Order: 2010

- 9

- 28

Served: S eptember 28, 2010



### UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 28 th d ay of September

, 2010

Essential Air Service at

AUGUSTA/WATERVILLE, MAINE BAR HARBOR, MAINE ROCKLAND, MAINE Docket DOT

- OST

- 1997

- 2784

under 49 U.S.C. 41731 et seq.



### ORDER SELECTING CARRIER S

Summary By this order, the Department is selecting Hyannis Air Service

, Inc., operating as Cape Air (Cape Air)

, to provide essential air service (EAS) at August a /Waterville and Rockland, Maine, for the four

- year period from November 1, 2010 to October 31, 2014, for a combined annual subsidy of $2,783,161, and Colgan Air Inc., operatin g as US Airways Express (Colgan Air), to provide EAS at Bar Harbor, Maine, f or the two

- year period from

November 1, 2010 to October 31

, 201 2

, for an a nnual subsidy of $2,298,533

. 1

Background These three communities are served by two carriers under two different contracts. By

Order 2008

- 9

- 7, the Department sele cted Colgan Air to provide three round trips each weekday and four over each weekend (19 a week), over a Bar Harbor

- Augusta/Waterville

Boston or Augusta/Waterville

- Bar Harbor

- Boston routing for a combined annual subsidy rate of $4,172,501. By Order 2008

- 7

- 35, the Depart ment selected Cap e Air to provide

Rockland with three nonstop round trips per day (21 per week) from October through May, four nonstop round trips per day (28 per week) for June and September, and five nonstop

1 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of appropriated

funds.- 2

-

round trips per day (35 per week) for July and August between R ockland and Boston for an annual subsidy rate of $1,522,770.

As the end of the contract was approaching, we issued Order 2010

- 6

- 22, June 24, 2010, requesting proposals to serve the three communities for a new term. In response, we received proposals from Cape Air and Colgan Air.

Each carrier’s complete proposal and community comments may be accessed online at http://www.regulations.gov/ by entering in the search block DO T

- OST

- 1997

- 2784.

Proposal of Cape Air Cape Air proposed one service option for Augusta/Waterville and Rockland, each option

to be considered on a stand

- alone basis. Service at both communities would be to Boston Logan International Airport (Boston) using 9

- seat Cessna 402 aircraft. At Augus t a/Waterville, Cape Air proposed four daily nonstop round trips (28 a week) from June through September, and three daily nonstop round trips (21 a week) from October through May, for an annual subsidy of $1,4 02,046 for a two

- year contract, or $1,3 62,616

for a four

- year contract. Service to Rockland would be five daily nons to p round trips in July and August (35 a week), four daily nonstop round trips (28 a week) in June and September, and three daily nonstop round trips (2 1 a week) from October through M ay, for an annual subsidy of $1, 461,651 for a two

- year contract, or an annual subsidy of $1,4 20,545 for a four

- year contract.

Proposal of Colgan Air Colgan Air proposed two options, both serving Boston using 34

- seat Saab 340 aircraft and operating as US Airways Express

. Option 1 would serve both Augusta/Waterville and Bar

Harbor to Boston with three round trips each weekday and two each weekend with a mix

o f nonstops and one

- stop service over an Augusta/Waterville

- Bar Harbor

- Boston r outing,

or Bar Harbor

- Augusta/Waterville

- Boston routing for an annual subsidy of $4,439,041. Option 2 would serve Bar Harbor only, with two daily nonstop round trips (14 a week) to Boston for an annual subsidy of $2,298,533.

Community Comments On July 28 , 2010, we requested community comments regarding this carrier

- selection case. With respect to Augusta /Waterville , both the mayor and airport manager submitted letters in support of Cape Air’s proposal to the serve the communities under a four

- year contra ct, stating that the carrier’s schedule and destinations offered would accommodate the

business and leisure travelers in their market. By accepting Cape Air’s proposal they understand that they are waiving their right to 15

- seat

- or

- larger passenger aircra ft for the

duration of the four

- year selection term.

The City of Rockland and its airport, the Knox County Regional Airport, also supported Cape Air’s proposal to serve their community under a four

- year contract. They found Cape Air’s proposal to be complete and reasonable, and , as with Augusta/Waterville, they

unde rstand that they are waiving their right to 15

- seat

- or

- larger passenger aircraft for the

duration of the fou r

- year selection term.- 3

-

With respect to Bar Harbor, w e received a letter f rom the Honorable Percy L. Brown Jr.,

Chairman of the Hancock County Commissioners

, supporting Colgan Air’s Option 1 proposal. Chairman Brown stated that “Colgan Air has continued to improve its relationship with airport manageme nt, operators and the cust omers ” and has built “a reputation for excellent customer service.” Chairman Brown does s tate that Colgan Air’s Option 2

, with 14 weekly flights

, is unacceptable and

, if chosen, w ould have an adverse effect on the community’s air service. The Chairman st ate s that negotiations would be necessary to secure an acceptable flight schedule should th e Department choose Colgan

Air’s Option 2

.

