Order 2012

- 6

- 20 Served: June 22, 2012



### UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION



### OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 22 nd of June, 2012

Essential Air Service at

ALPENA

, MICHIGAN

Under 49 U.S.C. 41731 et seq

. DOCKET DOT

- OST

- 20 09

- 0300

ORDER SELECTING CARRIER Summary By this O rder

, the Department is selecting SkyWest Airlines, Inc., d/b/a Delta Connection (SkyWest)

, to provide Essential Air Service (EAS) at Alpena

, Michigan , for $3,098,472
annually, 1 and will be for the two

- year period beginning when SkyWest inaugurates service at Alpena

.

Background

Order 2010

- 5

- 18, May 13, 2010, selected Mesaba Airlines, Inc., to provide Alpena with thirteen nonstop round trips per week to Detroit with 34

- seat Saab 340 aircraft for $1,532,660 annual subsidy through May 31, 2012. On July 15, 2011, Mesaba filed to suspend service at Alpena and

23 other communities. 2 Order 2011

- 9

- 5 prohibited those suspensions and requested proposals

. 3

By Order 2012

- 3

- 19, March 30, 2012, we solicited proposals at Alpena for the fourth time

. 4 In

response, w e received timely

- filed proposals from Aerodynamics Inc. (ADI) ; Multi

- Aero, Inc.,

d/b/a Air Choice One ; SkyWest ; and Sovereign Air, Inc. By letter dated May 16, 2012, we

1 Such subsidy is calcula ted and distributed on a fiscal year basis, subject to the availability of appropriated funds.

2 This Order deals with Alpena only.

3 Order 2012

- 4

- 20, April 16, 2012, set a final annual rate of $2,554,977 for Mesaba’s forced service at Alpena, from January 11, 2012, when it became eligible for a higher rate, until it is replaced by another EAS provider

. 4 S ee that Order for the background to our previous unsuccessful attempts to secure replacement service

.- 2

-

requested comments from the community by May 31, 2012

. In response, we received comments from the Mayor of Alpena and from many concerned citizens.

Summary of Proposals Aerodynamics, Inc., d/b/a ADI

ADI proposes to provide twelve one

- stop round trips per week to Chicago (MDW) over an Alpena

- Manistee

- MDW routing with 30

- seat turboprop aircraft. The carrier requests $1,202,504 subsidy the first year and $1,116,632 the second year of service

.

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

Air Choice One ’s proposal was for seven option s as follows:

SkyWest Airlines, d/b/a Delta Connection SkyWest proposes to provide a total of 12 nonstop round trips per week with 50

- seat CRJ

- 200 regional jet aircraft, with one daily round trip to Minneapolis (MSP) and one round trip each weekday to Detroit (DTW). The carrier requests $3,098,472 annual subsidy.

Sovereign Air , Inc. Sovereign proposes to provide a total of three nonstop round trips per day with 19

- seat twin

eng ine turboprop aircraft, either Beech 1900s or Jetstream 32s. Service would be to Detroit, and the carrier requests $1,497,096 annual subsidy.

Community Comments We received multiple comments from the community.

The Mayor of Alpena indicates that the entire community

“is overjoyed to have worked with SkyWest Airlines and for that carrier to decide to bid to provide Delta

- branded regional jet service at our airport. ...There is simply no comparison between [SkyWest’s] proposal; a network branded and coded regional jet operated by a large, well

- regarded regional airline to [the] major hub airports [of Minneapolis] and our traditional hub of Detroi t , and the other proposals submitted for Department consideration.”

