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

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1 Order Served: May 24, 2010 UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C. Issued by the Department of Transportation on the 24th day of May, 2010 Application of KAISERAIR, INC. for a certificate of public convenience and necessity under 49 U.S.C to engage in interstate charter air transportation of persons, property, and mail Docket DOT-OST ORDER TO SHOW CAUSE PROPOSING ISSUANCE OF CERTIFICATE Summary By this order, we tentatively conclude that KaiserAir, Inc. ( Kaiser ), is a citizen of the United States and is fit, willing, and able to provide interstate charter air transportation of persons, property, and mail using one large aircraft, and should be issued a certificate of public convenience and necessity authorizing such operations, subject to conditions. Background Section of Title 49 of the United States Code ( the Transportation Code ) directs us to determine that applicants for certificate authority to provide interstate charter air transportation of persons, property and mail are fit, willing, and able to perform such transportation and to ensure that all operations relating to this authority conform to the provisions of 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. On August 28, 2009, Kaiser, an on-demand air taxi operator holding a Part 135 Federal Aviation Regulation ( FAR ) operating certificate from the Federal Aviation Administration ( FAA ),

2 2 filed an application in Docket DOT-OST requesting a certificate issued under 49 U.S.C authorizing it to provide interstate charter air transportation of persons, property, and mail using large aircraft. Kaiser accompanied its application with fitness information required by section of our regulations and supplemented its application with additional information on January 19 and February 4, No answers opposing Kaiser s application were filed and no special issues regarding the applicant have come to our attention. Under these circumstances, we propose to decide the issue of the applicant s fitness on the basis of the written record, and we tentatively conclude that Kaiser is a U.S. citizen and is fit, willing, and able to provide interstate charter air transportation using one large aircraft. However, we will give interested persons an opportunity to show cause why we should not adopt as final these tentative findings and conclusions. The Applicant FITNESS Kaiser, based in Oakland, California, was formed as a corporation under the laws of the State of California on November 26, 1976, and is wholly-owned by Mr. Ronald J. Guerra. Kaiser currently holds a Part 135 Air Carrier Certificate issued from the FAA and is registered as an ondemand air taxi operator under Part 298 of our rules (14 CFR Part 298). The air carrier is also a licensed FAA Part 145 aircraft repair station, and a majority owner of a fixed base operator, the Santa Rosa Jet Center, LLC. Kaiser currently operates a fleet of eight (8) small aircraft and, if certificated, intends to add one large aircraft, a Boeing , to its operations. 1 Managerial Competence Kaiser s Board of Directors consists of the following five members: Messrs. Ronald J. Guerra, David L. Campbell, Alexander (Sandy) Waters, Roby J. Guerra, and Boyd C. Sleeth, Esq. Kaiser s officers and other key management and technical personnel include: Ms. Beth A. Medlen, and Messrs. James G. (Jim) Strickland, Jr., David A. Mancebo, Wayne Smith, John L. Hancock, and David Street. Each has certified that he or she is a U.S. citizen. Director, President, and Chief Executive Officer Director, Vice President of Quality Assurance Director, Vice President of Bus. Development/Admin. Officer Director, Vice President of Asset Management/Client Relations Director Vice President/Director of Maintenance Chief Financial Officer Ronald J. Guerra David L. Campbell Alexander (Sandy) Waters Roby J. Guerra Boyd C. Sleeth, Esq. Beth A. Medlen James G. (Jim) Strickland, Jr. 1 As an air taxi operator, Kaiser s operations are limited to the use of small aircraft (i.e., aircraft originally designed to have a maximum passenger capacity of 60 seats or less and a maximum payload capacity of 18,000 pounds or less). Operations using large aircraft (i.e., 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) requires certificate authority.

