Order 2014-6-12

Served: June 19, 2014

 UNITED STATES OF AMERICA

 DEPARTMENT OF TRANSPORTATION

 OFFICE OF THE SECRETARY

 WASHINGTON, D.C.

Issued by the Department of Transportation

on the day 19th of June, 2014

ORDER RE-SELECTING CARRIER AND SETTING SUBSIDY RATES

Summary

By this Order, the Department of Transportation re-selects Schuman Aviation Company 

Ltd. d/b/a Makani Kai Charters (“Makani Kai”) to provide subsidized Essential Air Service 

(“EAS”) with nine-seat Cessna Grand Caravan, or nine-seat Piper Chieftain aircraft, at 

Kalaupapa, Hawaii, for the four-year period from June 1, 2014, through May 31, 2018.1

That service will continue the current service of 12 nonstop round trips a week to Honolulu, 

and 18 nonstop round trips a week to Molokai. The first-year subsidy rate will be $751,040,

the second year subsidy rate will be $730,848, the third year subsidy rate will be $710,656, 

and the fourth year subsidy rate will be $690,463.2

Background

By Order 2011-11-27, issued on November 22, 2011, the Department selected Makani Kai 

to provide subsidized EAS with nine-seat Cessna Grand Caravan aircraft at Kalaupapa for 

the two-year period beginning January 1, 2011, through December 31, 2013, for a first-year 

subsidy rate of $932,772, and a second-year subsidy rate of $923,509. That service 

consisted of 12 nonstop round trips a week between Kalaupapa and Honolulu, and 18 

nonstop round trips a week between Kalaupapa and Molokai. The Department extended the 

term of that contract until May 31, 2014, by Order 2014-1-22, issued on January 31, 2014, 

to maintain Kalaupapa’s EAS while the Department completed the carrier selection case.

In anticipation of the end of Makani Kai’s initial rate term on December 31, 2013, the 

Department issued Order 2013-10-3, on October 4, 2013, soliciting proposals to provide 

EAS, with or without subsidy support, at Kalaupapa, for a new term. In response to that 

 1 See Appendix A for a map.

2 EAS 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-2000-6773
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Order, the Department received proposals from Makani Kai, Mokulele Flight Services, Inc. 

d/b/a Mokulele Airlines (“Mokulele”), Boutique Air, and SeaPort Airlines, Inc. 

Those proposals, as well as the complete public file for EAS at Kalaupapa, may be accessed 

online through the Federal Dockets Management System at: http://www.regulations.gov by

entering “DOT-OST-2000-6773” in the “SEARCH for: Rules, Comments, Adjudications or 

Supporting Documents:” field. 

Proposal of Makani Kai 

Makani Kai, the incumbent air carrier, proposed two options each utilizing nine-seat Cessna 

Grand Caravan or nine-seat Piper Chieftain aircraft. Option A proposes to maintain the 

current level of service for a two-year period at an annual subsidy rate of $787,386 for the 

first year, and $771,232 for the second year. Option B proposes to maintain the current 

level of service for a four-year period at a subsidy rate of $751,040 for the first year, 

$730,848 for the second year, $710,656 for the third year, and $690,463 for the fourth year, 

for a four-year total of $2,883,007. 

Proposal of Mokulele Airlines 

Mokulele proposed two options, each consisting of a four-year term, utilizing nine-seat 

Cessna Grand Caravan aircraft. Option A consists of 13 nonstop round trips per week 

between Kalaupapa and Honolulu at a subsidy rate of $345,513 for the first year, $359,998 

for the second year, $380,626 for the third year, and $398,889 for the fourth year. Option B 

consists of 13 nonstop round trips per week between Kalaupapa and Kahului for a four-year 

period at a subsidy rate of $267,406 for the first year, $254,168 for the second year, 

$256,333 for the third year, and $243,840 for the fourth year. Each of those alternatives 

included an a la carte option of an additional six nonstop round trips per week between 

Kalaupapa and Molokai at an additional annual subsidy rate of $108,217. So, for example, 

for an approximation of the community’s current service levels to Honolulu and Molakai, 

the first year subsidy would be $345,513 plus $108,217 multiplied by 3, for 18 round trips 

to Molokai ($324,651), for a total annual subsidy of $670,164. The second year subsidy, 

then, would be $684,511, the third year would be $705,277, and the fourth year would be

$723,540, for a four-year total of $2,783,492. 

Proposal of Boutique Air 

Boutique Air submitted a two-year proposal, consisting of 12 one-stop round trips per week 

between Kalaupapa and Honolulu, 12 one-stop round trips per week between Kalaupapa and 

Kahului, and 24 nonstop round trips per week between Kalaupapa and Molokai, utilizing 9-

seat Cessna Grand Caravan aircraft, at an annual subsidy rate of $943,686. 

