Order 2011

- 11

- 27

Served: November 22 , 2011



### UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 22nd day of November , 2011

ORDER SELECTING CARRIER AND SETTING SUBSIDY RATES

Summary By this O rder, th e Department of Transportation (Department or DOT) select s Schuman Aviation Company Ltd. d/b/a Makani Kai Air Charters (Makani Kai) to provide subsidized

E ssential A ir S ervice (EAS) with nine

- seat Cessna Grand Caravans at Kalaupapa, Hawaii

, 1

for the two

- year period beginning when the carrier begins full EAS

, for a first

- year subsidy rate of $932,7 72

, and a second

- year subsidy rate of $923,509

. 2

Background Pacific Wings, LLC ( Pacific Win gs) provided subsidized EAS at the community from 2000

- 2007. Beginning on April 1, 2007, Pacific Wings provided subsidy

- free EAS at the community with a schedule generally c onsisting of at least 12 weekly nonstop round trips to

Honolulu (or Molokai) with nine

- seat Cessna Grand Caravan aircraft.

O n December 6, 2010, Pacific Wings filed a 90

- day notice of its intent to suspend its subsidy

- free service at the community , effective March 6, 2011. Consequently, the Department, by Order 2010

- 12

- 30 issued December 23, 2010, prohibited Pacific Wings from suspending service and solicited proposals from carriers to provide EAS at Kalaupapa

, with subsidy su pport if necessary

. DOT request ed that c arriers file their proposals no later than January 27, 2011. On January 25, 2011, s hortly before proposals from interested carriers were due, Pacific Wings withdrew its notice of intent to end its subsidy

- free EAS at

1 See Appendix A for a map.

2 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of funds. Essential Air Service at

KALAUPAPA, HAWAII

Under 49 U.S.C. 41731 et seq

. Docket DOT

- OST

- 2000

- 6 773- 2

-

Kalaupapa. On January 27, 2011, Makani Kai and SeaPort Airlines, Inc. submitted proposals to provide s ubsidized EAS at the community.

Shortly thereafter, we suspended the carrier

- selection case in light of Pacific Wings’ withdrawal of its notice of intent to discontinue service at Kalaupapa. A fter a review of Pacific Wings’ service at Kalaupapa and caref ul consideration of community concerns, however, we later determined that it was in the public interest to proceed with the carrier

selecti on case.

On April 7, 2011, b y Order 2011

- 4

- 7, we solicited a second round of proposals for EAS at the community. In response to that Order, we received proposals from four carriers: Above It All Inc. d/b/a Molokai Air and Iolani Air (Above It All)

, Makani Kai

, Pacific Wings

, and Sovereign Air, Inc. (Sovereign).

When Congress established the EAS program in 1978, it established certain minimum air

service standards. “Basic essential air service provided under [49 U.S.C.] section 41733 of

this title is scheduled air transportation of passengers and cargo...

. ” 49 U.S.C. § 41732 . In order to provide scheduled air transportation under the EAS program, carriers must hold (1) the necessary operating authority from the Department to conduct scheduled air transportation and (2) the necessary safety authority from DOT’s Federal Aviation Administration (FAA) consistent with the carrier’s operating authority.

The Department must ensure that EAS eligible commu nities receive their basic EAS

, and

that subsidized air service is provided when we determine that basic EAS will not be provided otherwise. 49 U.S.C. § 41733(c). Basic EAS is defined as t wo daily round trips, six days per week, with not more than one intermediate stop on each flight. It must include

“ flights at reasonable tim es considering the needs of passengers with connecting flights at the airport and at prices that are not excessive compared to the generally prevailing prices of other air carriers for like service between similar places. ” 49 U.S.C. § 41732 (b)(2).

In selecting a carrier to provide subsidi zed EAS , the Department is required 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. 49 U.S.C. § 41733(c)(1). In addition, the Consolidated Appropriations Act, 2008, Public Law 110

- 161, states that when selecting a carrier to provide EAS, the Department may consider the relative subsidy requirements of the applicants

. The absence of an appl icant’s requisite operating authorities does not automatically disqualify that carrier from consideration or ultimate selection, contingent upon its receipt of all the necessary DOT and FAA appr ovals prior to starting service, but it may put the carrier at a competitive disadvantage to an operating carrier which already has the requisite operating authorities.

