UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.

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1 Order Served: January 18, 2013 DEPARTMENT UNITED OF STATES TRANSPORTATION OF AMERICA UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C. Issued by the Department of Transportation on the 18 th day of January, 2013 Application of SCOTT AIR, LLC d/b/a ISLAND AIR EXPRESS d/b/a DESERT SPLASH ADVENTURES Docket DOT-OST Docket DOT-OST for a certificate of public convenience and necessity under 49 U.S.C to engage in interstate scheduled air transportation of persons, property, and mail Summary ORDER TO SHOW CAUSE By this order, we tentatively find that Scott Air, LLC d/b/a Island Air Express ( Scott Air ), is a citizen of the United States and is fit, willing, and able to provide interstate air transportation of persons, property, and mail utilizing small aircraft. 1 In addition, we register the trade names Island Air Express and Desert Splash Adventures for use in certain of Scott Air s operations. Background Section of Title 49 of the United States Code ( the Transportation Code ) directs us to determine whether companies proposing to engage in interstate scheduled air transportation are fit, willing, and able to perform such service, and to ensure that all operations relating to this authority comply with the Transportation Code and the regulations and requirements of the Department. In making fitness findings, the Department uses a three-part test that reconciles the Airline Deregulation Act s liberal entry policy with Congress concern for operational safety and consumer protection. The three areas of inquiry that must be addressed in order to determine a company s fitness are whether the applicant: (1) will have the managerial skills and technical ability to conduct the proposed operations, (2) will have access to resources sufficient to commence operations without posing an undue risk to consumers, and (3) will comply with the Transportation Code and regulations imposed by Federal and State agencies. We must also find that the applicant is a U.S. citizen. 1 Small aircraft is defined as any aircraft originally designed to have a maximum passenger capacity of 60 seats or fewer, or a payload capacity of no more than 18,000 pounds.

2 2 On October 22, 2012, Scott Air, an intrastate scheduled air carrier holding a Part 135 Federal Aviation Regulations ( FAR ) operating certificate from the Federal Aviation Administration ( FAA ) and serving southern Alaska, filed an application in Docket DOT-OST requesting a certificate of public convenience and necessity to the extent necessary to permit it to operate interstate scheduled air transportation using small aircraft. Scott Air accompanied its application with information required by 14 CFR of our regulations. On the same date, Scott Air also applied for a pendente lite exemption to operate as an interstate air carrier while its application was pending. 2 No answers opposing Scott Air s application were filed. Under these circumstances and because of the findings made below, we propose to decide the issue of the applicant s fitness on the basis of the written record, and we tentatively conclude that the air carrier is a U.S. citizen and is fit, willing, and able to operate its proposed service. However, we will give interested persons an opportunity to show cause why we should not adopt as final these tentative findings and conclusions. The Company FITNESS Scott Air originated as a charter air carrier in 1998 and was organized as a limited liability corporation under the laws of the State of Alaska in It currently provides scheduled intrastate air service between the island communities of Klawock and Ketchikan, Alaska, using three Cessna aircraft. The air carrier is equally owned by Mr. Scott Van Valin, a U.S. citizen, and Ayer Track, LLC ( Ayer Track ), a Delaware limited liability company owned by the Currier Family Trust. 3 If granted approval of the authority it now seeks, Scott Air intends to operate the same service it currently provides today. Management and Key Technical Personnel Scott Air s key management and technical personnel consists of the following U.S. citizens: Scott E. Van Valin Scott A. Currier Patrick Goodrich Chad S. Russell David R. Seay Owner, Managing Member, and Director of Operations Owner Chief Pilot Director of Maintenance Chief Financial Officer ( CFO ) Mr. Scott E. Van Valin serves as Scott Air s Manager, Director of Operations and Pilot and has owned the air carrier since He is also the owner of El Capitan Lodge, having purchased it in September 2001, and previously served as its Manager and a Guide (May 1994-September 2001). Mr. Van Valin holds an FAA Commercial Pilot License. Mr. Scott A. Currier indirectly holds a fifty percent ownership interest in Scott Air through his company, Ayer Track. He is also the President and Chief Operating Officer of Currier 2 See Docket DOT-OST The Trustees of the Currier Family Trust are Mr. Scott A. Currier and his wife, Mrs. Laura C. Currie, each of which is a U.S. citizen. The Trust s beneficiaries are the Currier s three children, all U.S. citizens.

