Order 2013

- 4

- 12

Served : April 15 , 2013

UNITED STATES OF AMERICA
DEPARTMENT OF TRANSPORTATION
OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 15 th day of April

, 2013

Applications of

NATIONAL AIR CARGO GROUP, INC.
d/b/a NATIONAL AIRLINES

for amended certificates of public convenience and necessity pursuant to 49 U.S.C. § 41102 to en gage in interstate and foreign scheduled air transportation of

persons, property

, and mail Dockets DOT

- OST

- 20 1 2

- 0204
and
DOT

- OST

- 20 1 2

- 0205

ORDER TO SHOW CAUSE

PR OPOSING TO AMEND AND REISSUE CERTIFICATE AUTHORITY

Summary

By this order, we tentatively ( 1) conclude that National Air Cargo Group, Inc. d/b/a National

Airlines (“ National Airlines ”) is a citizen of the United States and is fit, willing, and able to provide foreign scheduled air transportation of persons, property, and mail, and should be

issued a n amended certificate of public convenience and necessity authorizing such operations, subject to conditions ; ( 2) dismiss the application of National Airlines requesting interstate scheduled passenger authority; and ( 3) deny the air carrier’s request for an exemption from the provisions of 49 U.S.C. 41102 to permit it to engage in foreign sc heduled air transportation

while its application for foreign scheduled passenger authority remains pending

.

Background

Section 41102 of Title 49 of the United States Code (“the Transportation Code”) directs us to determine that applicants for certificate authority to provide interstate and foreign scheduled air transportation of persons, property

, and mail are “fit, willing, and able” to perform such transportation

, and to ensure that all operations relating to this authority conform to the provisions of the Transportation Code and the regulations and requirements of the Department. In making fitness findings, the Department uses a three

- part test that reconciles the Airline Deregulation Act’s liberal entry policy with Congress’ concern for operational sa fety and consumer protection. The three areas of inquiry that must be addressed in order to determine a company’s fitness are whether the applicant (1) will have the managerial skills and technical ability to conduct the proposed operations, (2) will have access to resources sufficient to2

commence operations without posing an undue risk to consumers, and (3) will comply with the Transportation Code and regulations imposed by Federal and State agencies. We must also find that the applicant is a U.S. citize n.

On December 11, 2012 National Airlines , a U.S. air carrier holding certificate authority permitting it to engage in interstate and foreign charter air transportation of persons, property and mail, 1 filed applications in Dockets DOT

- OST

- 2012

- 0204 and DOT

- OST

- 2012

- 0205 requesting amendments to its certificat e authority to permit it to engage in interstate

scheduled air transportation of persons, property, and mail and foreign scheduled air transportation of persons, property, and mail between a p oint or points in the United States and a point of points in the United Arab Emirates and beyond to a point or points in Afghanistan and/or Iraq. National Airlines accompanied its applications with information required by section 204.3 of our regulations (14 CFR 204.3) for an examination of its fitness to hold such authority 2 and at the same time the air carrier filed a request for an exemption to operate scheduled flights while its application was pending.

National stated that while it intends to opera te scheduled passenger service between the United

Arab Emirates and Afghanistan , it has yet to develop plans to provided scheduled domestic air transportation or foreign air transportation to Iraq. Therefore we notified the air carrier that we would defer action on its interstate application and its request for foreign scheduled authority to serve Iraq until it had developed proposals to provided air transportation in these respective

markets. Sub sequently, o n March 18, 2013

, National Airlines informed the D epartment that it

would refile its application for interstate scheduled air transportation and its request to provide foreign scheduled air transportation to Iraq once it had solidified its serv ice propos al.

No answers were received in response to its application and no special issues regarding the applicant have come to our attention. Under these circumstances, we propose to decide the issue of the applicant's fitness on the basis of the wri tten record, and tentatively conclude that

National Airlines is a U.S. citizen and is fit, willing, and able to operate its proposed foreign scheduled passenger service. W e will give interested persons an opportunity to show cause why we should not adopt as final the tentative findings and conclusions stated herein.

FITNESS

The Company

As previously mentioned, National Airlines holds certificates of public convenience and necessity authorizing it to engage in interstate and foreign charter air transportation of persons,

property

, and mail . The air carrier also holds a Part 121 Air Carrier Certificate issued by the Federal Aviation Administration ( “ FAA ” ) . National Airlines was formed as a corporation

under the laws of the State of Michigan on April 6, 1992 , and is currently based in Ypsilanti, Michigan

. The air carrier is ultimately wholly owned by Mr. Christopher Alf through his sole

1 See Order 2011

- 7

- 15, issued July 29, 2011.

2 National Airlines also filed additional information supplementing its applications on March 11, 2013, and March 20, 2013.3

ownership of N ational Air Cargo Holdings (“N AC Holdings ”)

, a corporation organized under

the laws of the State of New York in 1991 and headquartered in Orchard Park, New York. NAC Holdings wholly or partially owns eight subsidiaries, which together provide worldwide freight forwarding and air transportation of cargo

.