3 3 Director of Operations/Chief Pilot Chief Inspector Director of Safety Manager of Aircraft Maintenance David A. Mancebo Wayne Smith John L. Hancock David Street Mr. Ronald J. Guerra, the air carrier s President, Chief Executive Officer, and Board member, holds an FAA Airline Transport Pilot certificate with multiple type-ratings in turbine/jet aircraft, and has logged over 21,000 total flight hours. He has held the position of President and CEO since 1979 after purchasing the organization, along with three other company executives, from its predecessor Kaiser Industries Corporation. In addition to his executive-level experience, Mr. Guerra previously served as a pilot for the various Kaiser family of corporations ( ), World Airways, Inc. (1960), Transocean Airlines, Inc. (1959), Overseas National Airlines, Inc. (1959), Resort Airlines, Inc. ( ), Miami-Peninsula Air Transport, Inc. (1955), and Southeast Airlines, Inc. (1955). Mr. Guerra is an FAA-certified Flight Engineer and, in 2005, was awarded the National Business Aviation Association s John P. (Jack) Doswell Award for Meritorious Service to Aviation. Mr. David L. Campbell, a Kaiser Board member and the company s Vice President of Quality Assurance, holds an FAA Airline Transport Pilot certificate and has logged over 13,000 total flight hours. In addition to his executive duties, Mr. Campbell serves as Kaiser s Gulfstream Check Airman (1996-present) and Gulfstream Captain (1989-present). He joined Kaiser in 1979 and has served in several different capacities with the company, including Vice President/Director of Operations ( ), Chief Pilot ( ), and Captain/SIC Line Pilot ( ). Prior to joining Kaiser, he held various pilot positions, including Flight Instructor for National Jets, Inc. ( ), Eagle Aviation, Inc. (1977), Embry-Riddle Aeronautical University ( ), and Pompano Aviation, Inc. (1976), and part-time Air Cargo Pilot for American Flyers, Inc. ( ). He holds multiple aviation-related degrees from Embry-Riddle Aeronautical University. Mr. Alexander (Sandy) Waters, a Kaiser Board member and the company s Vice President of Business Development and Administrative Officer, has over 28 years experience in executive-level and senior management positions. Prior to joining Kaiser in 1996, Mr. Waters served as General Manager for the Scottish Claymores Football Club ( ), Sales Manager for Trefethen Vineyards and Winery ( ), and Director of Administration for The Denver Broncos Football Club ( ). Mr. Roby J. Guerra, a Kaiser Board member and the company s Vice President of Asset Management and Client Relations, is an FAA Airline Transport Pilot with type-ratings in multiple turbine/jet aircraft and over 5,000 hours total flight time. In addition to his executive duties, Mr. Guerra serves concurrently as an FAA Part 121 qualified B-737 flight crewmember under an aircraft management agreement with Miami Air International, Inc. (2009-present). Prior to joining Kaiser in 1994, he held various aviation and non-aviation positions, including Sales/Business Development Associate for Ahart Aviation, Inc. ( ), Ski/Bike Salesman for Niles Ski and Bike Works, Inc. ( ), Ski Salesman/Boot Fitter for Swiss Ski Chalet, Inc. ( ), Aircraft Re-fueler/Customer Service Representative for KaiserAir, Inc.

