U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
CHANGE ACT
for the transition period _________ to _______________
Commission file number 1-7991
BIG SKY TRANSPORTATION CO.
(exact name of small business issuer as specified in its charter)
MONTANA 81-0387503
(state of other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1601 Aviation place
Billings Logan Int'l Airport
Billings MT 59105
(406) 245-9449
(address of registrant's principal executive offices)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act during the
past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS: 1996 Series Common Stock, no par value
SHARES OUTSTANDING: at November 10, 1998: 1,187,908
BIG SKY TRANSPORTATION CO.
FORM 10-QSB
For the Period-Ended September 30, 1998
CONTENTS
Part I Financial Information
Item 1. Financial Statements (condensed format):
Balance Sheets
September 30, 1998 (unaudited)and
June 30, 1998 (audited)
Income Statements
Three months-ended September 30, 1998 and
1997 (unaudited)
Cash flow Statements
Three months-ended September 30, 1998
and 1997 (unaudited)
Item 2. Management's Discussion and Analysis or
Plan of Operation
Part II Other Information
Item 6. Exhibits and reports on Form 8-K
Part I. Financial Information, Item 1.
Financial statements (condensed format)
BIG SKY TRANSPORTATION CO.
Balance Sheets
September 30, June 30,
1998 1998
(unaudited) (audited)
ASSETS
Current Assets:
Cash $ 515,618 $ 512,670
Restricted cash 151,597 151,500
Accounts receivable, net 1,176,392 1,398,470
Expendable parts/supplies 392,317 329,262
Inventory held for sale 30,000 30,000
Prepaid expenses 94,521 53,753
Total current assets 2,360,445 2,475,655
Property & Equipment:
Flight equipment 712,737 680,491
Capital lease facility 456,185 456,185
Other property & equipment 298,237 202,086
1,467,159 1,338,762
Accumulated depreciation (489,920) (465,175)
Net property & equipment 977,239 873,587
Deposits 7,708 7,258
Total assets $ 3,345,392 $ 3,356,500
===================================
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current long-term debt $ 139,672 $ 179,836
Current capital lease 8,340 8,164
Accounts payable 295,895 575,056
Accrued expenses 558,790 459,307
Traffic payable 228,501 189,769
Total current liabilities 1,231,198 1,412,132
Long-term debt,excluding current 170,413 219,272
Capital lease, excluding current 265,110 267,216
Total liabilities 1,666,721 1,898,620
Stockholders' Equity
Common stock, no par value
Authorized 2,000,000 shares;
1,187,908 outstanding 587,392 579,722
Additional Paid-in Capital 303,690 228,909
Retained earnings 811,442 673,102
Less Treasury stock (23,853) (23,853
Stockholders' equity 1,678,671 1,457,880
Total liability &
stockholders' equity $ 3,345,392 $ 3,356,500
===================================
See notes to financial statements.
BIG SKY TRANSPORTATION CO.
Income Statements
Three months-ended
September 30,
1998 1997
(unaudited) (unaudited)
Operating Revenues:
Passenger $ 1,441,719 385,684
Cargo 41,407 18,545
Public service 1,148,491 798,070
Other 49,379 15,584
Total 2,680,996 1,217,883
Operating Expenses:
Flying 965,738 501,218
Maintenance 541,222 281,705
Passenger service 572,662 315,466
Sales 143,252 40,958
General/Administrative 186,716 153,522
Depreciation 29,588 19,902
Total 2,439,178 1,312,771
Operating Income 241,818 (94,888)
Other Income/(expenses):
Interest, net (12,046) (7,524)
Gain (loss) equipment (102) 151,504
Total (12,148) 143,980
Income before taxes 229,670 49,092
Income Tax Expense:
Current 16,548 3,470
Charge in lieu of taxes 74,782 15,680
Total 91,330 19,150
Net Income: $ 138,340 $ 29,942
====================================
Per share data:
Basic earnings per
common share $.12 $.03
Diluted earnings per
Common share $.12 anti-dilative
See notes to financial statements.
BIG SKY TRANSPORTATION CO.
Cash Flow Statements
Three months-ended
September 30,
1998 1997
(unaudited) (unaudited)
Net cash provided (used):
by operations 219,573 (85,721)
by investing (133,342) 187,461
by financing (83,283) (44,681)
Increase in cash 2,948 57,059
Cash at beginning of period 512,670 544,706
Cash at end of period 515,618 601,765
PART I. Financial Information, Item 2.
BIG SKY TRANSPORTATION CO.