Objection of Pacific Wings On April 20, 2011, Pacific Wings responded to Order 2011

- 4

- 7. 3 Pacific Wings asserts that because it is providing subs idy

- free service at the community, the Department is legally

3 Pacific Wings’ complete response is filed in the Docket. (DOT

- OST

- 2000

- 6773.)- 3

-

prohibited from paying another carrier to also provide service there. Pacific Wings further

states that the findings used by the Department to justify a solicitation of a second round of

proposa ls for EAS at the community are not supported by the facts or the law . Pacific Wings disagrees with the Department’s assertions that enplanements and flight completion percentages at the community have decreased and that residents have complained about its

service. Pacific Wings notes the Department’s reference to the “unique needs” of the community

, and states that although it is not clear what the Department means by “ unique

, ”

it believes DOT refers to the presence of Hansen’s D isease patients at Kalaupapa. The carrier notes that there has never been a complaint made that the service it offers is inadequate to transport the patients at Kalaupapa. Pacific Wings also asserts that Order

2011

- 7

- 4 was issued solely in response to ai r fares, and states that air fares have been deregulated since 1978, even at EAS communities , and therefore the Department cannot use high air fares as a justification for soliciting a carrier to provide EAS

. Pacific Wings argues that air f a r e s fo r the community’s patien t s
, as w e ll as most National Park Service (“NPS”)

a n d Hawaii Department of H e a lt h (“HDOH”) w orke r s , are p a i d fo r by either the State of

Hawaii or their e m p l o y er s , respectively, and therefore the cost of fares does not affect the

residents ’ ability to leave the island.

Pacific Wings further states that from 2007 through 2010, it has completed more than 1,800 flights over the EAS minimum requirement. The carrier explains that it has c o n sisten tl y operated t wice da i ly round t r ips between the community an d Hono l ul u, w i t h an in t erm e dia t e stop in Molok ai

, an d d ai l y ro und tr ip s e r vi c e bet w een the community a nd K ahu l ui, with an intermediate stop in Molok ai (or “topside”). Finally, Pacific Wings states that this s che d ule

is w ell in e x cess of th e E AS s tatutory minimum requiremen t of 12 r ound t r ips per week, and

that the co mm u n ity not onl y recei ves 14 weekly round trip flights to Honolulu

, but also

receives round t r ip service to Kahului, for a total of 2 1 round t rips per week, which is 75%

more sched u led serv i ce than the s t atu to ry EAS requiremen t

.

Decision on Pacific Wings ’ Objection Kalaupapa is one of the most isolated communit ies in the EAS program. The community can only be accessed by airplane or walking a two and a half mile trail with 26 switchbacks up and down a 1,600 foot cliff. The community is a former Hansen’s D isease settlement located on a peninsula on the Island of Molokai

, and is serviced by an annual barge that brings in a year’s worth of bulk supplies and equipment . The Kalaupapa patient population ranges in age from 69 to 87, and most of the residents are not able to use the trail. The Department originally recognized the u nique nature of Kalaupapa and the needs of its residents in 1991, when it granted the community/State’s petition to be designated as a point eligible to receive small community air service under 49 U.S.C. Section 41736(a). 4 In the

“Wendell H. For d Aviati on and Reform Act of the 21 st Century” (“AIR

- 21”), 5 Congress amended the definition of an “eligible place” for EAS to include those communities designated by the Secretary to receive sma ll community air service under S ection 41736(a), after October 1, 1988 and before the date of enactment of AIR

- 21, making Kalaupapa eligible for subsidized EAS.

4 See DOT Orders 91

- 4

- 6 and 2000

- 2

- 24.

5 See Public Law 106

- 181.- 4

-

Pacific Wings contends that because it schedules 21 round trips a week at Kalaupapa, the community is receiving more than basic EAS ( i.e., more than two round tri ps per day, six days a week). Pacific Wings’ argument, however, ignores the fact that basic EAS encompasses more than service level. For example, basic EAS also requires fares that are

not excessive and flights at reasonable times

. 49 U.S.C. § 41732 (b )(2). As explained below, Pacific Wings’ air fares are “excessive” as evidenced by a significant drop in enplanements, community comments, and a comparison of Pacific Wings’ fares at Kalaupapa to fares at locations in Hawaii with simila r passenger levels

.

As previously discussed, we reviewed Pacific Wings ’ monthly data, which is submitted to the Department ’ s Bureau of Transportation Statistics (BTS). From 2007

- 2010, the carrier’s enplanements at the community have declined each year, from 3,206, to 3,135

, to 2,035, to 895, respectively. This is a significant decrease in the number of enplanements in the immediately preceding years, as evidenced in the following table :

Historical Enplanements Kalaupapa, Hawaii

Year Ended Annual Enplanements Percentage of Yearly Decrease
in Annual Enplanements Percentage of

Decrease in

Annual Enplanements

Since 2007

31

- Dec

- 2007 3,206

31

- Dec

- 2008 3,135 2% 2%

31

- Dec

- 2009 2,035 35% 37%

31

- Dec

- 2010 895 56% 72%
Source: Bureau of Transportation Statistics (BTS), T

- 100 Market Data.