C urrently

, National Airlines operates a fleet of three B747

- 400 cargo aircraft and one B757

- 200 passenger aircraft. It is authorized by the Department to operate up to six cargo aircraft and one passenger aircraft. 3 I f granted the authority it seeks

, National Airlines in tends to a dd

one B757

- 200 passe nger aircraft to its fleet for use in its foreign scheduled operations

.

Managerial Competence

National Airlines ’ Board of Directors and key management personnel

, all of whom are U.S. citizens, consist of the following individuals:

Mr. Christopher Alf Chairman Colonel Glen Joerger Board Member /President

M r s. Lor i Alf Board Member

Lt. General John R. Baker Board Member

Lt. General William Mortensen Board Member Lt. General Robert D. Bishop, Jr. Board Member

Mr. Brian Conaway Acting Chief Financial Officer

Mr. Steven E. Santangelo Director of Maintenance

Mr. Jeff rey A. Miller Director of Operations

Mr. Charles H. Davis Acting Chief Inspector

Mr. William E. Phillips Director of Quality Control

Mr. J ames VanZino Chief Pilot

With the exception of Lt. General Robert D. Bishop, Jr., we previously reviewed the employment background of National Ai rlines’ board of directors in connection in the air carrier’s application for interstate and foreign charter passenger ope rations. 4

Lt. General Robert D. Bishop, Jr

. joined the Board of Directors of National Air Cargo in May,

2011. He served in the United States Air Force since 1974, retiring in 2008 as Commander,

3 rd Air Force, Ramstein Air Base, Germany. Prior to that assignment, he served as Vice Commander, U.S. Air Forces in Europe. A graduate of the U.S. Air Force Academy, Lt. General Bishop has flown over 5,400 flight hours as a licensed command pilot.

Mr. Brian Conaway is the Vice President of Finance for National Airlines’ par ent company, NAC Holdings (2011

- present)

, and is the Acting Chief Financial Officer for National Airlines

. Mr

. Conaway previously served as NAC Holdings ’ Controller (2001

- 2011) . Before this, he was employed by Computer Task Group

, I nc

. , as Accounting Director (2001)

, Accounting

3 See Department letter to National Airlines dated October 12, 2011, approving increase in fleet to 7 total aircraft; 6 cargo and 1 passenger aircraft.

4 See Order 2010

- 11

- 5, issued November 5, 2010

.4

Manager (1995

- 2001), and Accounting Supervisor (1989

- 1993) ; by Robert Half International,

Inc.

, as Placement Manager (1993

- 1995) ; and by Price Waterhouse as a Staff Auditor (1987

- 1989). Mr. Conaway is a Certi fied Public Accountant.

Mr. Steven E. Santangelo , an Airframe and Powerplant Mechanic, was named Directo r of Maintenance at National Airlines in February, 2013. H e was previously employed at Capital Cargo International Airlines as Director of Quality/Chief Inspector (February 2012

- February

2013 ) and Regional Line Maintenance Manager (November 2010

- February 2012) . Prior to this, h e was employed by Seaborne Airlines as a Designated Maintenance Inspector (April

2010

- August 2010) ; Director of Maintena nce (September 2007

- April 2010) ; Assistant Director of Maintenance (December 2006

- September 2007) ; Aircraft Maintenance Supervisor (October

2005

- December 2006) ; and Aircraft Mechanic (January 2005

- October 2005). Mr. Santangelo

has also served as an Aircraft Mechanic at American Airlines (May 1999

- October 2003); Corporate Air, Inc. (July 1984

- August 1985); and New Air Flight Inc. (July 1982

- July 1984).

Mr . Jeff rey A. Miller , an Airline Transport Pilot, joined National Airlines as its Director of Operations in February 2012. Mr. Miller was previously employed with AirTran Airways (May 1996

- Februar y 2012) in various roles of increasing responsibility

, having most recently

served as Vice President of Operations . While at AirTran he also held the position of Director of Flight Standards and was a B717 Captain

, and a DC

- 9 and B727 First Officer. Mr. Miller

also served in the United States Air Force for approximately 20 years (June 1976

- June 1996).

Mr. Charles H. Davis , an Airframe and Powerplant Mechanic, was named National Airlines’ Acting Chief Inspector in February 2013. Prior to this, h e held several positions at N ational Airlines, including Quality Control Inspector (2011

- 2013)

, Fleet Maintenance Manager (2008

- 2011)

, Maintenance S upervisor (2005

- 2008)

, and Director of Maintenance (1998

- 2005). Before joining National Airlines, h e was employed by Midwest Turbine

, Inc.

, as General Manager of Research and Development (1998

- 2003) and by Murray Aviation as Assistant

Director of Maintena nce (1993

- 1998).

