Order : 20 1 2

- 9

- 9

Served: September 10 , 20 1 2



### UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 10 th day of September , 20 1 2

ORDER SELECTING CARRIER AND SETTING FINAL SUBSIDY RATES

Summary By this O rder, we are re selecting Great Lakes Aviation, Ltd. (Great Lakes), to provide

subsidiz ed Essential Air S ervice (EAS) with 19

- passenger Beech craft B

- 1900D air craft at
Merced and Visalia

, California

, for the two

- year period from October 1, 201 2 , through September 31, 201 4

. The annual subsidy rate s will be set at $1,698,878 and $1,697,929

, for

M erced and Visalia, respectively

, for a combined total of $ 3,396,807 . See Appendix A for a

map.

Background By Order 20 10

- 9

- 13

, September 14

, 2010 , the Department selected Great Lakes to provide

subsidized EAS at Merced and Visalia, California

, with 19

- seat Beech 1900D tur boprop aircraft, for the two

- year period beginning October 1, 20 10 , at a combin ed annual subsidy of $ 3,707,681

.

In anticipation of the end of the rate term on September 30

, 2012, the Department issued

Order 2012

- 5

- 11 on May 10, 2012 , solicit ing proposals to provide efficient EAS , with subsidy support if necessary, at Merced and Visalia

. The Request for Proposals also noted that passenger levels at b oth Merced and Visalia are low but increasing since the switch in hub from Ontario to Los Angeles.

Proposals

The Department received proposals from two carriers in res ponse to its solicitation

. Great Lakes submitted an inseparable package proposal (serving both communities only) with a

Essential Air Service at

MERCED, CALIFORNIA
VISALIA

, CALIFORNIA

Under 49 U.S.C. 41731 et seq

. Docket DOT

- OST

- 1998

- 3521
Docket DOT

- OST

- 2004

- 19916- 2

-

single service pattern. SeaPort Airlines, Inc. (SeaPort) also submitted an inseparable package

bid with one linear service pattern and included the use of two 9

- seat aircraft types (either Cessna Caravan or Piper Chieftains). These p roposals are summarized below.

Copies of the proposals may also be accessed online through the Federal Docket Management System at: http://www.regulations.gov , by typing “ DOT

- OST

- 1998

- 3521 ” (Merced) or “ DOT

- OST

- 2004

- 19916 ” (Visalia) in the “SEARCH for: Rules, Comments, Adjudications or Supporting Documents : ” field.

Great Lakes

Great Lakes would utilize 19

- passenger Beech 1900D aircraft, as summarized in the table

below.

Community Hub(s) Served/
Service Pattern Daily
Round Trips Annual Subsidy Requirement

Merced one

- stop to Los Angeles (LAX), Ontario (ONT), or Orange County (SNA); or

non stop to Las Vegas (LAS) 2 (12 weekly) $1,698,878

Visalia nonstop to Los Angeles (LAX), Ontario (ONT) or Orange County (SNA) 2 (12 weekly) $1,697,929

SeaPort As mentioned above, SeaPort submitted a proposal with two d ifferent 9

- seat aircraft types.

The carrier also states that it wou ld offer the communities a four

- year option at no increase in

annual subsidies in the table below. The carrier proposed a linear service pattern that would be routed Oakland (OAK)

– Merced

– Visalia

– Burbank (BUR)

– San Diego (SAN) . Each community would receive five round trips a day

– either three to OAK and two to BUR or

vice versa

. We note, however, that statutory EAS provides service from a designated community to a hub airport, and the BUR

- SAN routing is beyond the scope of the EAS

program
, and we can nei ther p ay for nor require hub

- to

- hub service.

