BEFORETHE DEPARTMENTOFTRANSPORTATION WASHINGTON, D.C.
Application of HARRISAIRCRAFTSERVICES, INC. ) ) ) ) Docket DOT-OST-2014-0145 ) Fora certificate ofpublicconvenienceand ) necessity pursuantto 49 U.S.C. 

### §41102to ) engage in interstatescheduled airtransportation )

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______________) ANSWER OFAIR EXCURSIONS LLC IN OPPOSITIONTO APPLICATION OF HARRISAIRCRAFTSERVICES, INC. FORACERTIFICATE OF PUBLIC CONVENIENCEAND NECESSITY

Communicationswith respecttothis documentshould beaddressedto: Kent Graford AIR EXCURSIONS LLC 1873 Shell Simmons Dr. Suite 110 Juneau,AK99801

September 15, 2014

\\DC- 042333/000001- 5802239v4 Robert E. Cohn Patrick

### R. Rizzi HOGAN LOVELLS US LLP Columbia Square 555Thirteenth Street, NW Washington, DC 20004 +1 202 6374999/5659 robert.cohn@hoganlovells.com patrick.rizzi@hoganlovells.com CounselforAir Excursions LLCApplication of BEFORETHE DEPARTMENTOFTRANSPORTATION WASHINGTON, D.C.) ) ) HARRISAIRCRAFTSERVICES, INC. ) Docket DOT-OST-2014-0145 ) Foracertificate ofpublicconvenience and ) necessitypursuantto49 U.S.C. 

### §41102 to ) engage in interstate scheduled airtransportation ) September 15, 2014

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_______________) ANSWEROFAIR EXCURSIONS LLC IN OPPOSITIONTOAPPLICATION OF HARRISAIRCRAFTSERVICES, INC. FORA CERTIFICATE OF PUBLIC CONVENIENCEAND NECESSITY

Air Excursions LLC files this answer in opposition to the application of Harris Aircraft Services, Inc. ("Harris Air") for a Certificate of Public Convenience and Necessity ("PCN Certificate"), dated August25, 2014 ("Application"). Having withdrawn its application for commuterauthorityearlierthis year in theface ofstrong objections byAir Excursions and PacificAirways,1 HarrisAir is now back, seeking a PCN Certificate. Harris Air's latest Application is just as flawed as its previous one. Indeed, in certain respects, it is even more flawed. As explained below, Harris Air has failed to demonstrate that it meets the Department's rigorous fitness standards. ItsApplication should be denied.



### I. The Department's Determination In The Show Cause Order On Harris Air's Request For Commuter Authority Has No Bearing On This Application. In a failed attempt to avoid close scrutiny of this Application, Harris Air asserts that there "have been no significant changes in status or operations of Harris Air since it was previously tentatively found fit by Show Cause Order" in
The Departmentsubsequentlydismissedthatapplication. See DOTOrder2014-5-2.
1\DC 042333/000001

- 5802239v4Opposition ofAir Excursions Page 2 Docket DOT-OST-2013-0089. See Application at 1 & n.2. This assertion is patently inaccurate. The differences are manifold. Among otherthings,
• the financial fitness requirementthreshold proposed by HarrisAir in its current Application is significantly different (and inexplicably lower) than its priorapplication, despite proposing similarservice;
• the more recent financial statements reveal material gaps and weaknesses;
• thefinancial institution providing "thefunds available" is different, as is the amount/type offunds available, and the amount ofavailable funds is not sufficient to meet the proper and realistic financial fitness test requirement; and
• the contracts Harris Air previously had with the Southeast Alaska Regional Health Consortium for airlift services have either been terminated ormaterially revised. Moreover, the Department never had an opportunity to rule on the earlier objections of Air Excursions and Pacific Airways to the Show Cause Order because Harris Air withdrew its application before the Department ruled on it. Accordingly, the Department'sfindings in the Show Cause Order are out ofdate and no longer relevantto the new request.