Management's Discussion and Analysis or
Plan of Operation
Summary of Airline Operating Statistics:
Three months-ended
September 30,
% change
1998 1997 +/(-)
Passengers carried 16,006 5,732 179.2
Average passenger
trip (miles) 258 200 29.0
Revenue passenger miles 4,133,863 1,146,148 260.7
Available seat miles 11,849,407 3,815,600 210.6
Passenger load factor (%) 34.89 30.04 16.1
Aircraft miles 623,908 252,239 147.3
Yield per revenue
passenger mile (cents) 34.87 33.58 3.8
Freight pounds enplaned 46,881 20,186 132.2
Operating cost per
available seat mile (cents) 20.58 31.92 (35.5)
Operating break-even load
factor (%) 31.74 32.38 (2.0)
BIG SKY TRANSPORTATION CO.
Management's Discussion and Analysis or
Plan of Operation
Analysis of Results for the three months-ended
September 30, 1998 and 1997:
Three months-ended
September 30,
1998 1997
(unaudited) (unaudited) Change
Operating Revenues:
Passenger $ 1,441,719 $ 385,684 $1,056,035
Cargo 41,407 18,545 22,862
Public service 1,148,491 798,070 350,421
Other 49,379 15,584 33,795
Total $ 2,680,996 $1,217,883 $1,463,113
Total operating revenues in the first quarter of fiscal year 1999
totaled $2.68 million, versus $1.22 million in the same quarter of
fiscal year 1998. Passenger revenues of $1,441,719 in the quarter
were $1,056,035, or 274% greater than the same quarter last year.
Freight revenue of $41,407 and other revenue of $49,739 were
greater than the corresponding 1997 quarter by $22,862 (123%), and
$33,795 (216%), respectively. The increases in passenger and
freight revenues were attributable to new scheduled air services
between Billings MT and Helena MT, Kalispell MT, Missoula MT, and
Spokane WA initiated during the last three quarters of fiscal 1998.
Other revenues increased as a result of maintenance services
provided to others, and charter services. Revenue passengers
enplaned during the quarter ended September 30, 1998 totaled
16,006, an increase of 10,274, or 179%, over the same quarter in
1997. The average passenger fare during the quarter of $90.07 was
$22.93, or 34%, greater than the average passenger fare during the
same quarter in fiscal 1998. The average fare increase is
attributable to the longer trip segments operated in the new
markets served.
Public service revenues in the first quarter of fiscal year 1999
were $1,148,491 compared to $798,070 during the same quarter of
fiscal year 1998. The increase of $350,421, or 44%, was the result
of an enhanced Essential Air Service (EAS) contract entered into
with the Department of Transportation effective October 1, 1997.
The new contract restored service levels to markets that had been
cut during a program-wide reduction implemented in November 1995,
and provided for an upgrade in the type of aircraft used to provide
the service.
Three months-ended
September 30,
1998 1997
(unaudited) (unaudited) Change
Operating Expenses:
Flying Operations $ 965,738 $ 501,218 $ 464,520
Maintenance 541,222 281,705 259,517
Passenger Service 572,662 315,466 257,196
Sales 143,252 40,958 102,294
General & Admin. 186,716 153.552 33,194
Depreciation 29,588 19,902 9,686
Total $2,439,178 $1,312,771 $1,126,407
Total operating expenses in the first quarter totaled $2.44 million
compared to $1.31 million in the first quarter of fiscal 1998, an
increase of 86%. All expense categories increased due to two
factors. The first cause was the expansion of the fleet from three
Metro II aircraft and one Cessna 402C aircraft to six Metro III
aircraft during the first quarter of fiscal 1998. The second factor
is the expanded EAS and new air services added during the last
three quarters of fiscal 1998. Total aircraft miles flown were 147%
greater in the first quarter of fiscal 1999 than in the prior year.
Flying operations expense experienced the greatest increase of
$464,520, or 93%. The primary reasons for this increase were
twofold. First, aircraft lease expense, aircraft hull insurance,
and aircraft property taxes increased directly as a result of the
expanded and upgraded fleet. Secondly, additional flight crews and
fuel were required to support the expanded services in the EAS
markets and the new air services.
Maintenance expense increased by $259,517, or 92%, over the first
quarter 1998. The increase was attributable to a 128% increase in
block hours flown during the quarter, 3,122 versus 1,368. The
increased flying is a combination of the expanded fleet and higher
average daily aircraft utilization.
Passenger service expense increased by $257,196, or 82% in the
first quarter of fiscal 1999 compared to the same period in 1998.
The increase is attributable to the ground service costs associated
with the new markets added during the last three quarters of fiscal
1998, and an increase in air traffic liability insurance cost
associated with the larger fleet of higher capacity aircraft.