Community Aircraft Type Annual Subsidy Required

Merced Cessna Caravan $1,578,113 Piper Chieftain $1,604,249

Visalia Cessna Caravan $1,857,912 Piper Chieftain $1,890,839

Community Comments

On Ju ly 6, 2012

, the Department sent correspondence to the airport managers and other civic

officials of the two communities summarizing several important statutory limitations- 3

-

imposed on the EAS Program, how they would affe ct the carrier

- selection process at the t wo

comm unities

, and requesting comments on the carrier

- selection decision. 1

In response , the Department received community comments from the Merced Regional Airport Authority and the Mayor of Visalia

. All of the commenting parties endorsed Great

Lakes

. M erced ’s official also made note o f five areas

– aircraft reliability, desire for larger aircraft, preference for continued service to LAS and L AX , more community involvement, and financial contributions in marketing the service

– that either need improvement or focused consideration from Great Lakes. The Mayor of Visalia made note of the recent

increase in enplanements (and the resultant decrease in the subsidy per passenger) at the community and its continued preference for service to LAX . The Mayor urged Great Lakes

to consider implementing the community

- orientated customer service elements (e.g., a local ticketing office ) t hat had been offered by SeaPort but also affirmed the community’s preference for nonstop service to a large hub airport utilizing larger , twin

- engine aircraft.

Decision O n Carrier Selection After careful consideration, including the comments of local official s, the Department has decided to reselect Great Lakes to provide EAS at both communities, in accordance with its proposal summarized above, for the two

- year period from October 1, 201 2 , through September 3 0 , 201 4 . The annual subsidy ra te for Merced will be set at $1,698,878 and $1,697,929 at Visalia, or a combined total of $ 3,396,807

, down from the current combined

rate of $ 3,707,681

.

In regards to SeaPort’s service options utilizing Cessna Caravans

, we note that they do not

meet the m inimum engine and pilot requi rements and that the communit ies did not waive their rights to se rvice with twin

- engine, two

- pilot aircraft. Therefore, the service options using single

- engine and

– pilot aircraft will not be discussed as competitive alternatives to the proposal submitted by Great Lakes.

At Merced, the decision boils down to selecting either Great Lakes, which meets all the minimum service requirements and carrier

- selection criteria, 2 including community support,

or SeaPort , which has proposed a slightly lower annual subsidy than Great Lakes. Specifically, SeaPort’s proposal at Merced is approximately $95,000 less than Great Lakes’ proposal. Great Lakes has interline baggage agreements with all major carriers and fully imp lemented code

- share agreements with both Frontier Airlines and United Airlines at LAX

that allow for reservation, ticket and baggage check

- in that provides seamless service beyond

1 First, the two communities are guaranteed to receive air service with twin

- engine, two

- pilot aircraft. Second, the Department is prohibited from paying subsidy for EAS at any community where the per

- passenger rate exceeds $200, unless the community is gr eater than 210 highway miles from the nearest large or medium hub. In this case, Merced and Visalia are clearly less than 210 highway miles from a large or medium hub, and, therefore, are subject to the $200 subsidy

- per

- passenger ceiling.

2 The carrier

- selection criteria are not prerequisites; rather, they are used as guidelines when performing a comparative analysis in our decision making. In selecting a carrier to provide subsidized essential air service,

49 U.S.C. § 41733(c) (1) directs us to consider four factors: (1) service reliability; (2) contractual and marketing arrangements with a larger carrier at the hub; (3) interline arrangements with a larger carrier at the hub; and (4) community views. In addition, the Consolidated Appropri ations Act, 2008, Public Law 110

- 161, provides that when selecting a carrier to provide EAS, the Department may consider the relative subsidy requirements, thus codifying a factor that we have considered sinc e the inception of the program.- 4

-

the hub. In contrast, SeaPort has an interline ticking agreement with US Ai rways and makes mention of an agreement with a major airline with a large presence on the West coast that is expected to become effective in mid

- August

. Similar to the situation at Visalia discussed below, Great Lakes’ proposal at Merced meets all of the statutorily mandated selection

criteria. Lastly, we also note that Great Lakes will provide the community nonstop service to a large hub airport . SeaPort’s proposal offers nonstop service to smaller hub airports.

At Visalia, the carrier

- selection decisi on is straightforward. Great Lakes’ proposal meets all

of the statutory carrier

- selection criteria and requires less annual subsidy than SeaPort’s twin

engine, two

- pilot aircraft option. The carrier has a long history of providing reliable EAS.

Its code

- share ag re ement s at LAX with United Airlines and Frontier Airlines will provide the community online connections to more than 150 domestic and international destinations

. The community support s the re

- selection of Great Lakes

. Moreover, we find both the service and subsidy levels to be reasonable.

