Order: 2015-3-1 Served: March 3, 2015



### UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OF FICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 3 rd day of March, 2015

Essential Air Service at

JACKSON, TENNESSEE DOT-OST-2000-7857

under 49 U.S.C. § 41731 et seq.



### ORDER SELECTING CARRIER ES TABLISHING SUBSIDY RATES

AND TEMPORARILY EXTENDING SERVICE OBLIGATION

Summary By this Order, the Department is selecti ng Multi-Aero, Inc. d/b/ a Air Choice One (Air Choice One) to provide Essential Air Servic e (EAS) at Jackson, Tennessee, for the twoyear period from June 1, 2015, through May 31, 2017. Air Choice One will provide 18 nonstop round trips per week to Lambert – St. L ouis International Airpor t (St. Louis), using

9-seat Cessna Grand Caravan aircraft , at an annual subsidy rate of $2,072,293. 1

Additionally by this Order, th e Department is extending th e service period for SeaPort Airlines, Inc. (SeaPort) to provide EAS operations at J ackson, from March 1, 2015, until

Air Choice One commences full EAS at the co mmunity, but no later than June 30, 2015. SeaPort will continue to provide Jackson with 12 nons top round trips per week to Nashville International Airport and six nonstop round tr ips per week to Memphis International Airport 2 using nine-seat Cessna Grand Caravan airc raft at an annual subsidy rate of $1,584,275. 3

1 Such subsidy is calculated and distributed on a fis cal year basis, subject to the availability of funds.

2 SeaPort currently provides six additional round trip s per week to Memphis on a subsidy-free basis.

3 Subsidy is calculated and distributed on a fiscal year basis, subject to the availability of funds.- 2 -

Background By Order 2011-12-15, issued on December 22, 2011, the Department selected SeaPort to provide subsidized EAS at Jackson with nine -seat Cessna Grand Caravan aircraft for a oneyear period through the end of the 12 th month thereafter, at an annual subsidy rate of $1,149,703. SeaPort inaugurated service at Jack son on January 22, 2012, thus making the original expiration date of service Ja nuary 31, 2013. By Order 2013-2-23, issued on February 25, 2013, the Department extended SeaPor t’s contract at Jackson for an additional year, from February 1, 2013, through Janua ry 31, 2014, at a subsidy rate of $1,115,210, as described in SeaPort’s original proposal to serve Jackson, which was submitted to the Department in October of 2011. 4 Subsequently, by Order 2014-1-23, issued on January 31, 2014, the Department extended SeaPort’s service contract through September 30, 2014, at the same subsidy rate of $1,115,210, and by Order 2014-10-2, issued on October 9, 2014, the Department fu rther extended SeaPort’ s contract through February 28, 2015.

By notice dated September 30, 2014, SeaPort requested a compensation adjustment for providing EAS at Jackson. In that notice, SeaP ort explained that the cost of providing air

service at Jackson had escalated since Se aPort’s original proposal submitted to the Department in 2011. SeaPort identified several reasons for the escalating costs at Jackson, including the absence of Tran sportation Security Administ ration (TSA), which requires SeaPort to deplane passengers at the Fixed Ba se Operator at the Nashville International Airport, resulting in increased expenses asso ciated with ground handling and shuttle bus services to transport passengers to the main concourse. SeaPort request ed an adjustment to set the annual subsidy rate at $1,687,696, and by Order 2015-1-4, issued on January 5, 2015, the Department granted SeaP ort’s request. The period of increased subsidy runs October 1, 2014, through February 28, 2015.

By Order 2014-10-21, issued on October 24, 2014, the Department requested proposals from air carriers interested in providing EAS at Jackson for a new te rm, with or without subsidy support. In response, SeaPort and Air Choice One submitted proposals for

consideration.