Sales expense increased by $102,294, or 249%, over the first
quarter of 1998. This increase is attributed to higher travel
agency commission expense and computer reservation services (CRS
fees) associated with the increased passengers, 179%, and
passenger revenues, 274%. Greater emphasis on advertising for the
new markets and for the expanded EAS service also contributed to
the increase.
General and administrative expense was $33,194, or 22%, greater
than the first quarter of fiscal 1998. The increase is attributable
to costs associated with the recognition and promotion of the
Company's twentieth anniversary in September, installation of new
hardware and software for the company's operating systems and, to
a lesser extent, additional administrative staff required for the
increased operations and revenues.
Depreciation expense was $9,686, or 49%, greater than the first
quarter of fiscal 1998 due to Global Positioning Systems (GPS)
installed on the aircraft, the purchase of a spare aircraft engine
to support the fleet, and new computer hardware and software.
Liquidity and Capital Resources:
Net non-operating expense was $103,478 for the three months ended
September 1998, compared to non-operating income of $124,830 for
the September 1997 quarter. The prior year quarter included a
substantial gain on the sale of the Company's last Cessna 402C
aircraft. Pursuant to Chapter 11 Reorganization Fresh Start
reporting, a $74,782 charge in lieu of tax was recorded in the
September 1998 quarter compared to $15,680 in the September 1997
period.
The quarter ended September 1998 generated an operating income of
$241,818, and net income of $138,340, compared to an operating loss
of $94,888 and net income of $29,942 during the same period in
1997. The prior year operating results reflect start-up related
costs associated with the enhanced EAS services and new route
expansion that began in October 1997.
A review of current liquidity and capital resources are as follows:
Working Capital Current Ratio
Year-end 06/30/98 $1,063,523 1.8: 1
Quarter-end 09/30/98 $1,129,247 1.9: 1
Long-term Debt Stockholder's
(excluding current portion) Equity
Year-end 06/30/98 $486,488 $1,457,880
Quarter-end 09/30/98 $435,523 $1,678,671
Stockholder equity at September 30, 1998 increased 15.1% in the
first fiscal year quarter ended September 1998. The Company is
current on all of its debt service obligations. In September 1998
the Company made the final two payments to its unsecured creditors
under the plan of reorganization, liquidating that debt one year
early.
Cash provided by operations in the three months ended September 30,
1998 was $219,573. Cash used in investing activities was $133,342
during the period. Cash used in financing activities was $83,283 in
the three-month period.
The Company has established a line of credit through First
Interstate Bank and Trust Co. of Billings for an amount of up to
$1,000,000. To date this line has not been utilized. The Company
also received a $150,000 advance on subsidy from the DOT in
November 1997 to supplement cash flow during start up of the
enhanced EAS service. This advance is being reimbursed in equal
monthly installments through subsidy offsets through November 30,
1998.
The Company's current EAS contract covering Eastern and Central
Montana expires on November 30,1998. The Company has been selected
by the DOT to renew the contract for a two-year period commencing
on December 1, 1998 at an annual subsidy of $4.7 million. The
contract renewal provides that the Company, at it's discretion, may
replace one Billings MT- Sidney MT round trip with one Sidney-
Bismarck ND round trip. The Company intends to initiate that
Bismarck service on December 1, 1998. The Company has held this
contract through consecutive two-year renewals since 1980.
Subsequent to September 30, 1998, the Company was selected by the
DOT to provide EAS operations to eight communities in the south
central United States. The selection order provides that the
Company shall take over the operations to the communities located
in Arkansas, Oklahoma and Texas as an emergency replacement carrier
for Aspen Mountain Air, which had been providing the services. The
Company shall receive an annual subsidy of $6.3 million for these
new services through November 1999. A major potion of these new
operations will commence on November 15, 1998, and the Company
expects to fully operate the routes in January 1999.
Part II. Other Information
BIG SKY TRANSPORTATION CO.
Item 6. Exhibits and reports on Form 8-K
A) Exhibits
2: The debtor's Supplement Disclosure Statement and Third
Plan of Reorganizations (filed August 30, 1991 on Company's Form 8-
K report and incorporated herein by reference).
4: (a) Specimen certificate for shares of the Common Stock
of the Company (filed as Exhibit 4(b) to Company's Report on Form
10-K for the year-ended June 30, 1985 and incorporated herein by
reference).
(b) The Company agrees to furnish the Commission on
request copies of instruments with respect to long-term debt not
being registered hereunder, the amount of which debt does not
exceed 10% of the total assets of the Company.