Pacific Wings states that it “believes” that there are now “few patients” who can travel by air at Kalaupapa, and that this accounts for the decrease in enplanements. However, the community, the State of Hawaii Department of Transportation (“HDOT”), HDOH, and NPS

all claim that it is the excessive fares charged by Pacific Wings that have reduced demand, making the flights unaffordable

-- and not just for patients, but also for friends and family members, community residents

, and employees at Kalaupapa National Historic Park.

The Department compared the fares Pacific Wings charges for flights to/from Kalaupapa to

those in other Hawaii markets with relatively short stage lengths and modest traffic levels

. Pacific Wings’ ave rage fare for one

- way travel from Kalaupapa to Hoolehua/ Molokai , a nine mile flight, is $244 , with an average yield of $27.11 per passenger mile

. T he average

fare for one

- way travel on Pacific Wings from Kalaupapa to Honolulu/Oah u , a 64 mile flight, is $2 48

, with an average yield of $3.8 8

.- 5

-

Year From To
Miles Fare Yield (per

passenger mile) City State City State

2011 Kalaupapa HI Hoolehua /Molokai HI 9 $244 $27.11

2011 Kalaupapa HI Honolulu HI 64 $248 $3.88

Source: Fares above obtained from Pacific Wings’ website on September 12, 2011, for one

- way travel on October 17, 2011.

By comparison, a non

- Pacific Wings flight from Honolulu/Oahu to Lanai City, a 73 mile flight, has an average fare of $76, with an average yield of $1.04. A non

- Pacific Wings flight from Honolulu to Kapalua/Maui , a n 84 mile flight, has an average fare of $ 8 9

, with an

avera ge yield of $ 1

. 05 . A non

- Pacific Wings flight from Honolulu/Oahu to
Hoolehua/Molokai , a 5 4 mile flight, has an average fare of $ 7 0, with an average yield of $1. 29 . A non

- Pacific Wings flight from Kona to Hoolehua/ Molokai , a 119 mile flight, has an average fare of $101, with an average yield of $.85. Thus, Pacific Wings’ yields from Kalaupapa are significantly higher than the yields in comparable markets. 6

Following HDOH’s submiss ion of comments on this matter, and particularly to better assess its complaints about Pacific Wings’ increased fares, we obt ained from HDOH historical data

6 Attached as Appendix E is a chart depicting DOT Origin Destin ation Survey Data (DB1B) on 2010 fares for

non

- subsidized flights within the State of Hawaii. The four examples included in the chart above (within the text of this Order) represent routes of r elatively short stage lengths and modest traffic levels at the communities involved, as a comparison against service at Kalaupapa. However, t he average yields generated by Pacific Wings’ flights at Kalaupapa exceed the average yields generated by all of t he Hawaii flights reported. (See Appendix E.) Year Carrier Departure City State Arrival City State Miles N umbe r of Passengers Avg. Fare Avg. Yield (per

passenger mile)

2010 Multiple
Carriers

(not

Pacific Wings) Honolulu/
Oahu HI Lanai City HI 73 520 $76 $1.04

2010 Multiple
Carriers

(not

Pacific Wings) Honolulu/
Oahu HI Kapalua/

Maui HI 84 490 $ 89 $ 1.05

2010 Multiple
Carriers

(not

Pacific Wings) Honolulu/
Oahu HI Hoolehua/

Molokai HI 54 170 $70 $1.29

2010 Multiple
Carriers

(not
Pacific Wings) Kona HI Hoolehua/

Molokai HI 119 40 $101 $0.85

Source: These are averages of fares obtained from DOT Origin Destination Survey Data (DB1B) for 2010.- 6

-

on the fares it has paid for flights to/from Kalaupapa for resident s ’ medical trips

. 7 In 2007, fares paid on round trip flights from Kalaupapa to Honolulu ranged from $74.81 to $225. In 2008, fares on the same flights rang ed from $94.80 to $245.50. In 2009, fares ranged from $146.20 to $288.15. Finally in 2010, fares ranged from $222.15 to $503.55. This steady rise in fares, and significant jump in 2010, was accompanied by a significant drop in traffic, particularly in 2 009 and 2010. As stated above, annual enplanements for Kaluapapa began to decrease in 2009 and plummeted in 2010. As Pacific Wings’ fares have increased, the number of enplanements has decreased. 8

