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May4, 2012
Mr. Dennis DeVany Chief, Essential AirService Division Office ofAviation Analysis Department ofTransportation 1200 NewJersey Avenue SE, Washington, D.C. 20590 Reference; DOT-OST-2008-0209, 2001-10685, 2009-0305, 2000-7856 COUNCIL MEMBERS: JA.IAES HOlLAND

,JERRY KNiGHT ALLEN NOLES dOE PA.MP:NTO NEAL VV!LL!S

Greenville, MS, Laurel/Hattiesburg, MS, Tupelo, MS, and Muscle Shoals, AL, EAS
Dear Dennis, This letter is thejoint response ofthe Cities ofGreenville, MS, Laurel/Hattiesburg, MS, Tupelo, MS and Muscle Shoals/Florence/Sheffield, AL, tothe Department's requestfor community comments in the matterofthe Cities Essential Air Service and aircarrier EAS bids received on April10, 2012. The Cities wish to begin their comments by thanking the Departmentfor its patience in allowing EAS bidding to extend tofour rounds. Given the extra time, the Cities were finally able, in the fourth round, to recruit an adequate replacement carrier, equipmentand route proposal. The Cities spent a great deal oftime, work and money on recruiting adequate replacement airservice and this work has finally been rewarded. Our Endorsement:
The Cities unanimously and without reservation endorse SilverAirways as our replacement carrier. Silver proposes to operate service from all fourcities toAtlanta, the largest airline hub in theworld, using 34-seat SF-340 turboprop aircraftthat have been a mainstayofsmall community air service for many years. Silver also has a complete set ofTicket and Bag Agreements with all majorairlines and extensive and successful experience in EAS service (13 current EAS contracts). Finally, 

### Silveris, atthis writing, close to signing an enhanced interlineagreementwith Delta Air Lines. Delta is the largest carrier atAtlanta and the dominantairline brand across Mississippi and Alabama. The enhanced interline agreement will be similartothe one between Delta and Great Lakes Airlines. Thatagreement is facilitating a smooth transition between Delta and Great Lakes at nine EAS cities in the upper Midwest. The agreement includes display ofthe replacement carrier's flights on Delta.com and avariety ofother business partnership elements.

OFFICE BOX 2624 • MUSCLE SHOALS. ALABAMA 35662 • (256) • FAX (256) 386-9201Specifically, the Cities endorse Silver Airways Option 1, providingfor 24 weekly nonstop flights between Atlanta and Hattiesburg and between Atlanta and Muscle Shoals, plus 36 weekly flights on a paired routing between Greenville, Tupelo and Atlanta. The total annual subsidy requirementfor this proposal is $12,613,827. Silver has associated Option 1 with an EAS proposal for service from Atlanta to Greenbrier/White Sulphur Springs (Docket DOT-OST-2003-15553). While peripheral to the combined service patterns of the Cities, to the extentthis additional route is necessary for Silver Airways to economically perform its proposed services at the Cities, the Cities fully support and endorse Silver Airways service at Greenbrier. Other Bids: Multi-Aero, Inc., dba AirChoiceOne, submitted asix option bid to provide EAS service atthe Cities. While the Cities appreciate the interest ofAirChoiceOne in providing EAS service at our airports, we reject all carrier bids as inadequate on multiple counts. General Comments Regarding AirChoiceOne and Its EAS Bids: )i- None ofthe carrier bids break out atrafficforecast for each city, rather each offers a projection oftotal passengers for the total (two-city or four-city) operation. This makes it impossible for each individual City to understand the carrier's anticipated traffic and load factor by city. )i- Aircraft seating capacity on several bids is unclear. We assume the Caravan bid (option 2) to be with a nine passenger aircraft. There is no clarification as to aircraft size on the Navajo bids, although theASM totals for one ofthose bids are 77.77% ofthe Caravan bid for the same routings, thus we assume the Navajo is aseven passenger aircraft (7 divided by 9 is 77.77%). )i- The bids involving aJetstream aircraft do notclarify ifaJ31 orJ32 type is envisioned. There is a huge difference in payload and reliability (and lease orownership costs) between the two variations. )i- The carrier's Jetstream bids, regardless ofvariation, assume the carrier will gain a Part 121 air carrier operating certificate (18 passenger capacity) within 12 months of initial operations under a Part 135 certificate (8 passenger capacity). It is our understanding that gaining a Part 121 certification is asignificant undertaking, requiring significant capital and investment in personnel and equipment in orderto demonstrate to the FAA the ability to operate under the heightened standards of Part 121. )i- The carrier states in its "Market Growth Strategy- Connectivity" statement (page 3 of its bid document) that it is working to secure interlineticket and bag (lET) agreements with major airlines, including Delta. The carrier offers no firm commitments or timelinefrom any network carrierto enter into an lET. This is ofgreat concern to the Cities in that an lET is essential for any Delta replacement service to have a chance to generate traffic. Without appropriate lETs all the AirChoiceOne options amountto aircraft (ofthree differenttypes) flying around empty because they lackthe fundamental mechanisms ofconnectivityto Delta or any other airline at Memphis orAtlanta (Option 5).