II. Harris Air Has Not Satisfied The Department's Financial Fitness Standard. Financial fitness is one of the four critical pillars upon which the Department reviews PCN Certificate applications (financial fitness, compliance

IIDC- 042333/000001 5802239v4Opposition ofAir Excursions Page 3 disposition, management, and citizenship). As part of the financial fitness standard, Harris Air must demonstratethat it has financial resources sufficientto meet the Department's financial fitness requirement, based on its start-up expenses (including any negative working capital balance) plus projected operating expenses for three months of normalized operations (without corresponding revenue from those operations). See,

**~,** DOT Information Packet on How to Become a Certificated Air Carrier, at 17 (September 2012); Rhoades Aviation d/b/a Transair, DOT Order 2013-1-13, at 5 & n.3.2 Here, Harris Air has failed to makethe requisite demonstration. As explained below, it has inexplicably underestimated the financial fitness requirement amount by not including any start-up expenses and by underestimating its forecast operating expenses. In reality, it will likely incur higher expenses and will need to meet a higher financial fitness threshold than it now forecasts. Correspondingly, Harris Air has failed to demonstrate that it has access to sufficient funds to meet the higher, more realisticfinancialfitness requirement. As was the case with its prior application, Harris Air claims that its operations under the requested certificate would merely be a continuation of its current services. See Application at 9. Yet, HarrisAir claimsthat the amount of funds necessary to meet the financial fitness requirement is 44% lowerthan the fitness threshold it claimed in its previous application, under the same basic operating proposal. This fundamental inconsistency has not been, norcan it be, explained. With Harris Air's previous certification effort proposing virtually the

2 Pre-operating/startup expenses + X ofestimated first-year expenses. This standard is a "zero revenue" test; projected revenues derived from the proposed operations are not taken into accountwhen the applicant-carrier'sfinancial fitness is evaluated.
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same service, the Department found the financial fitness requirement would be slightly over $999,000, based on a forecast of $2.58 million in operating expenses for Year 1 plus pre-operating expenses of more than $353,000. See DOT Order 2014-3-2, at 6. The current Application now forecasts only $2.23 million in operating expenses for Year 1 and zero pre-operating expenses, resulting in a financial fitness requirement of only $557,800-a difference of $441,200. See Application at 9-10 and Exhibits HAS-15 and HAS-16. The net result is that the Departmenttentatively found the financial requirement last time to be about $999,000 based on Harris Air's own data, but this time Harris Air is claiming thefinancial requirementto be only$557,800--44.2% lower. There is no explanation for the significant reduction in the Year 1 operating expenses forecast ($2.58 million v. $2.23 million). The only explanation for zero pre-operating expenses is the conclusory (and flawed) assertion that "[s]ince Harris Air already holds all ofthe FAA authority it requires, there are no certification, pre-operating or start-up expenses and all such expenses have already been incurred and paid for." Application at 9. That explanation, however, does notwithstand scrutiny and is completelyat odds with its prior application for commuter authority. Its prior commuter application was, like the current one, premised on the service it was already operating. At that time, it claimed $353,000 in pre-operating expenses. In fact, HarrisAirdetailedin response to a specific request from the Department in the context of its prior application
- that it would incur a variety of pre-operating/start-up expenses related to certain outstations, training employees, and operating aircraft. See Harris Air Information Response, August 2013 (Docket DOT-OST-2013-0089).

\\DC- 042333/000001-5802239v4Opposition ofAir Excursions Page 5 Although Harris Air claims thatthese expenses "have already been incurred and paid for", if that were the case, the carrier's financial statements would reflect those expenditures. Yet, search high and low and there is no indication that those expenses were "incurred and paid for." Rather than claim a realistic financial fitness requirement amount, it seems clear that Harris Air has disingenuously tailored the financial fitness test amount to the level offinancial support it received from the bank. That is the opposite ofwhat needsto be done to meetthe Department'sfinancialfitness standard. In short, HarrisAir's claimed financial fitness threshold of$557,000 simply cannot bejustified. The numbershould be at least, if not morethan, the amount which the Departmentdetermined in the priorapplication- $999,000. In fact, the pre-operating expenses should be even higher than the amount Harris Air claimed in the priorapplication- and are certainly notzero. Forexample, Harris Air will incur costs associated with setting up DOT reporting systems and advertising and marketing the new scheduled services, as well as costs associated with carrying U.S. mail (which it cannot do under its existing authority). Since Harris Air's financial resource document covers only $600,000 (Application at 1 0), it falls far short (by several hundred thousand dollars) ofthe amountoffunds necessaryto meetthe DOT'sfinancialfitnesstest. In addition, Harris Air's most recent Balance Sheet, dated August 15, 2014, shows sizable negative retained earnings of nearly $90,000, as well as large loans from Alaska Pacific Bank totaling $402,000 or nearly 72% of Harris Air's total equity. See Exhibit HAS-8. The Application also provides no detailed financial data aboutthe affiliated companythat leasesthe aircraftto HarrisAir, as

