Order: 2015-3-10 Served: March 24, 2015



### UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OF FICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 24 th day of March, 2015

Essential Air Service at

EL CENTRO, CALIFO RNIA DOT-OST-2008-0299

under 49 U.S.C. § 41731 et seq.



### ORDER RE-SELECTING CARRIER AND

ESTABLISHING SUBSIDY RATES

Summary By this Order, the Department is re-selecti ng SeaPort Airlines, Inc. (SeaPort) to provide Essential Air Service (EAS) at El Centro, California, for the tw o-year period beginning May 1, 2015, through April 30, 2017. SeaPort will provi de 12 nonstop round trips per week to Burbank and 12 nonstop round trips pe r week to San Diego (24 total round trips per week), using 9-seat Cessna Caravan airc raft, at an annual s ubsidy rate of $2,264,008. 1

Background By Order 2013-1-2, issued on January 2, 2013, the Department selected SeaPort to provide subsidized EAS at El Centro using 9-seat Ce ssna Caravan aircraft, for the two-year period from May 1, 2013, through April 30, 2015. Under the terms of that contact, SeaPort has been providing El Centro with 29 weekly nonstop round trips to San Diego, at an annual subsidy of $1,943,751.

In anticipation of the end of that rate te rm, the Department issued Order 2014-12-2, on December 3, 2014, soliciting proposals from air carri ers interested in providing EAS at El Centro, with subsidy support if necessary. In response to that Order, the Department received proposals from Great Lakes Avia tion, Ltd. (Great Lakes), and SeaPort.

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

Those proposals, as well as the complete public file for EAS at El Centro, may be accessed online through the Federal Docket Management System at http://www.regulations.gov , by entering “DOT-OST-2008-0299” in the “SEARC H for: Rules, Comm ents, Adjudications or Supporting Documents:” field.

Proposal of Great Lakes Great Lakes proposed to provide El Centro with 12 nonstop round trips per week to Los Angeles International Airport (LAX), using 30- seat Embraer EMB-120 Br asilia aircraft, at an annual subsidy request of $2,086,922. Great Lakes has a code share in place with United Airlines at LAX, and electronic inte rline ticketing and bagga ge agreements with American Airlines, Delta Air Li nes, and United Airlines.

Proposal of SeaPort SeaPort proposed to provide El Centro with 12 nonstop round trips per week to Burbank and 12 nonstop round trips per week to San Di ego (24 total weekly round trips), using 9- seat Cessna Caravan aircraft, at an annual subsidy request of $2,264,008.

Community Comments By letter dated January 8, 2015, the Department requested community comments regarding this EAS selection case by February 13, 2015. By letter dated February 10, 2015, Mr. Ryan Kelley, Chairman of the County of Impe rial Board of Superv isors, provided support for the re-selection of SeaPort. In that letter, Mr. Kelley stated that, “the Board determined that SeaPort has demonstrated its ability to collaborate with the region to increase enplanements and provide the residents and vi sitors of Imperial County more flights and options.” The Chairman further explained that, “the continued willingness of SeaPort to work closely with the community in determin ing schedules and to help [the community] market the airport locally is a definite plus that is resulting in tu rning around the declining enplanements.”

By letter dated February 12, 2015, the Honorable Efrain Silva, Mayor of El Centro, provided support for the re-selection of SeaPort. In that letter, Mayor Silva explained that local agencies such as the County of Imperi al, Imperial Irrigati on District, and local businesses have been encouraged to use th e air transportation services provided by SeaPort. The Mayor further stated that, “S eaPort Airlines has been implementing a very aggressive five year marketing strategy to pr omote its carrier service in the community and is committed to continue offering its service.”

By letter dated February 12, 2015, Ms. Marlene D. Best, City Manager of the City of Imperial, provided support for SeaPort. In th at letter, Ms. Best explained that, “SeaPort has become a good community partner and is pu rsuing a major marketing push.” The City Manager further stated, “SeaPort’s proposal offers the opportunity for same day

connections from other areas of southern Calif ornia to attend meetings and functions in our region and have the convenience of returning home in the same day. This service is just beginning to be reali zed by public agencies a nd businesses and it’s no t offered in the Great Lakes proposal.”- 3 -

By letter dated February 12, 2015, the Honorable George A. Nava, Mayor of the City of Brawley, stated that there is a “significant n eed for the continuance of the EAS Program in our community. The City of Brawley is committed to the Program’s success and fully understands the importance of the resource.”