11: Basic earnings per share is based on the weighted average
number of common and common equivalent shares outstanding. Dilative
is based on the weighted average number of common and common
equivalent shares outstanding.
15: The accompanying unaudited condensed financial statements
have been prepared by the Company in accordance with its
understanding of the rules and regulations of the Securities and
Exchange Commission. These financial statements reflect, in the
opinion of management, all adjustments (consisting only of
recurring accruals) for fair presentation of the results of
operations for the interim periods presented. However, these
financial statements have been prepared in accordance with
instructions to Form 10-QSB and therefore, do not include all
information and footnotes necessary for a fair presentation of
financial position, statement of operations and cash flows in
conformity with generally-accepted accounting principles. Results
of operations for the three month-ended September 30, 1998 and 1997
are not necessarily indicative of the results to be expected for
the full year. It is recommended that these interim financial
statements be read in conjunction with the financial statements and
notes thereto, included in the Company's latest annual report on
Form 10-KSB.
18: No change.
19: Not applicable
20: Not applicable
23: Not applicable
24: Not applicable
25: Not applicable
28: Contract awarding Essential Air Service contract for
points in the south-central United States:
0rder 98-10-9
UNITED STATES OF AMERICA
DEPARTMENT OF TRANSPORTATION
OFFICE OF THE SECRETARY
WASHINGTON, D.C.
Issued by the Department of Transportation
On the 7th day of October, 1998
Dockets; OST-1997-2935
Essential Air Service
EL DORADO/CAMDEN, ARKANSAS
JONESBORO, ARKANSAS OST-1997-2401
HARRISON, ARKANSAS
HOT SPRINGS, ARKANSAS OST-1997-2402
ENID, OKLAHOMA
PONCA CITY, OKLAHOMA
BROWNWOOD, TEXAS
.s.c. 41731 et seq.
ORDER APPROVING TRANSFER OF ESSENTIAL AIR
SERVICE RESPONSIBILITIES AND SUBSIDY RATES
AND PROHIBITING SUSPENSION OF SERVICE
Summary
By this order, the Department approves the transfer of essential
air service (EAS) responsibilities and the accompanying subsidy
rates for El Dorado/Camden (El Dorado), Jonesboro, Harrison, and
Hot Springs, Arkansas; Enid and Ponca City, Oklahoma; Brownwood,
Texas, from Exec Express II, d/b/a Aspen Mountain Air (AMA,
former1y Lone Star Airlines) to Big Sky Airlines, effective when
replacement service actually begins.
Background
AMA is providing EAS at these several points under two orders:
Order 97-4-29, April 28,1997, for the three Oklahoma and Texas
communities at subsidy rates totaling $2,342,512 annually through
February 28,1999; and Order 97-9-31, September 30,1997, for the
four Arkansas points at annua1 subsidy rates totaling $3,985,917,
which will expire at the end of November 1999. AMA currently
provides three round trips a day between Brownwood and Dallas/Ft.
Worth (Dallas); four round trips a day between Enid and Ponca
City on the one hand and Dallas on the other; two round trips a
day over a Jonesboro-El Dorado-Dallas routing with
a third nonstop round trip a day between El Dorado and Dallas;
and for Harrison and Hot Springs, two round trips a day to St.
Louis, and two and three round trips a day to Dallas
respectively. All service is provided with 19-seat Metro III aircraft.
On August 7, 1998, AMA declared Chapter 11 bankruptcy. Subsequently,
on September 11, the carrier informed Department staff that as a result of
its financial condition it would return all of its 19-seat Metro aircraft to
the various lenders by October 6 and suspend all EAS service at the seven
communities at that time. Since AMA's proposed suspension of service
would leave all seven communities without any scheduled air service, by
Order 98-9-16, the Department invited proposals from carriers interested in
provided emergency replacement service that would fill out the balance of
AMA's existing contract, i.e., providing the same service levels, at the same
subsidy rates and through the same contract expiration dates. That order
also requested proposals from carriers interested in providing replacement
service, with or without subsidy, on a long-term basis. We also required AMA
to maintain its full EAS operations until replacement service is being
provided.
We remind AMA that it continues to have a legal obligation to provide service
at these communities until full EAS is being provided by a replacement carrier.
However, we are aware that the carrier is anxious to leave its EAS routes as
quickly as possible. In that regard, AMA has responded to the DOT informally
that it has completed a short-term wet-lease arrangement with Merlin Express
by which Merlin Express will provide aircraft, pilots and mechanics to AMA
for the continuation of service beginning October 7 until such time as the
replacement service is fully in place.
