BEFORE THE OFFICE OF THE SECRETARY U.S. DEPARTMENT OF TRANSPORTATION WASHINGTON, DC

BEFORE THE OFFICE OF THE SECRETARY U.S. DEPARTMENT OF TRANSPORTATION WASHINGTON, DC ) In the matter of the ) ) Application of HARRIS AIRCRAFT SERVICES, INC. ) Docket 2013-0089 For Authority to Conduct Scheduled Passenger ) Operations as a Commuter Air Carrier ) Under 49 USC 41738 ) ) OBJECTIONS OF PACIFIC AIRWAYS, INC. TO ORDER 2014-3-2, AND PETITION TO DISMISS APPLICATION FOR FAILURE TO COMPLY WITH 14 CFR 204 AND 14 CFR 302 Pacific Airways, Inc. (Pacific) objects to the findings of Order 2014-3-2, and renews its motion to dismiss the Application of Harris Air (Harris) for a commuter air carrier authority. Harris has not proven that it is fit to be certificated, indeed, its actions demonstrate that it fails to have the financial fitness and compliance disposition required. Most troubling, the Department not only enabled these violations, they adopted some of them. HARRIS AIR IS NOT FINANCIALLY FIT At page 6, the Order states that the minimum financial fitness working capital requirement would be $999,294. This amount significantly understates the working

capital that will be needed, as it is based on the existing operations Harris proposes to convert to scheduled service, not the enormously expanded service it proposes. As will be shown below, it is impossible to know what the working capital requirement for the proposed operation because Harris failed to present an actual operating schedule. Harris provided no actual financial data more current that March, 2013, at which time it had only $530,133, a shortfall of $469,131 (47% of minimum requirement) for the current operation. As at March 31, 2013 Harris reported bank balances totaling $148,721. By December 20, 2013, had dropped to $113,197, a $35,000 reduction with the loss operations of winter to come. Clearly Harris is not financially fit, its needed working capital is now approximately half a million dollars short. This issue of Sitka Aircraft and Support Services (Sitka Aircraft) was glossed over in the Order. Sitka Aircraft is owned by the same shareholders as Harris Air. Sitka Aircraft has one customer, Harris Air. Clearly they are commonly owned entities within the meaning of the Act, and the financial position of Sitka Aircraft must be considered as part of Harris fitness. In its most recent three years of actual operations, Sitka Aircraft has had operating losses of $86,557. Sitka Aircraft charged its one customer, Harris Air, $86,557 less than Sitka Aircraft needed to cover its operating expenses. This is a direct subsidy to Harris Air, regardless of what Harris claims. Sitka Aircraft has no current assets, but does have the current portion of long term debt due, which it did not specify. Sitka Aircraft currently has a negative shareholder equity of $210,335. The total shareholder

equity of Harris Air as at March 31, 2013 was only $176,535. The total shareholder equity for the two Harris corporations is approximately a NEGATIVE $35,000. HARRIS AND THE DEPARTMENT VIOLATED SERVICE REQUIREMENTS 14CFR302.203(b)(1)(A)(1) requires that all applicants for domestic scheduled service must serve a copy of the application upon the airport authority of each point proposed for service. This has been interpreted from the beginning to mean the local authority in charge of the airport, i.e. the airport manager or person with similar authority. Harris proposes to schedule service at Sitka, Juneau, Petersburg, Wrangell, Haines, Skagway, Kake and Klawock airports, all of which have airport managers. In the past the Department has rejected applications that did not list service to airport managers at all points, even if there was no actual airport but simply a water landing area. The purpose of the service requirement is for transparency and public notice. Harris contends that its public notice requirements for eight communities have been met by sending the application to Juneau. Harris is wrong in its interpretation of regulations. It is noteworthy that Harris could have chosen to cure the deficiency and meet the public notice requirement by simply serving eight copies on the communities it proposes to serve, but it chose not to. Incidentally, the authority to operate state airports is vested in the Alaska Department of Transportation, Office of Aviation, in Anchorage. Harris did not even serve the correct agency in the State.