The Alpena Airport also supports Sky West, indicating that Alpena “has invested nearly $200,000 to discover a plausible economic development project that could have a major impact on Alpena Weekly Nonstop Annual Subsidy Request
Option Round Trips Hub Aircraft Type 2-Year Selection 4-Year Selection

1 18 Chicago (ORD) Caravan, 1-Engine, Turboprop $2,288,092 $2,265,211

2 21 " Caravan, 1-Engine, Turboprop $2,600,282 $2,574,279

3 24 " Caravan, 1-Engine, Turboprop $2,791,978 $2,764,058

4 18 " Navajo, 2-Engine, Piston $2,107,332 $2,086,259

5 24 " Navajo, 2-Engine, Piston $2,708,478 $2,681,393

6 18 " Jetstream, 2-Engine Turboprop $2,957,738 $2,928,161

7 21 " Jetstream, 2-Engine Turboprop $2,951,563 $2,922,047- 3

-

and surrounding communities. This development, which is gaining momentum at a rapid pace, is very depe ndent upon easy access to the national and international air transportation system.” The Neman Family Market indicates that “Our company will do all we can to support local air service. My family has used local air service over and over again in years pa st, for both business and pleasure, and not just my personal family. ...You will hear about the big picture from many, and I agree the loss of quality air service would have a horrible impact on businesses in our rural region. But I think it is important t o acknowledge the significantly negative impact [not selecting SkyWest] would have on the quality of life for almost every area citizen and many others wanting to come to Northeast Michigan. State Senator John Moolenaar supported SkyWest, ind i cating that “Local air service that provides an effective connection to the national and international air transpor t ation system is essential to the economic wellbeing and growth of Alpena.” Mr. Matt Mitchell, an IT professional in Alpena’s health field, agrees, indi cat ing that “Any other proposals would be a huge step backwards in the progress this airport has been making. The SkyWest proposal offers a product that people will continue to use in growing numbers. The economic vitality of this region hinges on reliab le air service in and out of Alpena.

... With SkyWest, our businesses, our senior citizens, and our community in general will

have a win

- win product. SkyWest is a wise investment of Essential Air Service dollars.” Terri Rondeau, Besser Company’s Director o f Corporate Advertising asserts that air service “ that provides an effective connection to the national and international air transportation system is

critical to the economic well

- being of Alpena, Michigan, and to Besser Company. We are an

international company with customers in 120 countries and prospects for capital equipment in many, many more. Reliable air transportation is crucial to the ability of our staff to reach our

customer base and for our customer b ase to visit us. Visit i ng the manufacturin g facility before purchasing a plant costing millions of dollars is customary. The easier we can make this journey

for ou r industry members the better off we are when competing in a global marketplace.” T he Alpena Combat Readiness Training Center of the Michigan A ir N ational G uard supports SkyWest. “In order to meet mission requirements, the Alpena CRTC requires reliable and

efficient airline service that meets the demands of assigned personnel and deployed units. In order to meet required demand, the Alpena CRTC desires service by aircraft with a minimum capacity of 30 passengers.”

We also received numerous comments from other members of th e community , all supporting the selection of SkyWest.

Decision When selecting a carrier, 49 U.S.C. §41733(c)(1) directs 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 Appropriations 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.

SkyWest ha s a superb track record in providing EAS. It is proposing nonstop service into the

hub s of its code

- share partner that will provide excellent access to the national air transportation system. Furthermore, it has glowing support from the Alpena community , as well as at other

communities where they provide subsidized service.- 4

-

All of the above mandatory carrier

- selection criteria favo r the selection of SkyWest

. The community is convinced that SkyWest’s proposal is the best for its continued growth , and we do not disagree. However, we also have to take into consideration the burden imposed on taxpayers and general program and statutor y guidelines. The proposals of ADI and Sovereign Air project the largest taxpayer savings. However, we are not able to select either carrier’s proposal. ADI is

a Part 121 certificated carrier, but it does not have authority to operate scheduled passenge r
service. 5 Likewise, Sovereign Air has no FAA or DOT operating authority. Thus

, the carrier

selection decision is between Air Choice One and SkyWest.

