Order: 2012

- 9

- 8

Served: September 10, 2 012



### UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

Essential Air Service at

EXCURSION INLET, ALASKA KAKE, ALASKA DOCKET DOT

- OST

- 2002

- 12014

DOCKET DOT

- OST

- 2008

- 0217

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



### ORDER SELECTING AIR CARRIER

Summary By th is Order, the Department is re

- s electing Air Excurs ions, LLC (Air Excursions) to provide Essential Air Service (EAS) at Kake for a first

- year annual subsidy of $163,621

and a second

- year annual subsidy of $177,574. The airline will provide 14 weekly nonstop round trips to Juneau during the 21

- week peak season and 7 weekly nonstop round trips during the 31

- week off

- peak season

.

In addition, we are selecting Air Excursions to provide EAS at Excursion Inlet for a first

year annual subsidy of $2 7,111 and a second

- year annual subsidy of $28,835. The airline will provide three weekly n onstop round trips to Juneau during the 21

- week peak season

with PA

- 32 Cherokee 6 aircraft, and one weekly nonstop round trip during the 31

- week

off

- peak using Cessna 206 float aircraft , beginning when the airline commences full EAS. 1

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

funds. on the 10 th d ay of September

, 20 1 2- 2

-

The contract term for both communities will be through the 24 th month from the date Air Excursions begin s full EAS at Excursion Inlet.

Background By Order 2010

- 8

- 9, August 17, 2010, the Department selected Air Excursions to provide

EAS at Kake for a firs t

- year subsidy rate of $213,405 and a second

- year subsidy rate of $229,939 for the two

- year period through August 31, 2012. At Excursion Inlet, Alaska

Juneau Aeronaut ics, Inc. dba Wings of Alaska ( Wings ), was selected to provide EAS for

an ann ual subsidy rate of $33,919.

As the end of the contract s were appro a ching, w e issued Order 2012

- 4

- 13 , April 10

, 2012

, requesting proposals from air carriers interested in p roviding EAS at the communities for a new term beginning September 1, 2012. In respo nse to that Order, we received proposal s from Air Excursions, Ward Air, Inc. (Ward Air), and SeaPort Airlines, Inc., dba Wings of Alaska ( Wings )

.

All three air carriers’ complete proposal s and the communities’ comments may be

accessed online at http://www.regulations.gov/ by entering each community’s Docket

num ber in the search block: Kake, Docket DOT

- OST

- 2008

- 0217 and Excursion Inlet,

Docket DOT

- OST

- 2002

- 12014

.

Proposal of Air Excursions Air Excursions proposed to serve Excursion Inlet and Ka ke , each on a stand

- alone basis

. 2
At Kake, the airline proposed 14 weekly nonstop round trips per week in the 21

- week

s ummer peak season, and 7 weekly nonstop round trips during the 31

- week off

- peak season to Juneau using 9

- passenger PA

- 31 Navajo aircraft for a first

- year annual subsidy of $163,621, and a second

- year annual subsidy of $ 177,574.

At Excursi on Inlet, the airline proposed three nonstop round trips a week during the peak season and one weekly nonstop round trip during the off

- peak season using Cherokee 6

aircraft for a first

- year annual subsidy of $27,111

, and a second

- year annual subsidy of $2 8,835. During the winter when the runway is unavailable, the only way to provide scheduled service is to land on water. The airline states in its proposal that it has in its fleet

a float aircraft that can land on water to ensure continued year

- round sch eduled service.

Proposal of Ward Air

War d Air proposed to serve Excursion Inlet with three weekly nonstop round trips during

the 16

- week peak season and one weekly nonstop round trip during the 36

- week off

- peak season to Juneau using either Cessna 206 aircraft or Cessna 185 aircraft for a first year annual subsidy of $32,262

, and a second

- year annual subsidy of $33,774. Ward Air maintains a float plane in its fleet and, therefore, would be able to provide year

- round

service at Excursion Inlet on its ow n without having to contract out service to an air carrier

that has s eaplanes

.

2 Later clarification with the airline indicated that the proposal put forth was a two

- or four

- year proposal, at the discretion of the Department.- 3

-

Proposal of Wings Wings proposed to serve both Excursion Inlet and Kake, each on a stand

- alone basis. At

Excursion Inlet Wings proposes status

- quo service of three weekly no nstop round trips during the 16

- week peak season and one weekly nonstop round trip during the 36

- week

off

- peak to J uneau using Cessna 207 aircraft for an annual subsidy of $33,527. The proposal also states that, as it has done in the past, the airline wil l contract with another air carrier (such as Alaska Seaplane or Ward Air) with float planes to provid e service at the community when the runway becomes unusable during the winter months.

