Order 201 5

- 1

- 16

Served: January 22 , 201 5

Issued by the Department of Transportation

on the 2 2 nd day of January, 2015

Application of

AERODYNAMICS INCORPORATED

for a certificate of public convenience and necessity under 49 U.S.C. § 41102 to engage in interstate scheduled air transportation of persons, property, and mail Docket DOT

- OST

- 2014

- 0114

ORDER TO SHOW CAUSE

SUMMARY

By this order, the Department propose s to (1) deny the application filed by Aerodynamics Incorporated (“ADI”) for a certificate of public convenience and necessity to engage in interstate

scheduled air transportation of persons, property, and mail

, and (2) revoke its certificate s to conduct interstate and foreign charter air transportation of persons, property, and mail

. Our review of the

record in this case indicates that ADI does not possess the managerial competenc e necessary to
oversee its current charter and proposed scheduled passenger operations

, nor does it have the proper compliance disposition and regard for the laws and regulations governing its services

.

STATUTORY STANDARD

Section 41110(e) of Title 49 of the United States Code (t he “Transportation Code”) provides that the requirement that air carriers be “fit” to perform air transportation services is a continuing one and that an air carrier’s authority shall be amended, modified, suspended, or revoked if it fails to remain fit, willing, and able to provide the air transportation authorized by its economic authority, which includes failure to comply with the regulations governing its operations. In addition to being a U.S. citizen, t he three areas of inquiry that must be addresse d in order to determine a company’s

continued fitness are whether the company continues to demonstrate that it has (1) the managerial skills and technical ability to conduct its operations, (2) access to resources sufficient to continue operations without posing an undue risk to consumers or their funds , and (3) the proper regard for the laws and regulations governing its services

, including compliance with the Transportation Code and regulations imposed by Federal and State agencies.

THE APPLICATION

On June 25, 2014, ADI filed an application in Docket DOT

- OST

- 2014

- 0114 requesting a certificate of public convenience and necessity to the extent necessary to permit it to operate interstate UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C. U N I T E D S

T A T E S O F A

M E R I C A D E P A R T M E N T O F T R A N S P O R T A T

I O N2

scheduled air transportation. ADI accompanied its application with information required by 14 CFR § 204.3 of our regulations. 1

N o a nswers opposing ADI’s application were filed

. However, as discussed below, the information provided by the applicant does not demonstrate that it continues to meet our fitness requirements. Therefore, the Department propose s to deny ADI’s application for a certificate of public convenience and necessity to engage in interstate scheduled transportation of persons, property, and

mail

, and revoke its c ertificate s for interstate an d foreign charter air transportation. I nterested parties will have an opportunity to show cause why we should not adopt as final our tentative

conclusion that ADI is not fit, willing, and able to conduct interstate scheduled passenger air transportation n or is it fit to continue to conduct interstate and foreign charter air transportation.

B ACKGROUND

ADI is currently incorporated in the State of Michigan with a corporate office in Beachwood, Ohio, and an operations office in Kennesaw, Georgia. ADI is a wholly owned subsidiary of ADI Holdings, Inc. (“ADI Holdings”) , a Georgia corporation. ADI Holdings is

, in turn, a wholly owned subsidiary of Aviation Capital Partners, LLC (“ACP”), a Delaware limited liability company.

ACP ’ s membership interests are ow ned by Mr. Scott A. Beale (80 per cent) and Mr. Robert J. Ward (20 percent), both of whom are U.S. citizens. Mr. Beale is also ADI’s Chief Executive Officer (“CEO”) and a member of ADI’s B oard of D irectors. Mr. Ward is the air carrier’s President and

also a member of the B oard of D irectors. The air carrier holds a Federal Aviation Regulation (“FAR”) Part 121 certificate issued by the Federal Aviation Administration (“FAA”) and currently conducts charter pas senger operations with a fleet of five Embraer aircraft each configured for 50

passengers.

By Order 2003

- 9

- 29, issued September 30, 2003, the Department found ADI fit to engage in interstate and foreig n charter air transportation of persons, property, and mail, and issued to the air carrier certificates of public convenience and necessity authorizing such operations.

On October 15, 2012, ADI ceased air transportation operations due to financial press ure. On January 7, 2013, ADI filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code and subsequently emerged from bankruptcy on August 12, 2013. On March 12, 2014, ADI filed a request to resume operations, along with u pdated fitness information supporting such a request. Upon review, the Department

, on April 25, 2014, granted oral authority to ADI to

resume its certificated charter operations

. 2

On June 25, 2014, ADI filed the above mentioned application in Docket DOT

- OST

- 2014

- 0114 requesting a n interstate scheduled certificate to operate 10 weekly round trip flights between Youngstown

- Warren Regional Airport ( “ YNG ” ) and Chicago O’Hare International Airport ( “ ORD ” ), utilizing one of its 50

- seat Embraer aircraft

. ADI provided information supporting its continued fitness, identifying a pending civil case , wherein Mr. Scott Beale, ADI’s CEO and

1 Additional information supplementing ADI’s application was filed on August 28, October 13, October 16, November 3, November 19, and November 26, 2014.