Unlike ADI and Sovereign, Air Choice One currently possesses authority to provide the service it pro poses in its several options. We will dismiss Air Choice One’s Options 1

- 3, which contemplat e service with single

- engine Cessna Caravan aircraft. The EAS statute requires that

service must be provided with twin

- engine aircraft unless the community waives that requirement, which Alpena did not

.

Options 4 and 5 propose service with twin

- engine Piper Navajo a ircraft to Chicago (ORD). Because the Piper Navajo is a twin

- engine aircraft it meets the statutory standards of basic E AS

, and the community cannot reject th ose proposals out of hand. Compared to SkyWest’s proposal,

t here would be annual subsidy savings under Option 4 of $991,140 and $389,994 under Option 5 . However, the Piper Navajo is a relatively slow, non

- pressurized aircraft , and therefore designed to make short distance flights . T o operate that aircraft the 306 miles between Alpena and Chicago would impose a burden on the traveling public. The extremely long flight times required for passengers to sit in unpressur ized aircraft without a lavatory would be unreasonable.

The carrier itself only projects carrying no more than 8,500 passengers per year , while

passengers in excess of 23,000 are currently flying in and out of Alpena annually

.

Air Choice One’s O ptions 6 and 7 propose service with Jetstream aircraft, initially configured to 8 seats, and increased to 16 or more seats in later years if a 4

- year contract were let, based on the assumption that by that time the carrier would have gained the additional authori ty to operate

under FAA’s Part 121 regulations

. 6 Unlike the Piper Navajo

, the Jetstream aircraft is pressurized , and would provide useable service to the traveling public. However, as with its Piper Navajo proposals, the carrier projects traffic far belo w the levels Alpena is currently generating. Furthermore, the carrier’s Jetstream proposals request subsidy levels of between $2,951,563 and $2,957,738 per year that are only slightly less expensive than requested by SkyWest for regional jet service . We will therefore not select any of Air Choice One’s Jetstream proposals.

Perhaps most importantly

, none of Air Choice One’s options offer sufficient capacity to accommodate current passenger levels. For the year ended December 31, 2011, Alpena generated a total of 23,965 O&D passengers, an average of 33 enplanements a day. Air Choice One proposes using 8 or 9

- seat aircraft , and its Option 3 proposes 22,015 seats, the most capacity

5 See Order 2003

- 9

- 29.

6 FAA rules require that any aircraft configured for 10 or more seats be operate d under Part 121

. The carrier currently provides scheduled passenger service under Part 135.- 5

-

o f any of its option s

. 7 We are reluctant to select a service proposal that offer s fewer seats than current passenger levels

. We fully acknowledge that Air Choice One provides reliable service

where we have selected them to provide EAS , as demonstrated by the increasing traffic at those

communities and the favorable reports we have received from th em . Nevertheless, o n all of the statutory carrier

- selection criteria specified above, SkyWest has a decided advantage. Moreover, SkyWest is one of the longest

- serving carriers providing EAS

. Based on comments from other

EAS communit ies it serves, i t s performance and reliability are exemplary.

We are, nonetheless, concerned with the level of subsidy SkyWest requires

. We expect the community to work vigorously with SkyWest to increase passenger levels and, thus, reduce subsidy levels in the next two years. Otherwise, we will explore less expensive service options

at the end of this contract

.

Carrier Transition We expect Mesaba /Pinnacle and SkyWest to work together to make a smooth transition at th is community . In that regard, before Mesaba/Pinnacle suspends its service we expect it to notify any passengers holding reservations for travel after the suspension date, to assist th ose passengers in making alternate air transportation arrangements, or to provide a refund of the ticket price, without

pena lty, if requested.

Carrier Fitness

49 U.S.C. 41737(b) and 41738 require that the Department find an air carrier fit, willing, and able to provide reliable service before Department may subsidize it to provide EAS

. SkyWest Airlines, Inc., is 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 at this time

. T he Department contacted the Federal Aviation Administration, and it has raised no concerns that would negatively affect our fitness finding s

. The Department therefore concludes that the carrier

remain s fit to conduct the operations proposed here.