Decision In selecting an air carrier to provide subsidized EAS not in Alaska, 49 U.S.C. § 41733(c)(1) directs the Department to consider five factors: (1) service re liability; (2) contractual and marketing arrange ments with a larger air carri er at the hub; (3) interline arrangements with a larger air carrier at th e hub (4) community views, giving substantial weight to the views of the elected officials representing the users of the service; and (5)

whether the air carrier has include d a plan in its proposal to market the service. In addition, the Consolidated and Further Continuing Appropriations Act, 2012, Public Law No. 112- 55, and continued in the Continuing Appropr iations Resolution, 2015, Public Law No. 113- 164, provides that when selecting an air carri er to provide EAS, the Department may consider the relative subsidy requirements, thus codifying a factor that has been considered since the inception of the program.

The community fully supports the re-selection of SeaPort, which has been providing reliable EAS at El Centro since May 2013, and is proposing 24 weekly round trips to Burbank and San Diego. Great Lakes, on the other hand, is proposing 12 weekly round trips to LAX, a hub destination that the co mmunity does not suppor t. Additionally, the Department notes that SeaPort has allotted f unds in its proposal for a multi-year marketing campaign at the community.

Great Lakes has a code share, electronic inte rline ticketing, and bagga ge agreements with larger air carriers at LAX; however, as desc ribed above in the De partment’s statutory selection criteria, the Department is directed to give substantial we ight to the views of elected officials representing th e users of EAS. SeaPort ha s gained the unanimous support of all facets of the community and will provide El Centro with an appropriate mix of available seats and frequencies. The Depart ment notes that SeaPort’s proposal requested an annual subsidy that is more than Great Lakes; however, SeaPort is proposing twice the amount of frequencies and has a proven record of providing reliable EA S at El Centro and other EAS markets in the U.S. Additionally, the air carrier’s service package will allow passengers to connect to air service provided by a variety of full service, low-fare/cost, and international carriers at San Diego and addi tional domestic carriers at Burbank. This

selection of SeaPort will ensure the citizens of El Centro have access to the National Airspace System (NAS).

The Department shall make this selection of SeaPort at El Centro contingent upon receiving properly executed certif ications from the air carrier that it is in compliance with the Department’s regulations regarding dr ug-free workplaces and nondiscrimination, as well as the regulations c oncerning lobbying activities. 2

2 The certifications are internet accessible at: http://www.dot.gov/policy/aviation-policy/small-communityrural-air-service/essential-air-service

.- 4 -

Legislative Changes That May Affect Future EAS Eligibility at El Centro The Federal Aviation Administration (FAA) Modernization and Reform Act of 2012 (Public Law No: 112-95) amended 49 U.S.C. § 41731(a)(1)(B) to change the definition of “eligible place” for the purpose of receiving EA S. The amendment st ates that to be eligible, a community must maintain an aver age of 10 enplanements or more per service day, as determined by the Secr etary, during the most recent fiscal year beginning after September 30, 2012. The legislation exempts locations in Alaska and Hawaii and communities that are more than 175 driving miles from the nearest large- or medium-hub airport. As El Centro is within 175 mile s of San Diego Interna tional Airport (SAN), a large-hub airport, it must meet the 10-enplan ement-a-day threshold for EAS to continue

after FY2013 or otherwise face termination of its eligibility to receive EAS, barring a waiver from the Secretary.

Additionally, the Department is prohibited fr om subsidizing air service at a community where the subsidy per passenger exceeds $200, unless the community is more than 210 highway miles from the nearest large- or medi um-hub airport. This applies to El Centro

due to the fact that it is located less than 210 miles fr om SAN, a large-hub airport. 3

By Order 2014-4-26, issued on April 24, 2014, the Department issued a show-cause Order directing interested parties to submit objections to the Departme nt’s tentative findings that El Centro enplaned fewer than 10 passengers per day. In response to that Order, the Department received objections from the commu nity, but none of thos e objections disputed our findings that El Centro enplaned fewer than 10 passengers per day during FY 2013.

Therefore, by Order 2014-6-6, issued on June 24, 2014, the Department made final its tentative decision in Order 2014-4-26, thereby term inating the EAS eligibility of El Centro. On July 22, 2014, Mr. Ralph Cordova, Jr., Impe rial County Executive Officer, submitted an application for a waiver on behalf of the community of El Centro.

By Order 2014-9-21, issued on September 26, 2014, the Department granted the waiver petition submitted on behalf of El Centro. ThatOrder states that El Centro’s compliance with 49 U.S.C. § 41731(a)(1)(B) will be re-a ssessed based on Fiscal Year 2015 data (October 1, 2014, through September 30, 2015).

3 Congress first established the $200 ceiling under P.L. 101-164 for fiscal year 1990, and re-established it in fiscal years 1994-1999. The ceiling was made permanent by P.L. 106-69, the Department of Transportation and Related Agencies Approp riations Act of 2000.- 5 -

Air Carrier Fitness 49 U.S.C. §§ 41737(b) and 41738 require the Departme nt to find an air carrier fit, willing, and able to provide reliable service before it can provide subsidized EAS. SeaPort is subject to the Department’s continuing fitness requirements, and no information has come to the Department’s attention that would bring into question the air carrier's fitness at this time. The Department’s staff has contacted the Federal Aviation Administration, and it has raised no concerns that would negatively aff ect the Department’s fitness findings. The Department therefore concludes that SeaPort is reliable a nd remains fit to conduct the operations proposed here.

