Order: 2011 - 3 - 34 Served: March 29, 2011 

### UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C. Issued b y the Department of Transportation on the 29 th day

of March , 20 1 1 Essential Air Service at WATERTOWN, NEW YORK DOCKET DOT - OST - 1997 - 2842 under 49 U.S.C. 41731 et seq.



### ORDER SELECTING CARRIER Summary By this order, the Department is selecting American Eagle Airlines , a wholly owned subsidiary

of A MR Corporation (American Eagle) to provide essential air service (EAS) at Watertown, New York , using 44 - seat Embraer ERJ 140 aircraft for a two - year period be ginning when it inaugurates full EAS, through the end of the 24 th month thereafter , for an annual subsidy

of $ 3,047,972 . 1 Background Watertown has traditionally been packaged with Massena and Ogdensburg, New York . By Order 2008 - 3 - 15, March 14, 2008, the Department selected Cape Air to provide EAS at the three communities for the two - ye ar period through September 30, 2010. That order established a total combined annual subsidy rate of $3,879,863 for service consisting of three dail y nonstop round trips (2 1 a week) between each community and Albany International Airport, with 9 - seat Cessna 402 aircraft.

1 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of appropriated funds.- 2 -

As the end of the contract was approac hing, we issued Order 2010 - 5 - 32, May 10, 2010, requesting proposals from carriers interested in providing replaceme nt service at the communities , for a new two - year period beginning October 1, 2010. In response to that order, we received prop osals from the incumbent, Cape A ir, as well as Gulfstream International Airlines, Inc. (Gulfstream), and Charte r Air Transport, In c. (Charter A ir). The City of Ogdensburg and Ogdensburg Bridge and Port Authority support ed Cape Air, while the Massena T own Council and the City of Watertown both endorsed Gulfstream. Moreover, neither Massena nor Watertown was willing at that time to waive its statutory entitlement to service with 15 - seat or larger aircraft. 2 However, Cape Air’s proposal was for a two - community

minimum, and Gulfstream’s was a three - communit y, all - or - nothing proposal, so no option was selectable. Therefore, by Order 2010 - 10 - 7, October 8, 2010, we again solicited proposals in an effort to obtain proposals that would satisfy the needs of all three communities at competitive subsidy levels. Again, we received proposals from Cape Air, Charter Air, and Gulfstream, all sli ghtl y different from the first round of submissions. During this round of proposals , the communities of Massena and Ogdensburg full y supported Cape Air’s proposal, but Watertown maintained its preference for Gulfstream. However, Gulfstream’s proposal was again a three - cit y, all - or - nothing package, and did not offer a Watertown - onl y option. In addition , Watertown did not waive its right to 15 - seat or larger aircraft as was proposed by Cape Air. We therefore issued an order selecting Cape Air to serve Massena and Ogdensburg and rebid the Watertown case b y Order 2001 - 1 - 6, January 7, 2011. In response, we r eceived proposals from American Eagle, Cape Air, and Charter Air. Each carrier’s complete proposal and co mmunity comments may

be accessed online at http://www.regulations.gov/ by entering Docket number DOT - OST - 1997 - 2842 in the search block . Proposal of American Eagle American Eagle proposed two weekday and weekend round trips (12 round trips a week) to Chicago O’Hare International Airport (Chicago ) using 44 - seat Embraer ERJ 140 aircraft for an annual subsidy

of $3,047,972. As a condition of its proposal, American Eagle requested that the DOT and Watertown waive the right to hold - in upon its filing of a 120 - day notice to terminate service. Proposal of Cape Air Cape Air proposed three round trips a day (21 round trips a week) over a Watertown Albany - Boston routing using 9 - seat Cessna 402 aircraft for an annual subsidy of $1,665,889 for a two - ye ar contract, or an annu a l subsidy of $1,615,912 for a four - ye ar contract.