3 3 Construction, Inc. based in Phoenix, Arizona (1992-present). Mr. Currier was previously a Senior Project Manager with MGC Contractors ( ). Mr. Patrick Goodrich has been Scott Air s Chief Pilot and Check Airman since October 2011 and has over 9,500 flight hours. He was previously the Chief Pilot for Alaska Seaplane Service ( ), a Line Pilot for Wings of Alaska (2006), a First Officer with Arctic Circle Air ( ), and a Line Pilot for Skagway Air Service ( ). Mr. Chad S. Russell has been Scott Air s Director of Maintenance since June A licensed Airframe and Powerplant Mechanic, he has held similar Director of Maintenance positions with Grant Aviation (September 2008-June 2011) and Evergreen Helicopter of Alaska (January September 2008 and August 2004-January 2007). He was also the Site Maintenance Manager and Inspector for Aero Air LLC (January 2007-January 2008), Chief Inspector for Grant Aviation (March 2006-July 2006), Iraq Site Lead for Duncan Aviation (July 2004-August 2005), and was the Owner of Precision Aircraft Maintenance (October 2001-December 2011). Mr. David R. Seay is the air carrier s CFO, a position he has held since He is also the CFO for Currier Construction, Inc., and was previously the CFO for Caviness Construction Company, Inc. ( ). In view of the experience and background of the applicant's key personnel, we tentatively conclude that Scott Air has demonstrated that it has the management skills and technical ability to conduct its proposed services. 4 Operating Plan and Financial Condition Scott Air currently conducts scheduled and charter passenger operations using two Cessna Caravan aircraft configured for 9 passengers, and a Cessna Stationair, configured for 3 passengers. Its main revenue source is passenger travel between Klawock and Ketchikan, Alaska. Scott Air intends to provide up to four daily roundtrip flights between the two locations, which is the same service it currently provides as an intrastate air carrier, but the air carrier now seeks authority to operate as an interstate certificated air carrier. In establishing financial fitness, the Department typically asks an applicant to demonstrate that it has access to financial resources sufficient to cover its pre-operating expenses and any negative working capital balance, plus a working capital reserve equal to the operating costs that are reasonably projected to be incurred during three months of normal operations. Because projected expenses during the first several months of air service frequently do not include all costs that will be incurred during a normal period of operations, it is our practice to base our three-month test on one-quarter of the first year s operating costs. Further, in calculating available resources, projected revenues may not be used. In its application, the air carrier states that pre-operating costs were already incurred at the time [Scott Air] received its FAA Part 135 authority and provided first-year operating expenses for 4 Before authorizing an air carrier to conduct air transportation, the FAA evaluates certain of the applicant s key personnel with respect to the minimum qualifications for those positions as prescribed in the Federal Aviation Regulations. The FAA s evaluation of these key personnel provides an added practical and in-person test of the skills and technical ability of these individuals. The FAA has advised us that Scott Air s key technical personnel are acceptable to that agency in their respective positions.

