Order 2012

- 3

- 19 Served: March 30, 2012



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

Issued by the Department of Transportation on the 30 th of March, 2012

Ninety

- day Notice of Mesaba A viation

, Inc., and Pinnacle Airlines, Inc., to terminate service at:

A LPENA, MICHIGAN

under 49 U.S.C. 41731 et seq

. D OCKET DOT

- OST

- 2009

- 0300

ORDER RE

- SOLICITING PROPOSALS

Summary By this Order , the Department is re

- soliciting proposals from all interested carriers to provide subsidized Essential Air Service (EAS) at Alpena, Michigan. Proposals are due by May 15 , 2012 . (See Appendix A for a map)

.
Background By Order 2 010

- 5

- 18

, th e Department selected Mesaba Aviation, Inc., d/b/a Delta Connection (Delta)

, to provide 13 nonstop round trips per week between Alpena and Detroit with 34

- seat Saab 340 equipment for $1,532,660 annually through May 31, 2012.

Initial Request for Proposals , Order 2011

- 9

- 5, September 13, 2011 On July 15, 2011, Delta filed notice to terminate service at Alpena. W e prohibited Delta from terminating service at Alpena , as well as 23 other communities

, 1 and requested proposals by October 12 , 2011

. 2

In response to Order 2011

- 9

- 5, we received proposals from Gulfstream International Airlines and Intrepid International Airlines. Gulfstream proposed 18 nonstop round trips per week to Cleveland with 19

- seat Beech 1900 aircraft, and requested $3,243,009 annual subsidy. Intrepid proposed four nonstop round trips per week to Lansing, Michigan, with 19

- seat Jetstream aircraft and requested $911,800 annual subsidy.

1 Delta simultaneously filed notice to terminate service at 23 other communities. This Order only addresses Alpena.
2 By Notice dated October 12, 2011, we extended that deadline to October 14, 2011.- 2

-

Second Request for Proposals , Order 2011

- 11

- 20, November 17, 2011 We received comments from the Alpena County Regional Airport, the Alpena County Board of Commissioners, the Bank of Alpena, and numerous individuals.

On November 7 the Alpena County Board of Commissioners stated that neither carrier’s proposal would provide the needed level of service or connectivity and requested a 60

- day extension “so that the newly formed Airport Committee would have an adequate period of time to fully investigate an Essential Air Service carrier for Alpena County.”

On November 3, the Bank of Alpena indica ted what it saw to be numerous deficiencies with Gulfstream’s proposal, and those concerns were echoed by the comments of other members of the community. Among their concerns were the need for guaranteed code sharing and an integrated reservation system; that a three million dollar award to Gulfstream for less service was not a good use of taxpayer money; 3 that cancelled flights in the more

- distant Cleveland would leave passengers with fewer choices in getting home; that Gulfstream’s aircraft were smaller and without a lavatory; that Cleveland is not an international gateway airport like Detroit with less than half of Detroit’s nonstop departures. 4 Others noted that Alpena’s enplanements were up two years in a row, so it made no sense to select smaller air craft.

The Order rejected the proposals submitted by Gulfstream and Intrepid in response to Order 2011

- 9

- 5, and solicited a second round of proposals. Intrepid’s proposals did not provide the statutory two round trips per day, and the Department was co ncerned about the level of subsidy requested by Gulfstream.

In response to O rder 2011

- 11

- 20, we received proposals from only one carrier, Intrepid. The carrier proposed to provide ten round trips p er week between Alpena and either Lansing or Grand Rapids, Michigan, with 19

- seat Jetstream turbo props, and requested $3,024,000 annual subsidy.

Third Request for Proposals , Order 2012

- 1

- 6, January 10, 2012 The Order rejected the lone proposal submitted by Intrepid in response to Order 2011

- 11

- 20 and solicited a third round of proposals , with proposals due January 31, 2012. As stated on pages t wo and three of Order 2012

- 1

- 6 :

First, Intrepid correctly indicates that it has nei ther DOT nor FAA operating authority. Regarding its proposal to provide EAS with 19

- seat aircraft in partnership with an unnamed Part 380 operator, the Department found in

3 Many of the comments contrasted Gulfstream’s proposal with smaller equipment to Cleveland, a smaller hub, to the current $1.5 million contract with Mesaba to Detroit, with larger Saab 340 equipment. Delta filed notice because it is retiring those aircraft and the smallest aircraft available to it are much more expensive regional jets. Delta only has an obligation to continue to provide EAS until we secure a replacement ca pable of providing reliable basic EAS.
4 For the month of August, 2011, Detroit had 19,412 departures in scheduled passenger service while Cleveland had 7,509.- 3

