BEFORE THE

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, DC

______________________________

)

Petition and Answer of )

)

PACIFIC AIRWAYS, INC. ) Docket DOT-OST-2012-0178

PM AIR, LLC )

)

In the matter of the application of )

Scott Air, LLC 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 )

______________________________)

PETITION FOR RECONSIDERATION OF ORDER 2013-1-12

AND ANSWER OF THE KETCHIKAN CARRIERS

AND PETITION TO HAVE THIS ANSWER ACCEPTED LATE

Communications with respect to this document should be addressed to:

Hank Myers

PO Box 7142

Bellevue, WA 98008

(425) 830-4265

February 1, 2013
BEFORE THE

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, DC

______________________________

)

Petition and Answer of )

)

PACIFIC AIRWAYS, INC. ) Docket DOT-OST-2012-0178

PM AIR, LLC )

)

In the matter of the application of )

Scott Air, LLC 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 )

______________________________)

PETITION FOR RECONSIDERATION OF ORDER 2013-1-12

AND ANSWER OF THE KETCHIKAN CARRIERS

AND PETITION TO HAVE THIS ANSWER ACCEPTED LATE

Pacific Airways, Inc. and PM Air, LLC, (Ketchikan Carriers), both carriers holding certificates of 

public convenience and necessity to transport passengers, property and mail in interstate air 

commerce, hereby Petition the Department to Reconsider Order 2013-1-12 tentatively finding 

Scott air, LLC (Scott) fit, and also answers in opposition to the findings of the Show Cause Order 

and requests that its answer be accepted although filed late.

The Ketchikan Carriers filed the original complaint with the Department, alleging that Scott was 

engaged in interstate air commerce without necessary authority from the Department of 

Transportation. In Order 2012-12-16, the Department concluded that Scott was engaging in 
interstate air commerce and ordering the carrier to cease and desist the numerous and specific 

activities enumerated in the Order, and fined Scott, suspending half on the condition of no 

further violations for 12 months. Scott agreed to the findings and requirements in a consent 

agreement referenced in the Order. Having the assurances of Scott, the Enforcement Division 

withdrew its opposition to the certification and finding of fitness of Scott.

In the complaint filed today, the Ketchikan Carriers thoroughly documented that subsequent to 

agreeing to the Consent Order Scott Air made no change in its operations or policies, and 

continued to openly solicit and accept interline, interstate passenger reservations on its 

universally accessible web site and through the use of interstate toll free telephone and fax 

numbers. The Ketchikan Carriers waited three weeks after the Order was issued to give Scott a 

reasonable time to amend its illegal practices before assembling evidence of the continued 

violations. The Ketchikan Carriers request that no further action be taken to finalize the fitness 

finding of Scott until the current complaint has been adjudicated by the Department.

In regard to Order 2013-1-12, the Ketchikan Carrier respectfully request that this answer in 

opposition be accepted although filed three days late. The delay in this filing was caused by the 

need to first file the formal complaint documenting the continuing violations of Scott 

subsequent to the issuance of the Consent Order, and to gain the approval of the officers of the 

carriers to file the complaint and this answer, one of whom was out of state on vacation. Given 

the significant nature of the continuing violations, and the reflection on the compliance 
disposition and managerial fitness of Scott, a three day delay is insignificant in relation to the 

content and import of this answer.

ARGUMENT

As noted above, the primary reason why Scott Air should be denied a certificate of public 

convenience and should be found unfit is its historic and continuing pattern of violating Federal 

law and the regulations of the Department, as well as its steadfast denial that it is or even 

intends to operate in interstate air commerce. In its application, as well as the application for 

exemption pendent lite, Scott insists that it is engaging in strictly intrastate service, and has all 

necessary authority from the FAA to do so. It papers over its violations by explaining that 

despite its already sufficient authority it is apply for a certificate to cover all bases.

In finding Scott fit, Order 2013-1-12 bases its findings on unproven statements as well as 

misleading and fraudulent statements made in the application for a certificate as well as the 

exemption application. For example, Scott failed to comply with 14 CFR 204.4(t)(2) by not 

providing the required “...estimated block hours and revenue miles by type of aircraft, number 

of passengers and number of tons of mail and cargo to be carried, transport revenues and an 

estimate of the traffic which would be generated in each market receiving the proposed 

service. Such statements shall also include a statement as to whether the statements were 

prepared on the accrual or cash basis, an explanation of how the estimated costs and revenues 

were developed, a description of the manner in which costs and revenues are allocated, how 
the underlying traffic forecasts were made, and what load factor has been assumed for the 

average and peak month.”

Without this required information, the Department has no way to independently test the 

financial forecasts of Scott, or may any finding on the success of its proposed operations. It 

should also be noted that the pro forma financial forecast for 2013 covers all Scott Air 

operations, apparently including its winter tourist operations in Arizona under the business 

name of Arizona Splash Adventures. Without the ability to determine whether Scott can 

operate profitably in its proposed scheduled service, the Department has no way to find Scott 

financially or managerially fit. Despite the deep pockets of its investors, continuing 

unprofitable operations and substantial debt to its owners presents a threat to the travelling 

public.

While these issues are ancillary to the continuing violations of Federal law and regulations and 

the refusal of Scott to accept that it is required to hold interstate commercial authority, they do 

directly reflect on the managerial competence and compliance disposition of Scott. How can 

the Department be confident that Scott will comply with the continuing insurance and 

reporting requirements related to interstate commerce when Scott insists it is only engaging in 

intrastate service?