### 'Y The Department apparently shares our concerns about the carrier's lack of lET. In Order 2011- 12-17 the Department awarded AirChoiceOne a new EAS term at Burlington and Decatur, but for only one year (the carrier bid two years or fouryears), with a proviso thatthe carrier must "fully implement an electronicticketing and baggage agreement with a major airline with a hub operation at Chicago O'Hare and/or St. Louis byJanuary 31, 2013." The Department also recently rejected aAirChoiceOne Navajo bid atAlpena, Michigan, with a lack of lET apparently a consideration in that decision. 

# >- The carrier's "estimated flight operations" schedule examples in each Option cause us concern. Delta is the dominant carrier at Memphis and the carrier operates three distinct banks offlights during the day. The representative schedules ofthe carrier do not appear to match up with these Delta banks in any consistent way. Given thatthe carrier is bidding four trips to Memphis from each city and there are only three Delta banks to connect to it is essential that considerable attention be paid tothe detail ofschedule timing. There appears to be little attention to this detail in the carrier's representative schedules. 

### ? Building on that concern, a review ofT100 block time data forthe Delta Connection Mesaba SF340 services between each city and Memphis during 2010 (different periods in the case of Muscle Shoals) indicates actual block times for thatfast turboprop that are significantly greater than what the AirChoiceOne appears to expect to accomplish with much slower Caravan, Navajo and Jetstream aircraft. For some reason AirChoiceOne believes its relatively slow Caravan, Navajo and Jetstream aircraft will fly the Greenville, Muscle Shoals and Tupelo routes in significantly less time than the much faster Mesaba SF340s aircraft did. At Hattiesburg the carrier appears to believe its much slower aircraft will cover 250 miles to Memphis injustaslightly longer block time. This notonly suggests a lack ofattention to detail in preparing the bids, it also calls into question the carrier's cost estimates since many costs are based on block hours and the carrier appears to have underestimated the block hours actually needed to operate its various proposals. 

### BLOCKTIME COMPARISION: MEMPHIS 

### & ATLANTA ROUTES
BlkTime ACO Bid BlockTimes Route Distance Period 

### XJ SF340 Caravan Navajo Jetstream MEM/ GLH 122 2010 :52 :45 :45 :45 PIB 250 2010 1:22 1:40 1:40 1:30 TUP 88 

### 2010 :45 :30 :30 :30 MSL 134 2008-2009 1:03 :40 :40 

### :40 An/ MSL 198 2009-2010 1:18 1:00 Source: XJ blocktimesper DOTTlOO, ACO blocktimes perbid document

### Y AirChoiceOne currently offers service at Burlington, Iowa, Decatur, Illinois and Jonesboro, Arkansas, all with EAS subsidy. All three markets are served with Caravan equipment while the carrier appears to have one Navajo on its Part 135 certificate. Current EAS service at Burlington and Decatur is subject to the Department's concerns (noted above) aboutthe carrier's lack of lET agreements, with adeadlinefor some sort ofcarrier progress on gaining lET agreements by January 2013. Furthermore, the carrier faces another challenge in retaining its current subsidy at Jonesboro in that the service must show progress in generating traffic sufficientto keep subsidies under$200 per passenger. Based on the traffic history ofJonesboro and the carrier's subsidy amount, this appears nearly impossible. Thus the carrier's entire existing route system appears to be subject to re-bid or subsidy termination by early 2013, only eight months from now. 

