Order: 2014-12-4 Served: December 3, 2014



### UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OF FICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 3 rd day of December, 2014

Essential Air Service at

SILVER CITY/HURLEY/DEMING,

NEW MEXICO DOT-OST-1996-1903

under 49 U.S.C. § 41731 et seq.



### ORDER SELECTING CARRIER ES TABLISHING SUBSIDY RATES

AND EXTENDING SERVICE PERIOD

Summary By this Order, the Department is selecting B outique Air (“Boutique”) to provide Essential Air Service (“EAS”) at Silver City/Hurley/Deming, New Mexic o, (“Silver City”) for the two-year period beginning January 1, 2015, through December 31, 2016. Boutique will provide 24 nonstop round trips each week to Albuquerque Internati onal Sunport (“ABQ”), using pressurized 9-seat P ilatus PC-12 aircraft, at an annual subsidy rate of $3,377,495. 1

Additionally by this Order, the Department is extending the service period for Great Lakes Aviation, Ltd. (“Great Lakes”) to provide EAS at Silver City, from December 1, 2014, or until Boutique commences full EAS at the community, but no later than March 31, 2015. Great Lakes will continue to provide Silver City with 12 nonstop round trips per week between Silver City to Phoenix, Arizona, us ing Beechcraft 1900D aircraft, at an annual subsidy of $2,237,812. 2

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

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

Background By Order 2012-11-33, issued on November 29 , 2012, the Department re-selected Great Lakes Aviation, Ltd. (“Great La kes”) to provide EAS at S ilver City with 12 one-stop round trips per week between S ilver City and Denver, via Al amosa, Colorado; Santa Fe, New Mexico; or Pueblo, Colorado, or nons top to Phoenix, Arizona, using 19-seat Beechcraft 1900D aircraft, for the period from December 1, 2012, through November 30, 2014, at an annual subsidy rate of $2,098,460.

In anticipation of the end of the current rate term, the Department issued Order 2014-7-6, on July 10, 2014, soliciting proposals from air carriers interested in providing EAS at Silver City, with subsidy support if necessary, for a new term beginning December 1, 2014. In response to that Order, the Department received proposals from Great Lakes, Boutique, Mokulele Flight Service, Inc., d/b/ a Mokulele Airlines (“Mokulele”), and Pacific Wings, LLC.

Those proposals, as well as the complete pu blic file for EAS at Silver City, may be accessed online through the Federal Docket Management System at http://www.regulations.gov by entering Docket number “DOT-OST-1996-1903” in the “SEARCH for: Rules, Comments, Adjudicati ons or Supporting Docume nts:” field.

Proposal of Great Lakes Great Lakes proposed to provide Silver City with 12 nonstop round trips per week to Phoenix, using 9-seat Beechcr aft 1900D aircraft, at an annual subsidy request of $2,237,812.

Proposal of Boutique Boutique proposed to provide the community with 24 nonstop round trips per week to Albuquerque, using pressurized 9-seat Pilatus PC -12 aircraft, at an a nnual subsidy request of $3,377,495.

Proposal of Mokulele Mokulele proposed to provide 12 nonstop round trips per week to Albuquerque, using 9- seat Cessna Caravan 208EX aircraft, at an annual subsidy request of $1,499,877.

Proposal of Pacific Wings, LLC Pacific Wings proposed to provide 12 nonst op round trips per week to Albuquerque, using 9-seat Cessna Caravan 208B aircraft, at an annual subsidy request of $1,641,869.

Community Comments By letter dated September 5, 2014, the Depa rtment requested community comments regarding this EAS selection case. In response, by letter dated October 10, 2014, Honorable Michael Morones, Ma yor of Silver City, provided support for Boutique. That letter explained the community reviewed a ll the proposals, receiv ed presentations and

clarification from the interest ed airlines, and the community recommended the selection of- 3 -

Boutique. In that letter, the Mayor waived th e community’s right to twin engine aircraft. 3

Additionally, by letter dated October 7, 2014, Mr. Brett Kast en, Chairman of the Grant County Commissioners, recommended the selection of Boutique. In that letter, Mr. Kasten

stated “we believe that Bouti que Air will provide both reliable service and the routes that will best serve our community.” Additiona lly, the Department received over 50 letters from concerned citizens, the majority of which support ai r service to Albuquerque.

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

whether the air carrier has include d a plan in its proposal to market the service. In addition, the Consolidated Appropriations Act, 2014, Public Law No. 113-76, and continued in the Continuing Appropriations Resolution, 2015, P ublic Law No. 113-164, 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 sinc e the inception of the

program.

The majority of comments that the Depart ment received support service to Albuquerque; therefore, the Department will eliminate from consideration Great Lakes’ proposed service to Phoenix. Additionally, Great Lakes did not receive any community support. Pacific Wings, Mokulele, and Boutique all propose d service to Albuquerque and the elected officials representing the users of the servic e, including the Mayor of Silver City, support the selection of Boutique.

