Order 2016-4-1 Served: April 4, 2016 UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C. Issued by the Department of Transportation on the 4 th day of April, 2016 Essential Air Service at CHISANA, ALASKA HEALY LAKE, ALASKA DOT-OST-1998-4574 DOT-OST-1998-3546 under 49 U.S.C. 41731 et seq. ORDER RE-SELECTING CARRIER AND ESTABLISHING SUBSIDY RATES Summary By this Order, the United States Department of Transportation (the Department) is re-selecting (40-Mile Air), to provide Essential Air Service (EAS) at Chisana and Healy Lake, Alaska, at annual subsidy rates of $93,018 and $113,082, respectively, for the two-year period from June 1, 2016, through May 31, 2018. 1 40-Mile Air will provide Chisana with two nonstop round trips per week to Tok, Alaska, using 3-seat Cessna 185 or 4-seat Cessna 206-207 aircraft. At Healy Lake, 40-Mile Air will provide two nonstop round trips per week to Fairbanks using 5-seat Cessna 206 or 207 aircraft. Background By Order 2014-4-21, issued on April 22, 2014, the Department re-selected 40-Mile Air to provide EAS at Chisana with two nonstop round trips per week to Tok, Alaska, using 3-seat Cessna 185 or 4-seat Cessna 206-207 aircraft, and at Healy Lake to provide two nonstop round trips per week to Fairbanks using 5-seat Cessna 206 or 207 aircraft, for the two-year period from June 1, 2014, through May 31, 2016, at annual subsidy rates of $86,247 (Chisana) and $112,459 (Healy Lake). 1 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of funds.
- 2 - In anticipation of the end of the current rate terms, the Department issued Order 2015-12-8, on December 18, 2015, soliciting proposals to provide EAS, with or without subsidy support, at the above communities for a new contract term. In response to that Order, 40-Mile Air (the only air carrier to respond) submitted a proposal offering to provide status quo service for a new two-year contract term. That proposal, as well as the complete public file for EAS at Chisana and Healy Lake, may be accessed online through the Federal Docket Management System at http://www.regulations.gov, by entering DOT-OST-1998-4574 for Chisana and DOT-OST-1998-3546 for Healy Lake in the SEARCH for: Rules, Comments, Adjudications or Supporting Documents: field. Proposal of 40-Mile Air 40-Mile Air, the incumbent air carrier, submitted one inseparable proposal, offering to continue to provide the same level of service it currently operates- two nonstop round trips per week between Chisana and Tok with 3-seat Cessna 185 or 4-seat Cessna 206 and 207 aircraft; and two nonstop round trips per week between Healy Lake and Fairbanks with 5-seat Cessna 206 or 207 aircraft. 40-Mile Air proposes to provide this service at an annual subsidy rate of $93,018 at Chisana and $113,082 at Healy Lake. Community Comments On January 25, 2016, the Department requested community comments regarding this EAS carrier selection case. In response, Mr. and Mrs. Ethan and Audrey Jones, residents of Chisana for over 30 years, explained that Chisana lacks a connection to the roadway system and therefore, EAS has enabled them to maintain their health and medical needs through the service provided by 40-Mile Air. Further, they urged the Department to maintain the status quo air service. Additionally, Mr. and Mrs. Greg and Peggy Turner expressed support for the status quo, explaining that they rely on the air service provided by 40-Mile Air to transport mail, supplies, fuel and family. The Department did not receive any comments from local officials that represent Chisana or Healy Lake, nor did the State of Alaska provide any comments. Decision 40-Mile Air has been providing reliable EAS at the above communities for several years and users of the service support the re-selection of 40-Mile Air for a new contract term. Therefore, the decision is straight forward and clearly points to the re-selection of 40-Mile Air to continue providing EAS at Chisana and Healy Lake. The re-selection of 40-Mile Air will ensure Chisana and Healy Lake continue to maintain access to air service. Additionally, the Department finds the proposed rates to be reasonable. Air Carrier Fitness 49 U.S.C. 41737(b) and 41738 require that the Department find an air carrier fit, willing, and able to provide reliable service before the Department may subsidize it to provide EAS. 40-Mile Air is subject to the Department s continuing fitness requirements, and no information has come