4 4 scheduled passenger operations. It has projected that its first-year expenses for scheduled service will total approximately $1.859 million. Therefore, to meet the Department s financial fitness criteria, Scott Air will need approximately one-quarter of its estimated first-year expenses, or $464,995. In support of its fitness, Scott Air provided a balance sheet at September 30, 2012, showing total current assets of $820,078 and total current liabilities of $39,540, giving the air carrier positive working capital of $780,538. In addition, the applicant reported net income of $106,371 on $1.19 million in revenues for the 7 months ended July 31, Further, Scott Air provided a letter from the Arizona Business Bank indicating it has a line-of-credit for $500,000 to be used for working capital purposes as needed. We have reviewed the forecasts provided by Scott Air and find them to be reasonable. Scott Air is not expanding its current operations and is instead requesting an interstate certificate to continue its scheduled and charter operations between two points within the State of Alaska. Therefore, we agree with the company that no pre-operating costs will be incurred and that its first-year operating expenses are sound based on Scott Air s past experience. In light of the above, we tentatively conclude that the air carrier will have access to sufficient financial resources to enable it to commence its proposed scheduled passenger service without posing an undue risk to consumers or their funds. 5 Compliance Disposition In July 2012 the Department s Office of Aviation Enforcement and Proceedings ( Enforcement Office ) conducted an investigation into whether Scott Air violated 49 U.S.C and by offering for sale and operating interstate air service between the Ketchikan International and the Klawock Airports in Alaska without certificate authority under 49 U.S.C or registration as an air taxi under 14 CFR Part 298. As a result of this investigation, the Enforcement Office and Scott Air agreed to a cease and desist order which assessed the air carrier a $20,000 civil penalty. 6 In response to the Enforcement Office s investigation and resulting Consent Order, Scott Air states that it has taken action to prevent any further violations of the Transportation Code. Specifically, Scott Air states that it has amended its website to indicate clearly that it is an intrastate carrier, that is has filed the subject application to become an interstate air carrier, and that during the winter season, it is only carrying local Alaska traffic. Upon review of the air carrier s actions to address the Department s concerns, we find Scott Air is in compliance with the applicable statutes and regulations governing its current operations. Additionally, we have been informed that the Enforcement Office does not object to Scott Air being found fit. Other than the above-stated compliance issue, Scott Air states that there are no actions or outstanding judgments against it, its owner, or its key personnel, nor have there been any charges of unfair, deceptive or anti-competitive business practices, or of fraud, felony or antitrust violations brought against any of these parties. The air carrier further states that there are no pending investigations, enforcement actions, or formal complaints filed by the Department against it, its key 5 As is our practice, prior to making any authority awarded to Scott Air effective, we will require the company to demonstrate that it continues to have the financial resources needed to meet our financial fitness criteria. 6 See Order , issued on December 28, 2012.

5 5 personnel, or persons having a substantial interest in it with respect to compliance with the Transportation Code or the Department s regulations. The FAA has informed us that Scott Air s compliance and safety record is excellent, and that the air carrier is proactive in addressing any issues that have come up during site visits. There is no further information regarding Scott Air s owners or its key personnel that would reflect negatively on its fitness. In light of these circumstances, we tentatively conclude that Scott Air has the proper regard for the laws, rules, and regulations governing its services to ensure that its aircraft and personnel conform to applicable safety standards and that acceptable consumer relations practices will be followed. CITIZENSHIP Section of the Transportation Code requires that authority to engage in air transportation be held only by citizens of the United States as defined in 49 U.S.C (a)(15). That section also requires that the president and two-thirds of the Board of Directors and other managing officers be U.S. citizens, that at least 75 percent of the voting interest be owned by U.S. citizens, and that the air carrier must be under the actual control of U.S. citizens. As previously discussed, Mr. Van Valin, a U.S. citizen, and Ayer Track, ultimately owned by Mr. Currier, a U.S. citizen, equally own Scott Air. The air carrier is a limited liability company organized under the laws of Alaska. Further, all of Scott Air s key personnel are U.S. citizens, and the applicant has filed an affidavit attesting that it is a citizen of the United States within the meaning of the Transportation Code. Finally, we have found no information that suggests that non-u.s. citizens control Scott Air. In light of the foregoing, we tentatively find that U.S. citizens own and actually control Scott Air, consistent with 49 U.S.C (a)(15) and that it is fit, willing, and able to provide its proposed operations, subject to conditions. TRADE NAME REGISTRATION In its application, Scott Air requested that the Department register the trade names Island Air Express and Desert Splash Adventures for use in certain of its air transportation operations. Part 215 (14 CFR Part 215) of the Department s regulations provides that any air carrier wishing to use an alternative trade name must first register that name with the Department. The rule further states that the Department may register such names after the air carrier gives notification to similarly named air carriers of the proposed use of the trade name. In this case, Scott Air filed notice of its intent to register the above trade names on Hawaii Island Air, Inc. d/b/a Island Air; Island Airlines, LLC d/b/a Nantucket Air Shuttle; and Redemption, Inc. d/b/a Island Air Service. Since Scott Air complied with the requirements of Part 215, we acknowledge the registration of the trade names Island Air Express and Desert Splash Adventures by Scott Air for use in certain of its air transportation operations.