Those proposals, as well as the complete public file for EAS at Jackson, may be accessed online through the Federal Dockets Management System at: http://www.regulations.gov by entering “DOT-OST-2000-7857” in the “SEARC H for: Rules, Comm ents, Adjudications or Supporting Documents:” field.

Proposal of SeaPort SeaPort proposed to continue providing 12 non stop round trips per week to Nashville and 6 nonstop round trips per week to Memphis, usi ng 9-seat Cessna Grand Caravan aircraft, at an annual subsidy request of $1,584,275.

4 See Order 2013-2-23 for a full discussion. At one time, Jackson’s eligibility was uncertain because of a new statutory requirement that would have made EAS communities ineligible if they were within 90 miles of the nearest large or medium hub, which would have affected Jackson. That statute was subsequently repealed.- 3 -

Proposal of Air Choice One Air Choice One proposed to provide 18 nonstop r ound trips per week to St. Louis, using 9- seat Cessna Grand Caravan aircraft, at an annual subsidy request of $2,072,293.

Community Comments By letter dated November 25, 2014, the De partment requested community comments regarding this EAS selection case to be s ubmitted no later than Ja nuary 7, 2015. By letter dated December 22, 2014, Mr. Tim Wilson, Chairman of th e Jackson-Madison County Airport Authority, provided suppor t for Air Choice One. In th at letter, Mr. Wilson stated that the Airport Authority reached this conc lusion after performing an audit of SeaPort’s performance of providing EAS at Jackson and determined that, “over the last 12 months, SeaPort’s completion rate has been 78%.” That letter al so stated that SeaPort has experienced maintenance and reliability issu es, which resulted in cancelled flights and diminished passenger confidence. The Airport Authority takes the position that, “a change in the destination city and the air carrier will encourage passengers to use air service from McKellar-Spies Regional Airport.”

By letter dated December 22, 2014, the Honorable Jerry Gist, Mayor of the City of Jackson, provided support for the Airport Au thority’s decision to recommend Air Choice One to provide EAS at Jackson. In that le tter, Mayor Gist explained that, “business leaders, plant managers and the public citi zens have helped determine which of the two proposals would best serve the needs of the co mmunity.” Mayor Gist explained that the current hub destination to Nashville and Memphi s has been underutilized and that a change in hub destination would serve the community well.

By letter dated December 22, 2014, Mr. Kyle Spurgeon, informed the Department that “the

Executive Committee of the Board of Dir ectors of the Jackson Chamber voted unanimously on December 16, 2014, to s upport Jackson-Madiso n County Airport Authority in their choice of the proposal submitted by Air Choice One to provide Essential Air Service to Jackson, TN.” That letter further explained that after meeting with representatives of the commun ity, no one voiced support of air service continuing to Nashville and Memphis.

By letter dated December 23, 2014, the Honor able Jimmy Harris, Mayor of Madison County, provided support for Air Choice One’s pr oposal. Mayor Harris explained that the previous EAS providers have performed less th an optimally at Jackson because of service to Memphis and Nashville, as well as, “their dismal customer service and their lack of promotion in our community.” Mayor Harris further stated that, “Air Choice One will bring better service to our community.”

In addition to the above, the Department received 19 letters of support from concerned citizens. Of which, 18 supported Air Choice On e’s proposal to serve Jackson; one citizen provided support for SeaPort.- 4 -

Decision In selecting an air carrier to provide subsidized EAS not in Alaska, 49 U.S.C. § 41733(c)(1) directs the Department to consider five factors: (1) service re liability; (2) contractual and marketing arrange ments with a larger air carri er at the hub; (3) interline arrangements with a larger air carrier at th e hub (4) community views, giving substantial weight to the views of the elected officials representing the users of the service; and (5)

whether the air carrier has include d a plan in its proposal to market the service. In addition, the Consolidated Appropriations Act, 2012, Public Law 112-55, an d continued by the Consolidated and Further Continuing Appr opriations Act, 2015, Public Law No. 113-235, provides that when selecting a carrier to pr ovide EAS, the Department may consider the relative subsidy requirements, thus codifying a factor that we have considered since the inception of the program..