Wings also proposed to serve Kake with 14 weekly nonstop round trips during peak season and 7 nonstop weekly round trips during off

- peak season with Cessna Caravan aircraft for an annual subsidy of $364,506.

Community Comments On May 9

, 2012, we requested comments from both communities regarding this EAS

selection case. In response

, we received official letters from the State of Alaska Department o f Transportation, City of Kake, and the Organized Village of Kake (OVK). The City of Kake supported the prop osal put forth by Wings, primarily because of Air Excursions’ “diminished reliability during winter months.” However, the OVK supported the Air Excursion’s proposal, stating the carrier “best meets the needs of our community.”

Later we received a letter dated June 14, 2012

, from Mayor John Janik acknowledging the difference in opinion of the two groups and added that Air Excursions had additionally obtained the support of the Kake Community School District. Mayor Janik added, “While the mayor and city co uncil do not wish to retract the earlier Letter of Support for Wings of Alaska, they also do not wish to see that letter take precedence over the recommendations by [Organized Village of Kake] or the school district. That said, when you review public

comm ent and public recommendation, please consider the recommendations of the Organized Village of Kake and the Kake Community School District ahead of those of the City of Kake.”

We also received a l etter from Mr. Steven D. Hatter, Deputy Commissioner

– Aviation for the State of Alaska, expressin g support for the continuation of the EAS program and the important role it plays at Kake and Excursion Inlet as their only form of scheduled transportation. In addition, Mr. Hatter stated, “The State of Alaska c ontinues to assert that

the local res id ents are generally best positioned to comment on particular schedules or air carriers, and, therefore, we think the community should provide comments to you on those specific areas.”

Excursion Inlet, a small communit y that is part of Haines Borough, technical ly does not

have an elected official, and therefore no official comments were received. A member of the community, Mr. Bruce Gordon

, did submit comments, unofficially, for the residents of

Excursion Inlet. Mr. G ordon stated, “...we really do not care which of the [two] alternative carriers are chosen, as long as they deliver the mail on time.” Mr. Gordon also mentioned that the community did prefer that the chosen airline be locally owned and- 4

-

operated. Of the thr ee air carriers that submitted proposals at Excursion Inlet, Air Excursions and Ward Air are locally owned.

Decision

At Kake we are faced with a choice between Air Excursions and Wings

. Since the service proposed by the airlines is virtually identical and the community support was not
unanimous , we decided to look at the subsidy request of both airlines. In this case, Air

Excursions ’ annual subsidy is significantly less than Wings ($163,621 in the first year for vs. Wings’ $364,506). A fter carefully reviewing all of the civic comments, it appea rs that the preponderance of community views support Air Excursions. Therefore, we will re

select Air Excursions at Kake

.

At Exc ursion Inlet, the decision is more complicated. A ll three air carriers submitted proposals and we received no official comments from the community

. Further more, all

three air carriers have experience in providing air service with in Alaska, an essential

criterion for selecting an air carrier to provide EAS in that state. Th at leaves us to look more closely at the subsidy requests proposed. Wings, the incumbent, proposed an annual

subs idy of $33,527. Air Excursions proposed a first

- year annual subsidy of $27,111, and a

second

- year annual subsidy of $28,835 , which is less th an Wings’ proposed subsidy

. Ward Air proposed a first

- year subsi dy request of $32,262, which is slightly less than Wings but more than Air Excursions, and a second

- year subsidy reque st of $33,774, which

is more than both Wings ’ and Air Excursions ’

. Since Air Excursions is an experienced

EAS air carrier in Alaska with a proven record of reliability and its proposal was the least expensive of all t hree proposals, we are selecting Air Excursions to provide EAS at

Excursion Inlet. We find the service and subsidy level s reasonable

.

Lastly, Air Excursions submitted proposals for two

- or four

- year terms. Since neither community stated which length of term was preferable, we have decided to select Air

Excursions for a traditional two

- year term, since it provides some savings for the Department.

We shall make this s election of Air Excursions at both communities contingent upon the Department’s receiving properly executed certifications from the air carrier s that they are in compliance with the Department’ s regu lations regarding drug

- free workplaces and nondiscrimination, as well as the regulations concerning lobbying activities. 3

Service Transition Wings’ current EAS contract at Excursion Inlet expires on August 31, 2012, and Air Excursions may not start full EAS by then. We expect Air Excursions and Wings to work together to make a smooth service transition at Excursion Inlet. In that regard, befo re Wings suspends its 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 pen alty, if requested.

3 The certifications are available on the Web at http://ostpxweb.dot.gov/av iation/index.html

.- 5

-

C onsistent with established program policy, we typically use an air carrier’s prospective proposal that was submitted during the competitive bid process to establish a bridge rate until the new air carrier inaugurates service. After r eviewing Wings’ proposed rate at Excursion Inlet, we find that it appears reasonable for the proposed service levels. We will

therefore establish it as the final rate for the air carrier’s service at Excursion Inle t from September 1, 2012, until Air Excur sions begins full EAS.

