Order 2013

- 7

- 3 Served: July 2, 2013



### UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION



### OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 2 nd of July, 2013

Essential Air Service at

KAMUELA

, HAWAII

Under 49 U.S.C. 41731 et seq

. DOCKET DOT

- OST

- 1997

- 2833

ORDER SELECTING CARRIER Summary By this Order

, the Department is selecting Mokulele Flight Services, Inc., d/b/a Mokulele

Airlines (Mokulele)

, to provide Essential Air Service (EAS) at Kamuela

, Hawaii

, for the four

year period beginning when the carrier begins full EAS for annual subsidy rate s of $ 494,291, $434,411, $417,310, and $412,389 for the first through the fourth year s

. 1

Background

On March 14 , 20 13

, Pacific Wings , LLC, filed notice of its intent to terminate its subsidy

- free service at Kamuela, Hawaii, effective June 12, 2013. Pacific Wings’ proposed termination of

service at Kamuela would have left the community with no scheduled air service, and by Order

2013

- 4

- 17, A pril 25, 2013, the Department prohibit ed the carrier from terminating its service.

Th at Order held Pacific Wings in through July 12, 2013, 30 days past the end of its 90

- day notice,

and indicated that we would continue to hold the carrier in until a carri er actually began service and relieved Pacific Wings of its hold

- in obligation. Most recently, Order 2013

- 6

- 7, June 10, 2013, extended Pacific Wings ’ obligation through August 11, 2013.

Order 2013

- 4

- 17 also requested proposals for EAS at Kamuela, with a deadline of May 22, 2013, for those proposals. In response, we received timely

- filed proposals from the incumbent, Pacific Wings, Schuman Aviation Company, Ltd, d/b/a Makani Kai Air Chart ers, and Mokulele.

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

-

Below is a summary of each carrier’s proposal, and Appendix C provides a detailed outline of

the subsidy calculations.

Proposal of Pacific Wings

Pacif i c Wings proposes to provide ground transpo rtation with 12 round trips per week between

Kamuela and Kona (KOA) with 9

- passenger van service. The carrier requests $297,603 annual subsidy for this service.

Proposal of Makani Kai Makani Kai proposes to provide 12 nonstop round trips per week between Kamuela and

Honolulu with 9

- seat Ces sna Caravan aircraft. The carrier requests $998,950 subsidy the first year and $948,925 subsidy the second year.

Propos al of Mokulele Option 1 Mokulele proposes to provide 12 nonstop round trips per week between Kamuela and Honolulu

with 9

- seat Cessna Caravan aircraft. The carrier requests $584,956 subsidy the first year, $517,894 the second year, $507,645 the third year, and $499,557 the fourth year.

Option 2 Mokulele proposes to provide 12 nonstop round trips per week between Kamuela and Kahului ( OGG) with 9

- seat Cessna Caravan aircraft. The carrier requests $494,291 subsidy the first year, $434,411 the second year, $417,310 the third year, and $412,389 the fourth year.

Comments

We received comments from the Kona

- Kohala Chamber of Commerce, from the State of Hawaii, and from numerous other local parties.

The Kona

- Kohala Chamber of Commerce, which includes the Kamuela vicinity, is the leading business advocacy organization on th e west side of the big island of Hawaii where Kamuela is

located. The Chamber favors the selection of Mokulele, but does not di stinguish between the carrier’s Option 1 (Honolulu) and Option 2 (Kahului). The chamber indicates that “Eliminating

the one

- hou r drive time to Kona International Airport will benefit leisure and business travel and departures from a smaller airport will facilitate a faster check in. ....Mokulel e has been a

member of the Kona

- Kohala Chamber of Commerce since 2005 and we can attest t o its community support, being actively involved with the Chamber throughout that time.”

Mr. Kimo Tabor also recommends the selection of Mokulele, and prefers Option 1, service to Honolulu. Mr. Tabor recognizes that Honolulu is a bigger population cent er than Kahului. Also, he notes that flights bound for Honolulu overfly the shorte r distance (21 nautical miles) between Maui and the big island of Hawaii. Day trips between the two Islands are thus made possible.