We find no merit in Pacific Wings’ argument that the high fares it charges for Kalaupapa service do not matter because the State of Hawaii pays for patients’ air fares. In its response, Pacific Wings’ states that, “If the Department believes these patient s are in need of subsidized air service to be able to afford to travel, the Department should know that the

air fare for Kalaupapa patients as well as most workers (National Park and Health workers) is paid for by the State of Hawaii or their respective em ployer.” 9 Neither the State nor its residents should have to pay excess ive fares for EAS at Kalaupapa. Moreover, Pacific Wings ’ argument fails to note that the State of Hawaii only pays for travel for residents’ medical care, and that travel for resident s’ personal business, and the travel of their family,

friends

, and visitors who come to Kalaupapa

, are paid by the individual s

. HDOH also states that it has sustained budget restrictions as a result of lower S tate revenues

, and i ncreases in

travel costs r esult in a negative impact upon service delivery. Furthermore, HDOH notes

that high air fare s great ly inconvenience residents at the community

, as they extend their stays in Honolulu to consolidate medical visits to save on tr avel costs. HDOH notes that there was a substantial decrease in medical travel, from 107 round trips in 2009, to 71 in

2010

- 11. Pacific Wings’ fares are, therefore, critically important to Kalaupapa residents and

non

- residents. If fares are too high for the resident s to afford, the residents a re e ffectively

stranded. 10

7 This information is included as Appendix F.

8 This decrease in demand has also resulted in an increase in the cancellation of flights. Pacific Wings’ argument that it completes the vast majority of its flights for which a ticket has been purchased ignores that its completion percentages for schedule d flights at Kalaupapa (including flights for which no ticket was sold) were low in 2007, increased for two years, but then went down again in 2010

– from 77.7 percent, to 95.2 percent, to 96.1 percent, and then back down to 81.1 percent, respectively. Gi ven the steadily decreasing number of enplanements in each of the past four years, and the dramatic drop in the past year, it is not surprising that Pacific Wings is canceling a considerable percentage of its scheduled flights for lack of demand. Contrary to Pacific Wings’ submission, we are not announcing a “new policy to insist that a non

subsidized EAS carrier operate a flight with no passengers.” We are, however, noting the lack of demand for Pacific Wings’ service, which users have stated is due to i ts excessive fares.

9 See letter from Counsel for Pacific Wings, Gregory S. Walden, to Assistant Secretary for Aviation and International Affairs, Susan L. Kurland, dated April 20, 2011. Docket DOT

- OST

- 2000

- 6773.

10 We also find no merit in Pacific Win gs’ contention that the Airline Deregulation Act prohibits DOT’s implementation of 49 U.S.C. Section 41732(b)(2). By this Order, DOT is not regulating the fares of an air carrier. Rather, we are implementing Congress’ mandate that an EAS community receiv e basic EAS, as

defined in the EAS statute.- 7

-

As for the e ffect high air fares have had on non

- residents, NPS notes that it is having a hard time recruiting and keeping workers at Kalaupapa due to high fares. NPS further states that the high ai r fare s isolate their employees from family and friends

, and that due to this fact

, they have lost several e mployees . Finally, NPS states that Pacific Wings’ prices are keeping people from visiting the park, and that in the last two year s almost no NPS visitors flew on Pacific Wings to access the park. 11

Under the circumstances , we are exercis ing our statutory authority to review the adequacy of Kalaupapa’s EAS. We find that the fares are excessive when compared to the generally prevaili ng prices of other air carriers for like service between similar places

. T he excessive fares are contributing to a significant decrease in enplanements (and an increase in cancell ed flights, similarly due to lack of demand). Consequently, Pacific Wings is not providing the community of Kalaupapa with its basic EAS, as defined in 49 U.S.C. Section 41731 et seq.

, and we reaffirm our decision to solicit proposals from air carriers to provide basic EAS to the community. We further note that th e lack of basic EAS has caused significant problems to this unique community, given its extreme isolation , the lack of other forms of transportation, and the needs of its residents

.

Proposals The proposals and entire public docket , including community com ments, regarding EAS at Kalaupapa may be accessed online via the Federal Docket Management System at http://www.regulations.gov

, through a search on Docket Number DOT

- OST

- 2000

- 6773.

W e have summarized each carrier’s proposal below.