2 49 U.S.C. 41732 guarantees certain service minimum s, including service with 15 - seat or larger aircraft for mo st communities, including all three communities here.- 3 -

Proposal of Charter Air Charter Air proposed charter service that would operate as a public charter under the Alternate Essential Service program established by 49 U . S . C . 41745 (a)(3)(f) in accordance with 14 CFR Part 380. The service would provide two nonstop round trips each day (12 round trips a week) except Tuesday to Was hington Dulles International Ai rport using 30 - seat Embraer EMB 120 aircraft for an annual subsidy of $1,944,152. Community Comments On February 11, 2011, we requested community comments regard ing this carrier - selection case. In response, we received a le tter from Robert F. Hagemann, III, County Administrator for the County of Jefferson , expressing support for American Eagle’s proposal. Mr. Hagemann states, “American Eagle was able to provide both our military and civilian travel market with the opportuni ty to fly directl y on a legacy carrier with a 44 - seat regional jet to a major market at Chicago’s O’Hare International Airport ”, adding, “...the ability

to easily fly to almost any

destination within the country , along with the accompan yi ng national marketing program that would be available immediately to this region, were other very

strong factors that weighed heavily in favor of th is particular airline.” Decision After carefully

reviewing each carrier’s proposal and taking into account community feedback, we have decided to select American Eagle’s proposal of two weekday and weekend round trips to Chicago for an annual subsidy of $ 3,047,972. Before arriving at this decision, we looked at the proposals of Charter Air and Cape Air . Charter Air’s proposal to operate charter service under the Alternate Essential Air Service Program did not receive any community

support. Since communi ty support is a requirement for the Alternate Essential Air Service Program, we had no choice but to rule out Charter Air as an option. 3 As for Cape Air, the incumbent airline, the community did not waive its right to service with 15 - seat or larger aircra ft as Cape Air proposed , thus eliminating Cape Air. We find both the service and subsidy levels proposed by

American Eagle to be reasonable. We also recognize that a key component of American Eagle’s proposal is its ability to terminate service on 120 day s’ notice. In supporting American Eagle’s proposal, the community

has effectively agreed to the carrier’s 120 - day termination clause. Finall y, we find that American Eagle offers the best opportunity to significantl y increase passenger levels and lower subsidy levels in the out years. We caution the community , however, that if these twin goals are not attained, we would be inclined to revert to subsidizing 19 - seat aircraft at the end of this two - ye ar contract. Based on all of the above, we will select American Eagle to provide EAS at Watertown for a two - year period.

3 In fact, a community must request participation in the Alternate Essential Air Service P rogram for us to consider it.- 4 -

Although we are selecting American Eagle to serve Watertown for a two - year period, the community

is currently

over the $200 subsidy

cap with a per passenger subsidy of $324 . The Department is prohibited from subsidizing air service at a community where the subsidy per passenger exceeds $200, unless the community is more than 210 hi ghwa y miles from the nearest large or medium hub airport. 4 Watertown is 172 miles from Buffal o Niagara International Airport, a medium hub; therefore the community is subject to the cap. Moreover, based on American Eagle’s prospective subsidy rate of $3, 047,972 and calendar year 2010 passengers of 5,143, the subsidy per passenger will be $593. While w e believe, that American Ea gl e’s proposal to serve Chicago has the potential to increase traffic levels at Watertown, thus low ering its per passenger subsidy, w e expect the community

and Ame rican Eagle to work together to maximize use of the service . We will continue to monitor enplanements during the course of American Eagle’s contract and will take appropriate action, including possible termination of elig ibility for subsidy

under the EAS program. W e shall make this selection of American Eagle at Watertown contingent upon the Department’s receiving properl y executed certifications from the carrier that it is in compliance with the Department’s regulations regarding drug - free workplaces and nondiscrimination, as well as the regulations concerning lobb yi ng activities. Carrier Transition By Order 2010 - 11 - 13, November 12, 2010, the Department set a short - term subsi dy rate to compensate Cape Air to serve Watertown until a new airline selection order has been issued and the airline inaugurates full EAS. We will continue to compensate Cape Air at that subsidy

rate until American Eagle inaugurates full EAS. We exp ect Cape Air and American Eagle to coordinate a smooth transition in service at Watertown, including setting a date to switch services from Cape Air to American Eagle. We expect Cape Air to contact all passengers holding reservations for travel after that date, to notify them of the suspension of service, and to secure alternate air transportation for such passengers or to provide a full refund of the ticket price, without penalty , if requested. Carrier Fitness 49 U.S.C. 41737(b) requires that we find an air carrier fit, willing, and able to provide reliable service before we may subsidize it to provide essential air service . American Eagle is subj ect to the Department’s continuing fitness requirements, and no information has come to our attention that 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 negativel y affect our fitness finding s . We therefore conclude that the carrier s remain fit to conduct the operations proposed here. This order is issued under authority delegated in 49 CFR 1.56a(f).