The numerous other civic parties expressed concern about the one

- or two

- hour drive from Kamuela to Kona ( Kamuela is 37 highway miles from Kona) and would like to have low

- fare

service. Among the many comments, many did not focus on the choice of hub. Of those that did, most favored Hon olulu rather than Kahului.- 3

-

Decision

The selection of Mokulele is straightforward. Each of t he carrier’s proposals is significantly less expensive than that of Makani Kai

-- $998,950 for Makani Kai vs. $584,956 for Mokulele’s most expensive option. Also, the overwhelming number of parties submitting comments

recommended that we select Mokulele. The commenters favoring Makani Kai were largely customers of that carrier in Kalaupapa, who favored Makani Kai because of their familiarity with

its good service at that other destination. However, Mokulele is a known quantity in the islands as well, and their historical service at other communities received praise from many commenters.

Pacific Wings submitted by far the le ast expensive option. However, as that carrier’s proposal was for ground transportation

, we are precluded by the statute from subsidizing anything other than air service. Furthermore, there was no community support for Pacific Wing’s proposal.

The rem aining issue is which of Mokulele’s two options to select. The only difference between the two options is whether the aircraft would go to Honolulu or Kahului and the required subsidy . The subsidy difference would be $90,665 during the first year and $35 1,650 over the

four

- year term the carrier has requested.

Both Honolulu and Kahului are hubs with a great deal of intra

- Hawaii service , and Kahului, as well as Honolulu, has nonstop service to the continental U.S. In CY 2012 Kahului was 40

percent the s ize of Honolulu in term of departures

– 95 per day vs. 233 . In terms of population base Honolulu has the clear advantage. As Kimo Tabor mentions, Kamuela is strategically

located

– the closest distance between the island of Maui and the big island of Hawaii is 21 miles, and Kamuela is the closest airport to that 21 miles, which may provide some potential for developing a mark et for Hawaiian day trippers. However, nonstop service between Kamuela and Kahului would be most advantageous for such a “day

- tripper” market, because passengers would not need to fly the additional distance to Honolulu, make a connection, and then a back haul to
Kahului and another segment to Hana . (See the map in Appendix A). Clearly Honolulu being the bigger hub with a much larger population than Kahului favors the selection of Option 1

. Nevertheless, flying to Kahului would provide passengers access to the national air transportation system more quickly than the more distant Honolulu. Moreover, Mokulele already provides nonstop service between Kahului and Honolulu, so it may elect to provide single

- plane, one

- stop service to Honolulu.

Typically w e select carriers for a two

- year rate term. In this instance, the carrier has proposed a

four

- year rate term. Many of the community comments recognized the four

- year rate term, but none opposed our making a four

- year selection. We will select that longe r rate term, which will provide the carrier the opportunity to experiment with service to either or both hubs. With a

four

- year rate, the subsidy advantage of Option 2 to Kahului is magnified.

In brief, w e have decided to select Mokulele’s Option 2, tw o round trips per week to Kahului

with a 9

- seat Cessna Caravan, for annual subsidy rates of $494,291, $434,411, $417,310, and $412,389 for years one through four, respectively. However, we will afford Mokulele the flexibility of operating to either Honolu lu or Kahului. As noted above, one

- stop service to

Honolulu over Kahului is a real possibility with Option 2, while nonstop service to Honolulu- 4

-

would require a significant backhaul. In addition, with concurrence from the community,

Mokulele would have th e flexibility to experiment with split hub service, i.e., one nonstop round trip to Honolulu and one nonstop round trip to Kahului per day.

Carrier Fitness

49 U.S.C. §§ 41737(b) and 41738 require that the Department find an air carrier fit, willing, and able to provide reliable service before the Department may subsidize it to provide EAS

. Mokulele is subject to the Department’s continuing fitness requirements , and no information has

come to our attention that would cause us to question the carrier’s fitness at this time. DOT has

contact ed the Federal Aviation Administration, and it has raised no concerns that would negatively affect our fitness finding s

. We therefore conclude that the carrier remain s fit to

conduct the operations proposed here.