6 6 OBJECTIONS We will give interested persons 14 days following the service date of this order to show cause why the tentative findings and conclusions set forth here should not be made final; answers to objections will be due within 7 days thereafter. We expect that persons objecting to our tentative findings and conclusions will support their objections with relevant and material facts. If an oral evidentiary hearing or discovery procedures are requested, the objector should state in detail why such hearing or discovery is considered necessary, and what material issues of decisional fact the objector would expect to establish through a hearing or discovery that cannot be established in written pleadings. The objector should consider whether discovery procedures alone would be sufficient to resolve material issues of decisional fact. If so, the type of procedure should be specified (see Part 302, Rules 19 and 20); if not, the reasons why not should be explained. We will not entertain general, vague, or unsupported objections. If no substantive objections are filed, we will issue an order that will make final our tentative findings and conclusions with respect to certification and fitness and will issue Scott Air a certificate that will contain an exact copy of the attached Terms, Conditions and Limitations. CERTIFICATE CONDITIONS AND LIMITATIONS If Scott Air is found fit and issued the certificate authority it seeks, its scheduled passenger authority will not become effective until the air carrier has fulfilled all of the requirements for effectiveness as set forth in the terms, conditions and limitations attached to its certificate. Among other things, this includes: (1) our receipt of evidence that Scott Air has been certified by the FAA to engage in the subject operations, (2) a fully-executed OST Form 6410 evidencing liability insurance coverage that meets the requirements of 14 CFR 205.5(b) of our rules for all of its aircraft, (3) verification of available funding necessary to meet the Department s fitness requirements, and (4) a statement of changes that Scott Air has undergone in its ownership, management, operations, finance or compliance disposition since the issuance of this order. Additionally, we propose to limit any authority issued to Scott Air to operations using aircraft that can be operated under FAR Part 135 (that is, aircraft with no more than 9 seats in scheduled passenger operations). Should Scott Air desire to acquire and operate larger aircraft that would require certification from the FAA under 14 CFR Part 121, our fitness findings might no longer apply. Therefore, should Scott Air desire to operate aircraft that would require certification from the FAA under Part 121, it must first provide the Department with at least 45 days advance notice of such plans and provide updated information establishing its fitness for such expansion. Finally, we remind Scott Air of the requirements of 49 U.S.C (e). Specifically, that section requires that, once an air carrier is found fit initially, it must remain fit in order to hold its authority. To be assured that certificated air carriers continue to be fit after effective authority has been issued to them, we require that they supply information describing any subsequent substantial changes it may undergo in areas affecting fitness. Therefore, if Scott Air is issued authority to conduct scheduled passenger air transportation and should it subsequently propose substantial changes in its ownership, management, or operations, it must first comply with the requirements of section 204.5