Proposals
We have received proposals from four carriers, Big Sky Airlines,
Casino Airlines, Mid-America Express Airlines, and Yute Air
Alaska. All four carriers have proposed to duplicate AMA's existing service
levels at the seven communities at the current subsidy rates. There are not
significant differences among the proposals, which are summarized below.
Big Sky Airlines
Big Sky, based in Billings, Montana, is an airline with 20 years
experience and has provided subsidized EAS at seven Montana
points for 18 of those years. The carrier proposes to provide
EAS service with 19-seat Metro III aircraft. Big Sky states that
it could commence service to at least three cities (Enid, Ponca
City, and Brownwood) three weeks after its selection. It would
then commence service to the other four communities (El Dorado,
Jonesboro, Harrison and Hot Springs) in about 30-69 days
following its selection. Big Sky states that it is working
closely with other carriers at Dallas/Ft. Worth and St. Louis to
provide connecting opportunities and joint fares. The carrier
states that it already has interline ticket and baggage
agreements with certain airlines at both hubs.
Casino Airlines
Casino is based in Shreveport, Louisiana, and currently owns and
operates tow 19-seat Jetstream 31 aircraft and would lease three
or four additional aircraft to serve AMA's existing routes.
However, it initially stated that it would provide that service
to Love Field instead of Dallas/Ft. Worth Airport, since it
already has operations at that airport and because Southwest
Airlines, along with several other large carriers, operate there.
The carrier asserts that lower through fares will be available at
Love Field for passengers connecting to destinations beyond
Dallas, primarily because of the presence of Southwest Airlines.
It states that it has already considered expanding to other
markets in the region. Casino states that delivery of additional
aircraft to provide the service could commence in 7-14 days after
lease agreements are finalized, with the first aircraft on line
in 30-45 days. The carrier would add additional aircraft every
20-30 days. Casino would be able to begin service to three
communities immediately (Brownwood, El Dorado, and Jonesboro)
with its current fleet of two aircraft. It would begin Enid and
Ponca City when the third aircraft is available. It would begin
the remaining service (Harrison and Hot Springs) by the end of
November. On October 5, after proposals and community comments
had been received, Casino filed an amendment to its proposal
stating that it would now be willing to provide service to
Dallas/Ft. Worth Airport and could provide service to Love Field
for more options, and that it would commit two aircraft and five
crews to the service immediately.
Mid-America Express Airlines (Mid-America)
Mid-America is a new airline formed by Reebaire Aircraft, Inc.
(a company dealing in aircraft repairs and modifications since
1986) which is based in Hot Springs, Arkansas Mid-America proposes to
operate the EAS service with 19-seat Metro III aircraft. It is not now
an operating carrier, but filed the pre-application for an FAA Part 121
certificate on October 2, and states that it is preparing a fitness
application to be filed with the Department of Transportation. It claims
that once it as FAA and DOT approval it can being placing aircraft in revenue
service. Mid-America proposes to commence service with two aircraft on or
about December 14, add a third aircraft on December 21 and a fourth aircraft
on December 28. It states that it is looking into the possibility of
wet-leasing one Metro by November 1. It also states that as an
Arkansas-based carrier, it would be more responsive to the needs to the local
community.
Yute Air Alaska
Yute Air, a carrier based in Anchorage, Alaska, proposes to
replicate AMA's service routes through a wet-lease arrangement
with Merlin Express. Yute Air states that Merlin Express is the
largest Metro III operator in the world, conducting both cargo
and passenger operations. Under the wet-lease arrangement, Yute
Air would provide the marketing, reservations and ground
handling, while Merlin Express would supply 19-seat Metro III
aircraft, pilots and maintenance under Merlin Express's FAA Part
121 certificate. Yute Air states that if it is selected it could
replace AMA's existing schedules immediately when AMA suspends
service with no service interruptions
Community Views
We have received comments from all seven communities with
unanimous support for the selection of Big Sky Airlines to
replace AMA at the EAS communities. The reason cited most often by the
communities in recommending Big Sky were the carrier's long-standing history
in the airlines business and in providing subsidized service in the EAS
program, the preference for continued service to the Dallas/Ft. Worth Airport,
a comment directed to Casino's initial proposal to use Love Field, and as
cited by two communities, the importance of Big Sky's ability to put in place
joint fares and other agreements with carriers at the hubs. The communities
state that Love Field does not offer the connecting opportunities that would
be available at Dallas/Ft. Worth. The communities did not comment on
Casino's amended proposal that it would provide service to the Dallas/Ft.
Worth Airport. Other community comments expressed confidence in the quality
of service they would expect Big Sky to provide.
