Order 2010-3-21

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 16 th day of March, 2010

Served: March 16, 2010

Application of

CSI Aviation Services, Inc. Docket DOT-OST-2009-0311

for an emergency exemption pursuant to 49 U.S.C. §40109 to continue to act as an indirect air carrier charter

broker under contract to the General Services

Administration

ORDER TO SHOW CAUSE

Summary

By this order, we tentatively grant the request of the aviation broker CSI Aviation Services, Inc. (CSI) for exemption authority to engage in domes tic and foreign indirect air transportation of persons, property and mail pursuant to cont racts arranged under the General Services Administration (GSA) Schedule Special Item Number (SIN) 599-5, Ai r Charter ServicesBrokers. We are also tentatively granting this authority to other avia tion brokers listed on GSA Schedule SIN 599-5, and those that ma y be so listed in the future. 1

Background

Aviation brokers listed on GSA Schedule SIN 599- 5 operate by working with air carriers looking

to sell their air services to the U.S. government, as represented by GSA. 2 Brokers are responsible only for facilitating the arrangement of air charter services, but do not own or operate aircraft. A broker does not need economic authority from the Department of Transportation as long as it

1 Currently, the following aviation brokers are listed on GS A Schedule SIN 599-5: Air Charter Team; Air Partner, Inc.; Air Planning, LLC; Capital Aviation, Inc.; CSI Avia tion Services, Inc.; Private Jet Services Group Inc.; Sundowner Oklahoma City, LLC; and Zephyr Aviation, LLC.

2 GSA maintains a separate schedule for direct air carrier s -- GSA Schedule SIN 599-4, Air Charter Services–Owner Operated. The following direct air carriers are listed on GSA Schedule SIN 599-4: Evergreen International Aviation; Executive Fliteways, Inc.; Flightworks, Inc.; Miami Air International, Inc., Southeastern Ohio Air Service, Inc.; and Vision Airlines, Inc.2 properly limits its role to that of a strict go-between between di rect air carriers and the U.S. government, serving as no more than an agent for one of the parties. However, if the broker acts in a manner that gives it the attributes of an actual provider of air tran sportation, that is as a principal rather than an agent, the broker must hold appropriate DOT authority to act as an

indirect air carrier.

In October 2004, the Department ’s Enforcement Office (C-70) issued a Notice providing guidance on the lawful role of air charter brokers in the pr ovision of air transportation. 3 The

Notice stated that air charter brokers without appropriate economic authority may not hold out air transportation in their own ri ght or enter as principals into contracts with customers to provide air transportation. Th e Notice specifically suggested that brokers needing authority could seek exemptions that would permit them to offer services directly to the public in their own right, subject to necessary consumer safeguards. In 2009, C-70 investigated the matter of aviation brokers in greater detail and concl uded that a number of brokers were operating unlawfully. In October 2009, C-70 warned these brokers, including CS I, that their operations as principals in selling air transportation were unl awful and that they must cease any further such operations by April 2010 or face enforcement action.

Application

On November 25, 2009, CSI, an aviation broker currently on the GSA SIN 599-5 schedule, filed an application for an emergency exemption to continue to perform unde r GSA SIN 599-5 and act as a principal in contracts with the GSA and othe r U.S. government agencies. CSI states that it has held a GSA schedule contract to arrange commercial air services since December 19, 2003. CSI further states that its reque st is consistent with the term s and conditions of SIN 599-5, and that all air transportation will be performed by GSA-approved direct air carriers with the requisite FAA safety certifications and DOT eco nomic authority in ac cordance with the GSA Schedule or the relevant U.S. gove rnment agency task order.

A number of parties have filed both in support and opposition of CSI’s application. 4 The following parties filed submissions in support of CSI’s applicati on for exemption authority: TEM Enterprises, d/b/a Xtra Airway s (Xtra); Falcon Air Express (Fal con); and Capital Aviation, Inc. (CAI). The following parties filed submissions opposing CSI’s application: Global Aviation Holdings, Inc. (Global Aviation) 5 ; Miami Air International, Inc. (Miami Air); the National Air Carrier Association (NACA); Omni Air Internati onal (Omni); Ryan International Airlines, Inc. (Ryan); MN Airlines, LLC dba Sun Country Ai rlines, Inc. (Sun Country); Sundowner Oklahoma City, LLC (Sundowner), and USA 3000 Airlines (U SA 3000). Responses neither in support nor in opposition to CSI’s applicati on were filed by the Air Charter Association of North America (ACANA) and the National Business Aviation Association (NBAA).