Decision The decision at Rockland is clear. Cape Air is the only carrier to submit a proposal to serve the community and the four

- year option received full community support. In addition, the four

- year option affords the Department some savings. We find that the service and subsidy levels are reasonable, and will meet the community’s needs.

Because of the way the two carriers’ proposals for Augusta/Waterville and Bar Harbor are packaged

, we are faced with two options and we looked at the subs idy cost and community

comments to base our decision. Our f irst option is to select Colgan Air at bot h

communities while the second option is a split award of Cape Air to serve Augusta/Waterville and Colgan Air to serve Bar Harbor. Colgan Air’s proposal to serve Augusta/Wate r ville and Bar Harbor w ould cost $4,439,041

, but Augusta/Waterville supports Cape Air . On the other hand, a split award would give both communities their carrier of choice and save nearly $800,000 per year. Cape Air’s propo sal to serve Augusta/Waterville receive d strong community support, and that proposal, combined with Colgan Air’s Option 2 propos al to serve only Bar Harbor

, would require $3,661,149 in subsidy ($1,3 62,616 at Augusta/Waterville plus $2,298,533 at Rockland). Under this scenario, both communities receive the carrier they want

. We understand that while Bar Harbor supp orted Colgan Air (the only carrier to submit a proposal to serve that community), the community d id not support its Option 2 , which would provide Bar Harbor

with 14 nonstop round trips a week to Boston . While we place strong emphasis on the community feed back, EAS statues do not guarantee a desired level of service but rather a safety

- net level of service to connect the community to the national air transportatio n system. The maximum capacity that we underwrite in the EAS program is 67 seats a day

in each direction, and Colgan Air’s 2 round trips a day on 34

- seat Saab 340 aircraft full y meet that maximum seat guarantee

. Nevertheless, we expect Colgan Air to work with Bar Harbor community leaders to address any concerns they have regarding the airline’s schedule frequency. We therefore select Cape Air to serve Augusta/ Waterville and Colgan Air to serve Bar Harbor . Regarding Cape Air’s two

- and four

- year options at Augusta/Waterville, the community supports the four

- year option and, as with Rockland,

Ca pe Air’s four

- year option requires slightly less subsidy on an annual basis and we will, therefore, select it.

We shall make the s e selection s of Cape Air at Augusta/Wate rville and Rockland, and Colgan Air at Bar Harbor contingent upon the Department’s receiving properly executed- 4

-

certifications from the carrier s that they are in compliance with the Department’s regulations regarding drug

- free workplaces and nondiscrimination, as well as the regulations concerning lobbyin g activities.

Carrier Fitness

49 U.S.C. 41737(b) requires that we find an air carrier fit, willing, and able to provide reliable service before we may subsidize it to provide essential air service

. Cape Air and Colgan Air are subj ect to the Department’s continuing fitness requirements, and no

information has come to our attention tha t would cause us to question either carrier's fitness at this time. We have contacted the Federal Aviation Administration, and it has raised no concerns that would negativel y affect our fitness finding s . We therefore conclude that the

carrier s remain fit to conduct the operations proposed here.

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

ACCORDINGLY,

1. We select Hyannis Air Service, Inc. to provid e essential air service at Augusta/Waterville and Rockland, Maine , and establish annual subsidy rates of $1,362,616 and $1,420,545, respectively, as described in Appendix C;

2. We select Colgan Air, Inc. to provide essential air service at Bar Harbor, Maine , and establish an annual subsidy rate of $2,298,533, as described in Appendix C;

3

. We direct Hyannis Air Service, Inc. and Colgan Air Inc. 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 documentation shall be retained for seven years or until the Department indicates that the records may be des troyed, whichever comes first. Copies of flight logs for aircraft sold or disposed of must be retained. The carrier may forfeit its compensation for any claim that is not supported under the terms of this order;

4 . We f i nd that Hyannis Air Service, In c. and Colgan Air Inc

. , continue to be fit, willing and able to operate as a commuter and certificated carrier , respectively, and capable of providing reliable essential air service at Augusta/Waterville, Bar Harbor, and Rockland ;

5

. This docket will rem ain open pending further Department action ; and- 5

-

6. We will serve copies of this order on the City and Airport Manager s of Augusta/Waterville, Bar Harbor, Rockland, Hyannis Air Service, Inc. and Colgan Air Inc.

B y:

SUSAN L. KURLAND

Assistant Secretary for

Aviation and International Affairs

(SEAL)

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



## AREA MAPAppendix B Page 1 of 2Appendix B Page 2 of 2Appendix C Page 1 of 3

Hyannis Air Service, Inc.