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was provided with the last application, including all affiliated company transactions. These weaknesses and gaps with the financial statements militate strongly against, and make it impossible for the Department to conclude that HarrisAir has, the requisite financial fitness.

Ill. Harris Air Lacks The Appropriate Compliance Disposition To Hold A PCN Certificate OrCommuterAuthority. Harris Air has long been flouting the Department's regulations by operating as a scheduled commuter air carrier, without the requisite Department authority. The Department should not reward Harris Air's willful non-compliance by granting it a PCN Certificate. Under Part 298, a commuter air carrier is "an air carrier as established by 

### § 298.3(b) that carries passengers on at least five round trips per week on at least one route between two or more points according to its published flight schedules that specify the times, days ofthe week, and places between which those flights are performed." 14 C.F.R. 

### § 298.2. Or, as the Department's Information Packeton Howto Become aCommuterAirCarrierstates, "commuter air carrier is defined under section 298.2(e) ofthe Department's Regulations as an air carrierwhich (1) operates "small aircraft," i.e., thosewith an original design capacity of60 or fewer seats, and (2) carries passengers on at least five roundtrip flights perweek on at least one route between two or more points according to published flight schedules which specify the times, days of the week, and places between which theyare performed."3

3 DOT Information Packet on How to Become a Commuter Air Carrier, at 2 (September 2012).
1\DC 042333/000001-5802239v4Opposition ofAir Excursions Page 7
As Air Excursions previously demonstrated, Harris Air's website, www.harrisair.com, earlier this year showed that it was already advertising and operating scheduled commuter service. See Opposition ofAir Excursions, dated March 18, 2014 (Docket DOT-OST-2014-0089). The Harris Air schedule then published definitively showed that Harris Air was clearly holding out and operating service using small aircraft on a route five times or more per week according to a schedule with published flight times. See attached Winter Schedule (which was an Exhibitto Air Excursions' Objectionsto the ShowCause Order). For example, HarrisAir's posted Winter Schedule revealed daily service between Sitka and Klawock, Sitka and Petersburg, Sitka and Hoonah, Sitka and Gustavus, Sitka and Juneau, and Sitka and Wrangell, in each case with scheduled departure and arrival times. This constitutes a commuter operation according to the regulations, yet Harris Air had not been issued that authority. Moreover, that schedule is very similar (and, for certain routes, is identical) to the so-called "Illustrative Service Proposal" provided with its current Application as Exhibit HAS-13. The compliance issue discussed here goes to the very core of HarrisAir's Application for a PCN Certificate and warrants denial ofthe carrier's Application. This is not a mere "foot-fault" or a technical compliance issue unrelated to the Application itself (e.g., a returned checkfor $25). It is a critical compliance issue going to the very heart of Harris Air's Application - bearing on the applicantcarrier's respect for the Department's regulations and requirements. Indeed, the Department emphasizes this point in the DOT Information Packet on How to Become aCommuterAirCarrier, at7:

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- 5802239v4Opposition ofAir Excursions Page 8 "Under the Department's Regulations, an applicant may 