Carrier 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 E AS

. Air Excursions is subj ect to the Department’s continuing fitness requirements, and there is no basis to alter that fitness finding at this time . We have contacted the Federal Aviation Administration (FAA) , and it has presented no facts that would negatively affect our fitness finding

. 4 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 re

- select Air Excursions

, LLC to provide Essential Air S ervice at Kake

, Alaska, and

establish an annual subsidy rate as described in Appendix C;

2. We select Air Excursions

, LLC to provide Essential Air Service at Excursion Inlet, Alaska, and establish an annual subsidy rate as described in App endix C ;

3

. We direct Air Excursions, LLC 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 d ocumentation 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 flight logs for aircraft sold or disposed of

must be retained. The ca rrier may forfeit its compensation for any claim that is not supported under the terms of this Order ;

4. We find that Air Excursions, LLC, continue s to be fit, willing and able to operate as a commuter air carrier

, and capable of providing reliable Essential Air S ervice at Kake and Excursion Inlet, Alaska;

4 The National Transportation Safety Board (NTSB) and the FAA are currently in the preliminary states of an investigation of an Air Excursions incident on August 3, 2012. Should the investigation final reports reveal finding s adverse to the air carrier, we would reassess the air carrier’s fitness in light of those findings.- 6

-

5

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

6 . We will serve copies of this Order on the State of Alaska Department of Transportation, the Mayor of Kake, Excursio n Inlet of ficials, Air Excursions, LLC, SeaPort Airlines, Inc. dba Wings of Alaska , and Ward Air , 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 MAP

Maps generated by the Great Circle Mapper

- copyright © Karl L. Swartz

.Appendix B Page 1 of 2

Air Excursions Proposal

- Kake

OPERATIONS

JNU

- KAE Average Block Time 1 way 45.5 minutes

Total Annual Block Time 775.02 hours 1 /

EXPENSE AND SUBSIDY NEED

ITE M YE 6/13 YE 6/14 YE 6/15 YE 6/16 Direct Expense PA

- 31 @$324.60 $264,149 $279,998 $296,797 $314,606 Indirect Expense $234,246 $248,301 $263,199 $278,991

G&A @ 10.29% $ 51,285 $ 54,362 $ 57,624 $ 61,081

TOTAL EXPENSE $549,680 $582,661 $617,620 $654,678 Profit Margin (5%) $ 27,484 $ 29,133 $ 30,881 $ 32,734

TOTAL INCLUDING R.O.I. $577,164 $611,794 $648,501 $687,412

COMMERCIAL REVENUE $ 413,543 $434,220 $455,931 $478,727 SUBSIDY NEED, TOTAL $163,621 $177,574 $192,570 $208,685

SCHEDULED DEPARTURES 1,022 1,022 1,022 1,022

SUBSIDY PER PA

- 31 DEPARTURE $ 160.10 $ 173.75 $ 188.42 $ 204.19

SUBSIDY PER PA

- 32 DEPARTURE $ 143.57 $ 156.23 $ 169.85 $ 184.51

CEILING PER WEEK

– PEAK $4,482.80 $4,865.00 $5,275.76 $5,717.32

CEILING PER WEEK

– OFF

- PEAK $2,241.40 $2,432.50 $2,637.88 $2,858.66

1 / 100% completion at with PA

- 31 Navajo aircraftAppendix B Page 2 of 2

Air Excursions Proposal

– Excursion Inlet

OPERATIONS

JNU

- EXI Average Block Time 1 way 25 minutes

Total Annual Block Time 78.33 hours 1 /

EXPENSE AND SUBSIDY NEED

ITEM YE 6/13 YE 6/14 YE 6/15 YE 6/16 Direct Expense PA

- 32 @$244.25 $ 19,132 $ 20,280 $ 21,497 $ 22,786 Indirect Expense $ 12,729 $ 13,492 $ 14,302 $ 15,160

G&A @ 10.29% $ 3,278 $ 3,475 $ 3,684 $ 3,905

TOTAL EXPENSE $ 35,139 $ 37,247 $ 39,483 $ 41,851 Profit Margin (5%) $ 1,757 $ 1,862 $ 1,974 $ 2,093