- 3 - to the Department s attention that would bring into question the air carrier s fitness at this time. The Department has contacted the Federal Aviation Administration, and it has raised no concerns that would negatively affect the Department s fitness findings. The Department therefore concludes that 40-Mile Air is reliable and fit to conduct the operations proposed here. This Order is issued under authority delegated in 49 CFR Part 1.25a(b). ACCORDINGLY, 1. The Department re-selects, to provide Essential Air Service at Chisana and Healy Lake, Alaska, at the service levels and subsidy rates described in Appendix B, for the period from June 1, 2016, through May 31, 2018; 2. The Department directs, to retain all books, records, and other source and summary documentation to support claims for payment, and to preserve and maintain such documentation in a manner that readily permits its audit and examination by representatives of the Department. Such documentation shall be retained for seven years from the service date of this Order or until the Department indicates that the records may be destroyed, whichever comes first. Copies of flight logs for aircraft sold or disposed of must be retained. The air carrier may forfeit its compensation for any claim that is not supported under the terms of this Order; 3. The Department finds that, continues to be fit, willing and able to operate as a certificated air carrier and capable of providing reliable Essential Air Service at Chisana and Healy Lake, Alaska; 4. These dockets will remain open pending further Department action; and 5. The Department will serve copies of this Order on the civic officials of Chisana and Healy Lake, Alaska, the Alaska Department of Transportation and Public Facilities,, and the service list for this docket. By: SUSAN L. KURLAND Assistant Secretary for Aviation and International Affairs (SEAL) An electronic version of this document is available at http://www.regulations.gov
Annual Compensation Requirements for Essential Air Service at Chisana, Alaska Appendix A Page 1 of 2 Route: TKJ CZN TKJ Frequency: Two Round Trips per Week Aircraft Type: Cessna 185 (3 Seat), 206 or 207 (4 Seat) Annual Block Hours: (TKJ CZN TKJ, 1.83 hours) x 2 flights/week x 52 = 190.7 hours Revenue Rate Amt/lbs. Revenue Passenger $97.67 100 $9,767.00 Cargo $0.42 6,000.00 $2,520.00 Space Available Cargo $0.21 23,000.00 $4,830.00 Mail $1.1289 600.00 $677.34 Total Operating Revenue $17,794.34 Direct Operating Expenses Unit Cost Expenses Pilot $120.00 per BH $22,884.00 Fuel & Oil $92 per BH $17,544.40 Maintenance $115 per BH $21,930.50 Depreciation $20.35 per BH $3,880.75 Insurance 42.85 per BH $8,171.50 Agent Fee $20.00 per CZN dept. $2,080.00 Total Direct Operating Expenses $76,491.15 Indirect Operating Expenses @ 40% of Direct Net of Depreciation $29,044.16 Total Operating Expenses $105,535.31 Operating Loss $87,740.97 Profit Element @ 5% of Total Operating Expenses $5,276.77 Subsidy Need @ 100% $93,017.74
Annual Compensation Requirements for Essential Air Service at Healy Lake, Alaska Appendix A Page 2 of 2 Route FAI HKB FAI Frequency: 2 Round Trips per Week Aircraft Type: Cessna 206 or 207 (5 Seat) Annual Block Hours: (FAI HKB, 1 hour) x 4 flights/week x 52 = 208 hour Revenue Rate Amt/lbs. Revenue Passenger $65.12 75 $4,884.00 Cargo $0.47 2,400.00 $1,128.00 Mail $1.24 1,200.00 $1,493.64 Total Operating Revenue $7,505.64 Direct Operating Expenses Unit Cost Expenses Pilot $120 per BH $24,960.00 Fuel & Oil $92 per BH $19,136.00 Maintenance $115 per BH $23,920.00 Depreciation $20.35 per BH $4,232.80 Insurance 42.85 per BH $8,912.80 Agent Fee $20.00 per HKB dept. $2,080.00 Total Direct Operating Expenses $83,241.60 Indirect Operating Expenses @ 40% of Direct Net of De $31,603.52 Total Operating Expenses $114,845.12 Operating Loss $107,339.48 Profit Element @ 5% of Total Operating Expenses $5,742.26 Subsidy Need @ 100% $113,081.74
Essential Air Service to be provided at Chisana, Alaska, DOT-OST-1998-4574 Appendix B Page 1 of 2 Effective Period: June 1, 2016, through May 31, 2018 Scheduled Service: Two nonstop round trips each week to Tok, Alaska Aircraft: Cessna 185 (3-Seat) or Cessna 206/207 (4-Seat) Rate per Eligible Flight: $447 1 Weekly Ceiling: $1,788 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 prior approval. The carrier understands that an aircraft take-off and landing at its scheduled destination constitutes a completed flight; absent an explanation supporting subsidy eligibility for a flight that has not been completed, such as certain weather cancellations, only completed flights are considered eligible for subsidy. In addition, if the carrier does not schedule or operate its flights in full conformance with the Order for a significant period, it may jeopardize its entire subsidy claim for the period in question. If the carrier contemplates any such changes beyond the scope of the Order during the applicable period of this rate, it must first notify the Office of Aviation Analysis in writing and receive written approval from the Department to be ensured of full compensation. Should circumstances warrant, the Department may locate and select a replacement carrier to provide service on these routes. The carrier must complete all flights that can be safely operated; flights that overfly points for lack of traffic will not be compensated. In determining whether subsidy payment for a deviating flight should be adjusted or disallowed, the Department will consider the extent to which the goals of the program are met and the extent of access to the national air transportation system provided to the community. If the Department unilaterally, either partially or completely, terminates or reduces payments for service or changes service requirements at a specific location provided for under this Order, then, at the end of the period for which the department does make