Proposal of SeaPort Airlines, Inc.

SeaPort Airlines, Inc. submitted a two-year proposal, consisting of 12 nonstop round trips 

per week between Kalaupapa and Honolulu, and 18 nonstop round trips per week between 

Kalaupapa and Molokai, utilizing nine-seat Cessna Grand Caravan aircraft, at an annual 

subsidy rate of $952,018. 

Community Comments

On November 4, 2013, the Department solicited community comments on this air carrier 

selection case. In response to our request, we received comments from frequent users of 
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EAS at Kalaupapa, with the vast majority expressing strong support for Makani Kai’s fouryear proposal. The Department received comments from the Kalaupapa Settlement 

residents and their family members, US Department of the Interior’s National Park Service 

(“NPS”), Hawaii House of Representatives, State of Hawaii Department of Health 

(“HDOH”), doctors and nurses affiliated with the University of Hawai’i Department of 

Native Hawaiian Health School of Medicine, religious organizations, the Mayor of Maui, 

the Kalaupapa Lion’s Club, and from a significant number of concerned citizens and small 

business owners.3

By letter dated October 21, 2013, NPS described the geography and isolation of the 

community and explained that many NPS employees have used Makani Kai for workrelated travel to and from Kalaupapa, and the Makani Kai has “provided timely and efficient

service under the current Essential Air Service contract.”

By letter dated November 27, 2013, the Speaker of the Hawaii House of Representatives, 

Mr. Joseph Souki, expressed support for Mokulele’s 4-year proposal. 

By letters dated October 23, and November 26, 2013, March 11, and April 9, 2014, the 

Administrator of the Kalaupapa Settlement, Mr. Mark Miller, provided comments on behalf 

of the HDOH and the residents of Kalaupapa. The community of Kalaupapa lacks a local 

government; however, Mr. Miller represents the citizens of Kalaupapa and in many ways 

acts as their local representative. Mr. Miller’s letters strongly support a long-term contract 

with Makani Kai, the incumbent air carrier. Each of his letters was accompanied by 

petitions from Kalaupapa’s residents supporting the re-selection of Makani Kai. In his 

October 23rd letter, Mr. Miller states “Makani Kai has provided superior service to the 

Kalaupapa Settlement for the past 2 years. Makani Kai worked closely with the community 

to provide optimum service and allowed a resident rate for travel that has allowed and 

encouraged connection to both topside Molokai and Honolulu.” Further, both locations are 

vital links to medical services, government services and other activities.”

In a letter from Dr. S. Kalani Brady, MD, MPH, FACP, Associate Professor, Department of 

Native Hawaiian Health at the University of Hawai’i, he states he is “the physician who 

regularly travels to Kalaupapa to serve [his] patients there.” Dr. Brady states that during the 

ten years he has served patients there as faculty of the University of Hawai’i School of 

Medicine, he has flown to Kalaupapa with several other companies and his opinion is that 

Makani Kai is the “best service offering” to Kalaupapa.

By letter dated March 10, 2014, Mr. Alan Arakawa, the Mayor of the County of Maui 

expressed support for Mokulele Airlines. Mayor Arakawa is an elected representative of 

Maui, and therefore represents interests outside of the EAS community, as Kalaupapa is 

located in Kalawao County.4 

 3 All public comments received are posted at www.regulations.gov and can be found by entering “DOT-OST2000-6773” in the “Search” field.

4 Although Kalawao County is a judicial district of Maui County, it is a separate county and it is administered 

by the HDOH.
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Additionally, we received a significant number of comments from private citizens and small 

business owners from across the State of Hawaii supporting both Makani Kai and Mokulele. 

Decision

Based on the discussion above, and after careful consideration of this matter, including the 

comments from local officials representing Kalaupapa, residents of Kalaupapa, and 

community volunteers that frequently use EAS at the community, the Department has

decided to re-select Makani Kai for a new, four-year term to provide subsidized air 

transportation at Kalaupapa. Makani Kai will provide 12 nonstop round trips a week 

between Kalaupapa and Honolulu, and 18 nonstop round trips a week between Kalaupapa 

and Molokai, utilizing nine-seat Cessna Grand Caravan or nine-seat Piper Chieftain aircraft. 

The first-year subsidy rate will be $751,040, the second-year rate will be $730,848, the 

third-year rate will be $710,656, and the fourth-year rate will be $690,463, for a four-year 

total subsidy of $2,883,007.

In narrowing the field of choices, the Department first eliminated the proposals of SeaPort 

and Boutique Air, given that neither carrier received any community support and their 

proposed annual subsidy requirements, at $952,018 and $943,686, respectively, exceed 

those of Makani Kai and Mokulele.