4 4 ( ), and Fitness Instructor for the Tri-Valley YMCA ( ). Mr. Guerra attended Chabot College and California State University-Hayward. Mr. Boyd C. Sleeth, a member of Kaiser s Board of Directors since 2008, is a Partner and Associate General Counsel with Reed Smith LLP in San Francisco, California, and specializes in insurance recovery and general litigation. Mr. Sleeth previously served as Director and private counsel for Crosby, Heafey, Roach & May Professional Corporation ( ), and Health and Sciences Program Assistant for the University of California Berkeley ( ). He holds a Bachelor of Arts in History from Immaculate Heart College (1975). Ms. Beth A. Medlen, Kaiser s Vice President and Director of Maintenance, is an FAA Airframe and Powerplant Mechanic with more than 25 years of aircraft maintenance experience. Prior to joining Kaiser as Vice President of Maintenance and Ground Operations in 2007, she served as Vice President of Plans and Programs for AAR Aircraft Services, Inc. ( ), and held several managerial positions with United Air Lines, Inc., including General Manager of the Oakland Maintenance Center, Manager of Engine Production and Test, Manager of Engine Inspection, Manager of Aircraft Maintenance, and Manager of Component Maintenance ( ). Ms. Medlen is experienced in large aircraft maintenance, including B-737, B-747, B-757, B-767, B-777, and A-319/320 aircraft, and earned a Bachelor of Science in Aeronautical Operations from San Jose State University. Mr. James G. (Jim) Strickland, Jr., has served as Kaisers s Chief Financial Officer ( CFO ) since 2004 and has over 26 years of experience as Controller/CFO in the international transportation, import/export, commercial construction, and aircraft management/fbo industries. Prior to joining Kaiser, he served as Vice President/CFO for DBD Structures, Inc. ( ), Controller for Scheidegger Trading Co. ( ), Credit Controller for Tiphook Container Rental, Inc. ( ), and Secretary-Treasurer/Controller for Star Shipping (U.S.H.C.) Inc. ( ). Mr. Strickland earned a Bachelor of Science in Business Administration from California State University Chico (1983). Mr. David A. Mancebo, Kaiser s Director of Operations and Chief Pilot, is an FAA Airline Transport Pilot with over 10,800 flight hours logged. Mr. Mancebo joined Kaiser in 1984 and has served in several different pilot positions with the company, including Assistant Chief Pilot ( ), Senior Captain (1991-present), Captain ( ), and First Officer ( ). Prior to joining Kaiser, he served as Pilot for Cascade Steel Rolling Mills, Inc. ( ) and Air Nevada Airlines, Inc. ( ); Flight Instructor for Sierra Academy of Aeronautics, Inc. ( ); and Winemaker for Winemaster s Guild Winery ( ). Mr. Mancebo is type-rated in numerous turbine/jet aircraft, is an FAA Designated Check Airman (1994-present), and attended San Joaquin Delta College ( ). Mr. Wayne Smith, Kaiser s Chief Inspector since 2004, holds an FAA Airframe and Powerplant Mechanic certificate and has more than 40 years of experience performing aircraft maintenance. Prior to assuming his current position at Kaiser, he was employed by United Air Lines, Inc., as Aircraft Inspection Supervisor ( ), Supervisor/Shift Manager for Heavy Maintenance ( ), Line Maintenance Supervisor ( ), Airframe Maintenance Supervisor ( ), Airframe Overhaul/Avionics Technician ( ), Electronic Component

5 5 Repair/Overhaul Technician ( ), and Hydraulic Components Shop Technician ( ). Mr. Smith attended Santa Rosa Junior College ( ), Canada College (1993), and the College of Notre Dame ( ). He also served in the United States Navy ( ). Mr. John L. Hancock, Kaiser s Director of Safety, is an FAA Airline Transport Pilot and FAA Airframe and Powerplant Mechanic with over 40 years of aviation experience. Prior to joining Kaiser in 2009, Mr. Hancock served in a variety of executive and managerial positions, including Owner of John L. Hancock Aviation Safety Consultant, LLC ( ), Aviation Safety Inspector for the FAA Flight Standards Division ( ), President/Owner of Novus Technology, Corp. ( ), and Owner of Eagle Aircraft of California ( ). Additionally, Mr. Hancock has served as Pilot/Sales Manager for Welenco, Inc. ( ), President/Owner of Aero Ag Service, Inc. ( ), Chief Pilot for Del Monte Aviation ( ), Chief Agricultural Pilot Instructor for Cal-Ag Aero, Inc. ( ), and DC-3 Co-pilot for World Weather, Inc. ( ). He is type-rated in numerous turbine/jet aircraft, including the B-737, DC-3S, DC-4, and L-1049, and holds FAA Flight Engineer, rotorcraft, and glider certifications. Mr. Hancock has also held several non-aviation executive roles and served in the United States Air Force ( ). Mr. David Street, Kaiser s Manager of Aircraft Maintenance, is an FAA Airframe and Powerplant Mechanic with over 15 years of experience performing aircraft maintenance. Prior to joining Kaiser in 2001, Mr. Street served as an Airframe and Powerplant Mechanic for United Air Lines, Inc. ( ), and Flying S Aviation, Inc. ( ). He also performed aircraft overhaul duties for Joliff Aircraft, Inc. ( ), and avionics repair for Modesto Avionics, Inc. ( ). Mr. Street is experienced in B-747 large aircraft maintenance and earned a Bachelor of Science in Aviation Maintenance from San Jose State University (1996). The FAA has advised us that Kaiser s key technical personnel have been approved by that agency to hold their positions, the air carrier has conducted its operations satisfactorily, and it has no objection to the Department s approval of Kaiser s application for certificate authority. 2 In light of the experience and background of the applicant s key personnel, we tentatively conclude that Kaiser s management team possesses the skills and technical ability to conduct its proposed interstate charter air transportation operations using one large aircraft. 2 Before authorizing an air carrier to conduct air transportation operations, the FAA evaluates the qualifications of persons holding certain positions with respect to the minimum qualifications for those positions as prescribed in the FARs. The FAA s evaluation of these key personnel provides an added practical and in-person test of their skills and technical ability.