In essence, the Department found Scott fit based on its history of scheduled, albeit illegal

service, and the deep pockets of its investors. It is the height of irony that the Department 
accepts Scott’s assertion that all pre-operating costs for its scheduled service have already been 

incurred. This is effectively an admission that it had been operating illegal scheduled service for 

a number of years. Sort of like sentencing Bernie Madoff to prison, but allowing him to keep 

the spoils of his illegal activities.

While Scott has provided evidence of a $500,000 unlimited line of credit, but the historic 

financial statements show that Scott has changed its methods of accounting and may actually 

owe more than $500,000 in loans to its owners. Depending on how additional cash infusions 

are defined, Scott may have been bankrupt at the time of its latest audited financial reports.

As at December 31, 2009, the unaudited balance sheet for Scott shows a total owner equity of 

-$49,432.63, technically bankrupt, having lost $500,787.64 on operations based on total 

revenue of just over $478,000. In 2010, the financial statements audited by L. Pete Hogan of St. 

George, UT showed a net loss of $201,443 for a two year net loss of $702,231. The only reason 

the carrier did not sink further into technical bankruptcy was due to a cash infusion for owners. 

While described on the balance sheet as a member loan of $1,591,766 with specified 

repayment terms, the infusion was none-the-less included as equity.

For 2011, Scott changed auditing firms, always a red flag for failing companies, replacing a Utah 

CPA with an Arizona CPA, R.A.D. CPA, PC. Despite showing a net loss of $160,343, owner equity 

increased to $765,580 based on an additional member contribution of $256,148. In three 

years, Scott had suffered net losses of $862, 574.
As at July 31, 2012, Scott had showed a modest profit of $106,371 (before any applicable 

income tax), but still have a total loss to date of $756,203. While the member equity as at July 

31, 2012 was listed as $871,951, that number included $1,591,766 in a structured member 

loan. If that load was classified as long term debt, the member equity would be -$719,815.

Despite these losses, Scott continues to operate. However, the Department should request 

Scott to explain its true financial position, and whether member loans should be classified as 

long term debt, and whether Scott has complied with the payment terms of the structured debt 

agreement. The figures contained in Scott’s financial statements are summarized below.

Description Profit/(Loss) Member Infusions Member Equity

CY 2009 ($ 500,788) $ 0 -$ 49,433

CY 2010 ($ 201,443) $ 1,591,766 $ 669,775

CY 2011 ($ 160,343) $ 256,148 $ 765,580

7 Mo’s ended 7/31/12 $ 106,371 $ 0 $ 871,951

Net of Member Structured Loan (2010) -$ 719,815

SUMMARY

The Ketchikan Carriers have refrained from filing comments in this docket until the Department 

issued an Order in the complaint of unfair and deceptive business practices against Scott Air (a 
pending enforcement action Scott never acknowledged in its application). Recognizing that the 

required changes might take a few days, the Ketchikan Carriers gave Scott three weeks to 

comply before documenting the continuing violations. That extensive evidence is detailed in 

the complaint filed today in Docket 2012-0002 and served upon Scott and its attorney of 

record. We incorporate that complaint by reference in this filing.

Scott Air, LLC d/b/a Island Air Express is unfit to be granted a certificate of public convenience 

and necessity to engage in interstate transportation of persons, property and mail in scheduled 

air service. It has continuously engaged in illegal interstate scheduled service since it was 

founded, continued these illegal operations even after notified by the Enforcement Division of 

the Department. Scott delayed agreement in the Enforcement matter until it had filed all 

materials associated in this docket. Once the Consent Order was issued, Scott made no change 

whatever in its policies or operations. It continued to maintain a universally accessible website, 

operate interstate toll free telephone and fax numbers, and accept interstate, interline 

passenger reservations. All of these actions are contrary to the required finding of compliance 

disposition.

These actions, or lack thereof, were carried out by the same management team that was in 

charge during the violations leading to the original complain and has controlled all operations 

and policies continuously since. Clearly these managers are not fit to manage a certificated 

operation.
Scott failed to comply with 14 CFR 204.4 by not submitting information required detailing its 

proposed service, operations and traffic statistics, detailed financial information, and a clear 

explanation of the basis of those data.

The financial statements are suspect due to the inclusion of a structured long term loan as 

equity on its balance sheet. Scott has never experienced a 12 month profit, and has cumulative 

net losses of over $700,000.

WHEREFORE, the undersigned carriers respectfully request that the Department reconsider 

Order 2013-1-12, and refrain from any further action in this docket until the formal complaint 

of the Ketchikan carriers has been resolved. In any case, if the Department eventually 

determines that Scott Air is fit, only commuter fitness authority be granted, and not a 

certificate of public convenience and necessity. Scott has neither requested authority to 

transport mail, nor did it include any mail traffic or revenue in its proposed operations. Postal 

regulations and the current Bush Mail Rate requires that bush carriers pickup and deliver all 

mail to the downtown Ketchikan Post Office, and Scott neither operates or proposes to operate 

service to the City and Borough of Ketchikan.

Respectfully submitted,

Pacific Airways, Inc.

PM Air LLC

__________________________

By Hank Myers, its authorized representative

February 1, 2013
CERTIFICATE OF SERVICE

I hereby certify that I have this date served a copy of the foregoing Petition and Answer of the 

Ketchikan Carriers upon all parties served with Order 2013-1-12 by first class mail.

_________________________

Hank Myers

February 1, 2013