TOTAL INCLUDING R.O.I. $ 36,896 $ 39,109 $ 41,457 $ 43,944

COMMERCIAL REVENUE $ 9,785 $ 10,274 $ 10,788 $ 11,32 7 SUBSIDY NEED, TOTAL $ 27,111 $ 28,835 $ 30,669 $ 32,617

SCHEDULED DEPARTURES 188 188 188 188

SUBSIDY PER PA

- 32 DEPARTURE $ 144.21 $ 153.38 $ 163.13 $ 173.49

CEILING PER WEEK

– PEAK $ 432.63 $ 460.14 $ 489.39 $ 520.47

CEILING PER WEEK

– OFF

- PEAK $ 144.21 $ 153.38 $ 163.13 $ 173.49

__________________________________________________ 1 / 100% completion at with PA

- 32 Cherokee Six aircraft, 21 week peak seasonAppendix C Page 1 of 2

Air Excursions, LLC

Essential Air Service to be Provided at Kake, Alaska

Effective Period : From September 1, 2012 through the 24 th month after Air Excursions begins

full EAS at Excursion Inlet

Scheduled Service : Peak (21 weeks): Two round trips each day to Juneau

Off

- peak (31 weeks): One round trip each day to Juneau

Aircraft : 9

- passenger Piper PA

- 31 Navajo 1
Rate per Eligible Flight: First year: $160; Second year: $174 2
Weekly Ceiling for each communit y : First year peak: $4,480; off

- peak: $2,240 Second year peak: $4,872 ; off

- peak: $ 2,436 3

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 rat e 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 scheduled destination constitutes a complet ed flight; absent an explanation supporting subsidy eligibility for a flight that has not been completed, such as certain wea ther cancellations, only completed flights are considered eligible for subsidy. In addition, if the carrier does not schedule or o perate its flights in full conformance with the Order for a significant period, it may jeopardize its entire subsidy claim for the period in que stion. 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 and 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 carrier must complete all flights that can be safely operated; flights that overfly points for lack of traffic will not be compensated. I n 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 do es make payments in the stipulated service levels, the carrier may ce ase to provide service to that specific location without regards 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 carrier do not constit ute 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 a mended 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 fo r performance under this Order beyond September 30, 20 12, 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 ma de 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.

All claims for payment must be submitted within 60 days of the last d ay of service provided under this Order.

1 As previously agreed, when Air Excursions substitutes the PA

- 31 with PA

- 32 aircraft, we will pay the air carrier $117 per flight ($160 x6.6 seats divided by 9) fo r the first year and $128 per flight ($174 x 6.6 seats divided by 9).

2 Annual compensation of $163,621 for the first year, and $177,574 for the second year, divided by the estimated annual completed departures and a rrivals: Peak: 14 weekly round trips mul tiplied by 21 weeks; off

- peak: 7 round trips per week multiplied by 31 weeks = 511 flights in each direct multiplied by 2 = 1,022.

3 Peak: 28 flights multiplied by $160 for the first year, and $174 for the second year; Off

- peak: 14 flights multiplied by $1 60 for the first year, and $174 for the second year.Appendix C Page 2 of 2

Air Excursions, LLC

Essential Air Service to be Provided at Excursion Inlet, Alaska

Effective Period : Beginning with full EAS through the end of the 24 th month thereafter

Scheduled Service : Peak (21 weeks): Three weekly nonstop round trips to Juneau

Off

- peak (31 weeks): One nonstop round trip per week to Juneau

Aircraft : Cherokee 6 Rate per Eligible Flight: First year: $ 144; Second year: $153 1

W eekly Ceiling for each community : First year peak: $864; off peak: $288 Second year peak: $918; o ff

- peak: $ 306 2

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 significant elements of the r equired service, without prior approval. The carrier understands that an aircraft take

- off and landing at its scheduled destinati on constitutes a completed flight; absent an explanation supporting subsidy eligibility for a flight that has not been completed, such as cert ain weather cancellations, only completed flights are considered eligible for subsidy. In addition, if the carrie r 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 que stion. If the carrier contemplates any such changes beyond the scope of the Order durin g 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 warrant, 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. I n determining whether subsidy payment for a deviating fl ight 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 p artially 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 service le vels, the carrier may cease to provide service to that specific location without regards 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 an d 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 a mended from time to time. However, any such sta tutes, 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 fo r 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, 2 012, 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.

All claims for payment must be submitted withi n 60 days of the last day of service provided under this Order.

1 Annual compensation of $27,111 for the first year, and $28,835 for the second year, divided by the estimated annual completed departures and arrivals: Peak: 3 weekly round trips multiplied by 21 weeks ; off

- peak: 1 round trip per week multiplied by 31 weeks = 94 flights in each direct multiplied by 2 = 188.

Peak: 3 f lights per week multiplied by 21 weeks; off

- peak: 1 flight per week multiplied by 31 weeks = 9 4 flights in

eac h direction multiplied by 2 = 18 8

2 Peak: 6 flights multiplied by $144 for the first year, and $153 for the second year; Off

- peak: 2 flights multiplied by $144 for the first year, and $153 for the second year

.