BEFORE THE OFFICE OF THE SECRETARY U.S. DEPARTMENT OF TRANSPORTATION

WASHINGTON, DC

________________________________________________ ) In the matter of the ) ) Application of **HARRIS AIRCRAFT SERVICES, INC.** ) **Docket 2013 -** **0089** For Authority to Conduct Scheduled Passenger ) Operations as a Commuter Air Carrier ) Under 49 USC 41738 ) ________________________________________________)

PROTEST OF PACIFIC AIRWAYS, INC.,
AND PETITION TO DISMISS APPLICATION
FOR FAILURE TO COMPLY WITH
14 CFR 204 AND 14 CFR 302

Correspondence in reference to this document should be sent to: Hank Myers Steve Montanus MTC Pacific Airways, Inc. P.O. Box 7142 P.O. Box 5158 Bellevue, WA 98008

- 1142 Ketchikan, AK 99901

-0158 (425) 249

- 3454 (907) 225

- 3500 October 28, 2013BEFORE THE OFFICE OF THE SECRETARY U.S. DEPARTMENT OF TRANSPORTATION

WASHINGTON, DC

________________________________________________ ) In the matter of the ) ) Application of **HARRIS AIRCRAFT SERVICES, INC.** ) **Docket 2013 -** **0089** For Authority to Conduct Scheduled Passenger ) Operations as a Commuter Air Carrier ) Under 49 USC 41738 ) ________________________________________________) PROTEST OF PACIFIC AIRWAYS, INC., AND PETITION TO DISMISS APPLICATION FOR FAILURE TO COMPLY WITH 14 CFR 204 AND 14 CFR 302
Pacific Airways, Inc., a carrier certificated under 49 USC 41102 operating scheduled and

on - demand air transportation in southeaste rn Alaska including Prince of Wales Island and Baranof Island, hereby protests the application of Harris Aircraft Services, Inc. (Harris) in docket OST 2013

- 0089, and moves for dismissal of the application. To the extent Pacific Airways did not become awa re of the Harris Air application until last week, it requests that this protest be accepted although filed after the expiration of the 28 day initial comment period.

The application should be dismissed because Harris lacks the required compliance disposit ion, is not financially fit, and its applicati on is grossly deficient; not comply ing with 14 CFR 302 and 14 CFR 204.Appendix A is a detailed listing of the requirements of 14 CFR 204.3 with references to

the application of Harris. Over half of the speci fic requirements are unmet, including whole sections relating to monetary claims and operating forecasts. As will be shown below, the information that is provided appears incomplete and conflicting. The application is so deficient that a finding of fitne ss cannot be made.

HISTORY OF APPLICATION

Harris Aircraft Services filed its application for commuter authority under 49 USC 41738 on May 8, 2013. A request for addition information was sent to Harris on August 12, and a response was docketed on August 13, 2013. Typically, interested parties have a period of 28 days in which to file responses to the application. 14 CFR 302.202(b) requires, “Applications shall include a notice on the cover page stating that any person may support or oppose the applicati on by filing an answer and serving a copy of the answer on all person served with the application. The notice shall also state the due date for the answers.” Harris Air did not provide the required notice. More important, Harris did not serve a copy of its application on “The airport authority of each airport that the applicant initially proposes to serve.” It can be argued that it is not known which points will be served because Harris made n o specific service proposal in its application, but ironicall y Harris did not even serve the airport manager of its home base, Sitka, AK. Pacific Airways provides scheduled service to Craig and Klawock airport,and Harris not only publishes a schedule to Klawock, but names the point in its general

service proposal. In any case, Harris failed to meet both the letter and spirit of the service requirements by providing service only to the Juneau Airport manager. As luck would have it, the then airport manager of Juneau had retired and no new manager has been announce d. Fitness staff requested clarification of some information in a letter dated August 12. In that request, clarification was so ught about the purpose of Sitka Aircraft and Support Services, LLC, and explanation of several balance sheet issues including de bt for aircraft. In its response, Harris did not completely address the issue of startup expenses, but did answer the direct inquiries about the balance sheet items. It was in the response th at Harris revealed that Sitka Aircraft and Support Service is t he alter ego of Harris Air, and its operations and finances must be consider ed as a single unit.