Both of the proposals included a marketing co mponent to promote their respective air service at the community. SeaPort has interl ine e-ticketing and baggage agreements in place with Alaska Airlines and Hawaiian Air lines; however, neither of these larger air carriers have a presence at Nashville or Memp his. The Department notes that Air Choice One’s proposal requires more subsidy than S eaPort’s proposal; however, Air Choice One is proposing service to a more distant hub, one th at is strongly supported by the community, but which increases the expenses associated wi th providing this service at Jackson. The community has expressed its displeasure with SeaPort’s service re liability, and is not supportive of the hub destinations to Nashville or Memphis. As described above in the Department’s statutory selecti on criteria, the Department is directed to give substantial weight to the views of elect ed officials. Air Choice On e received full community support and proposed to provide the community with air service to a new hub destination- St.

Louis.

Air Choice One has a proven record of provi ding reliable EAS at other markets around the country, thus satisfying the serv ice reliability criterion, and the air ca rrier’s service package will allow passengers to connect to air servi ce provided by a variety of full service, lowfare/cost, and international carriers at St. Louis.

The Department shall make this selection of Air Choice One at Jackson contingent upon receiving properly executed certif ications from the air carrier that it is in compliance with the Department’s regulations regarding dr ug-free workplaces and nondiscrimination, as well as the regulations c oncerning lobbying activities. 5

Note Regarding Eligibility In Order 2014-9-21, the Department granted Ja ckson a waiver from the 10-enplanement requirement. 6 This waiver runs through September 30, 2015, where traffic will again be measured for compliance (for Fiscal Year 2015) with the requireme nt that communities within 175 miles of the nearest large- or me dium-hub airport maintain an average of 10

5 The certifications are internet accessible at: http://www.dot.gov/policy/avia tion-policy/small-communityrural-air-service/essential-air-service

. 6 U.S.C. § 41731(a)(1)(B).- 5 -

enplanements per service day or more during the most recent fiscal year. Although the Department is selecting Air Choice One for a two-year period, Jackson must maintain an average of at least 10 enplanements per se rvice day for the peri od from October 1, 2014, through September 30, 2015. See Order 2014-9-21 for a complete discussion.

Further, Jackson is subject to the $200 per passenger statutory limit 7 because it is fewer than 210 miles from the nearest large- or medium-hub airport, Me mphis International Airport. In addition, the Department wishes to remind Air Choice One and Jackson about the recently enacted law that established a new subsidy cap of $1,000 per passenger, regardless of distance from hub airports. 8 The Department expects both the community and air carrier to work cooperatively to ensure subsidy rates remain in compliance with both the $200 and $1,000 subsidy per passenger caps to remain eligible for the EAS program. 9

Service Transition The Department expects SeaPort and Air Choice One to work together to make a smooth transition at Jackson, with SeaPort endi ng service on one day and Air Choice One inaugurating service the next day. In that re gard, before SeaPort suspends its service, it must notify any passengers holdi ng reservations for tr avel after the suspension date, assist those passengers in making alternate air trans portation arrangements, or provide a refund of the ticket price, without penalty, if requested.

The Department extends SeaPort’s servic e period from March 1, 2015, until Air Choice One commences full EAS at Jackson, but no la ter than June 30, 2015. We anticipate Air Choice One to begin service at Jackson by July 1, 2015. However, if Air Choice One begins service later than that date, SeaPor t must continue to provide service until Air Choice One begins service. Consistent with past practice, we will set this contract extension at an annual subsidy of $1,584,275, as described in SeaPort’s most recent proposal to serve Jackson, date d November 24, 2014, and further detailed in Appendix B of

this Order.

7 Congress first established the $200 ceiling under P.L. 10 1-164 for fiscal year 1990, and reestablished it in fiscal years 1994-1999. The ceiling was made permanent by P.L. 106-69, the Department of Transportation and Related Agencies Approp riations Act of 2000.

