942 $10,457 $21,942 $10,457

Aircraft @ $178.48/hr. $598,800 $285,390 $598,800 $285,390
Direct Expenses $6,071,141 $2,893,518 $5,874,874 $2,799,976

Flight Attendant @ $49/hr. 3/ $164,395 $78,351 $164,395 $78,351 Ticketing, Pax. @ $7.29/pax. 3/ $215,135 $147,870 $215,135 $147,870

Ground Services 4/ $492,820 $214,332 $492,820 $214,332
Landing Fees 5/ $219,151 $112,812 $219,151 $112,812

Overhead @ 10.5% of Above $752,077 $361,923 $731,469 $352,101 Startup Expenses @ $63.04/hr. 6/ $211,499 $100,801 $0 $0
Indirect Expenses $2,055,077 $1,016,089 $1,822,970 $905,466

Operating Expense $8,126,218 $3,909,607 $7,697,844 $3,705,442

Profit @ 5% $406,311 $195,480 $384,892 $185,272

Economic Cost $8,532,529 $4,105,087 $8,082,736 $3,890,714

Annual Subsidy $4,341,967 $2,685,207 $3,892,174 $2,470,834

1/ 19 flights x 2 directions x 52 weeks x .97 = 1,917.
12 flights x 2 directions x 52 weeks x .97 = 1,211.

2/ 65% of fuel assumed at BOS for all calculations. Initial Period: $4.90*.65 + $5.30*.35 = $5.04/gallon * 130 gph = $655.20/hr. Second Period: $4.20*.65+$5.30*.35 = $4.59/Gallon x 130 gph = $596.70/hr. 3/ Flight attendants of $49 per hour x 4,954 hours = $242,746;

$605,749 less $242,746 = $363,003; $363,003 ÷ (29,511+20,284) pax = $7.29 per passenger. Note: $605,749 is the sum of ticketing and passenger related for PQI and PBG proposals. 4/ Annual increases per Scott Wardwell at PQI of $990 for Office Rent and $5,400 Hangar Rental from proposal. 5/ Includes increase in landing fees of $5.32 per landing at PQI from proposal.

$5,102 ($5.32 x 959 landings per year) is added to previously estimated costs at PQI. 6/ $20K for aircraft relocating, $150K for ground equipment = $170,000.

Block hours: 3,355 PQI + 1,599 PBG + 440 BHB = 5,394.
$170,000 ÷ 5,394 = $31.52/hr., to be recovered in Six Months: $31.52 x 2 = $63.04Appendix C Page 1 of 3

Subsidy Rate Agreement for the Provision of Essential Air Service by Hyannis Air Service, Inc., d/b/a Cape Air, at Bar Harbor, Maine, Docket 2011

- 0185

Effective Period : Start of service by Cape Air, through the last day of the 48 th month thereafter, i.e., there will be no fewer than four full years of service.

S ervice: 21 nonstop round trips per week to Boston (BOS) 1

A ircraft Type : Cessna 402, 9 seats. Timing of Flights : Flights must be well

- timed and well

- spaced to ensure full compensation

. Subsidy Rate : $1,631,223 Flights : 1,507 2
Rate per Flight : $1,082 3
Weekly Ceiling : $45,444 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 the Order and any other signif icant 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 th at 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 Analysis in writing a nd 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 ca rrier must complete all flights that ca n 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 th e 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 service levels, the carrier may cease to provide service to that specific location without re gards to any require ment 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 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 controvert the foregoing p aragraph.

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 availability of appropriated funds from which payme nt f or 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 availa ble 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 Cape Air indicates it will operate one round trip per day during Bar Harbor’s summer peak in order to keep open its pilot base. However, we will not require this service, but will rely on PenAir’s proposed subsidy

- free service during Bar Harbor ’s summer peak season.

2 21 one

- way flights per week x 2 directions x 37 weeks x .97 completion = 1,507; Note: 37 weeks, the Tuesday after Labor Day thru the Thursday before Memorial Day.

3 $1,631,223 subsidy ÷ 1,507 departures.

4 $1,082 * 42 flights per week.Appendix C Page 2 of 3

Subsidy Rate Agreement for the Provision of Essential Air Service by PenAir, at Presque Isle, Maine

, and Plattsburgh, New York, Docket s 2000

- 8012 & 2003

- 14783

Effective Period : Start of Service by PenAir through the last day of the 24 th month thereafter, i.e.,

there will be no fewer t han 24 full calendar months.

Service : Presque Isle, 19 nonstop round trips per week to Boston; Plattsburgh, 12 nonstop round trips per week to Boston.

Aircraft Type : 34

- passenger Saab 340 5

Communities : Presque Isle Plattsburgh

Time Periods: 6 Months 1

- 6 Months 7

- 24 Months 1

- 6 Months 7

- 24

Annual Rates: 7 $4,341,967 $3,892,174 $2,685,207 $2,470,834

Annual Flights: 8 1,917 1,917 1,211 1,211

Rates/Flight: 9 $2,265 $2,030 $2,217 $2,040

Weekly Ceilings: 10 $86,070 $77,140 $53,208 $48,960

(Continued on next page)

.

5 Due to the long stage length from Presque Isle to Boston, the aircraft has been consistently weight limited to 28

- 31 passengers, depending on direction.

6 The initial period will be a six

- month period beginning when Peninsula inaugurates service, through the last day of the sixth month thereafter, i.e., there will be no fewer than six full calendar months in the initial period. The second period will be ei ghteen complete calendar months beginning at the end of the initial period.

7 Although the initial period is shorter than the second period, all of the rates and ceilings are calculated as if they

consisted of a 52

- week annual period.

8 Presque Isle: 19 o ne

- way flights per week x 2 directions x 52 weeks x .97 completion = 1,917;

Plattsburgh: 12 one

- way flights per week x 2 directions x 52 weeks x .97 completion = 1,211;

9 Presque Isle: Initial Period, $4,341,967 ÷ 1,917; Second Period, $3,892,174 ÷ 1,91 7; Plattsburgh: Initial Period, $2,685,207 ÷ 1,211; Second Period, $2,470,834 ÷ 1,211.

10 Presque Isle: Initial Period, $2,265 x 38 flights/week; Second Period, $2,030 x 38 flights/week; Plattsburgh: Initial Period, $2,217 x 24 flights/week; Second Per iod, $2,040 x 24 flights/week.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 ta ke

- 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 elig ible 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 suc h changes beyond the scope of the Order during the applicable period of this rate, 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 wa rrant, 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 determini ng 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 communi ty.

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 service to that specific location without regard to any requirement for notice of such cessation. Those adjustments in the levels of subsidy a nd/or service that 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

regu lations, 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.

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 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 i n writing to the carrier.

All claims for payment must be submitted within 60 days of the last day of service provided

under this Order

.