6 6 Operating Plan and Financial Position As previously noted, Kaiser currently provides on-demand charter air transportation with a fleet of eight (8) small aircraft operated under FAR Part 135 and Part 298 of our regulations. If granted the certificate authority it seeks, Kaiser intends to provide interstate charter operations using one large aircraft in executive configuration for members of Kona Associates, LLC ( Kona Associates ), a non-profit organization incorporated under the laws of the State of Hawaii. 3 The applicant has entered into an Aircraft Management Agreement ( AMA I ), wherein Kaiser has agreed to operate one 60-seat Boeing on behalf of Kona Associates between Oakland International Airport and Keahole-Kona International Airport, providing two weekly round-trip flights, for a total of 104 round-trip flights annually. 4 According to the terms of the AMA I, passengers will be limited to members of Kona Associates, their families, invited guests, and household employees; the flights will not be held out to the public. 5 In addition, the pre-certification start-up costs of Kaiser s proposed operations, as well as the post-certification fixed and variable costs, are to be paid, in entirety, by Kona Associates upon invoice or account debit. Kona Associates will also pay into an escrow account sufficient funds to cover aircraft leasing costs and Kaiser s monthly fixed costs, in advance, for services performed, including terminal services, communications, flight crew, training, reservations, administrative/management services. Kona Associates will pay monthly invoiced maintenance, labor, overtime, parts, and material costs, as well as monthly invoiced variable costs, including fuel, crew travel expenses, aircraft parking fees, airport taxes, landing fees, and catering. Historical financial statements submitted in support of Kaiser s application show that for the calendar years ending 2007 and 2008, Kaiser earned net income of $2.1 million on approximately $41.3 million, and $311,197 on approximately $45.0 million in operating revenues, respectively. For the seven months ending July 31, 2009, Kaiser earned net income of 3 Kona Associates has 90 members, which are comprised of the residents of three exclusive resort communities on the Kona coast of Hawaii Kukio, Hualalai, and Mauna Lani. The members formed the association to provide private air transportation between the San Francisco Bay area, where the majority of the members have their primary residences, and the three Kona communities where they maintain vacation homes. By Order , issued August 11, 2004, Kona Associates was granted an exemption from the Department s regulations to the extent required to enable it to make this service available to its members. Accordingly, Kona Associates was limited to the use of certificated air carriers to perform the flights. The Kona operations initially began in February 2008 under an aircraft management agreement with a company other than Kaiser. 4 Since Kaiser cannot provide the charter service on behalf of Kona Associates until it has received the appropriate operating and certificate authority from the Department and the FAA, it has opted to begin providing the shuttle service by entering into an Aircraft Management Agreement ( AMA II ) with Miami Air International, Inc. ( Miami Air ), effective March 18, 2009, for a period of time sufficient for Kaiser to complete the Part 121 certification process. Subsequently, Kaiser and Miami Air entered into an Aircraft Sublease Agreement on May 11, 2009, to effect the operation of a Boeing aircraft, whereby the aircraft would be placed on Miami Air s FAA Air Carrier Certificate, and operated and maintained by Miami Air under Kaiser s supervision. On May 15, 2009, Kaiser took delivery of a Boeing aircraft. Accordingly, Kona shuttle flights began service in June 2009 under management by Kaiser, with operations conducted by Miami Air. 5 Kona Associates members pay annual dues to fund air transportation operations and, in return, members are guaranteed seats on a certain number of flights per year.