2 See Notice for resumption of certificated operations, dated July 3, 2014, in Dockets DOT

- OST

- 2001

- 10985 and

DOT

- OST

- 2001

- 1098 6.3

majority shareholder (80 percent) , was named a defendant in a lawsuit filed by Flight Test Aviation,
Inc. (“FTA”). 3

ISSUE OF CONCERN

During the pendency of ADI’s application, the Department became aware of new developments concerning the civil matter against Mr. Beale. O n November 17, 2014, t he Department learned from media reports that the case between FTA and Mr. Beale had gone to a jury trial on July 14

- 15, 2014, and Mr. Beale was found to have committed fraud. More specifically, a ccording to court documents, Beale solicited funds from FTA and made false statements to an agent of FTA to induce him to give ADI $500,000 in investment capital

, as part of a n agreement to support charter flights pursuant to a guaranteed revenue contract with a third party company . C ontrary to Mr. Beale’s

statement, no such contract existed. On October 24, 2014, Mr. Beale appealed the July verdict, but a judge denied the appeal and reaffirmed the jury’s decision. The court awarded FTA $500,000 in compensatory damages and $100,000 in punitive damages.

DISCUSSION

In light of the outcome of this civil matter, the Department, in carrying ou t its responsibilities under 49 U.S.C. § 41110(e), reexamined ADI’s continued fitness to conduct its operations. Given Mr. Beale’s significant positions with in ADI ( i.e., majority shareholder, CEO, and Board member) and his ability to influence and control the decisions of the air carrier, t he Department focused its review

on the company’s compliance disposition and managerial competency.

The purpose of evaluating a compa ny’s compliance disposition is to en sure that the company and the personnel running and controlling the company do and will abide by the laws, rules, and regulations governing the air carrier’s operations and that management will be diligent in maintaining safe operations. When determining a company’s compliance disposition, the Department reviews the company’s record to determine if its owners and/or managers have a history of safety violations, fraudulent business activities, or activities that would ind icate that the company or its key personnel are unlikely to comply with government laws, rules and directives. Section 204.3 (p) of the Department’s regulations (14 CFR § 204.3 (p)) specifically require s applicants for authority to submit a description of all charges within the past 10 years of fraud, felony, or antitrust violations, or of unfair, anticompetitive or deceptive business practices, including their final disposition or current status of each such proceeding

.

In addition, r egarding an air carr ier’s management and compliance disposition, the Department has long held that violations that have occurred under an executive’s leadership can support a finding

that he or she lacks an adequate compliance disposition. 4 Moreover, “a carrier’s key personnel are responsible for conducting its operations in a way so as to ensure that reasonably expected compliance problems do not occur.” 5

3 See Flight Test Aviation, Inc. v. Beale, No 1:2013cv00145 (E.D

. Va. 2014).

4 See ATX, Inc., Fitness Investigation, Docket 48780, Opinion and Order on Review, issued April 5, 1994, at 7.

5 Id. , citing Yute Air Alaska

, Order 89

- 11

- 48.4

In this case, Mr. Beale, as ADI’s CEO

, majority shareholder, and one of the compan y’s three Board members, is ultimately responsible for ensuring the air carrier has the managerial competency to conduct its operations

, and the proper regard for the laws and regulations governing its services. In fact, Mr. Beale’s resume states he provi des “general oversight of all company departments to include direct reports from the President/COO; CFO; Vice President of Business Development; Vice President of Operations; and Vice President of Government Services.” 6 The court found that

Mr. Beale comm itted fraud while soliciting funds for ADI from a n investor and expended those

funds in a manner which was not consistent with the agreement between the parties. Mr. Beale’s actions indicate a disregard for the law. Thus, Mr. Beale ’s ownership and positions of influence at
the air carrier raise serious questions as to ADI’s ability to satisfy the Department’s requirements

that an air carrier must possess a positive compliance disposition and the requisite competency to

oversee its o perations. 7

Exacerbating this issue is the fact that ADI failed to notify the Department regarding the outcome of this civil matter as required by 14 CFR § 204.3 (l) and (p) at any point during the pendency of its application

. Each a pplicant must submit timely updates to its application regarding changes in management, operating plans, financial condition, compliance disposition, or ownership, all which could affect its fitness while its application is under review

. Failure to do so indicates ADI’ s lack of regard for the regulations and raises further concerns about its ability to report information on an ongoing basis, as required by the Department.