Mr. William E. Phillips, National Airlines’ Director of Quality Control since February 201 3

, was previously employed by Southern Air, Inc.

, as Regulatory Compliance Engineer (September 2009

- October 2012 )

, Vice President of Quality Contr ol/Chief Inspector (January

2000

- September 2009)

, and Manager of Quality Control (March 1999

- January 2000).

Mr. Phillips was also previously employed by Southern Air Transport, Inc.

, in similar positions (March 1989

- August 1998) and he was previously empl oyed as a Lead Aircraft

Mechanic at Aero Corporation (June 1984

- March 19 89). Mr. Phillips also served as I nspector
of A vionics for more than 6 years while serving in the United Sta t es Air Force (January 1978

- May 1984)

.

Mr. James VanZino , an Airline Transport Pilot, has served as National Airlines ’ Chief Pilot since April 2011 . Prior to joining National Airlines, he was employed by the F AA as an Aviation Safety Inspector (September 2010

- April 2011). Before this, he was employed as a B767 Captain at Amerijet Interna t io nal , Inc

. (2010), and ABX Air, Inc. (December 1998

- August 2009) , and as a First Officer at Air Wisconsin Airlines (October 1997

- December 1998) and Air 21 (January 1996

- January 1997)

.5

In view of the experience and background of the appli cant’s key personnel, we tentatively conclude that National Airlines’ management team possesses the managerial skills and technical ability to conduct its proposed service. 5

Operating Plan and Financial Position

National Airlines currently operates charter flights from Dubai to Afghanistan on behalf of a U.S. government contractor . The air carrier now intends to broaden the scope of its service in the region by conducting these flights on a scheduled basis

.

Although National A irlines notes that it will add an additional B757

- 200 passenger aircraft to its fleet for use in its proposed foreign scheduled passenger operation, it states that

, initially

, it will offer air transportation between the U.S. and United Arab Emirates only pursuant to a code share arrangement with an authorized U.S. or foreign air carrier

, with the code share partner carrying National Airlines’ code and operating the flight. 6

To meet the Department’s financial fitness criteria, an applicant should have acc ess to financial resources sufficient to cover its pre

- operating expenses and the expenses that are reasonably projected to be incurred during three months of “normal” operations. 7 National Airlines provided the Department with a financial forecast for its first year of foreign

scheduled passenger operations using one B 757 aircraft and a list of all pre

- operating expen ses associated with adding the aircraft to its FAA Operation Spe cifications. The applicant projects that its total operating expense for its first year of scheduled operations with this aircraft will

be approximately $ 21.06 million and that it will incur $ 705,000 in pre

- operating expenses. Based on these forecasts, w e estimate that National Airlines will require approximately $5.97 million to meet our financial fitness requirements.

For the year ending December 31 , 201 2 , National Airlines recorded a net loss of $ 33.4 million on approximately $ 101 million in operatin g revenues. The air carrier ’s most recent balance sheet indicates that, as of December 31 , 201 2 , it had current assets of $ 68.66 million and current liabilities of $ 48.28 million, giving the company a positive working capital balance of $ 20.37 million. The same balance sheet shows the company as having negative retained earnings of $ 93 .2 million and total shareholders’ equity of $ 309.4 million

.

5 Before authorizing an air carrier to conduct air transportation operations, the FAA also evaluates certain of the applicant’s key personnel with respect to the minimum qualifications for those positions as prescribed in the Federal Aviation Regulations. The FAA’s evaluation of these key personnel provides an added practical and in

person test of the skills and technical ability of these individuals. All of National Airlines’ key technical personnel have be en approved by the FAA to hold their positions.

6 We remind National Airlines that prior to commencing a code share operation with a foreign air carrier

, that

carrier will need a code share statement of authorization , and that a code share safety assessmen t compliance

statement will be required pursuant to the FAA’s IASA program.

7 Because projected expenses during the first several months of air transportation services frequently do not include all costs that will be incurred during a “normal” period of o perations, it is our practice to base our three

month test on an average of one

- quarter of the first year’s operating cost forecast.6

In support of its ability to meet our financial fitness r e quirements, National Airlin es provided a letter from its parent company, NAC Holdings, confirming that it would make funds available to National Airlines to support its proposed passenger operations and NAC Holdings provided

third

- party verification from Wells Fargo Capital Finance evidencing t hat it had extend ed National Airlines a $60 million revolving credit facility with $31.3 million currently remaining

for disbursement.

In light of the foregoing, we tentatively conclude that National Airlines will have access to sufficient financial resources to commence the operations it proposes without posing an undue

risk to consumers or their funds. Moreover

, we note that, as is our practice, prior to making any authority awarded to National Airlines effective, we will require the company to

demonstrate that it continues to have access to the financial resources needed to meet our

financial test.