-

Order 2011

- 1

- 16 that EAS, by statute, cannot be provided under Part 380 of the Dep artment’s Aviation Regulations. 5 In addition to not holding sufficient operating authority, Intrepid’s proposal has other deficiencies. The carrier proposes service to Grand Rapids and Lansing, Michigan, but basic EAS requires that the service be to a la rge

- or medium

- hub airport unless the community is more than 400 miles from the nearest large or medium hub. Alpena is less than 400 miles from Detroit, and neither Grand Rapids nor Lansing is a medium or large hub. Finally, the ten round trips per week proposed by Intrepid fall short of the minimum frequency required by EAS, namely twelve round trips per week.

At the request of the community, we extended the deadline for proposals to February 14, 2012. In response to our third request for proposals

, we received a proposal from only one carrier, Multi

- Aero, Inc., d/b/a Air Choice One.

As is our usual practice, by letter dated February 17, 2012, we summarized that carrier’s proposal in a letter sent to the Mayor of Alpena, as shown in the following c hart, requesting that he respond by March 15, 2012 , so that we would know the community’s position.

Our letter of February 17 further indicated the following:

Air Choice One is currently providing subsidized service to Burlington, Iowa, and Decatur, Illinois, and clearly has the required operating authority to provide the proposed service. Of the five options submitted by the carrier, the first three proposed s ervice with single

- engine Cessna 208 Caravan aircraft. Basic EAS requires service with twin

- engine aircraft, and those three options thus are not selectable without community support. However, Options 4 and 5 assume service with twin

- engine Piper Navajo aircraft. Their proposed service would go to a large hub, Chicago O’Hare, and that airport fully meets the basic EAS requirement that service be to a medium or large hub airport. Option 4 proposed

5 See Order 2011

- 1

- 16, January 22, 2011, Petition for Reconsideration of Order 2010

- 6

- 4 regardi ng EAS at Manistee/Ludington, Michigan. Option 1 Option 2 Option 3 Option 4 Option 5 Aircraft Caravan Caravan Caravan Navajo Navajo Hub ORD ORD ORD ORD ORD Weekly Nonstop Round Trips 18 21 24 18 24 O&D Passengers 7,800 9,500 10,500 7,800 8,500 Projected Passenger Fares $99 $99 $99 $99 $99 Projected Revenue $779,922 $949,905 $1,049,895 $779,922 $849,915 Projected Economic Cost $3,068,014 $3,550,187 $3,841,873 $2,887,254 $3,558,393 Annual Subsidy, Two-Year Term $2,288,092 $2,600,282 $2,791,978 $2,107,332 $2,708,478 Discounted Four-Year Term Subsidy $2,265,211 $2,574,279 $2,764,058 $2,086,259 $2,681,393

All options project approximately 103 minutes per one-way flight. All options would base the aircraft in Alpena.- 4

-

18 nonstop round trips per week to O’Hare with 9

- seat Pip er Navajo aircraft for $2,107,332 annual subsidy; Option 5 was the same except for increased service/subsidy of 24 nonstop round trips per week for $2,708,478 annual subsidy.

... We reiterate that the Department has an obligation to relieve Delta of its obli g ation to provide EAS at Alpena.

Community Comments , March 15, 2012 In response to our letter, t he City of Alpena indicate s th e following:

Alpena is a growing city, the largest in Northeast Lower Michigan. Our economy is diverse and numerous elements of that economy depend on effective air transportation in order to conduct on

- going business operations. Alpena is also a very isolated city; 71 miles to the nearest Interstate Highway and 100 miles (all on two

- lane roads) to the nearest alternative airport (Pellston). ...Our air service is currently pros p ering, with 2011 total traffic on our flights to and from Detroi t of nearly 23,000 passengers.

The community rejected Air Choice One’s first three options using single

- engine aircraft. 6 It also rejected Op tion 4 because Order 2011

- 9

- 5 had suggested that 18 to 24 round trips per week with a 19

- seat aircraft was an appropriate level of service.

The community questioned the capacity of the Piper Navajo, an aircraft that can be configured for up to 9 seats, to carry more than four passengers with the fuel required to travel the 30 6 miles from Alpena to Chicago on days with less than perfect operating conditions. Also, the community noted that Air Choice appeared to be on “probation” with DOT, becaus e Order 2011

- 12

- 7 awarded it a contract at Burlington and Decatur for only one year with the proviso that it should fully implement an electronic ticketing and baggage agreement with a major airline.” The community was also concerned that the one hour and forty minute scheduled flight time projected by Air Choice One was understated, given that the carrier requires the same amount of time to fly the 187 miles from Burlington to Chicago.

