Order 2015-4-3 

Served: April 7 2015 

UNITED STATES OF AMERICA 

DEPARTMENT OF TRANSPORTATION 

OFFICE OF THE SECRETARY 

WASHINGTON, D.C. 

Issued by the Department of Transportation 

on the 7th day of April, 2015 

ORDER TEMPORARILY EXTENDING CURRENT CONTRACT 

Summary 

By this Order, the Department is extending the current contract for Great Lakes Aviation, Ltd. 

(“Great Lakes”) to provide Essential Air Service (“EAS”) at Merced, California, from 

March 1, 2015, through September 30, 2015, as described in Order 2012-9-9. By further 

Order, the Department may terminate this rate term before, or extend it beyond, 

September 30, 2015, as explained in this Order and pursuant to 49 U.S.C. §§ 41734 and 

41737(d). Great Lakes will continue to provide Merced with 12 weekly nonstop round trips to 

Los Angeles International Airport (LAX), at an annual subsidy rate of $2,779,116.1 

Background 

By Order 2012-9-9, issued on September 10, 2012, the Department re-selected Great Lakes to 

provide subsidized EAS at Merced using Beechcraft 1900 aircraft, for the two-year period from 

October 1, 2012, through September 30, 2014. By Order 2014-10-15, issued on 

October 16, 2014, the Department extended that contract, and amended the subsidy rate, from 

October 1, 2014, through February 28, 2015. Under that contract, Great Lakes has provided 

Merced with 12 weekly nonstop round trips to LAX, at an annual subsidy rate of $2,779,116. 

As the end of that rate term approached, the Department issued Order 2014-5-9, on 

May 21, 2014, requesting proposals from air carriers interested in providing EAS at Merced for 

a new term, with proposals due no later than June 27, 2014. 

On June 26, 2014, Mokulele Airlines requested an extension to that deadline, until 

July 11, 2014. In that request, Mr. Ron Hansen, Chief Operating Officer of Mokulele Airlines, 

explained that the air carrier needed additional time to evaluate the market. By Notice dated 

June 26, 2014, the Department granted the extension request and set the due date for proposals 

at July 11, 2014. On that date, five air carriers submitted proposals to serve Merced: Great 

Lakes, Boutique Air, Makani Kai Air, SeaPort Airlines, Inc., and Mokulele Airlines. 

 

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

Essential Air Service at 

 MERCED, CALIFORNIA 

 

Under 49 U.S.C. § 41731 et seq.

 DOT-OST-1998-3521 

 
-2- 

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

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

entering “DOT-OST-1998-3521” in the “SEARCH for: Rules, Comments, Adjudications or 

Supporting Documents:” field. 

 

Community Comments 

On July 14, 2014, the Department requested community comments regarding this air carrier 

selection case. On August 14, 2014, the community of Merced requested an extension of the 

deadline to submit formal comments. On August 15, 2014, the Department granted the 

extension requests and set the due date for formal comments at September 29, 2014. 

By letter dated September 29, 2014, the Department was notified by Mr. John Bramble, 

Merced City Manager, and Mr. Larry Morelock, Chair of the Merced Regional Airport 

Authority, that the community had considered the various merits of each air carrier’s proposal; 

however, the city had not yet reached a conclusion as to which air carrier it intends to 

recommend for this carrier-selection case. 

On February 20, 2015, the Department participated in a telephone conference with Ms. Janet 

Young, Interim Manager at Merced Regional Airport, to determine which of the five proposals 

the community supports. Ms. Young explained that the community is in discussions with the 

applicants regarding the service proposals submitted for consideration. During that 

conversation, Ms. Young requested additional time to submit formal comments. Given that the 

Department has not finalized this carrier selection case by the end of the rate term established 

by Order 2012-9-9, and in accordance with 49 U.S.C. § 41734(c), the Department must extend 

Great Lakes’ EAS contract until this carrier selection case has concluded. 

Subsequent Developments 

On March 27, 2015, one of the air carriers that submitted a proposal to serve Merced for a new 

term requested a modification to its proposal. The Department found it to be in the public’s 

interest to grant the modification request, and in order to continue to provide a fair carrier 

selection process, the Department offered all carriers that originally proposed service at 

Merced, in response to Order 2014-5-9, an opportunity to amend their proposal, if they so 

choose. Any amended proposals are due by April 6, 2015. The Department will request 

formal comments from the community on expedited bases and conclude the carrier selection 

case soon thereafter. 

Legislative Changes That May Affect Future EAS Eligibility at Merced 

The Federal Aviation Administration (FAA) Modernization and Reform Act of 2012 (Public 

Law No: 112-95) amended 49 U.S.C. § 41731(a)(1)(B) to change the definition of “eligible 

place” for the purpose of receiving EAS. The amendment states that to be eligible, a 

community must maintain an average of 10 enplanements or more per service day, as 

determined by the Secretary, during the most recent fiscal year beginning after 

September 30, 2012. The legislation exempts locations in Alaska and Hawaii and communities 

that are more than 175 driving miles from the nearest large- or medium-hub airport. As 

Merced is within 175 miles of Mineta San Jose International Airport (SJC), a medium-hub 

airport, it must meet the 10-enplanement-a-day threshold for EAS to continue after FY2013 or 

otherwise face termination of its eligibility to receive EAS, barring a waiver from the 

Secretary. 
-3- 

Additionally, the Department is prohibited from subsidizing air service at a community where 

the subsidy per passenger exceeds $200, unless the community is more than 210 highway miles 

from the nearest large- or medium-hub airport. This applies to Merced due to the fact that it is 

located less than 210 miles from SJC, a medium-hub airport.2

By Order 2014-4-26, issued on April 24, 2014, the Department issued a show-cause Order 

directing interested parties to submit objections to the Department’s tentative findings that 

Merced enplaned fewer than 10 passengers per day. In response to that Order, the Department 

received objections from the community, but none of those objections disputed our findings 

that Merced enplaned fewer than 10 passengers per day during FY 2013. 