T his tentative finding of fitness is based on the operations proposed in this application. Were

National Airlines to propose a substantial expansion of its plans, including among other things,

the addition of more than the one passenger aircraft discussed here, this finding may not continue to apply. Therefore, if our tentative finding regarding National Airlines’ fitness is made final, and National Airlines is issued the authority it seeks , we will require that should the company want to operate more than eight total aircraft and/or more than two passenger aircraft, it must first provide the Department with at least 45

- days advance notice of such plans and provide updated information establishing its fitness for such expansion.

Compliance Disposition

Our review of FAA records shows that National Airlines has not been involved in an accident in the p ast 5 years and it has been involved in one incident during this same period. 8 In its application, the air carrier notes that there are no pending investigations by the DOT and although the air carrier identified three pending investigations by the FAA

, the se investigations

have since been closed with no adverse action taken against the air carrier

. 9

We note that in 2 005, a n employee of National Air Cargo, Inc., (“ NAC ”) , an affiliate of

National Airlines related by common ownership

, filed a qui tam action in the U.S. District Court alleging that NAC had violated the Federal False Claims Act by submitting false

invoices to the Department of Defense (“DOD”)

. In October 2007, NAC and the DOD entered into a negotiated settlement that resolved all of these charges except for a single count of

8 FAA report 2011072702309 indicates that, on July 27, 2011, a DC

- 8 aircraft operated by National Airlines experienced a tail strike incident upon takeoff from Luxembourg causing minor damage to the aircraft. Further investigation determined that the aircraft weight and balance had been computed in pounds while the load sheet was meant to be computed in kilograms.

9 FAA report 2012GL230093 regarding a complaint that the air carrier instructed its flight attendants to falsify a written exam in preparation for an evacuation demonstration resulted in a letter of correction

. FAA report 2012GL230092 regarding a complaint that the air carrier operated an aircraft with an unserviceable Halon fire extinguisher also resulted in a letter of correction. The 3 rd investigation, FAA report 2012GL230091 concerning a complaint of the air carrier holding scheduled practice rehearsals for an evacuation demonstration was closed

with no further action.7

submitting a false invoice. According to the settlement agreement, NAC agreed to plead guilty to one count of knowingly making a material misstatement to the United States, a felony charge and violation of Title 18 of the United States Code, Section 1001(a)(2), and it agreed to pay certain penalties and restitution. Subsequent to this , NAC entered into an Administrative Agreement with the U nited S tates A ir F orce (“USAF”) under which, among other things, Mr. Christopher Alf and five employees were required to leave the company. In addition, Mr. Alf’s stock was placed in a voting trust with the company operating under the management of the voting trust and the USAF debarred Mr. Alf from government contracting for a period of three years.

Similarly, because of the nature and degree of the allegations made against NAC and its
owner, Mr. Alf, and the common ownership between National Airlines and NAC, the Department found it appropriate to impose certain fitness conditions on National Airlines to ensure its independence from NAC, including requiring that management of National Airlines

be placed under a voting trust and an independent board of directors; removing certain individuals, including Mr. Alf, from any influence or control over the company; regular reporting requirements; and a requirement that Mr. Alf dispose of his interest in Na tional Airlines within a reasonable period of time.

In May 2009, the U.S. District Court for the District of Columbia issued an Order and Opinion granting Mr. Alf a preliminary injunction against enforcement of the debarment decision of the

USAF. The Di strict Court found that the USAF had erred in its findings that a single false

statement was grounds to impute the alleged misconduct associated with that false statement to

Mr. Alf. Shortly thereafter, the USAF permanently terminated Mr. Alf’s debarment and on December 12, 2009, the USAF and NAC amended the Administrative Agreement to permit

Mr. Alf to dissolve the voting trust and resume control of NAC.

On December 3, 2009, National Airlines requested that, in light of the District Court ’ s findings

an d the Amended Administrative Agreement with the USAF, the Department remove the fitness conditions previously imposed on the air carrier

. Upon review of the matter, the Department found National Airlines fit under the ownership, control, and management of Mr. Alf, and removed the fitness conditions. However, a t the same time, we imposed various reporting requirements so that we may more clo sely monitor the air carrier’s fitness , including requiring the air carrier to report, within 7 days of occurrence, (1) any charge of unfair or deceptive or anticompetitive business practices, or of fraud, felony or antitrust violation, brought against any relevant corporation, or member of the key personnel employed (or to be employed) by any relevant corporation; (2) investigations, enforcement actions, or formal complaints filed by the Department or other government agency, involving any relevant

corpora tions, personnel employed (or to be employed) by any relevant corporations or person having a substantial interest in any relevant corporation; (3) any complaint or other action by the USAF alleging that NAC had failed to comply with any aspect of the Dece mber 2009 Amended Settlement Agreement; and (4) any aircraft accidents or incidents (as defined by the National Transportation Safety Board Regulations, 49 CFR 830.2) experienced by National Airlines, its personnel, or any relevant corporation.