FINANCIAL FITNESS

The financial forecasts included are inconsistent with Harris’ statement of proposed services. For example, Harris does not provide scheduled service to either Juneau or Petersburg, but it has obtained leases on property at each airport. This conflicts w ith the rationale for predicting revenues and costs which is based on slight expansions of existing service. Harris’ asserts “The company plans to add facilities in Hoonah, AK, Kake, AK as well as Wrangell, AK.” (top of second page of application) We have no idea when these services are proposed, or how they fit into the certification process.In any case , the financial statements or Harris fall far short of the minimum liquidity

requirements for commuter fitness. At first blush, the working capital of Harris is $530,133.84 ($694,346.93

- $ 164,213.09). A closer look, however, shows that many of the balances are not adjusted according to general accepted accounting principle s. Part of the problem is due to the use of Quickbooks, which does not automatical ly adjust accounts for offsets. For example, the Accounts Receivable amount of $ 125,244.03 does not list an offset for uncollectable debts. There is also no account aging note, as would normally be provided by an accountant. Similarly, many inventory it ems are subject to depreciation or obsolescence deductions. The vast majority of the inventory consists of aircraft parts, some of which are time limited.

On the liabilities side, Harris does not include any amount for the current portion of long
term debt. On the projected financial statements, which correspond to the balance sh eet as at March 31, 2013, four long term debts are shown , one of which is expected to be paid off before certification (Ford Motor Credit). The three remaining loans are held by Alaska Pacific Bank. The loan for the deHavilland Beaver had a balance of $194,196 on March 30, 2013, with 46 months remaining on the term. The current portion of this debt is 12/46ths of the debt, or $50,660. The second term loan, listed as “IRS Tax Audit Loan” had a balance of $250,263 with 113 monthly payments due until payoff. The current portion of this debt (12/113ths of the debt) is $26,576. On the Asset side, both the deHavilland Beaver and the Cessna 185 which is tied to the IRS Audit Loa n areshown with $0 book value. (Forecast Revenue and Income Statement, Balance Sheet)

The loan listed as a “Line of Credit To be paid off as soon as possible” has a balance of $ 35,132 (apparently taken out in the fourth quarter of 2012). Lines of credi t, by definition, are current liabilities and should be listed as such. In total, the current portion of Harris’ long term debt was $112,368 as at March 31, 2013. What started off as a working capital balance of $530,133.84 is actually $417,765.

As noted earlier, Harris does not provide any specific forecasts related to its proposed certificated service. At the same time, Harris shows that the majority of its existing operation consists of unauthorized scheduled service. When one adds service to all of the proposed points at the minimum level of three trips per week, it is safe to assume that the certificated service will be at least equal to the scope of the current total operation. According to the Income Statement for the 12 months ended December 31, 2012 (the latest 12 month period available) shows total cash expenses of $2,298,335.19. As noted above, these expenses do not include non

- cash (yet real) expenses related to write downs for uncollectable debt, inventory depreciation, and other depreci able
assets. The minimum liquid assets required for certification at the current level of service is $574,583.80 (25% of $2,298,335.19). In summary, Harris is short at least $156,819 to reach the minimum level required to be found financially fit. Even if it were to draw down all of its remaining line of credit ($80,000 total), it would be over $100,000 short of its working capital requirement.Another major concern about the financial fitness of Harris is the condition of its

commo nly owned sister company, Sitka Aircraft and Support Services. The balance sheet for Sitka Aircraft and Support Services shows that it is upside down on its aircraft loans, owing $210,335 more on its loans than the depreciated value of the aircraft. As a consequence, the company has a negative owners’ equity of $210,335. Sitka Aircraft and Support Services shows NO current assets at all, and does not list the current portion of its long term debt. Based on the 10 years remaining on the 23’ Packman and the less than nine year term on N38KC, we get current portion of debt at $5,284 (12/113ths of $49,782) for the 2 3’ Packman and $27,083 (12/97ths of 218,919) for N 38KC. This yiel ds a negative working capital of $32,367. Deducting this amount from the working capital for Harris Air gives a combined working capital of only $385,398. (source: Balance Sheet of Sitka Aircraft and Support Services, LLC as at 12/31/3013)