TENTATIVE DECISION

After careful review of the record and based on the totality of the circumstances, it is the Department’s tentative conclusion that ADI has failed to demonstrate it continues to be fit to operate as an air carrier under Mr. Beale’s direction and control. We tentatively find that ADI’s application for interstate scheduled passenger authority should be denied and its interstate and foreign charter passenger certificates should be revoked. The Department’s review indicates that

ADI does not possess the managerial competency necessary to oversee its current charter and proposed scheduled passenger operations, nor does it have the proper compliance disposition and regard for the laws and regulations governing its services with t he continued involvement of Mr.

Beale.

OBJECTIONS

The Department will give interested persons 14 days following the service date of this order to show cause why the tentative findings and conclusions set forth here should not be made final; answers to objections will be due within 7 days thereafter. We expect such persons to direct their objections, if any, to the application and points at issue and to support such objections with detailed economic analyses. If an oral evidentiary hearing or discovery procedures are requested, the objector should state in detail why such a hearing or discovery is considered necessary, and what material issues of decisional fact the objector would expect to establish through a hearing or discovery that cannot be established in written pleadings. Th e objector should consider whether discovery procedures alone would be sufficient to resolve material issues of decisional fact. If so,

6 See Application of Aerodynamics Incorporated, dated June 25, 2014 , Attachment F.

7 See Boston

- Maine Airways Corp.

, Show Cause Order 2008

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, issued February 1 , 2008

.5

the type of procedure should be specified ( See Part 302, Rules 19 and 20); if not, the reasons why not should be explai ned. The Department will not entertain general, vague, or unsupported objections. If no substantive objections are filed, we will issue an order that will make final our tentative findings and conclusions with respect to ADI ’s fitness and certification.

ACCORDINGLY,

1. The Department direct s all interested persons to show cause why we should not issue an order making final the tentative findings and conclusions stated above to deny the interstate scheduled passenger application filed by Aerodynamics Incorporated and revoke its certificate s of public convenience and necessity authorizing it to engage in interstate and foreign charter passenger air transportation.

2. The Department direct s any interested persons having objections to the issuance of an order making final any of the proposed findings and conclusions set forth here to file them with Department of Transportation Dockets, 1200 New Jersey Avenue, SE, Washington, D.C. 20590, in

Docket DOT

- OST

- 20 14

- 0114 and serve them upon all persons listed in Attachment A no later than

14 days after the service date of this order; answers to objection s shall be filed no later than 7 days

thereafter.

3. If timely and properly supported objections are filed, we will acco rd full consideration to the matters or issues raised by the objections before we take further action. 8

4. In the event that no objections are filed, the Department will consider all further procedural steps to be waived and will enter an order making fin al our tentative findings and conclusions.

5. The Department will serve a copy of this order on the persons listed in Attachment A.

6. The Department will publish a summary of this order in the Federal Register.

By:

BRANDON M. BELFORD Deputy Assistant Secretary

for Aviation and International Affairs

An electronic version of this document is available on the World Wide Web at: http://www.regulations.gov

8 Since we have provided for the filing of objections to this order, we will not entertain petitions for reconsideration.Attachment A

SERVICE LIST FOR

AERODYNAMICS INCORPORATED

AARON GOERLICH

J ASON MADDUX

GAROFALO GOERLICH HAINBACH PC

1200 NEW HAMPSHIRE AVE NW

WASHINGTON DC 20036 OFFICE OF AIRLINE

INFORMATION

DOT/RSPA/BTS E

- 36

1200 NEW JERSEY AVE SE

WASHINGTON DC 20590 KATHERINE TATUM

TECHNICAL PROGRAMS

BRANCH

FAA AFS 260

800 INDEPENDENCE AVE SW

WASHINGTON DC 20591

SCOTT BEALE

25700 SCIENCE PARK DRIVE

SUITE 210

BEACHWOOD OH 44122 REGIONAL COUNSEL

FAA SOUTHERN REGION

POST OFFICE BOX 20636

ATLANTA GA 30320 MARK MAZOR

CSET MANAGER

FAA AFS

- 900

45005 AVIATION DRIVE

SUITE 131

DULLES VA 20166

PETER LYNCH AGC

- 300

FAA ASST CHIEF COUNSEL

FOR ENFORCEMENT

800 INDEPENDENCE AVE SW

WASHINGTON DC 20591 ALTON CLAMP

FAA ATLANTA FSDO

107 CHARLES GRANT PARKWAY

SUITE 301

ATLANTA GA 30354 WILLIAM CHADWICK

OFFICE OF AIRLINE

INFORMATION

DOT/RSPA/BTS E

- 36

1200 NEW JERSEY AVE SE

WASHINGTON DC 20590

DANIEL DICKTEN

EXCUTIVE DIRECTOR OF AVIATION

YOUNGSTOWN WARREN

REGIONAL AIRPORT

1453 YOUNGSTOWN

- KINGSVILLE

ROAD NE

VIENNA OH 44473 ROSEMARIE ANDOLINO

CHICAGO DEPT OF AVIATION

121 NORTH LASALLE STREET

CHICAGO IL 60602