payments in the stipulated service levels, the carrier may cease to provide service to that specific location without regards to any requirement for notice of such cessation. Those adjustments in the levels of subsidy and/or service that are mutually agreed to in writing by the Department and carrier do not constitute a total or partial reduction or cessation of payment. Subsidy contract are subject to, and incorporate by reference, relevant statutes and Department regulations, as they may be amended from time to time. However, any such statutes, regulations, or amendments thereto shall not operate to controvert the foregoing paragraph. Funds may not be available for performance under this order beyond September 30, 2016. The Government s obligation for performance under this order beyond September 30, 2016, 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, 2016, until funds are made available to the Department for performance. If sufficient funds are not made available for performance beyond September 30, 2016, the Department will provide notice in writing to the carrier. All claims for payment, including any amended claims, must be submitted within 90 days of the last day of the month for which compensation is being claimed. For example, claims for service provided in July must be filed by October 31; August claims must be submitted by November 30, and so on. 1 Annual compensation of $93,018 divided by 208 arrivals and departures: 4 flights per week x 52 weeks. 2 The subsidy rate for each arrival/departure ($447) multiplied by four eligible arrival and departure each week.
Appendix B Page 2 of 2 Essential Air Service to be provided at Healy Lake, Alaska, DOT-OST-1998-3546 Effective Period: June 1, 2016, through May 31, 2018 Scheduled Service: Two nonstop round trips each week to Fairbanks, Alaska Aircraft: Cessna 206/207 (5-Seat) Rate per Eligible Flight: $544 3 Weekly Ceiling: $2,176 4 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 prior approval. The carrier understands that an aircraft take-off and landing at its scheduled destination constitutes a completed flight; absent an explanation supporting subsidy eligibility for a flight that has not been completed, such as certain weather cancellations, only completed flights are considered eligible for subsidy. In addition, if the carrier does not schedule or operate its flights in full conformance with the Order for a significant period, it may jeopardize its entire subsidy claim for the period in question. If the carrier contemplates any such changes beyond the scope of the Order during the applicable period of this rate, it must first notify the Office of Aviation Analysis in writing and receive written approval from the Department to be ensured of full compensation. Should circumstances warrant, the Department may locate and select a replacement carrier to provide service on these routes. The carrier must complete all flights that can be safely operated; flights that overfly points for lack of traffic will not be compensated. In determining whether subsidy payment for a deviating flight should be adjusted or disallowed, the Department will consider the extent to which the goals of the program are met and the extent of access to the national air transportation system provided to the community. If the Department unilaterally, either partially or completely, terminates or reduces payments for service or changes service requirements at a specific location provided for under this Order, then, at the end of the period for which the department does make payments in the stipulated service levels, the carrier may cease to provide service to that specific location without regards to any requirement for notice of such cessation. Those adjustments in the levels of subsidy and/or service that are mutually agreed to in writing by the Department and carrier do not constitute a total or partial reduction or cessation of payment. Subsidy contract are subject to, and incorporate by reference, relevant statutes and Department regulations, as they may be amended from time to time. However, any such statutes, regulations, or amendments thereto shall not operate to controvert the foregoing paragraph. Funds may not be available for performance under this order beyond September 30, 2016. The Government s obligation for performance under this order beyond September 30, 2016, 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, 2016, until funds are made available to the Department for performance. If sufficient funds are not made available for performance beyond September 30, 2016, the Department will provide notice in writing to the carrier. All claims for payment, including any amended claims, must be submitted within 90 days of the last day of the month for which compensation is being claimed. For example, claims for service provided in July must be filed by October 31; August claims must be submitted by November 30, and so on. 3 Annual compensation of $113,082 divided by 208 arrivals and departures: 4 flights per week x 52 weeks. 4 The subsidy rate for each arrival/departure ($544) multiplied by four eligible arrival and departure each week.