Finally, the community asks the Depa rtment for additional time.

In summary, we are doing everything we can to find a suitable EAS carrier for Alpena. We have visited SkyWest Airlines and we have been in contact with American Eagle Airlines. We are in active discussions with Public Charter s and are watching how the Department will respond to Manistee’s proposal for alternative EAS using that carrier. At some point, legal definitions must give way to common sense. Perhaps in Alaska there are EAS routes where Piper Navajos or similar aircra ft fly two hour flig hts . Alpena is not in Alaska. How the spirit and intent of the EAS program can be so turned as to define a two hour

6 Previously most EAS communities were entitled to service with 15

- seat or larger aircraft. However, in the Department’s FY 2012 appropriation (Consolidated and Further Continuing Appropriations Act, P.L. 112

- 55, November 18, 2011), Congress repealed the 15

- seat guarantee, although communities are still entitled to service with twin

- engine aircraft.- 5

-

plus flight on a Piper Navajo on an airline lacking basic interline agreem ents as a legal bid escapes me.

Reply by Ai r Choi c e One to the Community’s Comments, March 21, 2012 Air Choice One responded to the community’s comments b y letter dated March 21, 2012. It assures the Department that its Piper Navajos, even with requirements for fuel reserves and significant allowa nces for the weight of passenger baggage would be able to carry seven passengers a flight between Chicago and Alpena , even under “less than perfect operating conditions.” The carrier also responded to the community’s concern about the scheduled times refl ected in Air Choice One’s proposal. “ Published schedules for other cities with different stage lengths and traffic patterns cannot be used to evaluate a "Representative Schedule," since published schedules reflect day

- to

- day experience in the actual opera ting conditions. ’ Finally, t he carrier also indicates that Alpena misconstrued Order 2011

- 12

- 7: Air Choice One is not on probation with the Department. Rather, the Department offered Air Choice One the “lure of a 3

- year renewal if we can implement an el ectronic interline ticketing agreement with a major carrier.”

Decision We have decided to issue one additional request for proposals at Alpena. The community pleads for more time to secure additional air service options

. We take the community at its word that it is close to finding a carrier to submit a bid that would meet the community’s needs . Moreover, this situation is highly unusual, if not unique, in that

none of Air Choice One’s five service options could provide a s many seats as there are passengers currently using the service. Specifically, Air Choice One’s Option 5

, providing the most seat capacity of any option meeting basic EAS requirements, would provide only 17,472 7 seats per year, while in calendar year 201 1 Alpena generated 23,965 passengers. Furthermore, w e recognize that the transition to service with 9

- seat Piper Navajo aircraft from 50

- seat regional jets would be difficult , notwithstanding that the communities of Burlington, Iowa, and Decatur, Illinois , where we currently subsidize Air Choice One

, are very satisfied with that carrier’s service

.

We take this action notwithstanding that Air Choice One’s Options 4 and 5 fully meet the requir e ment for basic EAS, i.e., service with twin

- engine aircraft

, to a medium or large hub , and with 12 or more round trips per week; that we have already held Delta in for approaching nine months from when it first filed notice ; and that this action will cause additional delay

. 8

Based on all of the above, we have dec ided to issue one final request for proposals. However, if this fourth request for proposals does not elicit any responses, we fully intend to select Air Choice One, either Option 4 or 5. If we do receive proposals, we will process the carrier

- selec tio n case based the statutory selection criteria. (See footnote 7

. )

7 24 round trips per week x 2 directions x 52 weeks x 7 seats x 100% completion = 17,472 seats. Air Choice One indic ates in their reply to the community that their Navajos would typically be able to accommodate seven passengers on their flights between Chicago and Alpena.
8 49 U.S.C. §41734(f) directs the Department, when prohibiting a carrier from terminating service, “to make every effort to find another carrier” to provide basic EAS as quickly as possible.- 6

-

Request for Proposals Carriers interested in filing proposals for Alpena

-- with or without subsidy

-- should

e

- mail them to our staff at EAS@dot.gov

, no later than May 15 , 2012

. Our staff will then docket the proposals, thereby making them public, and we suggest that each applicant serve a copy of its proposal on the civic parties and other applicants. Shortly thereafter

, w e will provide a summary of the proposals to the community officials and ask them to submit their final comments about two weeks later . We will give full consideration to all proposals filed in a timely manner. 9

Interested carriers should prepare their proposals with every expect ation that their initial proposals will also be their final and only proposals. We retain the discretion to negotiate proposals with carriers when we deem it desirable. In such cases, of course, we will give all applicants the same opportunity. We also retain the discretion to reject outright all unreasonable or unrealistic proposals and solicit a new round of proposals.