S ince we impos ed these reporting restrictions

, National Airlines has reported no additional incidents of fraud or felony charges against it, its owners, its key personnel, or any relevant8

corporation

, nor any charges of unfair, deceptive or anti

- competitive busine ss practices, or of antitrust violations brought against National Airlines, its owners, its key personnel, or any relevant corporation. Moreover, a review of our records and other information available to us

has uncovered no additional information which w ould lead us to conclude that the applicant or any of its key personnel lacks the proper compliance disposition to be found fit . In addition, according to the FAA, the air carrier has conducted its operations satisfactorily and the agency

knows of no reas on why the air carrier should not be granted the authority it is seeking

.

In light of these circumstances, we tentatively find that National Airlines has the proper regard for the laws and regulations governing its services to ensure that its aircraft and personnel conform to applicable safety standards and that acceptable consumer relations practices will be

followed.

CITIZENSHIP

Section 41102 of the Transportation Code requires that certificates to engage in air transportation be held only by citizens of the United States as defined in 49 U.S.C. § 40102(a)(15). That section specifies that the president and two

- thirds of the board of

directors and other managing officers be U.S. citizens

, that at least 75 percent of the outstanding voting interest be owned by U.S. citizens , and that the air carrier must be under the

actual control of U.S. citizens.

As noted earlier, National Airlines is a corpo ration o rganized under the laws of the S tate of Michigan

. The company is wholly

- owned by National Air Cargo Acquisitions , LLC (“NAC Acquisitions”), a Delaware limited liability company. NAC Acquisitions in turn, is wholly

owned by NAC Holdings, a New York corporation. Mr. Christopher J. Alf, a U.S. citizen, is the sole owner of NAC Holding s

. 10 In addition, National Airlin es’ president, its board of directors, and all of its key personnel are U.S. citizens. Furthermore, National Airlines provided a n affidavit attesting that it is a U.S. citizen. Finally, there is no other information

before us that would lead us to conclu de that National Airlines is not controlled by U.S.

citizens.

In view of the foregoing, we tentatively conclude that National Airlines is a U.S. citizen and that it is fit, willing, and able to provide scheduled foreign air transportation services as a U. S. certificated air carrier, subject to conditions.

10 NAC Holdings wholly owns National Air Cargo, Inc., a New York co rporation; National Air Cargo S.a.r.l, a Luxembourg corporation, which is the ultimate parent company of National Air Cargo Middle East FZE, a United Arab Emirates corporation; National Air Cargo SGPS, Unipessoal Lda., a single

- owner Portuguese limited

lia bility company; NAC Acquisitions, a Michigan corporation; NACM OHQ, Sdn Bhd, a Malaysian private limited liability company; NACM Holdings, Sdn Bhd, a Malaysian private limited liability company; National Air Cargo Limited, a Thai private limited liability company; and NAC AC Ventures, LLC, a Delaware corporation. NAC Holdings has partial ownership in National Air Cargo GmbH, a German corporation.9

PUBLIC CONVENIENCE AND NECESSITY

The award of authority to engage in foreign air transportation requires a finding under

section 41102 of the Transportation Code that grant of the authority is consistent with the public convenience and necessity. The applicant states that the authority it is requesting is consistent with the public interest, since it will expand flight options for United States Department of Defen se

- approved passengers, and it is also consistent with the Open Skies air transport agreement between the United States and the U nited A rab E mirates . National Airlines also notes that while there is no bilateral air service agreement between the U.S. and Afghanistan, the Afghanistan government has been supportive of U.S. air carriers, granting operating rights as a matter of comity and reciprocity. We tentatively find that the foreign scheduled air transportation proposed by National Airlines is consisten t with the public interest and if it meets the fitness requirements of the Transportation Code, it will receive a n amended

certificate authorizing it to engage in foreign scheduled air transportation of persons, property,

and mail under section 41102

. 11

CO NFIDENTIAL TREATMENT

On Decembe r 11 , 2012, National Airlines filed a motion under 14 CFR 302.12 (Rule 12) requesting that the Department withhold from public disclosure the revenue and profit

amounts from a consolidated financial forecast of National Airlines’ first year of scheduled operations

.

The air carrier states in its motion that “competitors will be able to determine National Airlines’ pricing for the proposed scheduled service” and cited instances where the Department has granted confidential treatment to forecast revenues and related statistics, especially in instances where the proposed route had just one service provider.

Rule 12 instructs us to evaluate requests for confidential treatment by the standards of

disclosure found in the Freedo m of Information Act (5 U.S.C. section 552). Information may be withheld from disclosure under 5 U.S.C. 552(b)(4) if it is (1) commercial or financial, (2) obtained from a person outside of government, and (3) privileged or confidential ( Gulf and

Western Industries, Inc. v. United States , 615 F.2d 527, 529 (D.C. Cir. 1979)).