Above It All Above It All submitted a proposal to p rovide two nonstop round trips per day, six days a week, between Kalaupapa and Honolulu

, and two nonstop round trips a day between Kalaupapa and Molokai, for an annual subsidy rate of $686,400. Above It All would provide service utilizing nine

- seat Piper Chieftains and provide back

- up service utilizing eight seat Gippsland Airvans. The carr ier does not currently have the requisite operating

authori ties from either DOT or FAA to provide scheduled air service, although it states that it is in the process of submitting applications.

Makani Kai Makani Kai proposes to provide two daily nonstop r ound trips between Kalaupapa and

Honolulu

, and three daily nonstop round trips between Kalaupapa and Molokai, utilizing

nine

- seat Cessna Grand Caravans, for a first

- year subsidy rate of $932,7 72 , and a second

year subsidy rate of $9 23 ,509. On August 6, 20 10, b y Order 2010

- 8

- 1, DOT found the carrier fit to provide scheduled passenger service operating as a commuter air carrier. After receiving a copy of the Air Carrier Certificate and Operations Specifications, among other necessary items, on August 26

, 201 1, DOT made the carrier’s commuter authority effective (s ee Order 2011

- 9

- 1 ).

11 See letter from Superintendent Stephen Prokop, Kalauapapa National Historical Park, to Dennis DeVany, Chief of the EAS Division. June 14, 2011. Docket DOT

- OST

- 2000

- 6773.- 8

-

Pacific Wings Pacific Wings would continue to serve Kalaupapa on a subsidy

- free basis with nine

- seat Cessna Grand Caravans and pr ovide at least two round trips per day, six days a week. As more fully described above, t he carrier currently provides two daily nonstop round trips (14 a week) to Honolulu and one daily nonstop round trip ( seven a week) to Molokai

.

Sovereign Sovereign’s proposal consists of two options, both w ith a Kalaupapa

- Molokai

- Honolulu routing and utilizing seven

- seat Cessna 414 aircraft. The first option consists of 22 round trips a week for an annual subsidy rate of $618,831. The second option consists of two round trips a day Monday

- Saturday (12 roun d trips a week with no Sunday service) for an annual subsidy rate of $452,886. The carrier notes that two round trips on Sundays can be added to Option #2 for an additional $124,566 in annual subsidy (or for $577,452 in total annual subsidy). By Order 2011

- 2

- 3, dated February 3, 2011, the Department dismissed Sovereign’s application for Commuter Air Carrier Authorization . Therefore, the carrier

does not have the requisite operating authorities to provide scheduled air service from either

DOT or FAA , an d given DOT’s recent dismissal of its application, it does not have the prospect of receiving such authorities soon.

Community Comments On May 20, 2011, we sent e

- mails to key community stakeholders requesting their comments on the proposals. In response to our request , we received comments from NPS,

HDOT’s Airports Division, HDOH, and several residents.

NPS described Kalaupapa’s geography, isolation

, and de mographics (including Hansen’s

D isease patients), and the important role air service plays for the Kalaupapa National

Historical Park. NPS highlights the importance of access to low air fares and details the impact that high air fares have had on visitation trends, Hansen’s D isease patients and their families, and its own employment recruitment effort s. According to NPS, it receives numerous complaints from disgruntle d citizens wishing to visit Kalaupa pa National

Historical Park who cannot afford the cost of transportation. As stated above, b ecause of high air fare s
, NPS states that the number of vis itors in the last two years who flew on Pacific Wings to access Kala upapa National Historical Park was almost zero. As a result, NPS encourages the Department to select an air carrier that provides affordable fares, regular service to Molokai

, and a sched ule that provides for morning departures and late

afternoon arrivals.

HDOH also details the community’s remote and rural location and patient population. HDOH clarifies that it pays patients’ medical air travel costs only and not personal air travel

cost s, and states that high fares have reduced both medical travel and personal travel to and from the community. HDOH lists a carrier’s safety record, financial stability, aircraft type ( the capacity to accommodate nine passengers), reliability, on

- time perf ormance, and ability to accommodate wheel chair restricted passengers as important considerations, along with a schedule that would accommodate an early morning departure and late afternoon arrival.

Similar to NPS and HDOH, HDOT highlights the community’s unique characteristics and needs. It states that EAS must include: reasonable fares, frequency of flights/available seats, and the ability to accommodate mobility impaired passengers.- 9

-

Letters from individual residents raise issues similar to those raise d by NPS, HDOT

, and HDOH, including the need for lower fares.