The Department fully expects that passenger traffic will continue to grow at the t wo communities as service patterns continue to remain constant , and expects the communities

and Great Lakes to continue to work together to towards reducing the subsidy per passenger to ensure the sustainability of the continuation of the existing service le vels beyond this prospective two

- year contract . We encourage the communities and Great Lakes to work together to maximize us e of the service awarded under this Order to avoid exceeding the $200 per passenger cap, which could result in the termination of eligibility for subsidy under the EAS program.

The Department shall make this selection at the two communities contingent upo n the Department’s receiving properly executed certifications from Great Lakes that it is in compliance with the Department’s regulations regarding drug

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

Carrier Fitness

49 U.S.C. §§ 41737(b) and 41738 require that we find an air carrier fi t, willing, and able to provide reliable service before we may subsidize it to provide essential air service. Great

Lakes is subject to the Department’s continuing fitne ss requirements, and no information ha s come to our attention that would cause us to question the car rier'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. We therefore conclude that th e carrier remains fit to conduct the operations proposed here.

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

ACCORDINGLY,

1. We re select Great Lakes Aviation, Ltd. , t o provide Essential Air S ervice at Merced and Visalia, California, and establish the subsidy rates

, as described in Appendix C , f or the period

from October 1, 201 2 , through September 30

, 20 1 4 ;- 5

-

2 . The Department directs Great Lakes Aviation, Ltd. , 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 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;

3 . We find that Great Lakes Aviation, Ltd. , continues to be fit, willing and able to operate as

a commuter air carrier and capable of providing reliable Essential Air S ervice at Merced and Visalia, California;

4 . Th e s e Docket s will remain open until further order of the Department; and

By:

SUSAN L. KURLAND Assistant Secretary for Aviation

and International Affairs

(SEAL)

An electronic version of this document is available on the World Wide Web at: http://www.regulations.gov/Appendix AAppendix B Page 1 of 2

Great Lakes Aviation, Ltd.
Provision of Essential Air Service at Merced, California Calculation of Compensation RequirementAppendix B Page 2 of 2

Great Lakes Aviation, Ltd. Provision of Essential Air Service at Visalia, California Calculation of Compensation RequirementAppendix C Page 1 of 2

Great Lakes Aviation, Ltd.
Provision of Essential Air Service at Merced and Visalia, California Summary of Service To Be Provided

Effective Period : October 1, 201 2 through Septem ber 3 0 , 20 1 4

. Scheduled Service : Merced : Twelve one

- stop round trips each week to Los Angeles (LAX), Ontario (ONT), Orange County (SNA) or non stop round trips each week to Las Vegas

. Visalia : Twelve nonstop round trips each week to Los Angeles, Ontario (ONT) or Orange County (SNA)

. Intermediate stops and upline

service : No service to any intermediate point is contemplated under the terms of the carrier’s proposal; accordingly, no such service may be provided on subsidized flights without prior Department approval. Aircraft type: Bee chcraft B

- 1900D (19 passenger seats). Timing of flights: Flights must be well

- timed and well

- spaced in order to ensure full compensation. Annual compensation: Merced : $ 1, 698,878

Visalia : $ 1, 697,929

This rate assumes an annual completion factor of 9 8 percent. A compensation ceiling is to be applied per calendar week such that service above that ceiling in one week cannot make up for service

shortfalls in another week. Subsidy Rate per Flight : Merced : $ 1, 389 1

Visalia : $ 1, 388 2 Weekly Compensation Ceiling: Merced : $ 33,336 3

Visalia : $ 33,312 4

1 $ 1,698,878 div ided by 1,223 annual departures: 4 flights x 6 days x 52 weeks x .98 (completion factor) =
1,223.

2 $1,697,929 divided by 1,223 annual departures: 4 flights x 6 days x 52 weeks x .98 (completion factor) = 1,223.

3 24 flights per week multiplied by $1,389 per flight.

4 24 flights per week multiplied by $1,388 per flight.Appendix C Page 2 of 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 supp orting subsidy 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 conformanc e 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 these rates, 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. T he carrier 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 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 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 writing by the Department and

carrier do not constitute a t otal or partial reduction or cessation of payment.

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 amendme nts thereto shall not operate to controvert the foregoing paragraph.

Funds are not currently available for performance under this Order beyond September 30, 2012. The Department’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 avai lable 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 day of s e rvice provided

under this Order.