7 7 of our rules. 7 The compliance of the company with this requirement is essential if we are to carry out our responsibilities under section 41110(e) of the Transportation Code. 8 ACCORDINGLY: 1. We direct all interested persons to show cause why we should not issue an order making final the tentative findings and conclusions stated above and award a certificate of public convenience and necessity to Scott Air, LLC to engage in interstate scheduled air transportation of persons, property, and mail, subject to the attached specimen Terms, Conditions, and Limitations. 2. We dismiss as moot Scott Air, LLC s request for a pendente lite exemption from the provisions of 49 U.S.C to engage in interstate scheduled air transportation in Docket DOT-OST We register the trade names Island Air Express and Desert Splash Adventures for use in Scott Air, LLC s air transportation operations. 4. We direct any interested persons having objections to the issuance of an order making final any of the proposed findings, conclusions, or the certificate award set forth here to file such objections with the U.S. Department of Transportation, Docket Operations, 1200 New Jersey Avenue, SE, West Building Ground Floor, Rm. W12-140, Washington, DC 20590, in Docket DOT-OST , and serve them upon all persons listed in Attachment A no later than 14 days after the service date of this order. Answers to objections shall be filed no later than 7 business days thereafter. 5. If timely and properly supported objections are filed, we will accord full consideration to the matters or issues raised by the objections before we take further action In the event that no objections are filed, we will consider all further procedural steps to be waived and we will enter an order making final our tentative findings and conclusions and will issue 7 Scott Air may contact our Air Carrier Fitness Division to report proposed substantial changes in its operations, ownership, or management, and to determine what additional information, if any, will be required under section In addition, by Notice dated July 21, 1998, the Department requested air carriers to provide a 30-day advance notification of any proposed change in ownership, restructuring, or recapitalization. If the air carrier fails to file the information or if the information fails to demonstrate that the air carrier will continue to be fit upon implementation of the substantial change, the Department may take such action as is appropriate, including enforcement action or steps to modify, suspend, or revoke the air carrier's certificate authority. 8 We also remind Scott Air about the requirements of section of our rules. This section provides, among other things, that (1) the certificate authority granted to a company shall be revoked if the company does not commence actual flying operations under that authority within one year of the date of the Department's determination of its fitness; (2) if the company commences operations for which it was found fit and subsequently ceases such operations, it may not resume certificated operations unless its fitness has been redetermined; and (3) if the company does not resume operations within one year of its cessation, its authority shall be revoked for dormancy. 9 Since we have provided for the filing of objections to this order, we will not entertain petitions for reconsideration.

8 8 to Scott Air, LLC a certificate that will contain exact copies of the attached specimen Terms, Conditions, and Limitations. 7. We will serve a copy of this order on the persons listed in Attachment A. 8. We will publish a summary of this order in the Federal Register. By: SUSAN L. KURLAND Assistant Secretary for Aviation and International Affairs An electronic version of this document is available on the World Wide Web at

9 Attachment SPECIMEN Terms, Conditions, and Limitations SCOTT AIR, LLC is authorized to engage in interstate air transportation of persons, property and mail between any point in any State, territory, or possession of the United States or the District of Columbia, and any other point in any of those entities. This authority is subject to the following provisions: (1) The authority to operate under this certificate will not become effective until six (business) days after the Department has received the following documents; provided, however, that the Department may stay the effectiveness of this authority at any time prior to that date: (a) A copy of the holder's Air Carrier Certificate and Operations Specifications authorizing such operations from the Federal Aviation Administration (FAA). (b) A certificate of insurance on OST Form 6410 evidencing liability insurance coverage meeting the requirements of 14 CFR Part 205.5(b) for all of its aircraft. (c) A statement of any changes the holder has undergone in its ownership, key personnel, operating plans, financial posture, or compliance history, since the date of the Show Cause Order in this case. (d) A revised list of pre-operating expenses already paid and those remaining to be paid, as well as independent verification that the holder has available to it funds sufficient to cover any remaining pre-operating expenses and to provide a working capital reserve equal to the operating costs that would be incurred in three months of operations. (2) Pending receipt of effective passenger authority, the holder may not accept payment of any kind (i.e., cash, check, or credit card), issue tickets for the operations proposed under this certificate, or enter into contracts for the operations proposed under this certificate, and any advertisement by the holder must prominently state: "This service is subject to receipt of government operating authority." (3) The holder shall at all times conduct its operations in accordance with the regulations prescribed by the Department of Transportation for the services authorized by this certificate, and with such other reasonable terms, conditions, and limitations as the Department of Transportation may prescribe in the public interest.