### Y The carrier's limited fleet ofthree Caravans and one Navajo is in striking contrast to thefleet size needed to operate proposed services at all four of the Cities. We estimate, given the age and mechanical nature ofthe Navajo and Jetstream aircrafttypes, thatthe carrier would have to acquire and provision for parts and maintenance forsix aircraft (four lines offlying and two spares) in orderto reliably operate the four new markets. This also means that pilots and mechanics sufficientto staffthat number of routes, flights and aircraft would have to be hired, trained and placed into line service. Given the carrier's small scope ofcurrent operations, which are almost exclusively with the Caravan, the ability ofthe carrier to promptly begin service and replace Delta with reliable service is open to question. Furthermore, we are tothen believe in carrier options 3, 4, Sand 6 thatthe carrier will not only achieve all ofthat dramatic expansion in a prompt manner, butwill follow it up with the rapid achieving ofa FAA Part 121 Operating Certificate. We also note that at this timethere does notappear that asingle Piper Navajo or Jetstream is in scheduled air service anywhere in the lower48. Comments on Each Specific AirChoiceOne Bid: Option 1 Inaccurate BlockTimes- As is detailed on the previous page, the carrier is assuming exceptional block time performance from its aircraft, achieving block times to and from Memphis that are measurably faster than those documented in DOTTlOO data for Mesaba SF340s in recent years. On the Greenville route the carrier suggests itwill operate 7 minutes faster perflight than Mesaba did (56 minutes per day faster), at Tupelo 15 minutes perflight faster (120 minutes per day faster), at Muscle Shoals 23 minutes faster (184 minutes per day faster). Even ifthe Navajo could perform the services atthe same block speeds the SF340 has historically demonstrated, and somehow only be 18 minutes sloweron the long 250 mile route from Hattiesburg to Memphis, this would mean about six block hours per day additional flying, above and beyond whatthe carrier has projected in Option 1. Six additional block hours per day is roughly 1,800additional block hours peryear added to the Option 1 cost structure. At the $988 per block hour in cost the carrier has projected forthe Navajo in Option 1 this equates to some $1,778,400 in added cost, which would move the carrier's 5% profit of$415,562 to an annual loss ofover $1,300,000.Extremely Optimistic load Factors -Whilethe carrier has notdetailed traffic and revenue by market in Option 1 it has projected 42,500 annual passengers or4.33 per flight on 9,811 annual segments. This equates to a 61.9% load factor on a 7 passenger Navajo.
A review ofactual AirChoiceOne load factors using 9 passenger Caravan aircrafton its existing mature Decatur and Burlington routes shows that in thefirstyear ofservice on these routes (2010) the carrier achieved a 24.1% load factorwith the best performing route achieving a 38.2% load factor. Even in the second year ofservice only one ofthe routes achieves a load factor above 60% and that is a route to Chicago ORO. 