So the travelling public, even at its own base of operations, was kept in the dark. Moreover, after Pacific had filed its protest and motion to dismiss, it became a party to the proceeding under 14CFR203.7. When Harris filed its amended certificate application and answer, it did not serve Pacific as required by regulation. Not surprisingly there was no answer from Pacific to the false or dubious claims made by Harris. Adding insult to injury, the Department itself did not serve a copy of Order 2014-3-2 on Pacific Airways, as can be confirmed by the Service List attached to the Order. Not only did Harris violate regulations related to the service of its application on Airport Managers and Pacific Airways, the Department itself violated those regulations. HARRIS AIR DO NO PROVIDE EVEN THE MINIMUM REQUIRED INFORMATION TO ENABLE THE DEPARTMENT TO DETERMINE FITNESS It is the affirmative responsibility of the applicant to provide the data required to prove it is fit. 14CFR302.202 requires all applications to meet the requirements of parts 201 and 204 along with any additional information the applicant wishes to Department to consider. 302.205 requires Whenever economic data or other facts are provided in any pleading, such information shall include enough detail so that the final results can be obtained without further clarification. Sources, bases and methodology used in constructing exhibits, including any estimates of judgments, shall be provided. Harris provided a revenue and expense estimate with no underlying detail at all. No flight

schedule, no aircraft hours, no unit costs, no estimate of station days or labor requirements, no estimate of fuel consumption or of fuel cost per gallon or hour. The revenue forecast includes no information about passengers to be carried, net fares, pounds of freight transported, or expected net yields. Harris violated the most basic evidence requirement, without even going to the specific requirements of part 204. Appendix A lists fitness requirements in 14CFR204.3 that Harris Air did not meet, and refused to provide by saying, Harris Air contends that it has provided enough detail to satisfy the requirement Even the most cursory examination of the application shows that contention to be untrue. These requirements are detailed in 14CFR204.3, and the Department provides copies of compliant applications as templates. There is no reason why Harris could not file a complete application if that is its intention. There is no provision for staff to waive the requirements of 14CFR204.3, indeed, part 204.1 says, This part sets forth the fitness data that must be submitted by applicants (emphasis added) Section 204 also authorizes the request additional information as may be needed to prove fitness. The requirements of 204.3 are the minimum, and Harris failed to comply. These regulations are not simply a paper chase or set of bureaucratic hurdles for the applicant to overcome. This level of detail is necessary to determine if the financial projections have any basis in fact, and the management has the necessary knowledge and skills to operate a certificated carrier. By not complying with 204.3, Harris has effectively prevented the Department from finding it fit.

ORDER 2014-3-2 MISSTATES HARRIS COMPLIANCE WITH IRS EXCISE TAX REQUIREMENTS Order 2014-3-2 says that Harris stated that the IRS had previously told it that excise taxes did not apply to the Harris operations. This strains credulity, if for no other reason than the IRS specifically informed Harris in writing that it should have been collecting the taxes. The IRS has been enforcing the excise tax regulations on air taxi operations for years, and other air taxis in Sitka and across southeastern Alaska has been audited and fined if noncompliant. In regard to the Piper Navajo operations, the excise tax regulations specifically state that all commercial operations by aircraft with a maximum gross takeoff weight of 6,000 lbs. or greater are subject to excise tax collection. The Piper Navaho has a maximum gross takeoff weight of 6,500 lbs., and higher weights are possible through equipment modifications. There is no question in the regulations that all commercial operations of Piper Navajo are subject to federal excise tax. Order 2014-3-2 states that Harris agreed to pay the taxes in full with a loan from Alaska Pacific Bank. That is not true and misrepresents Harris compliance disposition. As Harris itself explains, the $250,000 was a compromise amount based on only three years of operations rather than the seven allowed by law, and only applied to a select few destinations. Harris did not have assets to pay the compromise penalty, and took out a loan for the entire amount. As admitted by Harris, the taxes that should have been collected were actually much greater, which led them to agree to the settlement.

