Order: 2020-2-3 Served: February 3, 2020

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

Issued by the Department of Transportation on the 3rd day of February, 2020

Essential Air Service at

HANA, DOCKET DOT-OST-1999-6502 (FAIN 69A3452060440)1

Under 49 U.S.C. § 41731 et seq.

ORDER VACATING ORDER 2019-11-17 AND SELECTING AIR CARRIER

Summary By this Order, the U.S. Department of Transportation (the Department) is: (1) vacating Order 2019-11-17 (November 29, 2019); and (2) selecting Mokulele Flight Service, Inc. d/b/a (Mokulele) to provide (EAS) at Hana, Hawaii, from February 1, 2020, through January 31, 2024. Mokulele will provide Hana with 14 nonstop round trips per week to in Kahului, (OGG), using 9-seat Cessna Caravan aircraft, at annual subsidy rates of $157,309, $163,601, $170,145, $176,951, respectively.2

Background By Order 2017-12-13 (December 18, 2017), the Department selected Mokulele3 to provide Hana with 14 nonstop round trips per week to OGG using 9-seat Cessna Caravan aircraft, from November 21, 2017, through November 30, 2019, at an annual subsidy rate of $114,099.

As the end of the current contract approached, the Department issued Order 2019-6-4 (June 3, 2019), requesting proposals from air carriers interested in providing EAS at Hana for a new term, with or without subsidy, beginning December 1, 2019. Those proposals were due to the Department by July 9, 2019.

In response to that solicitation, by letter dated July 3, 2019, Mr. Richard Schuman, President of Schuman Aviation Company Ltd. d/b/a Makani Kai Helicopters d/b/a Ko Olina Helicopters d/b/a Pacific Air Express d/b/a Makani Kai Air Charters (Makani Kai), asked the Department to accept

1 Federal Award Identification Number. 2 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of funds. 3 On February 8, 2019, , LLC (Southern Airways), a U.S. commuter air carrier, closed on a transaction to acquire substantially all of the assets of Mokulele. Currently, Mokulele continues to operate as a separate air carrier.

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his letter as the air carrier’s proposal to provide unsubsidized EAS at Hana. Mr. Schuman wrote: “Makani Kai Air proposes unsubsidized, zero taxpayers dollars, to provide this service. Makani Kai Air would provide two daily non-stop round trips between [OGG] and Hana Airport six days a week using Cessna Grand Caravan aircraft. Makani Kai also [proposes] offering daily non- stop flights between and Hana six days a week using twin engine Piper Chieftains.”

The Department also received a proposal from the incumbent air carrier, Mokulele, for 14 weekly round trips from Hana to OGG using its 9-seat Cessna Caravan aircraft, seeking annual subsidies of $157,309, $163,601, $170,145, $176,951, respectively, for a total subsidy of $668,006, over a four-year term.

The complete public file for EAS at Hana may be accessed online through the Federal Dockets Management System at https://www.regulations.gov by entering “DOT-OST-1999-6502” in the “SEARCH” field.

Comments On July 10, 2019, the Department requested formal comments regarding the above air carrier- selection case and explained that “[a]s typical in every solicitation for proposals, the Department asked for proposals to serve Hana ‘with or without subsidy support.’ Footnote two of Order 2019-6-4 states, ‘In cases where a carrier proposes to provide EAS without subsidy and we determine that basic EAS, as required by 49 U.S.C. § 41732, can be reliably provided without such compensation, the Department typically will not proceed with the airline-selection case. Instead, the Department will simply rely on that airline’s subsidy-free service as proposed.’”

In response, on July 10, 2019, the Honorable Michael Victorino, Mayor of the County of Maui, submitted a letter expressing support for Mokulele’s selection. The Mayor explained that “Mokulele has provided safe, reliable, and affordable air transportation for over seven years. Mokulele’s commitment to safety as measured by always using two pilots and opening a pilot training facility here in Maui with a full motion simulator, is extremely important to our community.” The Mayor further stated that “we strongly support [Mokulele’s] request for contract renewal for a four-year term.”