4 Congress first establ ished the $200 ceiling under P.L. 101 - 164 for fiscal year 1990, and reestablished it in fiscal years 1994 - 1999. The ceiling was made permanent by P.L. 106 - 109, the Department of Transportation and Related Agencies Appropriations Act of 2000.- 5 -

AC CORDINGLY, 1. We select American Eagle Airlines to provide essential air service at Watertown , New York an d establish an annual subsidy rate of $ 3,047,972 , as described in Appendix C; 2. We direct American Eagle Airlines to retain all books, records, and other source and summary documentation to support claims for payment, and to preserve and maintain such documentation in a manner that readily permits its audit and examination by representatives of the Department. Such documentation shall be retained for seven ye ars or until the Department indicates that the records may be destroyed, whichever comes first. Copies of flight logs for aircraft so ld or disposed of must be retained. The carrier may forfeit its compensation for an y claim that is not supported under the terms of this order; 3 . We f i nd that American Eagle Airlines continue s to be fit, willing and able to operate as a commuter carri er , and capable of providing reliable essential air service at Watertown ; 4. Under our authority

in 49 U.S.C. 40109, we will allow American Eagle to cease operations at Watertown on 120 day s’ notice; 5 . This docket will remain open pending further Department action ; and 6 . We will serve copies of this order on the Mayor of Watertown , the County Administrator for the County of Jefferson, American Eagle Airlines , Hyannis Air Service, In c., and Charter Air Transport, 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 BAppendix C Am erican Eagle Airlines Essential Air Service to be Provided at Watertown, New York Effective Period : Two ye ars beginning when American Eagle inaugurates full EAS through the end of the 24 th month thereafter Scheduled Service : 2 weekday and weekend nonstop round trips (12 a week) between Watertown and Chicago Aircraft : 44 - seat Embraer ERJ 140 Rate per Eligibl e Flight: $ 2,492 ; 1 Weekly Ceiling : $ 59,808 2 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 take - off and landing at its scheduled destination constitutes a completed flight; absent an explanation supporting su

bsidy eligibility for a flight that has not been completed, such as certain weather cancellations, only completed flights are considered eligible for subsidy. In addition, if the carrier does not schedule or operate its flights in full conformance with th e 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 these rates, it must first notify the Offic e 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 carrie r must complete all flights that can be safely operated; flights that overfly points for lack of traffic will not be compensated. In determining whether subsidy payment for a deviating flight should be adjusted or disallow ed, 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 complete ly , terminates or reduces payments for service o r changes service requirements at a specific location provided for under this order, then, at the end of the period for which the Department does make payments in the stipulated amounts or at the stipulated service levels, the carrier may cease to provide service to that specific location without regard to any requirement for notice of such cessation. Those adjustments in the levels of subsidy and/or service that are mutually agreed to in w riting by the Department and the carrier do not constitute a total or partial reduction or cessation of payment. Funds are not currently available for performance under this order beyond March 18 , 2011 . The Department’s obligation for performance under this order beyond March 18 , 2011 , 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 March 18 , 2011 , until funds are made ava ilable to the Department for performance. If funds are not made available for perf ormance beyond March 18 , 2011 , the Department will provide notice in w riting to the carrier. Subsidy contracts are subject to, and incorporate by reference, relevant statutes and Department regulations, as they may be amended from time to time. However, any such statutes, regulations, or amendments thereto shall not operate to controvert the foregoing paragraph. All claims for payment must be submitted within 60 days of the last day of service provided under this order.

1 Annual comp ensation of $3,047,972 divided by 1,223 annual departures (24 w eekly departures x 52 w eeks x 98 percent completion). 2 24 arrivals and departures per w eek multiplied by $2,492 per flight.