There is no question that the information for which National Airlines seeks confidential treatment is financial or commercial in nature and that it was obtained from a person outside the government. The remaining question is whether the information is privileged or confidential, that is, whether “disclosure of the information is likely to have either of the following effects: (1) impair the Government’s ability to obtain necessary inf ormation; or (2) cause substantial harm to the competitive position of the person from whom the information was obtained” ( National Parks and Conservation Association v. Morton , 498 F.2d 765, 770 (D.C. Cir. 1974)). Further, to be privileged or confidentia l, the information must not be of the type that is usually released to the public ( Gulf and Western Industries, Inc. v. United States

, 615 F.2d 527, 530 (D.C. Cir. 1979)).

11 Pursuant to 49 U.S.C. § 41307, issuance of foreign authority to the applicant is subject to Presidential rev iew.10

With respect to Exhibit NA

- 3, the Department typically grants confidential treatment to an applicant’s projected revenues. We find that the release of this information could cause substantial harm to the competitive position of the applicant. Thus, we wi ll grant confidential treatment to National Airlines’ projected rev e n u e and profit statement.

OBJECTIONS

On March 22, 2013, National Airlines filed a Motion requesting us to shorten the public comment period for filing of answers to the Department’s tentative decision

, from 14 days for objections and 7 days for answers normally permitted in such cases, to 3 days for objections

and 2 days for answers

. We will give interested persons 3 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 2 days thereafter. 12 We expect such persons to direct their objections, if any, to the application s 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 wha t material issues of decisional fact the objector would expect to establish through a hearing or discovery that cannot be established in written pleadings. The objector should consider whether discovery procedures alone would be sufficient to resolve

mate rial issues of decisional fact. If so, the type of procedure should be specified ( See Part 302, Rules 19 and 20); if not, the reasons why not should be explained. We will not entertain general, vague, or unsupported objections. If no substantive objecti ons are filed, we will issue an order that will make final our tentative findings and conclusions with respect to National

Airlines ’ fitness and certification.

CERTIFICATE CONDITIONS AND LIMITATIONS

If National Airlines is found fit and issued the amende d certificate that it seeks, its authority

will not become effective until the air carrier has fulfilled all of the requirements for effectiveness set forth in the terms and conditions attached to its certificate. Among other things, this includes (1) our receipt of evidence that National Airlines has been certificated by the FAA to engage in foreign scheduled passenger operations , (2) evidence of liability insurance coverage that meets the requirements of section 205.5(b) of our rules

, (3) a statement
of changes it may have undergone since its fitness was examined, and (4) evidence that

National Airlines continues to have adequate financial resources available to it.

We also wish to remind National Airlines of the requirements of 49 U.S.C. § 41110(e). Specifically, that section requires that, once an air carrier is found fit initially, it must remain fit in order to hold its authority. To be assured that certificated air carriers continue to be fit after effective authority has been issued t o them, we require that they supply information describing any subsequent substantial changes they may undergo in areas affecting fitness.

12 Since National Airlines already holds Part 121 authority from the FAA, and since no answers were filed opposing National Air lines’ application, we have determined that good cause exists for not delaying action on its application with the standard 1 4

- day answer period.11

Therefore, if National Airlines is issued effective certificate authority and subsequently

propose s substantial chan ges in its ownership, management, or operations, it must first comply with the requirements of section 204.5 of our rules. 13

Moreover, t his tentative finding of fitness is based on the operations proposed in this application. Were National Airlines to p ropose a substantial expansion in its plans, including the operation of more than the two passenger aircraft discussed here , or operating using its

own aircraft on the U.S.

- United Arab Emirates leg of the proposed operations , this finding may not continue to apply. Therefore, if our tentative finding regarding National Airlines’ fitness is made final, and National Airlines is issued the authority it seeks , we will require that, should the company want to operate more than six cargo aircraft and/or more than two passenger aircraft, or should it wish to conduct operations using its own aircraft on the U.S.

- United Arab Emirates leg of the proposed operations, it must first provide the Department with

at least 45 days advance notice of such plans and provide updated information establishing its fitness for such expansion. The compliance of the company with this requirement is essential if we are to carry out our responsibilities under section 41110(e). 14

Finally, if National Airlines is granted effective authority, it would be required to submit a detailed progress report, within 45 days following the end of the first year of certificated flight operations, to the Air Carrier Fitness Division. The submission of a first year progress report
is a condition impos ed on all newly certificated air carriers and was adopted as policy by the Department to aid in monitoring the fitness of new air carriers. The report should include a description of the air carrier’s current operations (number and type of aircraft, principle markets served, total number of full

- time employees), a summary of how its operations have changed during the year, a discussion of any changes it anticipates from its current operations during its second year, current finan cial statements, 15 and a listing of current senior management and key technical personnel. The air carrier should also be prepared to meet with staff members of the Fitness Division to discuss its current and future operations.