3 Notice: The Role of Air Charter Brokers in Arranging Air Transportation , U.S. Department of Transportation, October 8, 2004.

4 Certain pleadings were accompanied by motions to late-file and for leave to file. In the interest of ensuring a complete record, we will grant the various motions.

5 Global Aviation is the parent company of World Airways, Inc. and North American Airlines, Inc.3 Responsive Pleadings to Application

CSI states that the granting of CSI’s exemption is in the public interest as there is an inadequate availability of current services from SIN 599-4 direct air carrie rs and that allowing brokers to continue to perform under SIN 599-5 will increa se competition. GSA states that it would support action, via exemption or othe rwise, that would permit air ch arter brokers to continue to perform their GSA Multiple Award Schedule (MAS) contracts as well as contracts the brokers may have with other Federal agencies. The supporti ng parties, in general, note that CSI’s request for exemption authority should be granted as it is narrowly limited to a specific GSA contract and that CSI has a proven history of reliable op erations. CAI requests that the exemption sought by CSI be broadened by the Department to include all air charter brokers now or hereafter listed by GSA on Schedule SIN 599-5 (or any successor schedule).

The opposing parties, including Omni and Sun C ountry, argue that CSI is a broker and not a

direct air carrier under the Department’s rules. In genera l, the opposing parties argue that CSI has not presented the Department with any comp elling reasons for extending to charter brokers the right to sell air transporta tion. Some of the opposing parties, including NACA, USA 3000, and Sundowner, suggest that the issues raised by CSI and other brokers should be considered as part of a rulemaking proceeding. In response to CSI’s argument that th ere is an inadequate availability of SIN 599-4 air carriers, the opposi ng parties, most notably NACA and Miami Air, maintain that ample air transport capacity exists to meet the foreseeable needs of all U.S. government agencies.

CSI, in its reply, asserts th at the opposing parties’ argumen ts lack merit and should be disregarded. CSI states that Miami Air’s and NACA’s assertion that ample lift is available to support the U.S. government’s needs is incorre ct; otherwise GSA would not have requested

solicitations from brokers. CSI notes that none of the opposing pa rties or NACA members, with the exception of Miami Ai r, are listed on SIN 599-4. 6 CSI argues that this is an illustration of the opposing parties trying to eliminate competition (a mong other air carriers). CSI further argues

that brokers listed under SIN 599- 5 increase competition among the industry and air carriers, which reduces prices paid by U.S. government agencies.

GSA’s Position and Responses

On December 17, 2009, GSA filed a responsive pl eading expressing its support for the general principles upon which CSI premises its application for an exemption.

By letter dated February 12, 2010 to GSA’s General Counsel (placed in this Docket and served on the parties), the Department requested additional information seeking a clear and definitive formal statement of GSA’s position on CSI’s app lication. The Department requested that GSA address the broader question of whether broker services are e ssential to GSA’s mission or

whether GSA has other means to secure the services it needs.

On March 1, 2010, GSA responded to the Department ’s letter. GSA states that it would support action, via exemption or otherwise, that would permit air charter br okers to continue to perform

6 Consolidated Reply of CSI at 3.4 their GSA Multiple Award Schedule (MAS) contract s as well as contracts the brokers may have with other Federal agencies. GSA states that acqu isition by the Federal Government is distinct in several ways from acquisitions in the private se ctor and does not present the consumer protection related concerns typically at issue in the privat e sector. GSA points out that there are a number of ways in which Federal agencies that purchas e air charter broker services via SIN 599-5 are protected from unscrupulous contract ors. In response to the ques tion whether air charter broker

services are essential to GSA’ s mission of acquiring airlift fo r the Federal Government, GSA cites the Department’s Order Granting Em ergency Exemption on January 14, 2010, and the Order Extending Emergency Exemption on Februa ry 12, 2010, to support the relief effort in Haiti. GSA states this example demonstrates how a critical need is sometimes met only via air

charter broker services.