### ACO LOAD FACTORS 2010/2011 Load Factor Route 2010 2011 Period ORDBRL 

### 38.2% 77.2% 59.8% ORO DEC 20.1% 59.8% 41.2% SnBRL 25.4% 56.8% 42.5% snoec 14.4% 36.0% 25.8% System 24.1% 58.2% 42.5% Memphis is notChicago ORO. It is actually less a connecting hub than St. louis fora carrier withouta networkcode or even lET since it lacks thefare options and competition generated by large scale lCC operations. While Memphis does have a declining Delta hub (150 daily departures to 58 cities), St. louis has over90 daily departures by SouthwestAirlines, its largest carrier, to 31 cities. Memphis generatedjustover3 million local 0&0 in 2011 at an average domestic fare of$219. St. louis generated over9.5 million O&D atan average fare of$158.
The very high average fare paid at Memphis does not bode well for asum oftwo locals pricingstrategy such as AirChoiceOne proposes to employ at Memphis. Thus, based on both the carrier's actual experience on its mature route system and the pricing environmentat Memphis in comparison to St. louis, the carrier's forecast load factor of61.9% using Navajo aircraft at Memphis operating four round trip daily patterns intoathree bank Delta hub is at best, wildlyoptimistic.
The carrier projected a Memphis system average fare of$64.36 with 42,500 0&0generating$2.735 million in annual revenue. A more realistic load factor of40% would generate 27,471 annual 0&0. Even given the carrier's high average fare assumption (intoa high fare hub) this would reduce carrier revenue from $2.735 million to $1.768 million, a loss of nearlya million dollars.in annual revenue. Abilityto Scale Up Operations and Make a Profit- We have already noted that, given the age and mechanical nature ofthe Piper Navajo, we believethe carrier would need six tooperate Option 1. The carrier has one Navajo in operation. Acquiring five additional aircraft and outfittingsame with spares plus the hiring ofrequisite pilotand mechanic staffwill require a large capital investment by the carrier.Atthe same timewe believe there is a clear underestimation ofcost ofoperation (due to blocktime miscalculations) totaling nearly$1.8 million and a clear overestimation oftraffic and revenue totaling nearly$1.0 million. Thus, on top ofaperhaps insurmountable capital expenditure in orderto achieve the scale needed to operate Option 1, we believe thatthis small carrier will encounter a$2.8 million dollargap between its bid cost and revenue assumptions and its financial reality in attemptingto begin Option 1 service. Furthermore, like all carrier options, Option !lacks lET. The carrier has no timelinefor implementation and the Department itself is concerned enough aboutthis to hold existing carrier EAS awards on ashort leash toJanuary 2013. Option 1 should be rejected bythe Department as unrealistic. Indeed, award ofOption 1tothe carrier would likely result in some combination ofafailure to start up, carrierfinancial difficulties during startup orcarrierfilingforadditional subsidy within ayear ofstartup. Option 2 Option 2 is rejected bythe Cities due tothe proposed use ofsingle engine aircraft. Option 3 and Option 4 Option 3 is a Memphis service bid for Greenville and Hattiesburg usingJetstream aircraftwith an assumed year one of Part 135 operation with eight passenger seats and an assumed year two and beyond Part 121 operation with 18 passenger seats. Option 4 is a Memphis service bid forTupelo and Muscle Shoals usingJetstream aircraftand thesame Part 135 start and Part 121 evolution as in Option 3. Taken together, the two Options total $9.8 million in annual subsidy, only $700,000 less in subsidythan SilverAirways Option 2. Taken together, the combined Option 3/4calls for an amazing 49,950 annual O&D duringyear one (eight passenger capacity) and a 64% load factor. Once Part 121 is achieved annual passengertotals are forecast to growto an even more amazing 63,000 O&D. While we appreciate the carrier's faith in our markets, weare deeplyconcerned thatthe carrier's product will not be embraced to that extent. Ourcomments on Option 1 regarding the practical passenger generating ability ofan airline that lacks lET and uses a sum of locals pricing strategy ata high airfare hub like Memphis apply here even more so than they do in regard to Option 1. Our comments on Option 1 regarding the carrier's abilityto acquire sixJetstream aircraft, the necessary maintenance housing and spares, and the needed pilots and mechanics also stand in regard to Option 3/4, only more so. Furthermore, at least with the Navajo, the carrier has actual operating experience with the aircrafttype. The Jetstream would be totally newto the carrier's operational team and would involve supporting a newturbine engine type with which the carrier has no experience.Ourcomments in Option 1 regarding inaccurate block times also applyto Option 3/4. While the Jetstream is afaster aircraft than a Caravan or Navajo, it is not as fast as a SF340, thus there is some significant error in the carrier's estimate oftotal block hours needed to operate the proposed service pattern. Combining aclear overestimation oftraffic and revenue with an underestimation ofoperating costs due to block time estimate errors with the huge financial commitment required by asmall company to acquire six Jetstreams and necessary spares and adequate operational staff and then operate them under Part 135, while in the same timeframe acquiring Part 121 certification strains credibility. Option 3 and Option 4, either alone or combined, should be rejected by the Department as unrealistic on multiple counts. The carrier needs to acquire a Part 121 certification and operateJetstream aircraft before it boldly proposes to essentially double the size of its operation while adding four new markets, a new hub, a new aircraft type and a Part 121 certification, all in ashorttimeframe. Option 5 Option 5 proposes Tupelo to Memphis service and Muscle Shoals to Atlanta service, all withJetstream aircraft in the Part 135 year one, Part 121 thereafterscenario already addressed in comments on Option 3/4. The bid becomes confusing in that in yeartwo and beyond (with Part 121) the bid becomes adual hub bid with Tupelo having one stop service via Muscle Shoals to Atlanta and Muscle Shoals one stop service to Memphis via Tupelo. The bid document describes the service as 24 round trips per week in year one and that is illustrated in the schedule and borne out in the year one statistics. However, theyear two and beyond sheets describe an 18 round trip per week plan and have statistics for such a plan. The schedule plan for year two and beyond shows afour round trip pattern atAtlanta and at Memphis plus the four daily tag flights linkingTupelo and Muscle Shoals. Thus the schedule plan foryear two and beyond ofOption 5 does not match the projected operating statistics. The carrier's blocktime between Muscle Shoals and Atlanta is listed as one hour while Mesaba's faster SF340s recorded a 78 minute block on the same route in recent years. This implies that everyJetstream operation will incur perhaps 20 additional block minutes. On an annual basis this is 800 additional block hours in year one (eight seat operation and fourtrips per day) and 600 additional block hours in year two andbeyond (18 seat operation and three trips per day). The carrier's block time between Tupelo and Memphis is listed as 30 minutes whereas the Mesaba SF340s required 45 minutes. This means 600 additional block hours in year one and perhaps 450 additional block hours in year two and beyond, assuming theJetstream can accomplish the operation with the same speed as the SF340. The carrier assumes a 68.9% load factor in year one. Given the disparity between the illustrated schedule and the operational statistics plus the lack ofa breakdown oftraffic by market or city pair it is impossible to estimate the carrier's load factorforyear two and beyond.For all the reasons previously noted related toJetstream bids Option 5 should be rejected by the Department. Beyond that, theyeartwoforecast ofOption 5 does not match the illustrative schedule and it is notclear whatexactly the carrier is proposing to operate in year two and beyond. One further note is thatthe carrier appears to assume access toAtlanta can be gained at reasonable costforthree orfour dailyJetstream flights. Othercarriers have advised the Cities thatgaining reasonably priced access toAtlanta is difficult, ifnot impossible, especially ifthe scale ofoperation is onlythree orfour dailytrips.