### not (1) advertise, list schedules, or accept reservations for its proposed scheduled passenger service until the Department issues its final decision on the applicant's commuter application, or (2) accept payment or issue tickets for such service until the commuter authority has been made effective bythe Department."4 These prohibitions are set forth in 14 C.F.R. §201.5. When Harris Air's holding out violations are layered on top of Harris Air's multi-year failures to collect and remit excise taxes (discussed in detail in connection with Harris Air's prior application), HarrisAir's lackofcompliance disposition is self-evident. In addition to operating unlawfully, Harris Air has submitted an Illustrative Service proposal that is both unrealistic and deceptive. As proposed, HarrisAir's proposed schedule for its wheel plane markets (Sitka, Kake, Klawock, Juneau, Hoonah, and Gustavus
- SIT, KAE, KLW, JNU, HNH & GST, respectively) is logistically impossible to execute with only two wheeled aircraft operating on an IFR platform. Harris Air's schedule has the same aircraft operating virtually simultaneously from different points
- an impossibility. For example, one aircraft (AircraftA) flying South to Klawock at 7:30a.m., with the same aircraft returning to Sitka by 9:30 a.m. A presumably second aircraft (Aircraft B) departs Sitka at 7:30 a.m., arriving Juneau at 8:00 a.m. The schedule then shows a departure from JNU at 8:10 a.m., arriving SIT at 9:30 a.m. Simultaneously, flights are listed for: GSTto JNU (8:25 a.m. departure, 8:40 a.m. arrival); HNH to JNU (8:35 a.m. departure, 8:50 a.m. arrival); HNH to GST (8:35 a.m. departure, 8:50 a.m. arrival); and GSTto HNH (9:00 a.m. departure, 9:15 a.m. arrival). To actually operate all ofthese near-simultaneouswheel planeflights with onlytwo

4 See also DOT Information Packet on How to Become a Certificated Air Carrier, at 7 (September2012).
\\DC- 042333/000001 5802239v4Opposition ofAir Excursions Page 9 aircraft would require either flouting the posted departure and arrival timeswhich would be a premeditated deceptive business practice-or require a third and possiblyfourth aircraft, which HarrisAir'sApplication states plainlythat it has
no intention ofacquiring. And, if Harris Airwere to acquire the additional aircraft necessary to fulfill its schedule, it would need to include the additional preoperating and operating costs associated with the additional aircraft in its calculationsto meetthe Department'sfinancial fitnesstest. It is clear to any knowledgeable observer that Harris Air is attempting to make its current "Gypsy Cab" scheme, with flights offered to the traveling public
as essentially shared-charters, operating on a round-robin circuit to multiple destinations, to look like a traditional airline schedule. Attempting to force this square peg into a round hole has resulted in atortured and logistically impossible flight schedule to which it cannot adhere given its limited fleet of only two wheeled aircraft. This violates the fundamental premise of offering scheduled service, not to mention the legal prohibition against "unrealistic or deceptive scheduling" setforth in 14 C.F.R. §399.81. Harris Air has not established that it has the necessary financial fitness, proper compliance disposition, and operational know-howto supportthe grant of
a PCN Certificate.

IV. A Key ElementOfHarris Air's Proposed Service Is In Question. In describing its first year operational forecast, Harris Air relies substantially on the "sufficient historic data to show that our involvement with Southeast Alaska Regional Health Consortium ("the Consortium") for routine

\\DC- 042333/000001 -5802239v4Opposition ofAir Excursions Page 10 patient and staff travel has resulted in a customer base of hundreds of employees and patients requiring routine transportation services to the Consortium's main hospital in Sitka, Alaska," and on its dedicated medevac and passenger airliftcontractswith the Consortium. See Exhibits HAS-14, HAS-7. In its prior application for commuter authority, Harris Air likewise heavily relied on the then-recent contract between Harris Air and the Consortium, similarly claiming that the contract provided Harris Air with a customer base of hundreds of employees and an equal number of patients requiring routine service at the Consortium's main hospital in Sitka. The problem with the proposal is that it ignores the fact that earlier this yearthe Consortium had cancelled the airambulance service contractwith Harris Air which resulted in litigation between Harris and the Consortium. See Attachment to the Opposition ofAir Excursions, dated March 18, 2014 (Docket DOT-OST-2014-0089). The current Application is deafeningly silent about that situation. And, as Harris Air's income statement shows, the revenue from "emergencyflight services" has declined precipitously, by about33% for CY2013
as compared to CY 2012 and by about 52% for January
- May 2014 as compared to the same period in CY 2013. See Exhibit HAS-7. This implicitly showsthatthe relationship (ifanystill exists) with the Consortium is no longerthe
same. Furthermore, the aircraft that had been used for the Consortium flights
are owned by athird party, are currently not being used, and have been offered for sale. The Department should therefore discount any reliance on the Consortium arrangement. Once again, it appears that Harris Air is playing fast and loosewith the facts, replacing claritywith doubtabout its operating proposal.