On March 3, 2010, the Department issued a Notice providing an opportunity for interested parties to submit comments to GSA’s submission.

ACANA, CAI, and CSI filed comments concurring with GSA’s March 1 submission. Global Aviation filed comments opposi ng GSA’s March 1 submission.

CSI requests that the Department grant CSI’s ex emption without further delay. CAI urges the Department to honor the GSA’s re quest to refrain from asserti ng consumer protection authority to limit the actions or the options of the air char ter brokers to select commercial operators that

are consistent with th e contracting agency’s stated scope of work. ACANA supports GSA’s position that the Federal Government, when pr ocuring air transportation, knows full well the difference between obtaining air tran sportation directly from aircra ft operators and utilizing the services provided by charter brokers. ACANA al so agrees with GSA that consumer protection concerns are largely absent in this case.

Global Aviation objects to GSA’s view that the Department s hould permit “charter brokers to continue to perform their GSA MAS contracts as well as contracts the brokers may have with other Federal agencies.” Global Aviation states that any relief granted by the Department in connection with CSI’s exemption application should be expressly limited to contracts awarded under GSA’s MAS, as the record in this proceed ing does not support action with respect to the airlift procurement practices of a ny other Federal Government agency.

Decision

We tentatively find that it is c onsistent with the public interest to grant CSI exemption authority to engage in domestic and fo reign indirect air transportati on of persons, property and mail pursuant to contracts arranged under the Gene ral Services Administration (GSA) Schedule Special Item Number (SIN) 599-5, Air Charter Serv ices-Brokers. We note that the authority is narrowly limited to brokers listed on GSA Sche dule SIN 599-5 and limited to services pursuant

to contracts with th e Federal Government. 7 We are tentatively accord ing the same authority to similarly situated brokers now listed, or that ma y be listed in the future, on GSA Schedule SIN 599-5. We will tentatively grant this exem ption authority for a period of one year.

7 Consistent with concerns raised by Global Aviation, we are limiting the exemption authority we are tentatively granting here to GSA-administered procurement service.5 As an initial matter, we note that the tentative gr ant of exemption authority is consistent with C-70’s October 2004 Notice. That Notice recogn ized that air charte r brokers can provide important public benefits in connection with ai r transportation, and, importantly, noted that brokers could seek exemption authority that could permit them to offer services directly to the public in their own right, subjec t to their implementation of nece ssary consumer safeguards.

We further note that our tentative action here w ould provide GSA with the ability to continue using brokers listed on its Schedule SIN 599-5. We have carefully weighed the arguments submitted in opposition to the request, in particular those questioning the need for the services of air charter brokers. We do not find those arguments to be compelling here. In particular, we note the strong support evidenced by GSA, in its March 1 letter, for Department action that would permit air charter brokers to continue to perform their activities for that agency. We give great weight to the views of GSA in this matte r, and find that those vi ews support our tentative

action that will facilit ate its ability to meet its transportatio n procurement needs. In short, based on the totality of the record, we tentatively fi nd that the GSA-administered procurement service provides important benefits and we are not pe rsuaded to withhold authority from CSI and

brokers listed on GSA Schedule SIN 599-5.

We find that our tentative action here is consiste nt with other Department actions involving our licensing of other indirect air carri ers. Specifically, we have prev iously authorized indirect air carriers of both passengers and cargo to conduct operations in air transportation. 8 In those instances, we have imposed consumer protectio n safeguards where appropriate. Under the circumstances presented in this proceeding, we do not regard such safeguards as necessary. GSA has emphasized that acquisition by the Federal G overnment is distinct from acquisition in the private sector and does not present the consumer-pro tection-related concerns typically at issue in the private sector. Specifically, GSA’s Marc h 1 submission fully discusses the rules and protections that govern GSA’s pr ocurement of air services. We are satisfied, given the narrow scope of the authority that we are tentatively issuing, to re ly on those safeguards here.

While we will not impose consumer protection cond itions, we tentatively find it is in the public interest to impose the following conditions on th e exemption authority that we are tentatively granting to CSI and the ot her eligible brokers:

 The brokers may only enter into agreements with air carriers that hold the requisite authority to engage in air transportation; 9

 All air services arranged by the broker must be authorized in accordance with the Fly America Act (49 U.S.C. §40118) by the contracting agency; and

 Before beginning any services under this authority, a new br oker must file a notification in this docket of its placement on the GSA Schedule SIN 599-5, and a broker must file a

notification in this docket of its re moval from the GSA Schedule SIN 599-5.