13 The air carrier may contact our Air Carrier Fitness Division to report proposed substantial changes in its operations, ownership, or management, and to determine what additional information, if any, will be required

under section 20 4.5. In addition, by notice dat ed July 21, 1998, the Department requested air carriers to provide a

30

- day advance notification of any proposed change in ownership, restructuring, or recapitalization. If the air carrier fails to file this updated informa tion or if the information fails to demonstrate that the air carrier will continue to be fit upon implementation of the substantial change, the Department may take such action as is appropriate, including enforcement action or steps to modify, suspend, or revoke the air carrier's certificate authority.

14 We also remind National Airlines about the requirements of section 204.7 of our rules. This section provides, among other things, that (1) the certificate authority granted to a company shall be revoked i f the company does not commence actual flying operations under that authority within one year of the date of the Department's determination of its fitness; (2) if the company commences operations for which it was found fit and subsequently ceases such oper ations, it may not resume operations unless its fitness has been redetermined; and (3) if the company does not resume operations within one year of its cessation, its authority will be revoked for dormancy.

15 These financial statements should include a balance sheet as of the end of the company’s first full year of certificated flight operations and a 12

- month income statement ending that same date.12

Lastly, it is not the Depar tment’s policy to grant exemption authority if an air carrier does not have underlying economic authority, therefore we will deny National Airlines’ request for an exemption pursuant to 49 U.S.C § 40109.

ACCORDINGLY,

1. We direct all interested persons to show cause why we should not issue an order making final our tentative findings and con clusions stated above and reissue an amended certificate to National Air Cargo Group, Inc. d/b/a National Airlines authorizing it to engage in foreign

scheduled air transportation of persons, property and mail, subject to the attached specimen Terms, Conditions, and Limitations

.

2. We direct any interested persons having objections to the issuance of order s making final any of the proposed findings, conclusions, or the certificate award set forth here to file such objections with the Department of Transportation Dockets, 1200 New Jersey Avenue, S.E., West Building Ground Floor, Rm. W12

- 140, Washington, D.C. 20590, in Dockets DOT

- OST

20 12

- 0204 and DOT

- OST

- 20 12

- 0205 and serve them upon all persons listed in Attachment A

no later than 3 days after the service date of this order; answers to objections shall be filed no

later than 2 days thereafter.

3

. We deny N ational Air Cargo Group, Inc. d/b/a/ National Airlines ’ application for exemption from the provisions of 49 U.S.C. 41102 to engage in foreign scheduled air

transportat ion in Docket DOT

- OST

- 2012

- 0204

.

4

. We dismiss the application of National Air Cargo Gr oup, Inc., in Docket DOT

- OST

- 2012

- 0205 for interstate scheduled passenger authority and its request to provide foreign scheduled air transportation to Iraq in Docket DOT

- OST

- 2012

- 020 4

.

5

. We grant the motion of National Air Cargo Group, Inc. d/b/a/ National Airlines in Dockets

DOT

- OST

- 2012

- 0204 and DOT

- OST

- 2012

- 0205 to shorten the public comment period to

5 days.

6

. We grant the motion of National Air Cargo Group, Inc. d/b/a/ National Airlines in

Dockets DOT

- OST

- 2012

- 0204 and DOT

- OST

- 2012

- 0205 requ esting to withhold information from public disclosure.

7

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

8

. In the event that no ob jections are filed, we will consider all further procedural steps to be waived and we will enter orders making final our tentative findings and conclusions and will

issue National Air Cargo Group, Inc. d/b/a National Airlines a certificate that will contai n exact copies of the attached specimen Terms, Conditions, and Limitations

. 16

16 Since we have provided for the filing of objections to this order, we will not entertain petitions for

reconsideration.13

9

. We will serve a copy of this order on the persons listed in Attachment A.

10

. We will publish a notice of this order in the Federal Register.

By:

SUSAN L. KURLAND 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

### Attachment



### SPECIMEN Terms, Conditions, and Limitations

National Air Cargo Group, Inc. d/b/a National Airlines

is authorized to engage in foreign air transportation of persons, property, and mail:

Between a point or p oints in the United States and b etween a point or p oints in the

United Arab Emirates and beyond to a point or p oints in Afghanistan

This authority is subject to the following provisions:

(1) The authority to operate under this certificate will not become effective until six (business) days after the Department has received the following documents; provided

, however

, that the Department may stay the effectiveness of this authority at any time prior to that date:

(a) A copy of the holder's Air Carrier Certificate and Operations Specifications authorizing such operations from the Federal Aviation Administration (FAA).

(b) A certificate of insurance on OST Form 6410 evidencing liability insurance coverage meeting the requirements of 14 CFR 205.5(b) for all of its aircraft.

(c) A statement of any changes the holder has undergone in its ownership, key personnel, operating plans, financial pos ture, or compliance history, since the date of the Show Cause Order in this case.