Essential Air Service to be Provided at Augusta/Waterville, Maine

Effective Period : November 1 , 2010

, through October 31 , 2014

Scheduled Service : 28 weekly nonstop round trips between Augusta/Waterville and Boston in peak season (Memorial Day through Columbus Day) , and 21 weekly nonstop round trips in off peak

Aircraft : 9

- seat Cessna 402 aircraft Rate per Eligible Flight: $568 ; 1
Weekly Ceiling : Peak: $ 31,808; Off

- peak: $23,856 2

Note: The carrier understands that it may forfeit its compensation for any flights that it does not operate in

confor mance 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 completed, 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 written approval from the Department to be ensured of full compensation. Should circumstances warrant, the Departme nt may locate and select a replacement carrier to provide service on these routes. The carrier must complete all flights that can be safely operated; 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 met and the extent of access to the national air transportation system provided to the community.

If the Departm ent unilaterally, either partially or complete ly , 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 make 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 the carrier do not constitute a total or partial reduction or cessation of payment.

Funds are not currently available for performance under this order beyond September 30, 2010

. The Department’s obligation for performance under this order beyond September 30, 2010 , is subject to 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 September 30, 2010 , until funds are made available to the Department for performance. If funds are not made available for performance beyond September 30, 2010 , the Department will provide notice in writing to the carrier.

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 foregoing paragraph.

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

1 Upon questioning from the EAS staff regarding the duration of the peak period, Cape Air clarified that, in fact, the peak period was from Memorial Day through Columbus Day. Annual compensation of $1,362,616 divided by the estimated annual completed depart ures and arrivals: Peak: 141 days x 8 flights a day x 97 percent completion

Off

- peak: 224 days x 6 flights a day x 97 percent completion.

2 Peak 56 arrivals and departures per week multiplied by $568 per flight;

Off

- peak: 42 arrivals and departures per wee k multiplied by $568 per flightAppendix C Page 2 of 3

Colgan Air, Inc.

Essential Air Service to be Provided at Bar Harbor, Maine

Effective Period : November 1, 2010

, through October 31 , 2012

Scheduled Service : 14 weekly nonstop round trips between Bar Harbor and Boston

Aircraft : 34

- seat Saab 340 aircraft Rate per Eligible Flight: $ 1, 627 1
Weekly Ceiling : $ 4 5,580 2

Note: 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 subs idy eligibility for a flight that has not been completed, 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 written 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 operated; 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 th e 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 complete ly , 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 make payments in the stipulated amounts or at the stipulated service levels, the carrier may cease to provide se rvice 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 the

carrier do not constitute a total or partial reduction or cessation of payment.

Funds are not currently available for performance under this order beyond September 30, 2010

. The Department’s obligation for performance under this order beyond September 30, 2010 , is subject to the availabili ty of appropriated funds from which payment for services 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, 2010 , until funds are made available to the Department for performance. If funds are not made available for performance beyond September 30, 2010 , the Department will provide notice in writing to the carrier.

Subsidy contracts are subject to, and incorporate by reference, relevant statutes and Department re gulations, 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.

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

1 Annual compensation of $2,298,533 divided by 1,412 annual departures (28 weekly departures x 52 weeks x 97 percent completion).

2 28 arrivals and departures per week multiplied by $1,627 per flight

.Appendix C Page 3 of 3

Hyannis Air Service, Inc.

Essential Air Service to be Provided at Rockland, Maine

Effective Period : November 1, 2010

, through October 31, 2014

Scheduled Service : 35 weekly nonstop round trips between Rockland and Boston in July and August; 28 weekly nonstop round trips in June and September; and 21 weekly nonstop round trips from October through May

Aircraft : 9

- seat Cessna 402 aircraft Rate per Eligible Fl ight: $57 3 1
Weekly Ceiling : July

- August, $40,110; June and September, $32,088 ; October through May $ 24,0 66 2

Note: The carrier understands that it may forfeit its compensation for any flights that it does not operate in conformance with the terms and stip ulations 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 co nstitutes a completed flight; absent an explanation supporting subsidy eligibility for a flight that has not been completed, such as certain weather cancellations, only completed flights are considered eligible for subsidy. In addition, if the carrier doe s 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 written approval from the Department to be ensured of full compensation. Should circumstances warrant, the Department may locate and

select a re placement carrier to provide service on these routes. The carrier must complete all flights that can be safely operated; flights that overfly points for lack of traffic will not be compensated. In determining whether subsidy payment for a deviating fligh t 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 part ially or complete ly , 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 make 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 wri ting by the Department and the carrier do not constitute a total or partial reduction or cessation of payment.

Funds are not currently available for performance under this order beyond September 30, 2010

. The Department’s obligation for performance under this order beyond September 30, 2010 , is subject to 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 may arise for performance under this order beyond Sep tember 30, 2010 , until funds are made available to the Department for performance. If funds are not made available for performance beyond September 30, 2010 , the Department will provide notice in writing to the carrier.

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 foregoing paragraph.

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

1 Annual compensation of $1,420,545 divided by the estimated annual completed departures and arrivals: July & August (62 days x 10 flights a day x 97 percent completion) + June & September (60 days x 8 flights a day x 97 percent completion) + October through May (243 days x 6 f lights a day x 97 percent completion)

2 July

- August 70 arrivals and departures per week multiplied by $573 per flight; June and September 56 arrivals and departures per week multiplied by $573; October

- May 42 arrivals and departures multiplied by $573