Selection Decision
Based on the discussion above, and a fter careful consideration of this matter, including the

comments of local official s, the Department has decided to select Makani Kai to provide

EAS at Kalaupapa. Makani Kai will provide two daily nonstop round trips between Kalaupapa and Honolulu and three daily nonstop round trips between Kalaupapa and

Molokai

, utilizing nine

- seat Cessna Grand Caravans, for a first

- year subsidy rate of $932,7 72 , and a second

- year subsidy rate of $9 23 ,509.

Neither Above It All nor Sovereign currently has the requisit e operating authorities to

conduct scheduled air service

. In addition, neither Above It All n or Sovereign has an application pending before DOT or FAA to obtain the requisite operating authorities

. As noted above, this puts their proposals at a competitive disadvantage because EAS must be

scheduled air service

.

As summarized abov e, we find that Pacific Wings is not meeting Kalaupapa’s basic EAS requirements

. Moreover, i n selecting an applicant, the Department is required to consider, among other factors, “the preferences of the actual and potential users of air tran sportation at the eligible place, giving substantial weight to the views of the elected officials representing

the users.” 49 U.S.C. § 41733(d). As explained above, the comments received by the Department indicate that the continuation of Kalaupapa’s cur rent service is not supported by local officials, residents, and other actual or potential users of EAS at the community.

As for Makani Kai

, it is an applicant with the requisite operating authorities from DOT and
FAA, whose proposal meets the EAS needs and preferences of the community and State.

We select Makani Kai and encourage Makani Kai to fulfill its commitment to have its flights available for sale in a wide range of distribution channels as soon as possible.

We shall make this selection at the community contingent upon the Department’s receipt of properly executed certifications from Makani Kai that it is in compliance with the Department’s regulations regarding drug

- free workplaces and nondiscrimination, as well as the regulations governing lob bying activities.

Carrier Fitness

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

. Makani Kai recently made its commuter authority effective and will be subject to the Department’s continuing fitness requirements, and no information has come to our attention that would cause us to question the carrier ’ s fitness to provide EAS in this ma rket at this time. We ther efore

conclude that the carrier is reliable and fit to conduc t the operations proposed here.

Authority

T his O rder is issued under authority delegated in 49 CFR Section 1.56a (f).- 10

-

ACCORDINGLY,

1. We reject Pacific Wings’ obj ection to Order 2011

- 4

- 7 , Order Requesting Proposals, and

reaffirm our determination to proceed with the carrier selection process ;

2 . We select Schuman Aviation Company Ltd. d/b/a Makani Kai Air Charters to provide

E ssential A ir S ervice at Kalaupapa, Hawaii

, and establish the subsidy rates

, as described in Appendix C , for 24 m onths after full EAS commences ;

3 . The Department directs Schuman Aviation Company Ltd. d/b/a Makani Kai Air Charters 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 from when EA S begins 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 carrier may forfeit its compensation for any claim that is not sup ported und er the terms of this O rder;

4 . We find Schuman Aviation Company Ltd. d/b/a Makani Kai Air Charters

, to be fit, willing

, and able to operate as a commuter air carrier and capable of providing reliable

essential air service at Kalaupapa

, Hawaii ; and

5

. Th is Docket will remain open until furt her order of the Department.

By:

SUSAN L. KURLAND Assistant Secretary for

Aviation and International Affairs

(SEAL)

An electronic version of this document is available i n the Federal Docket Management System (FDMS) at http://www.regulations.govAppendix A



# AREA MAPAppendix B

Schuman Aviation Company Ltd. , d/b/a Makani Kai Air Charters
Provision of Essential Air Service at Kalaupapa

, Hawaii Calculation of Compensation Requirement

Estimated passengers 1st year: 2496 Departures: 2616 Flight Hours: 936

Estimated Annual Revenue:

HNL

– LUP

- HNL $234,000.00 $125.00*per passenger one way

LUP

– MKK

– LUP $121,680.00 $65.00* per passenger one way * plus FET Tax and Segment Fees. Prices set for two years * 50% discount for Kaluapapa residents. $62.50 & $32.50

Total Revenue: $355,680.00

Estimated Expenses:

Airc raft: $180,000.00

– Aircraft Lease
Insurance: $96,000.00

- 50 Million Dollar Liability Coverage
Pilots: $162,240.00

Fuel: $228,150.00

Maintenance: $117,000.00

– Parts and labor Engine & Prop Reserve: $97,500.00

– Set aside for engine and propeller overhauls State Landing Fees: $15,974.40

Administration: $85,000.00
Total Expenses: $981,864.40

Operational Loss: $(626,184.40)

Subsidy requested 1 st year $932,771.18 Subsidy requested 2 nd year $923,508.92Appendix C

Schuman Aviation Company Ltd. , d/b/a Makani Kai Air Charters
Provision of Essential Air Service at Kalaupapa, Hawaii Summary of Service To Be Provided

Effective Period : Beginning with the start of full EAS through the end of the 24 th month

thereafter.