In this case, the community’s support of Bou tique is clear. As described above in the Department’s statutory selecti on criteria, the Department is directed to give substantial weight to the views of electe d officials. In addition, only Boutique’s proposal offers approximately the same number of seats that th e Department is currently subsidizing. The selection of Boutique will provide the community with 36 seats inbound and 36 seats outbound each day, still slightly fewer than the 38 per day that Great Lakes is currently contracted to provide. The incr eased number of arrivals and de partures, albeit with aircraft seating fewer seats than what the Department se lected for Silver City in the last carrier selection in 2012, will provi de numerous connecting op portunities at ABQ and has potential to encourage passenger usage.

3 49 U.S.C. § 41732 (b)(5) outlines minimum requirements for basic EAS, including service provided in aircraft with at least 2 engines and using 2 pilots, unle ss scheduled air transportation has not been provided to the place in aircraft with at least 2 engines and using 2 pilots for at least 60 consecutive operating days at any time since October 31, 1978.- 4 -

Note Regarding Eligibility Silver City is exempt from the $200 per passenger statutory limit 4 because it is more than 210 miles from the nearest large- or medium-hub airport; howe ver, the Department wishes to remind Boutique and Silver City about th e recently enacted law th at established a new subsidy cap at $1,000 per passenger, rega rdless of distance from hub airports. 5 The Department fully expects both parties to work cooperatively to ensure subsidy rates remain below the $1,000 per passenger level to re main eligible for the EAS program.

The Department shall make this selection of Boutique at Silver Ci ty contingent upon the Department’s receiving properly executed certifications from the air carrier that it is in compliance with the Department’s regulations regarding drug-free workplaces and nondiscrimination, as well as the regulations co ncerning lobbying activities. 6

Service Transition The Department expects Great Lakes and Bou tique to work together to make a smooth transition at Silver City. In that regard, before Great Lakes suspends their service, it must notify any passengers holding reservations for tr avel after the suspensi on date, assist those passengers in making alternate air transportatio n arrangements, or provide a refund of the ticket price, without penalty, if requested.

Air Carrier Fitness 49 U.S.C. §§ 41737(b) and 41738 require that th e Department finds an air carrier fit, willing, and able to provide reliable service before it can provide subsidized EAS. Boutique and Great Lakes are subject to the Department’s continuing fitness requirements, and no information has come to the Department’s attention that would bring into question

the air carriers’ fitness at th is time. The Department has contacted the Federal Aviation Administration, and it has raised no concerns that would ne gatively affect our fitness findings. The Department theref ore concludes that the air carri er is reliable and remains fit to conduct the operations proposed here.

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

ACCORDINGLY, 1. The Department selects Boutique Air to provide Essential Air Service at Silver City/Hurley/Deming, New Mexico, at the service levels and subsidy rate as described in Appendix B, for the period from January 1, 2015, through December 31, 2016;

4 Congress first established the $200 ceiling under P.L. 101-164 for fiscal year 1990, and reestablished it in fiscal years 1994-1999. The ceiling was made permanent by P.L. 106-69, the Department of Transportation and Related Agencies Approp riations Act of 2000.

5 See 49 U.S.C. § 41731(a)(1)(C).

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

.- 5 -

2. The Department requires Great Lakes Avia tion, Ltd., to continue to provide Essential Air Service at Silver City/Hurley/Deming, New Mexico, from December 1, 2014, or until Boutique commences full EAS at the co mmunity, but no later than March 31, 2015;

3. The Department directs Great Lakes Aviati on, Ltd. and Boutique Ai r to retain all books, records, and other source and summary docum entation to support claims for payment, and to preserve and maintain such documentation in a manner that readily permits its audit and examination by representatives of the Departme nt. Such documentation shall be retained for seven years from the service date of this Order or until the Department indicates that the records may be destroyed, whichever comes first. Copies of flight logs for aircraft sold or disposed of must be retained. The air carri er may forfeit its compensation for any claim that is not supported under the terms of this Order;

4. The Department finds that B outique Air is fit, willing and able to operate as a commuter air carrier, and capable of providing reli able Essential Air Service at Silver City/Hurley/Deming, New Mexico;

5. This docket will remain open pend ing further Department action; and

6. The Department will serve co pies of this Order on the civi c officials of Silver City, Hurley, and Deming, New Mexico, The Director of the Grant County Airport, Great Lakes Aviation, Ltd., Mokulele Flight Services, Inc., Pacifi c Wings, LLC, Boutique Air,

and the service list for this docket.