8 See 49 U.S.C. § 41731(a)(1)(C).

9 On May 1, 2014, a Notice of Proposed Enforcement Policy on the $200 per passenger subsidy cap was published in the Federal Register (Volume 79, Issue 84). After a 60-day public comment period and review, the Department issued a final no tice of enforcement policy on the $200 cap in October 2014. All communities in the 48 contiguous States within 210 mi les of the nearest large- or medium-hub airport receiving subsidized air service u nder the EAS program have until Septem ber 30, 2015, based on data from October 1, 2014, through September 30, 2015, to ensure compliance with the $200 subsidy cap or face termination of subsidy eligibility.- 6 -

Air Carrier Fitness 49 U.S.C. §§ 41737(b) and 41738 require the Departme nt to find an air carrier fit, willing, and able to provide reliable service before it can provide subsidized EAS. Air Choice One is subject to the Department’s continuing fitne ss requirements, and no information has come to the Department’s attention that would bring into question the air carrier's fitness at this time. The Department’s staff has contact ed the Federal Aviation Administration, and it has raised no concerns that would negatively affect the Department’s fitness findings. The Department therefore conclude s that Air Choice One is relia ble and remains fit to conduct the operations proposed here.

This Order is issued under authorit y delegated in 49 CFR Part 1.25a(b).

ACCORDINGLY,

1. The Department selects Multi-Aero, Inc. d/b/a Air Choice One to provide Essential Air Service at Jackson, Tennessee, at the service levels and s ubsidy rate as described in Appendix A, for the period from June 1, 2015, through May 31, 2017;

2. The Department sets an interim rate for SeaPort Airlines, Inc. to provide Essential Air Service at Jackson, Tennessee, at the service levels and s ubsidy rate as described in Appendix B, for the period from March 1, 2015, until Air Choice One commences full EAS at the community;

3. SeaPort Airlines, Inc. may suspend serv ice at Jackson, Tenness ee provided that (A) Multi-Aero, Inc. d/b/a Air Choice One is prepar ed to inaugurate full Essential Air Service the day after the final day of service provide d by SeaPort Airlines, Inc.; and (B) SeaPort Airlines, Inc. has satisfied the conditions described in the paragraph titled “Service Transition” in this Order;

4. The Department directs Multi-Aero, Inc. d/b/a Air Choice One to retain all books, records, and other source and summary docum entation 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 Departme nt. Such documentation shall be retained for seven years from the service date of this Order or until the Department indicates that the records may be destroyed, whichever comes first. Copies of flight logs for aircraft sold or disposed of must be retained. The air carri er may forfeit its compensation for any claim that is not supported under th e terms of this Order;

5. The Department finds Multi-Aero, Inc. d/b/a Air Choice One fit, willing and able to operate as a commuter air carrier, and capable of providing reliable Essential Air Service at Jackson, Tennessee;- 7 -

6. This docket will remain open pe nding further Department action; and

7. The Department will serve a copy of this Order on the Mayors of Jackson and Madison County, the Airport Manager of McKellar-Sipes Regional Airport, the Chairman of Jackson-Madison County Airport Authority, Multi-Aero, Inc. d/b/a Air Choice, and SeaPort Airlines, Inc.