Harris also admitted that it did not agree to the settlement until liens were being placed on its assets. (amended application, page 2 of text) SUMMARY Harris does not have the compliance disposition necessary to be found fit. It is the responsibility of the applicant to show that it can comply with all applicable requirements. For a period of at least seven years it did not comply with the IRS excise tax requirements, a fact it did not admit to until it was brought out by Pacific Airways. It claims ignorance of the law, but the regulations are very clear and have been applied to every carrier as they are audited. It takes gall to claim that it was the IRS that was the source of Harris lack of compliance. When faced with improper service of documents, Harris invented a novel theory that public notice to eight communities could be served by sending a letter to a State aviation policy agency in Juneau. To make matters worse, the agency it sent its application to is not the state airport agency. It could have simply cured the deficiency by mailing out copies of the application and subsequent filings to the eight communities, but it did not. With regard to its failure to collect excise taxes, it also states that it was not the intent of the tax laws to tax the type of operations Harris has. That opinion has been rejected by the IRS and courts alike. Once Pacific became a party to the docket, Harris failed to serve subsequent filings on it. Harris failed to provide the minimum data required by 14CFR204.3. When confronted, it replied that it had done enough, and did no more.

Order 2014-3-2 shows that Harris is clearly unfit. Even if we assume the unsupported financial projections are accurate, Harris is half a million dollars short of the minimum working capital requirement of the Department based on the current operation not the proposed service, and has negative shareholder equity for the two commonly owned companies. Harris has shown that it is not only incapable of, but unwilling to comply with specifically published regulations. The review of FAA actions shows that Harris is fit to be what it is, an on demand air taxi, and nothing more. Harris has demonstrated that it is unwilling and unable to shoulder the additional burdens and higher responsibilities required for DOT commuter authority. Consequently, Harris is an undue risk to the travelling public, and its application must be dismissed. WHEREFORE, Pacific Airways requests that the Department find that Harris Aircraft Service, Inc. has not proven that it is fit to hold commuter air carrier authority, and dismiss the application for not complying with Sections 302 and 204 of the Code of Federal Regulations. Respectfully submitted, Pacific Airways, Inc. By Hank Myers, its representative March 18, 2014

CERTIFICATE OF SERVICE I hereby certify that I have this day served a copy of the foregoing Objections of Pacific Airways to Order 2014-3-2 upon all persons included on the Service List attached to the Order. Hank Myers March 18, 2014

Appendix A Page 1 of 1 REGULATORY REQUIREMENTS FOR COMMUTER AUTHORITY UNADDRESSED BY HARRIS AIR The listing below includes all specific content or form requirements for an application for commuter authority. General or duplicative requirements are excluded. While the application does not conform to the specific format requirements of 302.3, this list details the substance and process requirements. 302.202(b) Notice Requirement on Front Page Did Not Comply 302.203(b)(1)(A)(1) Requires service on all Airport Managers Did Not Comply 302.205 Requires complete economic data and other facts Did Not Comply 204.3(g)(4) Requires current/past involvement in air operationsdid Not Comply 204.3(h) Requires list of all subsidiaries and description Did No Comply 204.3(k)(3)(i) Requires statement of GAAP compliance Did Not Comply 204.3(k)(5) Identification of person preparing statements Did Not Comply 204.3(l) List of actions and judgments more than $5,000 Did Not Comply 204.3(m) List of actions and judgments less than $5,000 Did Not Comply 204.3(t)(1) Projected Balance Sheet with assumptions Did Not Comply $204.3(t)(2) Estimated aircraft revenue block hours Did Not Comply 204.3(t)(2) Requires Revenue miles by aircraft type Did Not Comply 204.3(t)(2) Requires Number of Passengers Transported Did Not Comply 204.3(t)(2) Requires Number of Tons of Cargo and Mail Did Not Comply 204.3(t)(2) Requires Estimate of Newly Generated Traffic Did Not Comply 204.3(t)(2) Requires Statement of Accrual or Cash Accounting Did Not Comply 204.3(t)(2) Requires Explanation of Basis of Costs & Revenues Did Not Comply 204.3(t)(2) Requires Description of Manner of Allocation Did Not Comply 204.3(t)(2) Requires Estimate of Peak & Average Load Factors Did Not Comply 204.3(u) Requires Signed Counterpart of Agreement 18900 Did Not Comply