This leaves two proposals for consideration, Makani Kai, the incumbent, and Mokulele. In 

selecting carriers to provide EAS, the Department is required to consider several criteria, 

including service reliability, arrangements with larger carriers, community support, and 

marketing plans.5

Regarding community support, the Department is required to give substantial weight to the 

views of the elected officials representing the users, and therefore we turn to community 

comments received from Kalaupapa residents, local volunteers, and Mr. Mark Miller..6 

Many of the letters from the community focused on Makani Kai’s strong customer service 

standards, explaining that the air carrier often goes “above and beyond the call of duty” for 

its passengers. Additionally, the commenters expressed support for Makani Kai because of 

its on-time performance record, strong management team, its low fares, the air carrier’s 

service reliability, and its focus on safety and maintenance. Moreover, those letters state 

that Makani Kai has demonstrated a commitment to the community of Kalaupapa and its 

residents. 

In terms of service reliability, both carriers provide reliable EAS; Makani Kai, which has 

served Kalaupapa for over two years, and Mokulele at Kamuela, Hawaii. For contractual 

 5 In selecting a carrier to provide subsidized EAS for an eligible place not in Alaska, 49 U.S.C. § 41733(c)(1) 

directs us to consider five factors: (a) service reliability; (b) contractual and marketing arrangements with a 

larger carrier at the hub; (c) interline arrangements with a larger carrier at the hub; (d) community views, 

giving substantial weight to the views of the elected officials representing the users; and (e) whether the carrier 

has included a plan in its proposal to market its service to the community. In addition, the Consolidated 

Appropriations Act, 2014, Public Law No. 113-76, 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. 6 In accordance with 49 U.S.C. § 41733(c)(1)(D), we give substantial weight to the views of the elected 

officials representing the users.
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marketing arrangements and interline agreements with larger carriers, Mokulele states that it 

has agreements with Alaska Airlines and two international carriers and its flights are 

available on several online travel websites, including Orbitz and Travelocity. While we 

note that Mokulele’s proposal states that it has a code share agreement with go! Airlines 

(Mesa), go! Airlines ceased operations in Hawaii in April 2014. Therefore, this agreement 

was not a factor in this carrier-selection case decision. While Makani Kai does not present 

any agreements with larger carriers, it states that in addition to online reservations, it has 

staff available to help with reservations, particularly for a large number of residents without 

Internet access. In terms of marketing support, Mokulele includes a line item in its proposal 

of $3.35 per passenger, and notes that it offers a reduced fare when passengers begin their 

journey with Mokulele and transfer to a partner airline. Makani Kai does not include a 

separate line item for marketing, however, its proposal explains that it offers some 

customer-friendly features that have been developed in conjunction with its service to the 

community.7 Lastly, although Mokulele’s subsidy requirement is lower than Makani Kai’s, 

the difference between the two air carriers is very small ($99,515 over the 4-year term, or 

less than $25,000 per year). 

Looking at the totality of the circumstances, given Makani Kai’s reliability at Kalaupapa,

the uniqueness of the situation of the community’s air service needs, and the strong support 

of Kalaupapa’s community officials and users of the service, the Department selects Makani 

Kai to serve Kalaupapa for a four-year term. Additionally, we find that both Makani Kai’s 

service and subsidy levels are reasonable. 

We 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 lobbying activities.8

Air Carrier Fitness

49 U.S.C. §§ 41737(b) and 41738 require that we find an air carrier fit, willing, and able to 

provide reliable service before we may subsidize it to provide EAS. Makani Kai is subject 

to the Department’s continuing fitness requirements, and no information has come to our 

attention that would cause us to question the air carrier's fitness at this time. We have 

contacted the Federal Aviation Administration, and it has raised no concerns that would 

negatively affect our fitness finding. We therefore conclude that the air carrier remains fit to 

conduct the operations proposed here. 9

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

 7 See Schuman Aviation Company, Ltd. Proposal to Provide Essential Air Sevice at Kalaupapa, Hawaii

(dated October 30, 2013), available at docket DOT-OST-2000-6773.

8 The certifications are available online at http://www.dot.gov/policy/aviation-policy/small-community-ruralair-service/essential-air-service.