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

ACCORDINGLY,

1. We select SkyWest Airlines, Inc., to provide Essential Air Service at Alpena

, Michigan ;

2 . We set the final rate of compensation for SkyWest Airlines, Inc., for the provision of

Essential Air Service at Alpena

, Michigan

, as described in Appendix C ;

3. The rate above is in lieu of, and not in addition to, that set by Order 2012

- 4

- 20.

4

. We direct SkyWest Airlines, 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 representa tives of the Department. Such documentation shall be retained for seven years from the service dat e of this Order, or until

7 9 seats x 24 trips x 2 directions x 52 weeks x 98% completion.- 6

-

the Department indicates that the records may be destroyed, whichever comes first. Copies of flight logs for aircraft sold or disp osed 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 find that SkyWest Airlines, Inc., continue s to be fit, willing and able to operate as a certificated carrier and capable of providing reliable Essential Air Service at the this community ;

5. We will continue to require Mesaba/Pinnacle Airlines to provide EAS at th is community until it is replaced by SkyWest ;

6 . Th is docket will remain open until further order of the Department; and

7 . We will serve copies of this O rder on the Mayor and Airport Manager of Alpena

, Michigan

, Mesaba/Pinnacle Airlines, Delta Airlines, Inc., Aerodynamics, Inc., Sovereign Air, Inc., Multi

Aero Inc., d/b/a Air Choice One, and SkyWest Airlines, Inc.

By:

Susan L. Kurland Assistant Secretary for

Aviation and International Affairs (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 102 RHI, Rhinelander 290Appendix B

Essential Air Service at Alpena, Michigan,

Docket 2009-0300

Hub MSP DTW Total
Stage Length 473 198 198
Aircraft Type CRJ-200 CRJ-200 CRJ-200
Seats per Aircraft 50 50 50

Passengers 12,500 10,500 23,000

Average Fare $89.00 $82.00 $85.80

Round Trips per Week 7 5 12
Block Time (min) 94 59 NA

Block Hours 1,118 501 1,619

Passenger Revenue $1,112,500 $861,000 $1,973,500

Direct Operating Expese $2,572,785 $1,153,452 $3,726,237

Indirect Operating Expense $687,261 $416,951 $1,104,212

Total Operating Expense $3,260,046 $1,570,403 $4,830,449

Profit @ 5% $163,002 $78,520 $241,522

Total Economic Cost $3,423,048 $1,648,923 $5,071,971

Annual Subsidy $2,310,548 $787,923 $3,098,472Appendix C

SkyWest Airlines, Inc., Essential Air Service to be Provided to Alpena

, Michigan , Docket 2009

- 0300

Effective Period : Start of Service until the end of the 24 th month after SkyWest inaugurates service.

Scheduled Service : 1 2 nonstop round trips per week to Either Minnesota (MSP) or Detroit (DTW) Aircraft Type: , 50

- Seat CRJ

- 200

Annual Subsidy $3,098,472

Annual Flights 1,223 1

Subsidy per Flight $2,534 2

Weekly Ceiling $60,816 3

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 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 this rate, 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 operat ed; 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 carrier may cease to provide service to that spec ific location without regard to a ny 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 pa yment.

Subsidy co ntract 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 th e foregoing parag raph.

Funds are not currently available for performance under this order beyond September 30, 2012 . The Government’s obligation for performance under this order beyond September 30, 2012 , is subject to the availability of appropriated funds from which

pa yment 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, 2012 , until funds are made available to the Department for performance. If funds are not

made available for performance beyond September 30, 2012 , 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 service provided under this order.

1 12 trips per w eek x 2 directions x 52 weeks x 98% completion.

2 $3,098,472 ÷ 1,223 flights.

3 $2,534 per flight x 24 flights per week.