Thursday, June 2, 2016

Feds award Essential Air Service subsidies to ADI to fly Watertown-Pierre-Denver

Federal aviation officials issued an order Thursday selecting Aerodynamics Inc. (ADI) to receive $4.5 million a year in subsidies to provide scheduled air service to Pierre.

The Pierre City Commission recommended ADI last month to the U.S Department of Transportation, after the city’s air service task force interviewed officials from ADI and from Great Lakes Airlines, which has been serving Pierre for decades. It was the second such recommendation in the past 18 months in a convoluted and messy process that has been a double rejection for Great Lakes which continues to serve Pierre.

Mayor Laurie Gill told the Capital Journal on Thursday, “It’s been a long process waiting for all the steps. This was a huge part of the process, to hear the federal government give ADI the authority to fly our route. We hope at the end of this we end up with reliable service in the Capital City.”

In a new wrinkle – a separate but not unrelated move -  ADI recently announced a new partnership with Great Lakes to sell tickets for its first scheduled passenger route, from Youngstown, Ohio to Chicago.  Two months ago, ADI’s senior vice president and Chief Operating Officer Mickey Bowman said ADI was partnering with Silver Airways of Fort Lauderdale to gain gate, ticketing and baggage conveniences for passengers. Apparently that fell through and now the rivals ADI and Great Lakes are in a partnership to facilitate customer service for ADI’s passengers to hook up with major airline connections in Denver.

The order dated June 2 from DOT said ADI has a two-year contract under the Essential Air Service program to fly 12 weekly flights from Watertown and Pierre to Denver.  The annual subsidy for the Pierre-Denver leg will be $4.52 million, while for the Watertown leg ADI will receive $2.27 million.

Atlanta-based ADI, with a 50-year history as a charter service, only two weeks ago received final authority from DOT to begin flying scheduled passenger flights. DOT has had questions about ADI’s financial fitness and several times over the past 18 months had to ask for more documentation of ADI’s money in the bank.

In Thursday’s announcement of the new EAS selection of ADI, the DOT officials said: “ADI is subject to the Department’s continuing fitness requirements and no information has come ot our attention that would cause us to question the air carrier’s fitness at this time.”

Pierre chose ADI over Great Lakes in late 2014, too. Then, it was different as DOT told ADI it was rejecting its request for authority to begin scheduled passenger service because of the financial and legal woes of its then-CEO and main owner, Scott Beale.

DOT said Beale had been less than forthright with them about his situation. ADI’s board quickly jettisoned Beale and spent months proving to DOT it was a charter airline which had what it takes to enter the world of scheduled passenger service.

Great Lakes has been flying from Pierre to Denver and to Minneapolis without EAS money linked to Pierre;  rather it was living off EAS money for flights to Huron and Watertown until recently.

The EAS money is paid in reimbursement form based on per flight. If passenger numbers are too low, so that the per-passenger subsidy goes over $1,000, it would jeopardize the deal. But ADI’s proposal for the flights from both cities to Denver peg the projected per-passenger subsidy as less than $400.

The new partnership with Great Lakes is ironic in the sense that it was dissatisfaction with Great Lakes’ service in 2013 and 2014 by Pierre city leaders, especially Mayor Gill, that led them to ask DOT to allow them to solicit other airlines.

The ill-fated recommendation of ADI by Pierre in late 2014 led to a year-long restructuring of the airline company and another round of EAS proposals this spring. Both times, Pierre civic leaders chose ADI over Great Lakes, which proposed to do a similar flight schedule for about half the federal subsidy.

Watertown also faces its own special hurdle: DOT recently listed the city as one of 12 in the country fated to lose EAS eligibility because for the year ended last Oct. 1, it went above the $200-per-passenger subsidy level. DOT rules say any EAS community within 210 miles of a major hub airport must maintain a subsidy level below $200 per passenger.

Watertown Mayor Steve Thorson said he’s confident the city will be able to change DOT’s mind by showing that the city’s center actually now is four miles further west than it was under DOT’s earlier measurement to Minneapolis. That will put it outside the 210-mile limit, meaning the EAS subsidy trigger to worry about is $1,000 per passenger.

ADI's Bowman has said earlier he hopes ADI could begin flights between Youngstown and Chicago in June and once that schedule is solidified and ADI has its feet wet, it can begin the Watertown-Pierre-Denver schedule by August sometime.

  ADI’s service from Youngstown involves a lump-sum subsidy from DOT to the community’s airport, not the EAS funding ADI will receive for the Pierre and Watertown routes.

  Great Lakes stopped its daily flight between Pierre and Minneapolis on Wednesday, June 1, but continues two flights a day from Pierre to Denver.

The fact that Great Lakes lost its EAS-subsidized routes from Thief River Falls, Minnesota to Minneapolis makes the Pierre to Minneapolis flights a no-paying proposition anymore, Great Lakes CEO Chuck Howell told the Capital Journal.

Great Lakes is bound to continue providing air service from Pierre to Denver until ADI begins its proposed schedule here, Howell said.

 DOT officials said the fact that community leaders in Pierre and Watertown recommended ADI, not Great Lakes, was a key factor in awarding the EAS contracts to ADI.

DOT, in its order issued Thursday, said in awarding EAS contracts, it considers service reliability of an airline, its contractual and marketing arrangements with a larger carrier at the hub, interline arrangements (for baggage and ticketing) with a larger carrier at the hub, and the airlines plans for marketing its service in the community, as well as the community’s views.

“With regard to Great Lakes, neither of the communities supported its porposed service,” DOT wrote in its order on Thursday. “Pierre petitioned (DOT) to find another EAS provider and Watertown no longer wanted the carrier serving the community. Pierre noted ‘. . .in recent years the reliability of the air service has substantially declined."

City leaders have been in contact with ADI but don’t have a date certain when ADI will begin touching down in Pierre, Gill said.  “They need to get through their start-up operational issues.”

She thinks it likely will be September before ADI’s 50-passenger jets start picking up passengers in Pierre. “We have a huge hunting season here and they know that,” Gills said of ADI.

  Gills said she just found out “in the last 24 hours” about the new partnership between ADI and Great Lakes It’s

“It was news to me,” Gill said. “We are working with both Great Lakes and ADI to get more information about what that means. The airline industry these days has a lot of moving targets, moving pieces and a lot of instant collaborations between airlines. We hope it will turn out to be a win-win for us in Pierre and we will end up with air service that is better than we have seen in a long time.”


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