9 The National Transportation Safety Board (“NTSB”) is currently investigating a Makani Kai accident that 

occurred off the coast of Kalaupapa on December 11, 2013. Should the NTSB investigation final report 

reveal findings adverse to the air carrier, we would reassess the air carrier’s fitness in light of those findings.
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ACCORDINGLY,

1. The Department selects Schuman Aviation Company Ltd. d/b/a Makani Kai Charters at 

Kalaupapa, Hawaii, and establishes the subsidy rate, as detailed in Appendix C;

2. We direct Schuman Aviation Company Ltd. d/b/a Makani Kai 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 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 carrier may forfeit its compensation 

for any claim that is not supported under the terms of this Order;

3. We find that Schuman Aviation Company Ltd. d/b/a Makani Kai Charters is fit, willing 

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

Service at Kalaupapa, Hawaii;10

4. Docket DOT-OST-2000-6773 will remain open pending further Department action; and

5. We will serve copies of this Order on Mr. Mark Miller, the Administrator of the 

Kalaupapa Settlement, Mr. Bob Florek, the Airport Manager of Kalaupapa Airport, 

Mokulele Flight Services, Inc. d/b/a Mokulele Airlines, Schuman Aviation Company Ltd. 

d/b/a Makani Kai Charters, SeaPort Airlines, Inc. and Boutique Air.

By:

 SUSAN L. KURLAND

 Assistant Secretary for

 Aviation and International Affairs

(SEAL)

An electronic version of this document is available at

http://www.regulations.gov

 10 See note 9.
Appendix A

AREA MAP

Maps generated by the Great Circle Mapper - copyright © Karl L. Swartz.
Appendix B

Schuman Aviation Company Ltd., d/b/a Makani Kai Air Charters

Annual Compensation Requirements for Essential Air Service at

Kalaupapa, Hawaii

Departures per year 3,089

Estimated Annual Revenue

HNL & LUP $90,480 Air Fare to HNL $72.50

MKK & LUP $79,560 Air fare to MKK $42.50

Total Revenue $170,040

Expenses

Aircraft $180,000

Insurance $96,000

Pilots $162,240

Fuel $228,150

Maintenance $117,000

Engine & Prop Reserve $97,500

State landing Fee $15,974.4

Admin $85,000

Total Expenses $981,864

Income (Loss) ($811,824)

Four Year Service Plan:

Subsidy Request 1st Year $751,040

Estimated Passengers 2800

Subsidy Request 2nd Year $730,848

Estimated Passengers 3000

Subsidy Request 3rd year $710,656

Estimated Passengers 3200

Subsidy Request 4th Year $690,463

Estimated Passengers 3400
Appendix 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: June 1, 2014, through May 31, 2018

Scheduled Service: 12 round trips a week to Honolulu; and

18 round trips a week to Molokai.

Aircraft type: Nine-seat Cessna Grand Caravan or Nine-Seat Piper Chieftain

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: 1st year: $751,040

2nd year: $730,848

3rd year: $710,656

4th year: $690,463

These rates assume an annual completion factor of 95 percent. A 

compensation ceiling is to be applied per calendar week such that 

service above that ceiling in one week cannot make up for service 

shortfalls in another week.

Subsidy Rate per 

Flight:

1st year: $2431

2nd year: $2372 

3rd year: $2303

4th year: $2244

Weekly Compensation 

Ceiling:

1st year: $14,5805

2nd year: $14,2206

3rd year: $13,8007

4th year: $13,4408

 1 Annual subsidy of $751,040 divided by 3,089 annual departures: 5 arrivals and 5 departures each weekday and 

each weekend (60 flights/week) x 52 weeks x .99 (completion factor) = 3,089.

2 Annual subsidy of $730,848 divided by 3,089 annual departures: 5 arrivals and 5 departures each weekday and 

each weekend (60 flights/week) x 52 weeks x .99 (completion factor) = 3,089.

3 Annual subsidy of $710,656 divided by 3,089 annual departures: 5 arrivals and 5 departures each weekday and 

each weekend (60 flights/week) x 52 weeks x .99 (completion factor) = 3,089.

4 Annual subsidy of $690,463 divided by 3,089 annual departures: 5 arrivals and 5 departures each weekday and 

each weekend (60 flights/week) x 52 weeks x .99 (completion factor) = 3,089.

5 60 flights per week multiplied by $243 per flight.

6 60 flights per week multiplied by $237 per flight.

7 60 flights per week multiplied by $230 per flight.

8 60 flights per week multiplied by $224 per flight.
Appendix D

General Terms and Conditions for Essential Air Service

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 completed, such as certain weather cancellations, only completed 

flights are considered eligible for subsidy. In addition, if the carrier does not schedule or operate 

its flights in full conformance with the Order for a significant period, it may jeopardize its entire 

subsidy claim for the period in question. If the carrier contemplates any such changes beyond 

the scope of the Order during the applicable period of 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 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 service 

levels, the carrier may cease to provide service to that specific location without regards 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 contract 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 September 30, 2014. The 

Government’s obligation for performance under this order beyond September 30, 2014, 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 September 30, 2014, until funds are made available to the Department for 

performance. If sufficient funds are not made available for performance beyond 

September 30, 2014, 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; August claims must be submitted by 

November 30, and so on.