(d) A revised list of pre

- operating expenses already paid and those remaining to be paid, as well as independent verification that the holder has available to it funds suffi cient to cover any remaining pre

- operating expenses and to provide a working capital reserve equal to the operating costs that would be incurred in three months of operations.

(2) Pending receipt of effective authority, the holder may not accept payment o f any kind (i.e., cash, check, or credit card), or issue tickets for the operations proposed under this certificate, and any advertisement by the holder must prominently state: "This service is subject to receipt of government operating authority."

(3) T he holder shall at all times conduct its operations in accordance with the regulations prescribed by the Department of Transportation for the services authorized by this certificate, and with such other reasonable terms, conditions, and limitations as the Department of Transportation may prescribe in the public interest.2

(4) The holder shall at all times conduct its operations in accordance with all treaties and agreements between the United States and other countries, and the exercise of the privileges

gr anted by this certificate is subject to compliance with such treaties and agreements and with any order of the Department of Transportation issued under them. To the extent that the holder has authority to serve more than one country or points in more than one country on the same route segment, that authority does not confer upon the holder any additional rights (including fifth

- freedom intermediate and/or beyond rights) in limited

- entry markets unless the Department has completed any necessary carrier sele ction procedures to determine which carrier(s) should be authorized to exercise such rights and has notified the foreign country(ies) involved that any such selected carrier(s) has the required authority. In such cases, the fact that the carrier may

hold authority to serve the countries (points) at issue on the same segment will not be considered as providing any preference to the holder in a carrier selection proceeding.

(5) The exercise of the authority granted here is subject to the holder's first obta ining from the appropriate foreign governments such operating rights as may be necessary.

(6) The holder's authority under this certificate is effective only to the extent that such operations are also authorized by the Federal Aviation Administration (FA A), and comply with all U.S. Government requirements concerning security , including, but not limited to 49 CFR Part

1544

. ∗

(7) The holder shall at all times remain a "Citizen of the United States" as required by 49 U.S.C. 40102(a)(15).

(8) The holder sha ll maintain in effect liability insurance coverage as required under 14 CFR Part 205. Failure to maintain such insurance coverage will render a certificate ineffective, and this or other failure to comply with the provisions of Subtitle VII of Title 49 of the United States Code or the Department's regulations shall be sufficient grounds to revoke this certificate.

(9) The holder is authorized to conduct charter flights in interstate and/or foreign air transportation in accordance with the provisions of 14 CFR 212

.

(10) Should the holder propose any substantial change in its ownership, management, or operations (as defined in 14 CFR 204.2(l)), it must first comply with the requirements of 14 CFR

204.5.

(11) In the event that the holder does not commence actual flying operations under this certificate within one year of the date of the Department's determination of its fitness, its authority shall be revoked for dormancy, unless the holder is conducting operat ions under another type of certificate authority. Further, in the event that the holder commences operations

∗ To assure compliance with all applicable U.S. Government requirements concerning security, the holder shall, before commencing any new service (including charter flights) to or from a foreign airport, contact its Principal Security Inspector (PSI) to advi se the PSI of its plans and to find out whether the Transportation Security Administration has determined that security is adequate to allow such airport(s)

to be served.3

for which it was found "fit, willing, and able" and subsequently ceases all such operations, its authority under all certificates held shall be su spended under the terms of 14 CFR 204.7 and the holder may neither recommence nor advertise such operations unless its fitness to do so has been redetermined by the Department. Moreover, if the holder does not resume operations within one year of its cess ation, its authority shall be revoked for dormancy.Attachment A



### NATIONAL AIR CARGO GROUP INC. d/b/a NATIONAL AIRLINES

MARK W ATWOOD

ELIZA BETH J WADSWORTH

COZEN O’ CONNER

1627 EYE STREET NW SUITE 1100

WASHINGTON DC 20006 PAUL GRANDAHL

RAYMOND PAUL

DARYL BENTLEY

EAST MICHIGAN FSDO

FEDERAL AVIATION ADMINISTRATION

MARK MAZOR

CERTIFICATION SECTION MANAGER

FAA AFS

- 900 45005 AVIATION DRIVE, SUITE 131

DULLES VA 20166 WILLIAM CHADWICK

OFFICE OF AIRLINE INFORMATION

DOT/RSPA/BTS E

- 36

1200 NEW JERSEY AVE SE

WASHINGTON DC 20590

PETER LYNCH AGC

- 300

ASST CHIEF COUNSEL FOR ENFORCEMENT FEDERAL

AVIATION ADMINISTRATION

800 INDEPENDENCE AVE SW

WASHINGTON DC 20591

LUTHER HIPPS

CHARLEY BEERS

ORLANDO FSDO

FEDERAL AVIATION ADMINISTRATION OFFICE OF AIRLINE INFORMATION

DOT/RSPA/BTS E

- 36

1200 NEW JERSEY AVE SE

WASHINGTON DC 20590