7 7 $594,708 on approximately $16.4 million in operating revenues. The air carrier s balance sheet indicates that, as of July 31, 2009, it had current assets of $11.4 million and current liabilities of $2.5 million, giving the company a positive working capital balance of $8.9 million. The same balance sheet shows the company as having retained earnings of $17.9 million and total shareholders equity of $18.0 million. Kaiser anticipates that its pre-operating start-up costs for the Kona operation to be approximately $385,200. These figures are drawn from the Part 121 portion of the Kaiser consolidated financial forecast, which projects costs of $60,200 for aircraft proving runs, $25,000 for maintenance bridging and conformity, and $300,000 for legal and regulatory certification costs. 6 Kaiser s forecast first full-year of operations financial results are based on the Boeing aircraft being operated twice weekly (for an annual total of 104 round trips), with an estimated flight time of 10.5 hours per round trip (1,092 hours per year). As such, Kaiser projects that the operating costs for the first full-year of the Kona operation, from July 2010 through June 2011, will total approximately $8.8 million. To meet the Department s financial fitness criteria, an applicant should have access to financial resources sufficient to cover its pre-operating expenses and the expenses that are reasonably projected to be incurred during three months of normal operations. 7 Kaiser provided the Department with a consolidated financial forecast for its first year of operations with its Boeing , and further stated that it considers the FAA Part 121 certification process to be progressing satisfactorily and within cost projections. Given the nature of the air carrier s proposed operations, we find the applicant s forecast to be reasonable and estimate that Kaiser will need access to $2.6 million in funding to meet our financial fitness test. 8 In support of its ability to meet our financial fitness requirements, Kaiser provided third-party verification from Wells Fargo Bank and BancWest Investments, confirming that it has maintained account deposits in excess of the amount required by the Department. We note that Kaiser s operation of the Kona operation is dependent upon Kona Associate s collection of sufficient membership revenues to pay for the service. In addition to a substantial initial payment and annual membership dues, out of which the entire costs for the proposed operations are paid, club members are also subject to additional charges to make up for any unmet costs in order to keep the service running. Additionally, all of Kaiser s fixed and variable operating costs are reimbursed, plus a profit element, by Kona Associates, and the remainder of its overhead and administrative costs are met by its existing aircraft management, FBO, and charter operations. As such, Kaiser s exposure to default risk is minimal. Further, we note that 6 Kaiser notes that the $25,000 it has allocated for maintenance bridging and conformity is for related contingencies that, for unforeseen reasons, may not be paid by Miami Air. 7 Because projected expenses during the first several months of air transportation services frequently do not include all costs that will be incurred during a normal period of operations, it is our practice to base our threemonth test on an average of one-quarter of the first year s operating cost forecast. In calculating resources, projected revenues may not be used. 8 The $2.6 million consists of the applicant s pre-operating expense forecast of $385,200, plus $2.2 million, which is one quarter of Kaiser s estimated first-year expense of $8.8 million.

8 8 Kaiser holds a funding surplus of $1.3 million relative to its available cash and short-term securities without considering the obligation of Kona Associates to fully cover the pre-operating and operating costs incurred by Kaiser. Based on our review of the financial documents submitted in support of Kaiser s financial fitness, we tentatively conclude that Kaiser has access to sufficient financial resources to commence the operations it proposes without posing an undue risk to consumers or their funds. 9 Compliance Disposition The applicant states that there are no pending legal actions or outstanding judgments against it, its owners, 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 in the past ten years. Kaiser also states that there are no pending investigations, enforcement actions, or formal complaints filed by the Department against it, its key personnel, or persons having a substantial interest in it with respect to compliance with the Transportation Code or the Department s regulations. A review of our records and other information available to us has uncovered no information which would reflect negatively on the applicant or any of its key personnel. In addition, according to the FAA, Kaiser has conducted its operations in a satisfactory manner and the agency knows of no reason why the air carrier should not be granted the authority it is seeking. Moreover, the applicant notes that neither it nor any of its key personnel have been involved in an accident or incident in the year preceding its application or at any time in the past which remains under investigation by the FAA, the NTSB, or the company itself. In light of these circumstances, we tentatively find that Kaiser has the proper regard for the laws 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 certificates 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 specifies 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 outstanding voting interest be owned by U.S. citizens, and that the air carrier must be under the actual control of U.S. citizens. As noted earlier, Kaiser is organized as a corporation under the laws of the State of California. Mr. Ronald J. Guerra, the applicant s President, Chief Executive Officer, and Board member is a U.S. citizen and owns one (1) percent of the total equity and 100 percent of the voting shares of Kaiser s common stock. The remainder of the company s stock all of which is non-voting is held equally in four irrevocable trusts for Roby James Guerra and Katherine Anne Guerra 9 As is our practice, prior to making any authority awarded to Kaiser effective, we will require the company to demonstrate that it continues to have access to the financial resources needed to meet our financial test.