By:

BRANDON M. BELFORD Deputy Assistant Secretary for

Aviation and International Affairs

(SEAL)

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

## Boutique Air

Annual Compensation Requirements for Essential Air Service at
Silver City, New Mexico to Albuquer que International Sunport (“ABQ”),
For 24 Round Trips per Week at 98.0% Completion Factor

Operations

Scheduled
Flights 2,496

Completion Factor of 98% 2,446

Scheduled Block Hours 2,424

Scheduled Seats 22,464

Scheduled ASMs 4,245,696

Revenue

Passengers 3,662

Average Fare $79.25

Fare Revenue $290,214

Total Revenue $290,214

Expenses

Fuel $975,660

Ownership $792,000

Maintenance and Reserves $775,680

Staff $374,620

Marketing and Distribution $14,648

Other Indirect Costs $560,448

Total Costs $3,493,056

Profit Element $174,653

Margin 5.00%

Total Subsidy Requirement $3,377,495

PHX may be used instead of ABQ for up to 12 fre quencies at Boutique’s discretion. No upline

or downline restrictions.Appendix A
Page 2 of 2



# Great Lakes Aviation, Ltd.

Annual Compensation Requirements for Essential Air Service at 

### Silver City/Hurley/Deming, New Mexico to Phoenix (PHX)

Two Round Trips - Nine seat - B1900 - Historical schedules should be used as sample pattern of

service (at 98 percent completion)

Departures: 1,227

Block Hours: 1,329 Revenue Passenger Miles: 924,000

Available Seat Miles: 2,550,933

Operating Revenues: Passenger: SVC-PHX 4,000 psgrs at $98.36 $393,440

Other: (at 0.62% of passenger revenue) $2,439

Total Operating Revenues: $395,879

Operating Expenses:

Direct: Aircraft and Hull Insurance $365,710

Fuel and Oil $858,160 Flying Operations $262,132

Maintenance $447,674

Total Direct Expenses: $1,933,676

Total Indirect Expenses: $574,601

Total Operating Expenses: $2,508,277

Operating Loss ($2,112,398) Profit Element (5.0% of Total Operating Expenses) $125,414

Annual Compensation Requirement: $2,237,812

ALL SVC – PHX – SVC Service is Non-Stop This Proposal is submitted with no upline scheduling restrictionsAppendix B Page 1 of 2

Boutique Air
Essential Air Service to be provided at Silver City/Hurley/Deming, New Mexico

Effective Period: January 1, 2015, through December 31, 2016 Scheduled Service: Twenty-four (24) nons top round trips each w eek to Albuquerque

Aircraft: 9-Seat Pilatus PC-12 Rate per Eligible Flight: $1,376 1 Weekly Ceiling: $66,048 2

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 pr ior 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 f lights in full conformance with the Order for a significant perio d, it may jeopardize its entire subsidy claim for the period in ques tion. If the carrier contempl ates 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 se lect a replacement carrier to provide serv ice 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 shoul d be adjusted or disallowed, the Department will consider the extent to which the goals of the program are met and th e extent of access to the natio nal 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 th e stipulated service levels, the carrier may cease to provid e 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 writin g 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 December 11, 2014. The Government’s obligation for performance under this order beyond Decem ber 11, 2014, is subject to the availa bility of funds from which payment for services can be made. No legal liability on the part of the Go vernment for any payment may arise for performance under this order beyond December 11, 2014, until funds are made available to the Department for performance. If sufficient funds are not made available for performance beyond December 11, 2014, the Department will provide notice in wr iting 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.

1 Annual compensation of $3,377,495 divided by 2,454 annual departures (313 service days x 8 flights per service x 98 percent completion).

2 48 flights per week multiplied by $1,376 per flight.Appendix B Page 2 of 2

Great Lakes Aviation, Ltd.

Provision of Essential Air Service at Silver City/Hurley/Deming, New Mexico

Effective Period: December 1, 2014, or until B outique commences full EAS at the community, but no later than March 31, 2015

Scheduled Service: 12 round trips a week to Phoenix

Aircraft: 9-Seat Beechcraft Rate per Eligible Flight: $1,824 1 Weekly Ceiling: $43,776 2

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 pr ior 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 f lights in full conformance with the Order for a significant perio d, it may jeopardize its entire subsidy claim for the period in ques tion. If the carrier contempl ates 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 se lect a replacement carrier to provide serv ice 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 shoul d be adjusted or disallowed, the Department will consider the extent to which the goals of the program are met and th e extent of access to the natio nal 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 th e stipulated service levels, the carrier may cease to provid e 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 writin g 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 December 11, 2014. The Government’s obligation for performance under this order beyond Decem ber 11, 2014, is subject to the availa bility of funds from which payment for services can be made. No legal liability on the part of the Go vernment for any payment may arise for performance under this order beyond December 11, 2014, until funds are made available to the Department for performance. If sufficient funds are not made available for performance beyond December 11, 2014, the Department will provide notice in wr iting 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.

1 Annual compensation of $2,237,812 divided by 1,227 annual departures (313 service days x 4 flights per service day x 98 percent completion).

2 24 flights per week multiplied by $1,824 per flight.