We are providing interested carriers with some basic information to serve as guidance when they prepare their proposals, but we will not prescribe a precise format. We expect proposals to adequately describe the service being proposed and the annual amount of subsidy being requested. The applicants can make their own judgments as to the level of detail they wish to present; however, they might want to include proposed schedules and routings as well as supporting data for their subsidy requests, such as projected block hours, revenues and expenses. We strongly encourage clear, well

- documented proposals that will facilitate their evalu ation by the community and the Department. 10

W e request proposals for two round trips a day ( 12 per week) with 30

- seat or larger aircraft, or either two or three round trips a day (12 or 18 a week) with 19

- seat aircraft. We also encourage the community to discuss options with carriers that might not meet the technical definition of basic EAS but that may be more cost efficient and more preferable from the community’s viewpoint. 11 Finally, we take note that the community has expressed concerns about Cleve land as its hub. As a result, we encourage proposals

9 Carriers should not expect the Department to accept late filings. In cases where a carrier proposes to provide EAS without subsidy and we determine that service can be provided reliably without such compensation, we do not proceed with the carrier

- selection case. Instead, we simply rely on that carrier’s subsidy

- free service as proposed.
10 In selecting a carrier to provide subsidized EAS , 49 U.S.C. 41733(c)(1) di rects us to consider four factors. (1) service reliability; (2) contractual and marketing arrangements with a larger carrier at the hub; (3) interline arrangements with a larger carrier at the hub; and (4) community views. In addition , The Consolidated A ppropriations Act, 2008, Public Law 110

- 161, provides that when selecting a carrier to provide EAS, the Department may consider the relative subsidy requirements, thus codifying a factor that we have considered since the inception of the program. Interest ed carriers should also be aware that our general provisions governing EAS will be included in the selection Order as part of our authorization of subsidy for the selected service. Appendix C of this Order contains those general provisions.
11 Previously most EAS communities were entitled to service with 15

- seat or larger aircraft. However, in the Department’s FY 2012 appropriation (Consolidated and Further Continuing Appropriations Act, P.L. 112

- 55, November 18, 2011), Congress repealed the 15

- seat guara ntee, although communities are still entitled to service with twin

- engine aircraft.- 7

-

to other hubs, such as the community’s current hub of Detroit, as well as Chicago , or any other hub that provides access to the national air transportation system.

Carriers are also welcome to propose more than one service option, if they choose . T hey need not limit themselves to the current service pattern if they envision other, potentially more attractive service possibilities

-- different hubs or lengths of term

-- with subsidy requirements that ar e competitive.

In o rder to assist carriers in makin g their passenger and revenue forecasts, we have included historical passenger data in Appendix B. We note that Alpena is a reasonably strong traffic generator for the EAS program , averaging 3 6 enplanements a day based on six

- day per week service during the year ended October 31 , 2011, and has been growing.

New Filing Procedures Carrier proposals should be submitted to the Department with all materials merged into a single document. In additi on, because the document will be published on Regulations.gov, each page should be formatted to be viewed online.

Other Carrier Requirements The Department is responsible for implementing various Federal statutes governing lobbying activities, drug

- free w orkplaces and nondiscrimination. 12 Consequently, all carriers receiving Federal subsidy to support E AS must certify that they are in compliance with Department regulations regarding drug

- free workplaces and nondiscrimination, and those carriers whose subsidies exceed $100,000 over the life of the rate term must also certify that they are in compliance with the regulations governing lobbying activities. All carriers that plan to submit proposals involving subsidy should submit the required certifications along with their proposals. Interested carriers requiring more detailed information regarding these req uirements, as well as copies of the certifications, should contact the Office of Aviation Analysis at (202) 366

- 5903. The Department is prohibited from paying subsidy to carriers that do not submit these documents. 13

Community Comments The communit y and the State are welcome to submit comments on the proposals at any time. As noted earlier, we will provide a summary of the proposals to the civic parties and the State and ask them to submit their final comments approximately two weeks after the carrier p roposals are received

.