9 9 Campbell, the son and daughter, respectively, of Mr. Ronald J. Guerra. Mr. Roby Guerra and Mrs. Katherine Guerra Campbell are U.S. citizens and neither individual holds, or have held, a substantial interest in any other aeronautical business. Additionally, Kaiser s key personnel are U.S. citizens and the company has submitted an affidavit attesting that it is a citizen of the United States within the meaning of the Statute. Finally, there is no other information before us that would lead us to conclude that Kaiser is not controlled by U.S. citizens. In view of the foregoing, we tentatively conclude that Kaiser is a U.S. citizen and that it is fit, willing, and able to provide air transportation services as a U.S. certificated air carrier, subject to conditions. REQUEST FOR CONFIDENTIAL TREATMENT On January 19, 2010, Kaiser filed a motion for confidential treatment under 14 CFR ( Rule 12 ) of our rules to withhold from public disclosure its aircraft lease agreements, aircraft management agreements, and company financial documents. In support of its request, Kaiser stated that public disclosure of these documents would cause substantial harm to Kaiser s competitive position on the grounds that they comprise of competitively sensitive commercial information. Rule 12 instructs us to evaluate requests for confidential treatment in accordance with standards of disclosure found in the Freedom of Information Act (5 U.S.C. 552). Information may be withheld from disclosure under 5 U.S.C. 552(b)(4) if it is (1) commercial or financial, (2) obtained from a person outside the government, and (3) privileged or confidential (Gulf and Western Industries, Inc. v. United States, 615 F.2d 527, 529 (D.C. Cir. 1979)). There is no question that the information for which Kaiser seeks confidential treatment is financial or commercial in nature and that it was obtained from a person outside the government. The remaining question is whether the information is privileged or confidential whether disclosure of the information is likely to have either of the following effects: (1) impair the Government s ability to obtain necessary information; or (2) cause substantial harm to the competitive position of the person from whom the information was obtained (National Parks and Conservation Association v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974)). Further, to be privileged or confidential, the information must not be of the type that is usually released to the public (Gulf and Western Industries, Inc. v. United States, 615 F.2d 527, 530 (D.C. Cir. 1979)). After reviewing Kaiser s motion, the Department, by letter dated January 29, 2010, denied Kaiser s request for confidential treatment of company financial documents. In that letter, the Department informed Kaiser that it is not the Department s practice to withhold from public disclosure information regarding an applicant s current or historical financial information, or forecasted revenues and expenses, except when the applicant has shown that substantial harm to its competitive position would result from public disclosure of the given information and such information is not the type that is normally released to the public. No such showing was made. In that letter, the Department also granted Kaiser s motion to withhold aircraft lease agreements and aircraft management agreements from public disclosure. The Department has, in the past,

10 10 afforded confidential treatment to an applicant s management and aircraft lease agreements and, therefore, we deemed it reasonable to do so here. 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 such persons to direct their objections, if any, to the application and points at issue and to support such objections with detailed economic analyses. If an oral evidentiary hearing or discovery procedures are requested, the objector should state in detail why such a 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 Kaiser s fitness and certification. EFFECTIVE CERTIFICATE CONDITIONS AND LIMITATIONS If Kaiser is found fit and issued the certificate it seeks, its authority will not become effective until the air carrier has fulfilled all of the requirements for effectiveness as set forth in the terms and conditions attached to its certificate. Among other things, this includes (1) our receipt of evidence of Kaiser s authority from the FAA authorizing such operations, (2) evidence of liability insurance coverage that meets the requirements of section 205.5(b) of our rules, (3) a statement of changes it may have undergone since its fitness was examined, and (4) evidence that Kaiser continues to have adequate financial resources available to it. We also wish to remind Kaiser 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 they may undergo in areas affecting fitness. Therefore, if Kaiser is issued effective certificate authority and subsequently proposes substantial changes in its ownership, management, or operations, it must first comply with the requirements of section of our rules The air carrier 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 this updated 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 commuter authority.