Option 6 Option 6 proposes Tupelo and Muscle Shoals service to Memphis with a Navajo thefirstyear and a Jetstream in years two and beyond. As is the case with previous Options, blocktimes appearto be significantly underestimated and traffic forecasts can be described as bold, given the high average fares at Memphis and the sum oftwo locals pricing strategy. Previous comments aboutlack of lET and the ability ofthe carrierto expand, add a newaircrafttype and transition to Part 121 apply here as well. Summary The Cities again wish tothankthe Departmentforgranting us four rounds of bidding. That extra time gave us the chance, workingtogether, to successfully recruit an adequate replacement airservice in the form ofSilverAirways. We repeat our endorsementofthat carrier as our replacement. We recommend SilverAirways and Option 1forour replacement carrier and service. To the extentthat SilverAirways may require award ofthe Atlanta- Greenbrier EAS designation in order to have the economic scope to provide the services ofOption 1 orOption 2 atour cities, we endorse Silver for Greenbrier service as outlined in their proposals. We appreciate the interestofAirChoiceOne in our markets howeverwe reject all AirChoiceOne bids as inadequateforthe numerous reasons listed in this letter.
We urge the Departmentto promptlyselect SilverAirways as our replacement carrierto allowthat carrierto begin the replacement process and to ensure asmooth transition during 2012. Best regards,

# ~#25~ David H. Bradford Mayor