12 The regulations applicable to these areas are: (1) 49 CFR Part 20

– New restrictions on lobbying; (2) 49 CFR Part 21

– Nondiscrimination in federally

- assisted programs of the Department of Transportation

– Effectuation of title VI of the Civil Rights Act of 1964; 49 CFR Part 27

–
n ondiscrimination on the basis of disability in programs and activities receiving or benefiting from Federal financial assistance; and 14 CFR Part 382

– Nondiscrimination on the basis of disability in air travel; and (3) 49 CFR Part 29

– Government

- wide debarment and suspension (non

- procurement) and government

wide requirements for drug

- free workplace (grants).
13 The certifications are also available on the web at http://ostpxweb.dot.gov/aviation/index.html.- 8

-

This Order is issued under authority delegated in 49 CFR 1.56a(f).

ACCORDINGLY;

1. The Department requests proposals from carriers interested in providing Essential Air Service , with subsidy if necessary, by May 15 , 2012

. Proposa ls should be emailed to EAS@dot.gov and be entitled “Proposals to Provide Essential Air Service at Alpena, Docket 2009

- 0300. ” Service should be consistent with that discussed in the body of the Order

. Questions regarding filings may be directed to Kevin Adams at 202

- 366

- 1047 or k evin.adams@dot.gov ;

2 . Th is docket will remain open until further o rder of the Department; and

3 . The Department will serve a copy of this Order on the M ayor and A irport M anager of Alpena, Michigan, Pinnacle Airlines Corporation, Gulfstream International Airlines, Inc., Intrepid International, Delta Airlines, Inc., and the carriers in our service list.

By:

Susan Kurland Assistant Secretary for Aviation and International Affair s (SEAL)

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

Map for Alpena and Vicinity

Nonstop Great Circle Miles From Alpena (APN) CIU, Sault Ste. Marie 92 CLE, Cleveland 267 DTW, Detroit 198 GRR, Grand Rapids 181 MKE, Milwaukee 261 MKG, Muskegon 187 ORD, Chicago O’Hare 305 PLN, Pellston 69 TVC, Traverse City 102Appendix B

Historical Traffic at Alpena, Michigan (APN) T-100 Market Report

Year Month Origin Dest O&D
2009 1 515 452 967
2009 2 493 470 963
2009 3 620 549 1,169
2009 4 443 494 937
2009 5 588 564 1,152
2009 6 671 707 1,378
2009 7 830 849 1,679
2009 8 918 863 1,781
2009 9 649 597 1,246
2009 10 681 658 1,339
2009 11 588 579 1,167
2009 12 532 627 1,159
CY 2009 7,528 7,409 14,937

2010 1 591 454 1,045
2010 2 457 462 919
2010 3 704 660 1,364
2010 4 596 674 1,270
2010 5 571 586 1,157
2010 6 713 759 1,472
2010 7 925 988 1,913
2010 8 1,108 962 2,070
2010 9 736 696 1,432
2010 10 789 729 1,518
2010 11 720 676 1,396
2010 12 720 804 1,524
CY 2010 8,630 8,450 17,080

2011 1 694 591 1,285
2011 2 687 643 1,330
2011 3 1,080 953 2,033
2011 4 824 934 1,758
2011 5 991 993 1,984
2011 6 1,089 1,170 2,259
2011 7 1,315 1,281 2,596
2011 8 1,437 1,277 2,714
2011 9 1,087 968 2,055
2011 10 952 898 1,850
2011 11 1,042 1,006 2,048
2011 12 991 1,062 2,053
CY 2011 12,189 11,776 23,965Appendix C

Example of General Terms and Conditions for Essential Air Service 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 period, it may jeopardize 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 receive writt en 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 oper ated; flights that overfly points for lack of traffic will not be compensated. In determining whether subsidy payment for a deviating flight should be adjusted or disallowed, the Department will consider the extent to which the goals of the
program are me t and the extent of access to the national air transportation system provided to the communit ies

. If the Department unilaterally, either partially or completely, terminates or reduces payments for service or changes service requirements at a specific location provided for under this Order , then, at the end of the period for which the Department does ma ke payments in the stipulated amounts or at the stipulated service levels, the carrier may cease to provide service to that specific 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 payment.

Subsidy contracts are subject to, and incorporate by reference, relevant statutes and Department regulati ons, as they may be amended from time to time. However, any such statutes, regulations, or amendments thereto shall not operate to controvert the foregoing paragraph.

Funds are not currently available for performance under this solicitation beyond [DATE]

. The Department’s obligation for performance under this solicitation beyond [DATE], is contingent upon the availability of appropriated funds from which payment for services can be made. No legal liability on the part of the Government for any payment m ay arise for performance under this Order beyond [DATE], until funds are made available to the Department for performance. If funds are not made available for performance beyond [DATE], the carrier will receive notice in writing by the Department.

All cl aims for payment must be submitted within 60 days of the last day of service provided under this Order

.