11 11 Moreover, as discussed in the FITNESS section of this order, our finding of fitness for Kaiser is based on the operating plans described in its application, namely, performing passenger charter air transportation with one large aircraft on behalf of Kona Associates. 11 Were the applicant to propose to expand its operations to include additional large aircraft or wish to conduct independent large aircraft charter operations, our fitness findings, particularly involving the adequacy of Kaiser s management and financial resources, might no longer apply. Therefore, we propose to restrict Kaiser s operations to one large aircraft in charter passenger operations pursuant to an aircraft management agreement with Kona Associates or another company similarly structured. Should Kaiser desire to operate additional large aircraft or independent large aircraft charter passenger operations, it must first provide the Department with at least 45-days advance notice of such plans and provide updated information establishing it fitness for such. The compliance of the company with this requirement is essential if we are to carry out our responsibilities under section 41110(e). 12 Finally, if Kaiser is granted effective authority, it would be required to submit a detailed progress report, within 45 days following the end of the first year of certificated flight operations, to the Air Carrier Fitness Division. The submission of a first year progress report is conditioned upon all newly certificated air carriers and was adopted as policy by the Department to aid in monitoring the fitness of new air carriers. The report should include a description of the air carrier s current operations (number and type of aircraft, principle markets served, total number of full-time employees), a summary of how its operations have changed during the year, a discussion of any changes it anticipates from its current operations during its second year, current financial statements, 13 and a listing of current senior management and key technical personnel. The air carrier should also be prepared to meet with staff members of the Fitness Division to discuss its current and future operations. ACCORDINGLY, 1. We direct all interested persons to show cause why we should not issue an order making final our tentative findings and conclusions stated above and award a certificate to KaiserAir, Inc., authorizing it to engage in interstate charter air transportation of persons, property and mail using one large aircraft, subject to the attached specimen Terms, Conditions, and Limitations. 2. 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 11 This limitation does not apply to the air carrier s small aircraft operations and, as a result, Kaiser remains free to conduct operations with as many small aircraft as it desires. 12 We also remind Kaiser 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. 13 These financial statements should include a balance sheet as of the end of the company s first full year of certificated flight operations and a 12-month income statement ending that same date.

12 12 objections with the Department of Transportation Dockets, 1200 New Jersey Avenue, S.E., West Building Ground Floor, Rm. W12-140, Washington, D.C , 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 days thereafter. 3. 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. 4. In the event that no objections are filed, we will consider all further procedural steps to be waived and we will execute an order making final our tentative findings and conclusions We will serve a copy of this order on the persons listed in Attachment A. 6. We will publish a notice 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: 14 Since we have provided for the filing of objections to this order, we will not entertain petitions for reconsideration.

13 Specimen Terms, Conditions, and Limitations Attachment KAISERAIR, INC. is authorized to engage in interstate charter 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 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 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 with charter operators, 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. (4) The holder's authority under this certificate is effective only to the extent that such operations are also authorized by the Federal Aviation Administration (FAA), and

14 2 comply with all U.S. Government requirements concerning security, including, but not limited to 49 CFR Part (5) When the authority contained in this certificate becomes effective, the charter passenger authority contained herein will be limited to operations performed under an aircraft management agreement with Kona Associates, LLC or with another similarly structured company. (6) The holder shall at all times remain a "Citizen of the United States" as required by 49 U.S.C (a)(15). (7) 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. (8) Should the holder propose any substantial change in its ownership, management, or operations (as defined in 14 CFR 204.2(l)), it must first comply with the requirements of 14 CFR (9) 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 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.

15 SERVICE LIST FOR KAISERAIR, INC. MICHAEL BLASCO AVIATION SAFETY INSPECTOR FAA OAKLAND FSDO SUITE HARBOR BAY PARKWAY ALAMEDA, CA MARK W ATWOOD ELIZABETH J WADSWORTH SHER & BLACKWELL LLP 1800 M STREET NW SUITE 900 WASHINGTON DC PETER LYNCH AGC-300 ASST CHIEF COUNSEL FOR ENFORCEMENT FEDERAL AVIATION ADMINISTRATION 800 INDEPENDENCE AVE SW WASHINGTON DC WILLIAM J WEBER CERTIFICATION SECTION MANAGER FAA AFS AVIATION DRIVE, SUITE 131 DULLES VA BERNARD STANKUS RTS-42 OFFICE OF AIRLINE INFORMATION DOT/RSPA/BTS E NEW JERSEY AVE SE WASHINGTON DC CLAY MORITZ, RTS-42 OFFICE OF AIRLINE INFORMATION DOT/RSPA/BTS E NEW JERSEY AVE SE WASHINGTON DC 20590