10 2 (4) The holder's authority under this certificate is effective only to the extent that such operations are also authorized by the FAA, and comply with all U.S. Government requirements concerning security, including, but not limited to 49 CFR Part * (5) The holder s authority is limited to operations conducted pursuant to Part 135 of the Federal Aviation Regulations. In the event that the holder wishes to institute operations that would require Part 121 certification from the FAA, it must first be determined fit for such operations. (6) The holder may not operate aircraft originally designed to have a maximum passenger capacity of more than 60 seats or a maximum payload capacity of more than 18,000 pounds. (7) The holder shall at all times remain a "Citizen of the United States" as required by 49 U.S.C (a)(15). (8) The holder shall maintain in effect liability insurance coverage as required under 14 CFR Part 205. Failure to maintain such insurance coverage will render a certificate ineffective, and this or other failure to comply with the provisions of Subtitle VII of Title 49 of the United States Code or the Department's regulations shall be sufficient grounds to revoke this certificate. (9) The holder is authorized to conduct charter flights in interstate and/or foreign air transportation in accordance with the provisions of 14 CFR Part 212. (10) Should the holder propose any substantial changes in its ownership, management, or operations (as defined in 14 CFR Part 204.2(l)), it must first comply with the requirements of 14 CFR Part (11) In the event that the holder does not commence actual flying operations under this certificate within one year of the date of the Department's determination of its fitness, its authority shall be revoked for dormancy, unless the holder is conducting operations under another type of certificate authority. Further, in the event that the holder commences operations for which it was found "fit, willing, and able" and subsequently ceases all such operations, its authority under all certificates held shall be suspended under the terms of 14 CFR Part and the holder may neither recommence nor advertise such operations unless its fitness to do so has been redetermined by the Department. Moreover, if the holder does not resume operations within one year of its cessation, its authority shall be revoked for dormancy. * To assure compliance with all applicable U.S. Government requirements concerning security, the holder shall, before commencing any new service (including charter flights) to or from a foreign airport, contact its Principal Security Inspector (PSI) to advise the PSI of its plans and to find out whether the Transportation Security Administration has determined that security is adequate to allow such airport(s) to be served.

11 Appendix A SERVICE LIST FOR SCOTT AIR, LLC MR PIERRE MURPHY ATTORNEY FOR SCOTT AIR LLC 1200 NEW HAMPSHIRE AVE NW SUITE 800 WASHINGTON DC MR SCOTT VAN VALIN SCOTT AIR LLC PO BOX 1174 CRAIG ALASKA MR TROY MCCLANAHAN PRINCIPAL OPERATIONS INSPECTOR FEDERAL AVIATION ADMINISTRATION 3032 VINTAGE PARK BOULEVARD SUITE 106 JUNEAU ALASKA MARK ATWOOD HAWAII ISLAND AIR INC THE ARMY AND NAVY BUILDING 1627 I STREET NW SUITE 1100 WASHINGTON DC GARY GAROFALO ISLAND AIRLINES LLC GAROFALO GOERLICH & HAINBACH 1200 NEW HAMPSHIRE AVE NW SUITE 800 WASHINGTON DC MICHAEL CARNEY KETCHIKAN INTL AIRPORT 1000 AIRPORT TERMINAL WAY KETCHIKAN AK CSET ASSISTANT MANAGER FEDERAL AVIATION ADMINISTRATION AVIATION DRIVE AFS-900 SUITE 131 DULLES VA MR PETER J LYNCH ASSISTANT CHIEF COUNSEL FOR ENFORCEMENT AGC-300 FEDERAL AVIATION ADMINISTRATION 800 INDEPENDENCE AVENUE SW WASHINGTON DC REGIONAL COUNSEL, AAL-7 FEDERAL AVIATION ADMINISTRATION ALASKAN REGION HEADQUARTERS 222 WEST 7 TH AVENUE SUITE 14 ANCHORAGE ALASKA OFFICE OF AIRLINE INFO DOT/RITA/BTS E-36 - RTS NEW JERSEY AVENUE SE WASHINGTON DC ROBERT SANFORD PRESIDENT REDEMPTION INC D/B/A ISLAND AIR SERVICE PO BOX 125 KODIAK AK TIM LACOUR AIRPORT MANAGER KLAWOCK AIRPORT PO BOX 91 CRAIG AK 99921