Decision
We have fully considered all proposals and will approve the
transfer of essential air service responsibilities and the
accompanying subsidy rates for serving the seven communities from
AMA to Big Sky. We will also require AMA to maintain service at
the communities until replacement service begins.
As we stated in Order 98-9-16, AMA's ability to continue
providing EAS at these communities beyond early October is in
serious doubt, and our intent therefore is to secure reliable
replacement service as promptly as possible and to avoid a
service hiatus. Each of the four applicants is willing to adopt
AMA's existing subsidy rates and to provide essentially the same
service literally identical frequencies, with pressurized 19-seat
aircraft, either Metro III's or Jetstreams. Thus, in reaching
our decision, we have given substantial weight to the views of
the affected communities and carrier operating experience, two
statutorily mandated criteria, and to a lessor extent, the
comparative capabilities of the carriers to implement their
service on a timely basis.
Mid-America Express is in the initial stages of seeking commuter
operating authority from the Department and certification by the
Federal Aviation Administration. While we are prepared to work
with this applicant to complete both processes as quickly as
possible, we could not reasonably expect Mid-America Express to
be in a position to start scheduled service in less than two or
three months. Mid-America's own target is to replace AMA on or
about December 15 and to complete the transition by December 31,
and submitted, within a very short time-frame, a commendably thorough
proposal, including timelines for completing the requisite steps for FAA
Part 121 certification, securing a fitness determination, and phasing in
its scheduled service. At least one of the communities, Hot Springs,
expressed very positive receptiveness to relying on Mid-America for the
longer term, once it has been certificated. As an Arkansas-based airline,
Mid-America would be logistically well positioned to serve the seven
communities at issue, four of which are in Arkansas.
Not withstanding these considerations, we are compelled by the circumstances
to seek more expedited replacement service than Mid-America would be able to
meet. In addition, as explained below, we must give significant weight to
other factors, which favor other applicants. Big Sky, Casino, and Yute Air
are all in a position to replace AMA's service much more promptly than
Mid-America, and we find that our statutory obligations to ensure
the continued maintenance of reliable EAS to the seven eligible points
require our selection of one of those carriers.
All seven communities have expressed a preference for Big Sky generally
because they prefer Big Sky's continued service to the Dallas/Ft. Worth
Airport and they value Big Sky's long-standing experience in the airline
business, especially its experience in EAS service, and its ability to
provide joint fares and interline agreements with other carriers. Big Sky has
been providing scheduled air service since 1980, including EAS at seven
communities in Montana, and those communities are very supportive of Big
Sky's service.
In the case of Casino, the communities do not support a service switch to
Dallas's Love Field instead of the traditional Dallas/Ft. Worth Airport as
initially proposed by the carrier. The communities state that better
connections and joint fares are avai1able at the Dallas/Ft. Worth
Airport. Casino has now amended its Love Field proposal to allow for service
to the Dallas/Ft.Worth Airport; however, to date, we have not received any
additional community comments regarding Casino's amended service. In
addition, we are required by statute (see 49 U.S.C.41733) to consider
applicants' experience in providing scheduled air service. Although Casino
is providing scheduled operations, it has held commuter authority only since
late December 1997. Thus, Big Sky has an advantage over Casino both in
community support and operating experience, two statutorily mandated criteria.
Yute Air Alaska's proposal, which is premised on wet-leasing 19 seat
Metro III aircraft from Merlin Express, is also fully responsive to our
solicitation order. Merlin Express currently wet-leases aircraft to Yute Air
in Alaska, i.e., Merlin Express provides the aircraft, the pilots
to fly them, and the mechanics and parts to maintain them. Yute Air, on the
other hand determines what routes to fly, when and at what prices, and it
markets and sells the tickets and provides all of the ground handling and all
other airline functions. Merlin Express is a wholly owned subsidiary of
Fairchild-Dornier, a company that sells and leases Metro Ill
aircraft, as well as other aircraft types. Merlin Express was established to
showcase the aircraft of the parent company and does so through the wet
leasing of Metro III aircraft to potential customers, such as Yute Air,
Merlin Express currently holds DOT commuter operating authority which allows
it to provide passenger service either directly, or indirectly,
through wet leases to other scheduled passenger carriers Yute Air, a
certificated carrier, also holds DOT operating authority. As with Big Sky,
Yute Air has the experience and knowledge to provide reliable essential air
service. However, none of the communities have endorsed Yute Air as their
preferred carrier.
