"DOT Less Daring With Small Airport Grant Awards"

Tuesday, September 13, 2005

DOT Less Daring With Small Airport Grant Awards
Commuter/Regional Airline News


The U.S. Department of Transportation (DOT) has awarded $18.9 million in
federal grants to 37 regional airport projects in 29 states and encompassing
68 communities as part of the 2005 Small Community Air Service Development
Program.

However, at least one consultant believes that DOT lost its "focus" in
selecting the 37 2005 winning applications. DOT did not place as much
emphasis on materially improving air service, this consultant says.

DOT received 84 applications in April for $19.8 million in available grant
money. This is the fourth year of this grant program. Collectively, the 84
applicants asked for more than double that amount - nearly $51 million - in
federal funds to jump-start or expand air service in small communities. In
many cases, these communities have not had scheduled air service since the
terrorist attacks of Sept. 11, 2001, when many carriers reduced their
networks. In some cases, communities have not had service since the 1978
deregulation of the airline industry.

Of the 84 applicants, only 15 were from first-time applicants. The rest were
past winners as well as repeat losers applying for the funds.

Although Congress had authorized up to $20 million to be split among up to
40 projects, the number of applicants were down from 120 last year to 84
this year, even though the program has proved to be "wildly successful,"
said Michael Boyd, of the Denver-based Boyd Consulting Group. "When you cull
out the fruitcake ones, they were down to 65 good ones [of the 84
applications]," he said.

Of the winning applications, Boyd's firm advised 20 percent of them. Over
the past three years, 25 percent of all the funds allocated have been
awarded to Boyd clients.

"Overall, I think they got a little off focus," Boyd told Regional Aviation
News. "In the last three years, they have been laser-focused on awards that
lead to material improvements in air service." But this year DOT skewed some
of the awards to the politically connected, Boyd said. At the same time, DOT
seems to have avoided awards that would underwrite a new low-fare airline in
a market only served by a legacy carriers, he added.

The political payoffs, in Boyd's calculations, are grants of $1 million to
Northwest Chicagoland International Airport in Rockford, Ill., and $242,000
for an intrastate air service feasibility study for 15 California airports.
The Rockford grant was the largest one awarded by DOT. Boyd also calls into
question the wisdom the $950,000 grant to Somerset, Ky.; $936,400 to Poplar
Bluff, Mo.; and a $587,000 grant to Sault Ste. Marie, Mich.:

   * Rockford had originally sought $3 million to provide airlines with
revenue guarantees to fly to seven different locations with scheduled
service. Only charter carriers now serve the airport. Its local match will
be $1 million.

   * Somerset has secured a preliminary pact with RegionsAir to provide
three daily flights to Cincinnati in exchange for a revenue guarantee. The
community had originally sought a $1.08 million grant. The local community
has promised a $100,000 cash match.

   * In a joint application, Poplar Bluff and Farmington, sought $936,000 to
underwrite new air service to be provided by Air Choice One to St. Louis.
The carrier would use a nine-passenger Cessna Caravan. The grant would
provide a gradually reducing subsidy to the carrier for three years.

   * Chippewa County International Airport in Sault St. Marie sought a
$987,000 grant to increase its base service provided by Mesaba from two
daily flights to three to Detroit. The money would also be used to
underwrite an equipment upgrade from a Saab 340 to a regional jet. DOT
awarded a $587,000 grant and the local community has promised an $113,000
local match.

The DOT awards appeared to avoid underwriting new low-fare service from
communities served only by legacy carriers, he said. "I do believe the
complaints by Delta [DAL] and United [UALAQ] did skew the awards. I think
the strong-arming has some effect."

As part of its charge from Congress to implement the program, DOT was to
consider applications from communities with higher-than-average fares that
attempted to secure new service that promised lower fares. In early grant
rounds, Akron, Ohio, and Sarasota, Fla., used grant money to lure AirTran
[AAI] to their communities. Boyd noted that the $1.5 million grant to
Sarasota has resulted in a 30-percent increase in enplanements as AirTran
has continued to expand its destination offerings (Sarasota is a Boyd
client).

"The program is supposed to subsidize competition," Boyd noted. "Many
communities could not get their initial service from Frontier [FRNT] or
AirTran without it."

In this latest round, DOT has provided $675,000 to Fargo, N.D., which hopes
to use the funds to underwrite service by America West [AWAC]. Mesa Air
Group [MESA] would provide the service on its RJ fleet. Stewart
International Airport in Newburgh, N.Y., won a $250,000 grant to be used in
its attempt to secure JetBlue [JBLU].

In a letter to the program administrators, United objected to a grant
application from Moline, Ill. The city was seeking $850,000 to subsidize two
daily flights by Frontier, using regional jets flown by Horizon Air [ALK],
to Denver. Denver is a hub for both United and Frontier. United has been
offering RJ service from Moline to Denver for several years.

If Moline secured the grant, United claimed that "this is not how a
deregulated marketplace should work. DOT has been asked to place the heavy
hand of the federal government on one side of the competitive balance," said
Julie Oettinger, the carrier's director of regulatory affairs.

United's filing took exception to previous awards to Fresno, Calif.;
Lincoln, Neb.; Knoxville, Tenn.; and Charleston., S.C.

Delta attorney Robert E. Cohn of Washington's Hogan & Hartson urged DOT to
establish a policy so that the funds "may not be used to support or
subsidize service on routes that already receive nonstop service."

On the other hand, both Delta and United joined other airlines in submitting
letters supporting a variety of applications.

DOT's list of approved applications includes funds for air service
feasibility studies, marketing efforts, enticements for RJ service and
revenue guarantees. Not on this year's list were those proposals that
suggested creative ways to underwrite the costs of air service.

In an earlier grant award, DOT provided funds to Mobile, Ala., to start a
ground service unit, which relieved the airlines of the need for their own
baggage handling crews and gate staff. Inspired by the success of Mobile and
Branson, Mo., the Savannah., Ga., and Springfield, Ill., airports sought
funds to start their own ground services divisions. Mobile also asked for
new funds to expand its operation (RAN, June 27). Savannah wanted $732,000
and Springfield wanted $486,000. None of the three applications were funded.

DOT said several of the awards involved communities that are participating
in the Essential Air Service program: Vernal, Utah; Hibbing, Minn.;
Bradford, Pa.; Cedar City, Utah; and several members of the Wyoming
consortium.

Last year, DOT scraped together unspent funds from earlier grant rounds to
go beyond the $20 million allocated for the 2004 awards. This year, the
agency has taken a different approach. In the end it had about $888,000 that
it did not award, but has instead transferred the funds to the EAS program.
The funds will be used to cover a projected shortfall in the current fiscal
year for the EAS program.

In shifting some of the funds to EAS, the department only funded 37 instead
of 40 projects.


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