8 See 14 CFR Parts 296, 297, and 380.

9 Brokers may not enter into agreements with carriers operating under 14 CFR Part 125, as these carriers may not engage in common carriage operations in air transportation, either directly or indirectly through air charter brokers.6 Several parties suggested that this matter shoul d be handled by rulemaking. The Department anticipates initiating a rulemaking that will cove r the broader area of avia tion brokers generally. We tentatively do not find that it is in the publ ic interest to withhold action on CSI’s narrowlyfocused exemption application or on the award of like exemption authority to other similarly situated brokers pending completion of a broader rulemaking proceeding, as such action would withhold the valuable public bene fits that the services of CSI and other brokers provide to the

U.S. Government. Nor will the action here be co nsidered in any rulemaking developed on this

matter.

ACCORDINGLY,

1. We tentatively grant the request of CSI Avia tion Services, Inc. for exemption authority to engage in domestic and foreign indirect air tran sportation of persons, property and mail pursuant to contracts arranged under the General Services Administ ration (GSA) Schedule Special Item Number (SIN) 599-5, Air Charter Services-Brokers; 10

2. We tentatively grant exemp tion authority to the aviation brokers currently listed on GSA Schedule SIN 599-5, and which may be so listed duri ng the term of this exemption authority, to engage in domestic and foreign indirect air tran sportation of persons, property and mail pursuant to contracts arranged unde r GSA Schedule SIN 599-5, Air Charter Services-Brokers; 11

3. The exemption authority tentatively granted in ordering paragraphs 1 and 2 is subject to the conditions set forth in this order;

4. The exemption authority tentatively grante d in ordering paragraphs 1 and 2 shall be effective upon issuance of the fina l order and will terminate one year from the issue date of this order, or upon the issuance of a fina l rule encompassing this authority; 12

5. We grant all motions for leave to file otherw ise unauthorized documents, as referenced in this order;

6. We direct any interested parties having objections to our tentative findings and

conclusions set forth in this order and orderi ng paragraphs 1 through 2, above, to file their objections, in the above-captioned docket, with the Department’s Docket section, U.S. Department of Transportation, Docket Oper ations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue, SE, Washi ngton, D.C., 20590, no later than Friday, March 19, 2010; 13

10 CSI and any broker listed on GSA Schedule SIN 599-5 may only enter into agreements with air carriers that hold the requisite authority to engage in air transportation ( see footnote 9 above).

11 Id.

12 Sixty days before the expiration of the exemption authority tentatively granted in ordering paragraphs 1 and 2, we will favorably consider a one-year extension of this exemptio n authority if a rulemaking on this subject is underway but not yet final, and GSA advises DOT that such a one-ye ar extension of the exemption authority is essential to GSA’s mission of acquiring airlift for the Federal Government.

13 The original filing should be on 81⁄2" x 11" white paper using dark ink (not green) and be unbound without tabs, which will expedite use of our docket imaging system. In the alternative, parties are encouraged to use the electronic submission capability available through the Federal eRulemaking Portal ( http://www.regulations.gov ) and follow the online instructions for filing submissions. Additionally, service by facsimile or electronic mail is7 7. If timely and properly supported objections are filed, we will afford full consideration to the matters or issues raised by the obj ections before we take further action; 14 if no objections are filed, we will deem all further procedural steps to be waived and will proceed to enter a final order awarding the authority proposed in this order; and

8. We will serve this order on the parties to the captioned docket of the order, the U.S. Department of State (Office of Aviation Nego tiations), the Federal Aviation Administration (AFS-200), and the General Services Administration.

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

authorized. Parties should include their fax numbers and email addresses on their submissions and should indicate the method(s) of service used on their certificates of service. Parties should also provide courtesy e-mail copies of their submissions to the U.S. Carrier Licensing Division at: Thuy.Cooper@dot.gov

. 14 As we are providing for the filing of objections to the tentative decision, we will not entertain petitions for

reconsideration of this show-cause order.