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In conclusion, Harris Air has failed to meet two ofthe four critical fitness pillars -financial fitness and compliance disposition. Therefore, for the reasons detailed above, HarrisAir'sApplication should be denied.

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- 5802239v4 Respectfullysubmitted,

# {)it~**a~** Robert

### E. Cohn Patrick R. Rizzi HOGAN LOVELLS US LLP 555Thirteenth Street, NW Washington, DC 20004 +1 2026374999/5659 Counselfor AirExcursions LLC

# WINTERSCHEDULE

*Effective Feb 1st- April 30th 2014 Check-in for ALL flights is 30 minutes priorto scheduled departure times Check-in Closes 15 Minutes priorto departure Reservations: DEPART Sitka 7:30am 2 30pm to
Sitka to I O:OOam 2 30pm ,, Sitka to !O:OOam * Sitka to I 2:30pm ,, Sitka to !2:30pm * Sitka to I 2:30pm * Sitka to IO:OOam Sitka to *Call for availibity Sitka to 9:00am 907-966-3050 ARRIVE Klawock 8:15am 3 15pm Kake 10:2Sam 4:15pm Petersburg 

### FREQUENCY M,T, W, Th M,T, W, TH, F, S, Su M, T, W, TH, F, S, Su M,T, W, TH, F
lO:SSam M, T, W, TH, F, S, Su Hoonah 100pm Gustavus 1:00pm Juneau 1:00pm Wrangell 10:3Sam Haines Angoon 92Sam M, T, W, TH, F, S, Su M, T, W, TH, F, S, Su M, T, W, TH, F, S, Su M, T, W, TH, F, S, Su

M, TW, TH F *Call for availibity in the afternoons &on weekends Sitka to 9:00am Tenakee 9:45am M, TW, TH, F *Call foravailibity in the afternoons &on weekends Sitka to Port Alexander 11:30am 12:15pm T & F Sitka to Pelican *Call for availibity *Fights may have stops DEPART Klawock 8:30am 3:30pm Kake I0:30am 4:30pm Petersburg 11:00am Hoonah 1:15pm Wrangell 1:15pm Juenau 1:15pm Wrangell 10:45am Haines Angoon 9:30am
Tenakee 9:50am ARRIVE to Sitka 9:30am 5:00pm to Sitka 11 OOan 5:00pm to Sitka 

### FREQUENCY M,T, W, Th M,T, W, TH, F, 5, 5u M, T, W, TH, F, S, Su M,T, W, TH, F 12:00pm M, T, W, TH, F, S, Su to Sitka 2:00pm M, T, W, TH, F, S, Su to Sitka 2:00pm M, T, W, TH, F, S, Su to Sitka 2:00pm M, T, W, TH, F, S, Su to Sitka 12 OOpm M, T, W, TH, F, S, Su to Sitka

to Sitka 10:00am M,T,W,TH,F

to Sitka 10:30am M,T,W,TH,F PortAlexander to 12:30pm Sitka 1:15pm T & F Pelican to Sitka SoutheastAK charters areavailable. Call for Pricing. 

### www.harrisair.comCERTIFICATE OF SERVICE I herebycertifythatacopy oftheforegoing AnswerofAir Excursions has been served this 151hdayofSeptember2014, upon each ofthefollowing: pmurphy@lopmurphy.com scott@harrisair.com hank@MTCWorld.com info@flypacificairways.com

\\DC- 042333/000001 5802239v4 PatrickR. Rizzi