Subsequent Developments By Order 2019-11-17 (November 29, 2019), the Department relied on Makani Kai to provide subsidy-free EAS at Hana and terminated the air carrier selection case at Hana, effective February 1, 2020. Subsequently, by letter dated December 16, 2019, Mr. Schuman submitted a request to withdraw Makani Kai’s subsidy-free proposal. The letter explained that, “Makani Kai Air proposed unsubsidized service to Hana but [on December 13, 2019], the major hotel in Hana took [possession] of its own airplane to service its own customers.”

Decision Since Makani Kai withdrew its proposal for EAS at Hana, and the Department can no longer rely on the air carrier for unsubsidized air service, the Department has decided to vacate Order 2019-11-17 and select Mokulele for a four-year term. Mokulele was the only other air carrier to submit a proposal for EAS at Hana. Title 49 U.S.C. § 41733(c)(1) directs the Department to consider five factors when making an air carrier selection not in Alaska: (A) service reliability; (B) contractual and marketing arrangements with a larger air carrier at the hub; (C) interline arrangements with a larger air carrier at the hub; (D) the preferences of the actual and potential users of the EAS, giving substantial weight to the views of the elected officials representing the - 3 -

actual and potential users of the service; and (E) whether the air carrier has included a plan in its proposal to market the service.4

Mokulele has been providing reliable EAS at Hana since 2013 (both unsubsidized and subsidized). Mokulele has an interline passenger and baggage agreement with , Inc. and , Inc. As indicated above, Mayor Victorino is strongly supportive of Mokulele’s four-year term and the air carrier included a marketing plan in its proposal.

Air Carrier Fitness Title 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. Mokulele is subject to the Department’s continuing fitness requirements, and no information has come to the Department’s attention that would cause the Department to 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 our fitness findings. The Department therefore concludes that United is reliable and fit to conduct the operations proposed at Hana.

This Order is issued under authority delegated in 49 CFR Part 1.25a(b)(6)(ii)(D).

ACCORDINGLY,

1. The Department vacates Order 2019-11-17 (November 29, 2019);

2. The Department selects Mokulele Flight Service, Inc. d/b/a Mokulele Airlines to provide Essential Air Service at Hana, Hawaii, at the service levels and subsidy rates described in Appendix B, for the period from February 1, 2020, through January 31, 2024;

3. The Department directs Mokulele Flight Service, Inc. d/b/a Mokulele Airlines to retain all books, records, and other source and summary documentation to support claims for payment, including copies of flight logs for aircraft used to provide Essential Air Service under this Order and sold or disposed of, and to preserve and maintain such documentation in a manner that readily permits its audit and examination by representatives of the Department. This documentation shall be retained for three years from the last day of service under this Order, or such longer period as the Department may notify the air carrier. If any litigation, claim, or audit is started before the expiration of the three-year period, the records must be retained until all litigation, claims, or audit findings involving the records have been resolved and final action taken. The air carrier may forfeit its compensation for any claim that is not supported under the terms of this Order;

4. This selection is contingent upon receiving properly-executed certifications from the air carrier that it is in compliance with the Department’s regulations regarding drug-free workplaces and nondiscrimination requirements, as well as the regulations concerning lobbying activities;5

4 In addition, the Further Continuing Appropriations Act, 2020, Pub. L. No. 116-94, provides that, when selecting a carrier to provide EAS, the Department may consider the relative subsidy requirements, thus codifying a factor that has been considered since the inception of the program. 5 The certifications are internet accessible at: http://www.transportation.gov/office-policy/aviation-policy/essential- air-service-reports. - 4 -

5. The Department finds Mokulele Flight Service, Inc. d/b/a Mokulele Airlines fit, willing, and able to operate as a commuter air carrier, and capable of providing reliable Essential Air Service at Hana, Hawaii;

6. This docket will remain open pending further Department action; and

7. The Department will serve a copy of this Order on the State of Hawaii Department of Transportation; the civic officials of Hana, Hawaii; Maui County, Hawaii, Mokulele Flight Service, Inc. d/b/a Mokulele Airlines, and Schuman Aviation Company Ltd. d/b/a Makani Kai Helicopters d/b/a Ko Olina Helicopters d/b/a Pacific Air Express d/b/a Makani Kai Air Charters.