This Order is issued under authority delega ted in 49 CFR Part 1. 25a(b)

.

ACCORDINGLY,

1. We select Mokulele , Inc., to provide Essential Air Service at Kamuela

, Hawaii , as described in Appendix C ;

2 . We direct Mokulele

, to retain all books, records, and other source and summary documentation to support claims 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 d ocumentation shall be retained for seven years from the service date of the 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 car rier may forfeit its compensation for any claim that is not supported under the terms of this Order ;

3 . We find that Mokulele

, Inc., continue s to be fit, willing and able to operate as a commuter
carrier and capable of providing reliable Essential Air Service at the these communities

4 . Th is docket will remain open until further Order of the Department; and

5 . We will serve copies of this Order on the civic officials of Kamuela

, Hawaii

, Pacific Wings, LLC, Schuman Aviation Company, Ltd, d/b/a Makan i Kai Air Charters, and on Mokulele Flight Services, Inc., d/b/a Mokulele Airlines.

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.govAppendix A

Nonstop Great Circle Miles (Statute) Kamuela (MUE) to Kona (KOA) 30 Kamuela (MUE) to Hilo (ITO) 45 Kamuela (MUE) to Hana (HNM) 59 Kamuela (MUE) to Kahului, (OGG) 172Appendix C

Mokulele , Inc., Essential Air Service to be Provided to

Kamuela

, Hawaii

, Docket 1997

- 2833

Effective Period : October 1, 2013 , through September 30, 2017.

Aircraft : Cessna 208, Caravan, Single Engine Turbo

- prop Scheduled Service : Twelve nonstop round trips per week to either Honolulu (HNL) or Kahului (OGG)

.

Annual Annual Subsidy/ Weekly Subsidy Flights 1 F light 2 Ceiling 3

1 st year $ 494,291 1,223 $404 $9,696

2 nd year $434,411 1,223 $355 $8,520

3 rd year $417,310 1,223 $341 $8,184

4 th year $412,389 1,223 $337 $8,088

The carrier understands that it may forfeit its compensation 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 co mpleted, such as certain weather cancellations, only completed flights are considered eligible for subsidy.

In addition, if the carrier does not schedule or operate its flights in full conformance with the order for a significant per iod, it may jeopardi ze its entire subsidy claim for the period in question. If the carrier contemplates any such changes beyond the scope of the order during the applicable period of these rates, it must first notify the Office of Aviation Analysis in writing and receiv e wri tten approval from the Department to be ensured of full compensation. Should circumstances warrant, the Department may locate and select a replacement carrier to provide service on these routes. The carrier must complete all flights that can be safely op erated; flights that overfly points for lack of traffic will not be compensated. In determining whether subsidy payment for a deviat ing flight should be adjusted or disallowed, the Department will consider the extent to which the goals of the program 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, terminates or reduces payments for service or changes service requirements at a specific loca tion provided for under this order, then, at the end of the period for which the Department does make payments in the stipulated amounts or at the stipulated service levels, the carrier may cease to provide service to that spec ific location without regard 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 cessation of pa yment.

Subsidy contracts 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, regulations, or amendments thereto shall not operate to controvert the fore going paragraph.

Funds may not be available for performance under this order beyond Sep 30 , 2013. The Government’s obligation for performance under this order beyond September 30 , 2013, is subject to the availability of funds from which payment for servi ces 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 , 2013, until funds are made available to the Department for performance. If funds are not made available for performance beyond September 30 , 2013, the Department will provide notice in writing to the carrier.

All claims for payment must be submitted within 60 days of the last day of service provided under this order.

1 12 round trips per week x 2 directions x 52 weeks x 98% completion = 1,223.

2 Annual subsidy ÷ annual flights.

3 12 round trips per week x 2 direct ions x subsidy per flight

.