This Order is issued under authorit y delegated in 49 CFR Part 1.25a(b).

ACCORDINGLY, 1. The Department selects SeaPort Airlines, In c. to provide Essentia l Air Service at El Centro, California, at the service levels and subsidy rate as descri bed in Appendix B, for the period from May 1, 2015, through April 30, 2017;

2. The Department directs SeaPort Airlines, Inc. to retain all books , records, and other source and summary documentation to support cl aims 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 doc umentation 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 air carrier may forfe it its compensation for any claim that is not supported under the terms of this Order;

3. The Department finds SeaPort Airlines, Inc. fit, willing and able to operate as a certificated air carrier, and cap able of providing reliable Essen tial Air Service at El Centro, California;- 6 -

4. This docket will remain open pend ing further Department action; and

5. The Department will serve copies of this Order on the civic offi cials of El Centro, Imperial, and Brawley, Califor nia, the Manager of Imperial County Airport, SeaPort Airlines, Inc., Great Lakes Aviation, Ltd. , and the service list for this docket.

By:

BRANDON M. BELFORD Deputy Assistant Secretary for

Aviation and International Affairs

(SEAL)

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

## SeaPort Airlines, Inc.

Annual Compensation Requirements for Essential Air Service at El Centro, California
12 Round Trips per Week to San Diego and 12 Round Trips per Week to Burbank
98.0% Completion Factor

Operations Projections

Average Sector Length (sm) 140

Scheduled Departures 2,496

Scheduled Block Hours 2,496

Projected Completion Factor 98%

Projected Completed Departures 2,446

Projected Completed Block Hours 2,446.1

Passenger Projections

Projected Passengers 7,675

Passengers per Departure 3.1

Projected Average Fare $72.24

Revenue Passenger Miles (RPMs) 1,074,500

Available Seat Miles (ASMs) 3,082,061

Projected Load Factor 34.9%

Financial Projections

Revenues

Passenger Ticket Revenues $554,428

Ancillary Revenues $13,861

Total $568,289

Expenses

Flight Operations $269,069

Aircraft Ownership/Lease $531,000

Fuel & Oil $614,211

Sales & Marketing $25,000

Traffic Servicing $451,337

Insurance $51,368

Maintenance $403,603

Sub

‐ Total ‐ Direct $2,345,588

Indirect $351,838

Total Expenses $2,697,426

Projected Operating Profit/(Loss) ($2,129,137)

Subsidy Calculations

Operating Loss $2,129,137

Economic Return @ 5% $134,871

Required Subsidy $2,264,008Appendix B

SeaPort Airlines, Inc.
Essential Air Service to be pr ovided at El Centro, California

Effective Period: May 1, 2015, through April 30, 2017 Scheduled Service: 12 nonstop round trips each week to San Diego and 12 nonstop round trips each week to Burbank (24 total round trips per week)

Aircraft: 9-Seat Cessna Caravan Rate per Eligible Flight: $923 1 Weekly Ceiling: $44,304 2

Note: The carrier understands that it may forfeit its compensa tion 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 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 sche dule or operate its flights in full confor mance with the Order for a significant perio d, it may jeopardize its entire subsidy claim for the period in qu estion. 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 se lect a replacement carrier to provide service on these routes. The carrier must complete all flights that can be safely operated; flights that ove rfly points for lack of traffic will not be compensated. In determining whether subsidy payment for a deviating flight shou ld be adjusted or disallowed, the Department will consider the extent to which the goals of the pr ogram 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, te rminates or reduces payments for service or changes service requirements at a specific locati on 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 ca rrier may cease to provide serv ice 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 constitute a total or partial reduction or cessatio n 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, regul ations, or amendments thereto shall not operate to controvert the foregoing paragraph.

Funds may not be available for performance under this order beyond September 30, 2015. The Government’s obligation for performance under this order beyond September 30, 2015, is s ubject to the availa bility of 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, 2015, until funds are made available to the Department for performance. If sufficient funds are not made available for performance beyond September 30, 2015, the Department will provide notice in writing to the carrier.

All claims for payment, including any amended claims, must be submitted within 90 days of the last day of the month for which compensation is being claimed. For example, claims for service provided in July must be filed by October 31; August claims must be submitted by November 30, and so on.

1 Annual compensation of $2,264,008 divided by 2,454 annual departures (313 service days x 8 flights per service day x 98 percent completion).

2 48 flights per week multiplied by $923 per flight.