Scheduled Service : 12 round trips a week to Honolulu; and 18 round trips a week to Molokai. Aircraft type: Cessna Grand Caravan (nine

- seat) Intermediate stops and upline service : No service to any intermediate or upline points are contemplated under the terms of the carrier’s proposal; accordingly, no such service may be provided on subsidized flights without prior Department approval. Timing of flights: Flights must be well

- timed and well

- spaced in order to ensure full compensation. Annual compensation: 1 st year: $ 932,772

2 nd year: $923,509

The s e rate s assume an annual completion factor of 9 5 percent. A compensation ceiling is to be applied per calendar week such that service above that ceiling in one week cannot ma ke up for service

shortfalls in another week. Subsidy Rate per Flight : 1 st year: $ 301 1

2 nd year: $298 2 Weekly Compensation Ceiling: 1 st year: $ 18,060 3

2 nd year: $17,880 4

1 Annual subsidy of $932,772 divided by 3,099 annual departures: 5 arrivals and 5 departures each week day and each weekend (60 flights/week) x 313 days x .9 9 (completion factor) = 3,099.

2 Annual subsidy of $923,509 divided by 3.099 annual departures: 5 a rrivals and 5 departures each weekday and each weekend (60 flights/week) x 313 days x .99 (completion factor) = 3,099.

3 60 flights per week multiplied by $301 per flight.

4 60 flights per week multiplied by $298 per flight.Appendix D

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. T he 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 ques tion. 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 tr affic 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 t ransportation 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 e nd 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 carrier do not constitute a total or partial reduction or cessation of payment.

Subsidy contracts are subject to, and incorporate by ref erence, 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 are not currently available for performance under this order beyond September 20 , 201 2

. The Department’s obligation for performance unde r this order beyond September 20 , 201 2 , is subject to the availability of appropriated funds from which payment f or 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 20 , 201 2 , until funds are made available to the Department for performance. If funds are not made availa ble for performance beyond September 20 , 201 2

, the Department will provide notice in writing to the carrier.

All claims for payment must be submitted within 60 days of the last day of se rvice provided

under this order.Appendix E

DOT Origin Destination Survey Data (DB1B) on 2010 Fares for Non

- Subsidized Flights within Hawaii

CO

– Continental HA

– Hawaiian YV

– Mesa WP

– Island Air Pacific LW

– Wings NW

- Delta Year Ticketing
Carrier Operating
Carrier Departure City State Arrival City State Miles Number of Passengers Avg.

Fare Avg. Yield (per

passenger mile)