In summary, important considerations weigh in favor of our selecting Big Sky
as the emergency replacement carrier for AMA. All of the communities have
expressed a strong preference for Big Sky; arid Big Sky, is experienced and
has a sound history of providing reliable essential air service for many
years. Based on these factors, and the carrier's ability to begin replacement
service in approximately three weeks, we authorize the transfer of the
service responsibility and the accompanying subsidy rates for tile seven
communities from AMA to Big Sky at the service levels and subsidy rates set
forth in Appendix B.
Duration of Replacement Service
We noted earlier that the contract period for Enid, Ponca City,
and Brownwood expires on February 28,1999, while the contract for
the four Arkansas points does not expire until November 30,1999.
In the normal course of events, we would be negotiating a new
subsidy rate for Enid, Ponca City, and Brownwood within the next
month or two. However at that point, Big Sky will have had very
little operating experience at those three communities on
which to project a new, full two-year rate period. As a result,
we will extend the terms and conditions for those communities'
essential air service pursuant to Order 97-4-29 for an
additional nine months, through November 31, 1999. This will put
all seven communities on the same time cycle and will give Big
Sky almost a full year of operating data on which to base
its subsidy projections next fall for a new, two-year contract
period beginning December 1, 1999. At that time, consistent with
long-standing program policy, we would also invite all interested
carriers to submit competing applications.
Carrier Fitness
49 U.S.C. 4l737(b) and 41738 require that we find an air carrier
fit, willing and able to provide reliable service before we
compensate it for providing essential air service. We last
found Big Sky fit by Order 98-9-12, September 14, 1998, in
connection with its selection at seven Montana points. The
Department routinely monitors the carrier's continuing fitness,
and no information has come to our attention that would lead us
to question their ability to operate in a reliable manner.
However, because the selection granted here would be a
significant expansion for Big Sky, we contacted the FAA Flight
Standards District Office in Montana that oversees Big Sky's
operations. The FAA has advised us that Big Sky met with it
regarding Big Sky's proposed expansion and that the carrier has
met all FAA requirements. The FAA states that Big Sky informed it
that the carrier is making arrangements to hire AMA's pilots and
mechanics, which should make for an easier transition. Thus, FAA
fluids no reason why we should not select Big Sky Airlines to
provide service at the seven communities in Arkansas, Oklahoma,
and Texas.
AMA's Continuing Obligation
As a final matter, we expect AMA and Big Sky to work together to
ensure an orderly transfer of service at these points. As we
mentioned earlier, AMA has a legal obligation to continue
providing the full level of essential air service at these
communities. We find that the wet-lease arrangements between AMA
and Merlin Express to fulfill AMA's EAS obligations is
acceptable. AMA may suspend its services on the date that full
replacement service by Big Sky actually begins, provided that,
before it suspends service at any of the communities, it contacts
all passengers holding reservations for flights that will be
suspended, informs them of the suspension and the availability of
other service, and assists them in arranging alternative
transportation.
This order is issued under authority delegated in 49 CFR 1.56(i).
ACCORDINGLY,
1. The Department directs Exec Express, II, d/b/a Aspen Mountain
Air to maintain service at the service levels and subsidy rates
set forth in Orders 97-4-29 and 97-9-31 at
El Dorado/Camden, Jonesboro, Harrison, and Hot Springs, Arkansas;
Enid and Ponca City, Oklahoma; and Brownwood, Texas, until Big
Sky Airlines' essential air service at the seven communities
actually begins;
2. The Department selects Big Sky Airlines to provide essential
air service at El Dorado/Camden, Jonesboro, Harrison, and Hot
Springs, Arkansas; Enid and Ponca City, Oklahoma; and Brownwood,
Texas, at the service levels and subsidy rates described in
Appendix B, from file date that it institutes service through
November 30, 1999;
3, The Department sets the final rates of compensation for Big
Sky Airlines for the provision of essential air service at El
Dorado/Camden, Jonesboro, Harrison, and Hot Springs, Arkansas;
Enid ad Ponca City, Oklahoma; and Brownwood, Texas, as described
in Appendix B, from the date that it institutes service through
November 30, 1999, payable as follows: for each calendar month
during which essential air service is provided, the amount of
compensation shall be subject to the ceiling per week set forth
in Appendix B, and shall be determined by multiplying the
subsidy-eligible arrivals and departures flown during the month
by the following amounts:
Enid and Ponca City: $314.31
Brownwood: $441.13
El Dorado and Jonesboro: $618.18
Hot Springs and Harrison: $382.16
4. We terminate the subsidy rates for Exec Express, II, d/b/a Aspen Mountain
Air, at the communities named in ordering paragraph 1 above, as established
by Orders 97-4-29 and 97-9-31, on the date that Big Sky Airlines' provision
of full essential air service actually begins.