If we combine the share holder equity amounts for Sitka Air and Aircraft and Support Services, the total owner equity is only $34,044 . The combination is highly leveraged, and its financial statements s hown it has taken out over $490,000 in term loans in the last few months, as well as drawing on its current line of credit. The rental fees Sitka Aircraft and Support Services have charged have not even kept up with depreciation rates of the aircraft leas ed. Essentially Sitka Aircraft and Support Services has subsidized the operations of Harris by at least $210,335 over the years, and that assumes zero profits for the leasing company. The two companies are inseparable. Harris cannotoperate without airc raft from Sitka Aircraft and Support Services, and the leasing

company depends on Harris to lease its assets, albeit at unprofitable rates.

T here is concern about the future of Harris’ business with the Southeast Alaska Regional Health Cooperative. The C ooperative operates hospitals in both Juneau and Sitka. Recently the Cooperative announced it was reviewing its policies for transporting passengers to its two hospitals. Rather than contracting with carriers, as it does now, it will depend on the open m arket for transportation services. The details are unclear, and it is not known if SEARHC has implemented a new policy. What is known is that carriers such as Wings of Alaska and Alaska Seaplane Service are currently transporting SEARHC clients to the Ju neau hospital from Angoon, Tenakee, Hoonah and Kake (current Harris points) as well as from Haines, a point proposed for service by Harris. Harris’ proposed scheduled service between Sitka and Wrangell and Petersburg is not cost or service effective . The re are existing turbo

- prop medevac services based at Juneau which provide pressurized, nurse assisted service to Juneau, and Alaska Airlines provides regular, pressurized jet service for passengers who do not require a litter. Both services are less expen sive and more comfortable and effective than Harris’ unpressurized Piper Navajo. Other than vague press coverage, there is nothing substantial to challenge the assumptions of Harris, but the Department should at least inquire about the situation.

As note d, Harris has failed to comply with Department regulations asking for specific documentation of its traffic and operating forecasts. It claims that its less than dailyservice will be a substantial boost in service to those villages. Each of the villages listed

for proposed service already has multiple daily flights by one or more certificated air carriers using turboprop and multi

- engine aircraft. To the extent Harris assumes a portion of the existing traffic now being carried on other services, its forecasts are doubtful at best. Further analysis will have to wait for specific documentation from Harris.

COMPLIANCE DISPOSITION

For the second time in less than a year, an “on

- demand” air carrier in southeastern Alaska has applied to legitimize scheduled service it has operated entirely without authority for some time. Rather than admitting to past violations, Harris Air relies on its openly admitted scheduled air service to support its application, and the profits made from non

- compliant activities. It s own application shows that it did not have FAA authority to operate scheduled service until at least three months after it published printed schedules. It also appears that Harris did not collect appropriate Federal Excise Tax on its scheduled service b ecause it lists a debt of over $25 0,000 on its balance sheet as being related to an “ IRS Tax Audit Loan”.

In addition to its inability to comply with basic FAA and DOT scheduled service requirements, Harris seems unable or unwilling to comply with 14 CFR 204.3 and 14 CFR 302.202. By ignoring these regulations Harris has omitted required information that isdispositive to its applications, and it failed to provide notice as required so that

adequate public notice was provided. As was the case with Island Air Express, the lack of formal protest is not due to lack of opposition but lack of knowledge of the application.

As a technical matter, Harris proposes to transport US Mail on its services. As a commuter Air Carrier it would not be authorized to transp ort U.S. Mail unless the Postal Service determined that existing service is inadequate. In each of the markets there are already multiple daily flights by certificated carriers. Mail volume is very low in these markets, and current certificated service i s more than adequate.