2010 CO HA Hilo Hawaii Honolulu/Oahu Hawaii 216 10 $96.42 $0.45

2010 HA HA Hilo Hawaii Honolulu/Oahu Hawaii 216 775350 $86.97 $0.40

2010 YV YV Hilo Hawaii Honolulu/Oahu Hawaii 216 84130 $77.50 $0.36

2010 HA HA Hilo Hawaii Kahului/Maui Hawaii 121 38410 $94.02 $0.78

2010 YV YV Hilo Hawaii Kahului/Maui Hawaii 121 320 $114.68 $0.95

2010 YV YV Hilo Hawaii Lihue, Kauai Hawaii 318 320 $163.07 $0.51

2010 HA HA Honolulu/Oahu Hawaii Hoolehua Hawaii 54 20 $84.95 $1.57

2010 HA WP Honolulu/Oahu Hawaii Hoolehua Hawaii 54 80 $80.98 $1.50

2010 WP WP Honolulu/Oahu Hawaii Hoolehua Hawaii 54 30 $71.02 $1.32

2010 YV WP Honolulu/Oahu Hawaii Hoolehua Hawaii 54 30 $58.91 $1.09

2010 YV YV Honolulu/Oahu Hawaii Hoolehua Hawaii 54 10 $52.25 $0.97

2010 HA HA Honolulu/Oahu Hawaii Kahului/Maui Hawaii 100 1132680 $79.20 $0.79

2010 WP WP Honolulu/Oahu Hawaii Kahului/Maui Hawaii 100 740 $79.85 $0.80

2010 YV YV Honolulu/Oahu Hawaii Kahului/Maui Hawaii 100 80010 $74.01 $0.74

2010 HA HA Honolulu/Oahu Hawaii Kapalua/Maui Hawaii 84 10 $92.39 $1.10

2010 HA WP Honolulu/Oahu Hawaii Kapalua/Maui Hawaii 84 350 $100.09 $1.19

2010 WP WP Honolulu/Oahu Hawaii Kapalua/Maui Hawaii 84 130 $73.07 $0.87

2010 HA HA Honolulu/Oahu Hawaii Kona Hawaii 163 712370 $88.89 $0.55

2010 NW HA Honolulu/Oahu Hawaii Kona Hawaii 163 20 $75.34 $0.46

2010 WP WP Honolulu/Oahu Hawaii Kona Hawaii 163 40 $113.21 $0.69

2010 YV YV Honolulu/Oahu Hawaii Kona Hawaii 163 62740 $82.60 $0.51

2010 HA HA Honolulu/Oahu Hawaii Lanai City Hawaii 73 20 $87.23 $1.19

2010 HA WP Honolulu/Oahu Hawaii Lanai City Hawaii 73 290 $83.69 $1.15

2010 WP WP Honolulu/Oahu Hawaii Lanai City Hawaii 73 200 $68.33 $0.94

2010 YV YV Honolulu/Oahu Hawaii Lanai City Hawaii 73 10 $64.80 $0.89

2010 HA HA Honolulu/Oahu Hawaii Lihue, Kauai Hawaii 102 743590 $80.26 $0.79

2010 WP WP Honolulu/Oahu Hawaii Lihue, Kauai Hawaii 102 1140 $80.34 $0.79

2010 YV YV Honolulu/Oahu Hawaii Lihue, Kauai Hawaii 102 57640 $75.91 $0.74

2010 HA HA Kahului/Maui Hawaii Kona Hawaii 84 62750 $99.02 $1.18

2010 NW HA Kahului/Maui Hawaii Kona Hawaii 84 100 $58.30 $0.69

2010 WP WP Kahului/Maui Hawaii Kona Hawaii 84 40 $103.00 $1.23

2010 YV YV Kahului/Maui Hawaii Kona Hawaii 84 10980 $100.56 $1.20

2010 HA HA Kahului/Maui Hawaii Lihue, Kauai Hawaii 202 23400 $110.72 $0.55

2010 WP WP Kahului/Maui Hawaii Lihue, Kauai Hawaii 202 1410 $122.43 $0.61

2010 YV YV Kahului/Maui Hawaii Lihue, Kauai Hawaii 202 2910 $108.18 $0.54

2010 YV YV Kona Hawaii Hoolehua Hawaii 119 40 $101.25 $0.85

2010 WP WP Kona Hawaii Lihue, Kauai Hawaii 263 140 $125.29 $0.48

2010 YV YV Kona Hawaii Lihue, Kauai Hawaii 263 1800 $133.06 $0.51Appendix F

Pacific Wings Airline Fees Paid by HDOH to Medical Patients

2006 2006 2007 2007 2008 2008 2009 2009 2010 2010

R/T

Honolulu

to
Kalaupapa R/T Kalaupapa

to Molokai
("Top-side") R/T Honolulu

to Kalaupapa R/T Kalaupapa

to Molokai
("Top-side") R/T

Honolulu

to
Kalaupapa R/T

Kalaupapa

to Molokai
("Top-side") R/T

Honolulu

to
Kalaupapa R/T

Kalaupapa

to Molokai
("Top-side") R/T

Honolulu

to
Kalaupapa R/T

Kalaupapa to

Molokai
("Top-side")

January 190.61 $94.80 $288.15 $225.06

February 197.05 $95.00 $250.00 $225.25

March 184.15 $288.55 $225.25

April 225.00 *63.00 - 126.00 $99.38 $146.20 $501.89 $492.82

May *74.81 - 184.15 $90.00 $202.20 $492.82

June *63.00 - 126.00 $110.00 $492.82 $503.56

July 74.81 *63.00 - 126.00 $500.00 $492.82

August *74.81 - 197.05 *63.00 - 74.00 $503.55 $492.82

September *71.00 - 142.00 $245.50 $288.15 $492.82

October 184.15 *77.30 - 91.73 *73.00 - 83.00 $231.50 $501.05 $487.82

November *190.51 - 197.05 *82.82 - 221.05 *71.00 - 142.00 $139.00 $497.72 $487.82

December 184.15 94.80 *83.00 - 166.00 $138.00 $497.72 $487.82

Note: R/T airfare from Kalaupapa to Top Side flew with Molokai Air Shuttle @ the rate of $39.00 for year 2006 only

Do not have figures from January - September, 2006
*Note: Pacific Wings fee varies from low - highest within the month.