By:

Joel Szabat Assistant Secretary Aviation and International Affairs

(SEAL)

An electronic version of this document is available at https://www.regulations.gov

Appendix A

Mokulele Flight Service, Inc. d/b/a Mokulele Airlines

Appendix B Page 1 of 2

Mokulele Flight Service, Inc. d/b/a Mokulele Airlines Essential Air Service to be provided at Hana, HI DOT-OST-1999-6502

Scheduled Service (all years): 14 nonstop round trips each week to Kahului Airport (OGG) Aircraft (all years): 9-seat Cessna Caravan

Effective Period: February 1, 2020, through January 31, 2021 Rate per Eligible Flight: $1091 Weekly Ceiling: $3,0522

Effective Period: February 1, 2021, through January 31, 2022 Rate per Eligible Flight: $1143 Weekly Ceiling: $3,1924

Effective Period: February 1, 2022, through January 31, 2023 Rate per Eligible Flight: $1185 Weekly Ceiling: $3,3046

Effective Period: February 1, 2023, through January 31, 2024 Rate per Eligible Flight: $1237 Weekly Ceiling: $3,4448

Note: The air carrier understands that it may forfeit its compensation for any flights that it does not operate in conformance with the terms and stipulations of the rate Order, including the service plans outlined in the Order and any other significant elements of the required service, without prior approval. The air carrier understands that an aircraft 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 air carrier does not schedule or operate its flights in full conformance with the Order for a significant period, it may jeopardize its entire subsidy claim for the period in question. If the air carrier contemplates any such changes beyond the scope of the Order during the applicable period of these rates, it must first notify the Office of Aviation Analysis in writing and receive written approval from the Department to be ensured of full compensation. Should circumstances warrant, the Department may locate and select a replacement air carrier to provide service on these routes. The air carrier must complete all flights that can be safely operated; flights that overfly points for lack of traffic will not be compensated. In determining whether subsidy payment for a deviating flight should be adjusted or disallowed, the Department will consider the extent to which the goals of the program are met and the extent of access to the national air transportation system provided to the community.

1 Annual compensation of $157,309 divided by 1,441 annual departures (28 weekly departures x 52 weeks x 99 percent completion). 2 28 flights per week multiplied by $109 per flight. 3 Annual compensation of $163,601 divided by 1,441 annual departures (28 weekly departures x 52 weeks x 99 percent completion). 4 28 flights per week multiplied by $114 per flight. 5 Annual compensation of $170,145 divided by 1,441 annual departures (28 weekly departures x 52 weeks x 99 percent completion). 6 28 flights per week multiplied by $118 per flight. 7 Annual compensation of $176,951 divided by 1,441 annual departures (28 weekly departures x 52 weeks x 99 percent completion). 8 28 flights per week multiplied by $123 per flight.

Appendix B Page 2 of 2

If the Department unilaterally, either partially or completely, terminates or reduces payments for service or changes service requirements at a specific location provided for under this Order, then, at the end of the period for which the Department does make payments in the stipulated amounts or at the stipulated service levels, the air carrier may cease to provide service to that specific location without regard to any requirement for notice of such cessation. Those adjustments in the levels of subsidy and/or service that are mutually agreed to in writing by the Department and air carrier do not constitute a total or partial reduction or cessation of payment.

Subsidy contracts are subject to, and incorporate by reference, relevant statutes and Department regulations, as they may be amended from time to time. However, any such statutes, regulations, or amendments thereto shall not operate to controvert the foregoing paragraph.

Funds may not be available for performance under this Order beyond September 30, 2020. The Government’s obligation for performance under this Order beyond September 30, 2020 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, 2020 until funds are made available to the Department for performance. If sufficient funds are not made available for performance beyond September 30, 2020, the Department will provide notice in writing to the carrier.

All claims for payment, including any amended claims, must be submitted within 90 days of the last day of the month for which compensation is being claimed. For example, claims for service provided in July must be filed by October 31st; August claims must be submitted by November 30th and so on.