Department regulations allow for the refunding of filing fees to an applica nt that withdraws prior to a decision on the application. Given the overall deficiency in the application and lack of financial fitness and compliance dispos ition, it is suggested that Harris withdraw its application until it can comply with all applicable regulations. This must include the cessation of all illegally operated scheduled service.

SUMMARY

The application of Harris Aircraft Service is deficient on its face, and does not support a finding that the carrier is fit willing and able to engage in interstate transportation of passengers, freight and mail. Harris has omitted over half of the requir ed information.What information that is provided shows that Harris is out of compliance with economic

regulations governing holding out a published schedule more than four times a week, operation of interstate transportation with out DOT authority, and ve ry probably failure to collect and remit Federal Excise Tax on the transportation of passengers and freight over a regular route. The submissions also show that the financial position of Harris is bolstered by the essentially bankrupt operations of Sitka Aircraft and Support Services. These two companies are joined at the hip, and have a combined net worth of only $34,000.

WHEREFORE, Pacific Airways, Inc. hereby protests the application of Harris Aircraft Services in this docket, and asks that the applic at ion be dismissed pursuant to §302.3(d)(2) which states “If any document initiating, or filed in, a proceeding that is not in substantial conformity with the applicable rules or regulations of the Department as to the contents thereof, or is otherwise ins ufficient, the Department, on its own initiative, or on motion of any party, may reject, strike or dismiss such document, or require its amendment.”

Respectfully submitted, Pacific Airways, Inc.

_____________________________________ By Hank Myers, its authorized representative October 28, 2013CERTIFICATE OF SERVICE

I hereby certify that I have this day served a copy of the foregoing Protest and Motion to Dismiss the Application of Harris Aircraft Services, Inc. by first class mail, upon the following persons:

_____________________ Hank Myers October 28, 2013 FAA Flight Standards District Office Suite 106 3032 Vintage Park Blvd. Juneau, AK 99801 Airport Manager Juneau International Airport Suite 200 1873 Shell Simmons Drive Juneau, AK 99801 Alaska Department of Transportation and Public Facilities P.O. Box 112506 Juneau, AK 99811

- 2506 Robert S. Harris President Harris Aircraft Services, Inc. 400 Airport Road Sitka, AK 99835Appendix A Page 1 of 1 REGULATORY REQUIREMENTS FOR COMMUTER AU THORITY

UNADDRESSED BY HARRIS AIR
The listing below includes all specific content or form requirements for an application for commuter authority. General or duplicative requirements are excluded. While the application does not conform to the specific format requirements of §302.3, this list details the substance and process requirements.
§302.202(b) Notice Requirement on Front Page Did Not Comply §302.203(b)(1)(A)(1) Requires service on all Airport Managers Did Not Comply §302.205 Requires complete economic data and other facts Did Not Comply §204.3(g)(4) Requires current/past involvement in air operationsDid Not Comply §204.3(h) Requires list of all subsidiaries and description Did Not Comply §204.3(k)(3)(i) Requires statement of GAAP compliance D id Not Comply §204.3(k)(5) Identification of person preparing statements Did Not Comply §204.3(l) List of actions and judgments more than $5,000 Did Not Comply §204.3(m) List of actions and judgments less than $5,000 Did Not Comply §204.3(t)(1) Projected B alance Sheet with assumptions Did Not Comply $204.3(t)(2) Estimated aircraft revenue block hours Did Not Comply §204.3(t)(2) Requires Revenue miles by aircraft type Did Not Comply §204.3(t)(2) Requires Number of Passengers Transported Did Not Comply §204.3(t)(2) Requires Number of Tons of Cargo and Mail Did Not Comply §204.3(t)(2) Requires Estimate of Newly Generated Traffic Did Not Comply §204.3(t)(2) Requires Statement of Accrual or Cash Accounting Did Not Comply §204.3(t)(2) Requires Explanation of B asis of Costs & Revenues Did Not Comply §204.3(t)(2) Requires Description of Manner of Allocation Did Not Comply §204.3(t)(2) Requires Estimate of Peak & Average Load Factors Did Not Comply §204.3(u) Requires Signed Counterpart of Agreement 18900 Did Not Comply