Therefore, by Order 2014-6-6, issued on June 24, 2014, the Department made final its tentative 

decision in Order 2014-4-26, thereby terminating the EAS eligibility of Merced. On 

June 3, 2014, the Merced Regional Airport submitted an application for a waiver on behalf of 

the community of Merced. 

By Order 2014-9-21, issued on September 26, 2014, the Department granted the waiver 

petition submitted by Merced Regional Airport. That Order states that Merced’s compliance 

with 49 U.S.C. § 41731(a)(1)(B) will be re-assessed based on Fiscal Year 2015 data 

(October 1, 2014, through September 30, 2015). The Department will continue to process the 

carrier-selection case at hand; however, to ensure that Merced does not suffer from a service 

hiatus, the Department must extend Great Lakes’ current contract from March 1, 2015, through 

September 30, 2015. However, as discussed above, by further Order, the Department may 

terminate this rate term before, or extend it beyond, September 30, 2015, as explained in this 

Order and pursuant to 49 U.S.C. §§ 41734 and 41737(d). 

Decision 

Great Lakes must continue to provide EAS to the community as described in Order 2012-9-9, 

until the carrier selection proceeding is complete.3 The Department will extend Great Lakes’ 

current subsidy rate of $2,779,116, through September 30, 2015, as described in Great Lakes’ 

most recent proposal dated July 11, 2014 (further detailed in Appendix B of this Order). If the 

carrier selection proceeding is completed before the end of the rate term established by this 

Order, the Department will issue a new Order either selecting a replacement carrier and 

terminating Great Lakes’ continued obligation to provide EAS at Merced or re-selecting Great 

Lakes at a new subsidy rate and term. If the carrier selection proceeding is not completed by 

September 30, 2015, the Department will issue another Order further extending Great Lakes’ 

contract established in this Order. 

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

ACCORDINGLY,

1. The Department extends the Essential Air Service contract of Great Lakes Aviation, Ltd., to 

continue to provide Essential Air Service at Merced, California, under the terms and conditions 

 

2 Congress first established the $200 ceiling under P.L. 101-164 for fiscal year 1990, and re-established it in fiscal 

years 1994-1999. The ceiling was made permanent by P.L. 106-69, the Department of Transportation and Related 

Agencies Appropriations Act of 2000.

3 49 U.S.C. § 41734. 
-4- 

established by Order 2014-10-15, through September 30, 2015. By further Order, the 

Department may terminate this rate term before, or extend it beyond, September 30, 2015, as 

explained in this Order and pursuant to 49 U.S.C. §§ 41734 and 41737(d); 

2. The Department sets the rate of compensation for Great Lakes Aviation, Ltd., for the 

provision of Essential Air Service at Merced, California, as described in Appendix B; 

3. The Department directs Great Lakes Aviation, Ltd. 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 issuance 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; 

4. Docket DOT-OST-1998-3521 will remain open until further order of the Department; and 

5. The Department will serve copies of this Order on the civic officials of Merced, 

California, the Managers of Merced Regional Airport, Great Lakes Aviation, Ltd., Boutique 

Air, Makani Kai Air, SeaPort Airlines, Inc., and Mokulele Airlines 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 online at 

www.regulations.gov
Appendix A 

Great Lakes Aviation, Ltd. 

Annual Compensation Requirements for Essential Air Service at 

Merced, California to Los Angeles (LAX) 

Two Round Trips - B1900 - 9 seat - (at 98 percent completion) 

Departures: 1,227

Block Hours: 1,534

Revenue Passenger Miles: 1,820,000

Available Seat Miles: 2,871,180

Operating Revenues: 

Passenger: MCE-LAX 7,000 psgrs at $92.27 $645,890 

Other: (at 0.62% of passenger revenue) $4,005 

Total Operating Revenues: 

$649,895 

Operating Expenses: 

Direct: Aircraft and Hull Insurance $365,710

Fuel and Oil $911,917

Flying Operations $302,565

Maintenance $483,092

Total Direct Expenses: $2,063,284

Total Indirect Expenses: $1,202,440

Total Operating Expenses: $3,265,724

Operating Loss ($2,615,829)

Profit Element (5.0% of Total Operating Expenses) $163,286

Annual Compensation Requirement: $2,779,116

 

All Merced – Los Angeles – Merced service is Non-Stop 

This Proposal is submitted with no upline scheduling restrictions. 
Appendix B 

 Great Lakes Aviation, Ltd.

Essential Air Service to be Provided at Merced, CA

Effective Period: March 1, 2015, until September 30, 2015 

Scheduled Service: 12 weekly nonstop round trips to Los Angeles (LAX) 

Aircraft: 9-Seat Beechcraft 1900 

Rate per Eligible Flight1: $2,272 

Weekly Ceiling2: $54,528 

The air 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 air carrier understands that an aircraft takeoff 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 air 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 air 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 air carrier to provide service on these routes. The air 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 amounts or at the stipulated service levels, the air 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 air carrier do not constitute a total or partial reduction or cessation of payment. 

Subsidy contracts 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, 2015. The Government’s 

obligation for performance under this Order beyond September 30, 2015, 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, 2015, until funds are made available to the 

Department for performance. If sufficient funds are not made available for performance beyond September 30, 

2015, 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 31st; August claims must be submitted by November 30th, and so on. 

 

1 Annual compensation of $2,779,116, divided by 1,223 annual departures (4 flights x 6 days x 52 weeks x 98 

percent completion). 

2 24 flights per week multiplied by $2,272 per flight.