By:

BRANDON M. BELFORD Deputy Assistant Secretary for

Aviation and International Affairs

(SEAL)

An electronic version of this document is available at http://www.regulations.govAppendix A Page 1 of 2 

## Air Choice One

Annual Compensation Requirements for Essent ial Air Service at Jackson, Tennessee
18 Round Trips per Week to Lambert St. Louis International Airport
98.0% Completion Factor

# Passengers: 9,100 Average Fare: $49
Departures: 1,840

Block Hours: 1,988
Revenue Passenger Miles: 2,102,100

Available Seat Miles: 3,390,267

Operation Revenues

MKL-STL Revenue 445,900 $

Other Revenues 4,459 $
Total Operating Revenues 450,359 $

Direct Operating Expenses
Flying Operations 315,744 $

Fuel and Oil 535,331 $

Maintenance 447,227 $

Aircraft Leases 425,000 $

Total Direct 1,723,302 $
Marketing 50,000 $

Indirect 629,224 $
Total Operating Expenses 2,402,526 $

Operating Loss 1,952,167 $
Profit Element (5% total Oper. Exp.) 120,126 $
Compensation Required 2,072,293 $

Compensation per Pax 228 $
Compensation per Departure 1,126 $Appendix A Page 2 of 2

Multi-Aero, Inc. d/b/a Air Choice One
Essential Air Service to be provided at Jackson, Tennessee

Effective Period: June 1, 2015, through May 31, 2017 Scheduled Service: 18 nonstop roun d trips each week to St. Louis

Aircraft: 9-Seat Cessna Caravan Rate per Eligible Flight: $1,126 1 Weekly Ceiling: $40,536 2

The air 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 ap proval. The air carrier understands that an aircraft takeoff and landing at its scheduled destination constitutes a co mpleted 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 ai r 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 air 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 air carrier to provide service on these routes. The air 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 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 make payments in the stipulated amounts or at the stipulated service levels, the air 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 air 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 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.

Funds may not be available for performance under this Order beyond February 14, 2015. The Government’s obligation for performance under this Orde r beyond February 14, 2015, is subject to the availability of 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 February 14, 2015, until funds are made available to the Department for performance. If sufficient funds are not made available for performance beyond February 14, 2015, the Department will provide notice in writing to the carrier.

All claims for payment, including any amended claims, must be submitted within 90 days of the last day of the month for which compensation is being claimed. For example, claims for service provided in July must be filed by

October 31 st ; August claims must be submitted by November 30 th , and so on.

1 Annual compensation of $2,072,293 divided by 1,840 annual departures (313 service days x 6 flights per service x 98 percent completion).

2 36 flights per week multiplied by $1,126 per flight.Appendix B Page 1 of 2Appendix B Page 2 of 2

SeaPort Airlines, Inc.
Essential Air Service to be provided at Jackson, Tennessee

Effective Period: from March 1, 2015, until Air Choice One commences full EAS at the community, but no later than June 30, 2015 1
Scheduled Service: 12 nonstop round trips each week to Nashville and 6 nonstop round trips each week to Memphis

Aircraft: 9-Seat Cessna Caravan Rate per Eligible Flight: $855 2 Weekly Ceiling: $30,780 3

The air 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 air 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 tha t has not been completed, such as certain weather cancellations, only completed flights are considered eligible for subsidy. In addition, if the air 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 air 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 air carrier to provide service on these routes. The air 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 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 make payments in the stipulated amounts or at the stipulated service levels, the air carrier may cease to provide service to that specific location without regard to any require ment 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 air 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 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.

Funds may not be available for performance under this Orde r beyond February 14, 2015. The Government’s obligation for performance under this Order beyond Fe bruary 14, 2015, is subject to the avai lability of 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 February 14, 2015, until funds are made av ailable to the Department for performance. If sufficient funds are not made available for performance beyond February 14, 2015, the Department will provide notice in writing to

the carrier.

All claims for payment, including any amended claims, must be submitted within 90 days of the last day of the month for which compensation is being claimed. For example, claims for service provided in July must be filed by October 31 st ; August claims must be submitted by November 30 th , and so on.

1 If Air Choice One will not inaugurate service by July 1, 2015, The Department requires SeaPort to continue service until Air Choice One begins full EAS. 2 Annual compensation of $1,584,275 divided by 1,853 annual de partures (36 weekly departures x 52 weeks x 99 percent completion). 3 36 flights per week multiplied by $855 per flight.