5. We find that Big Sky Airlines continues to be fit, willing and to operate
as a commuter air carrier and capable of providing reliable essential air
service at El Dorado/Camden, Jonesboro, Harrison, arid Hot Springs, Arkansas;
Enid and Ponca City, Oklahoma; and Brownwood, Texas;
6. We direct Big Sky Airlines 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
he retained for seven years or until the Department indicates that the
records may be destroyed. Copies of flight logs for aircraft sold or disposed
of must be retained. The carriers may forfeit their compensation for any
claim that is not supported under the terms of this order;
7. These dockets will remain open until further order of the Department; and
8. We will serve a copy of this order on the Mayors and airport managers of
El Dorado, Jonesboro, Harrison, and Hot Springs, Arkansas, Enid and Ponca
City, Oklahoma, and Brownwood, Texas, the States' Department of
Transportation, Exec Express II, d/b/a Aspen Mountain Air, Big Sky Airlines,
Casino Airlines, Mid-America Express Airlines, Merlin Express, and Yute Air
Alaska.
By:
CHARLES A. HUNNICUTT
Assistant Secretary for Aviation
and International Affairs
(SEAL)
An electronic version of this document is available on tile World Wide Web at
http://dms.dot.gov
The electronic version may not include all of the appendices.
BIG SKY AIRLINES
ESSENTIAL AIR SERVICE AT ENID AND
PONCA CITY, OKLAHOMA AND BROWNWOOD, TEXAS
EFFECTIVE PERIOD From the Date on which the proposed service begins through
November 30, 1999
SERVICE:
Enid and Ponca City 24 nonstop or one-stop round trips each week Between Enid
and Ponca City, and Dallas/Ft. Worth
Brownwood: 18 nonstop round trips each week between Brownwood And
Dallas/Ft. Worth
AIRCRAFT TYPE Fairchild Metro III, 19 passenger seats
TIMING OF FLIGHTS Flights must be well-timed and well-spaced to ensure full
compensation
SUBSIDY RATE PER
ARRIVAL/DEPARTURE
Enid and Ponca City $313.31 1/
Brownwood $441.13 2/
COMPENSATION CEILING
EACH WEEK
Enid and Ponca City $30,173.76 3/
Brownwood $15,880.68 4/
FOOTNOTES APPEAR ON FOLLOWING PAGE
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 plan 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 this 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 these rates, it must first notify
the Office of Aviation Analysis in writing and receive written approval from
the Department to be assured 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 overly 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 agreed amounts or at the
agreed service levels, the 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 parities to the agreement do not
constitute a total or partial reduction of cessation of payment.
Subsidy contracts are subject to, and incorporate by reference, relevent
statues and Department regulation, as they may be amended from time to time.
However, any such statues, regulation or amendments thereto shall not
operate to controvert the foregoing paragraph.
FOOTNOTES
1/ Annual compensation of $1,534,795 divided by the estimated
annual completed departures and arrivals at 97.5 percent
completion factor; 16 x 313 x .975 = 4,883
2/ Annual compensation of $807,717 divided by the estimated
annual completed departures and arrivals at 97.5 percent
completion factor; 6 x 313 x .975 = 1,831
3/ Subsidy rate per arrival/departure of $314.31 multiplied by 96
subsidy-eligible arrivals and departures each week.
4/ Subsidy rate per arrival/departure of $441.13 multiplied by 36
subsidy-eligible arrivals and departures each week.
BIG SKY AIRLINES
ESSENTIAL AIR SERVICE AT EL DORADO/CAMDEN
JONESBORO, HARRISON, AND HOT SPRINGS, ARKANSAS
EFFECTIVE PERIOD From the Date on which the proposed service
begins through November 30, 1999
SERVICE:
El Dorado/Camden 18 nonstop round trips each week
to Dallas/Ft. Worth
Jonesboro 12 nonstop or one-stop round trips each week
to Dallas/Ft. Worth
Harrison 12 nonstop or one-stop round trips each week
to Dallas/Ft. Worth and 12 nonstop or one-
stop round trips each week to St. Louis
Hot Springs 18 nonstop round trips each week to
Dallas/Ft. Worth and 12 nonstop, one-stop or
two-stop round trips each week to St. Louis
AIRCRAFT TYPE Fairchild Metro III, 19 passenger seats
TIMING OF FLIGHTS Flights must be well-timed and well-spaced
to insure full compensation
SUBSIDY RATE PER
ARRIVAL/DEPARTURE
El Dorado/Camden $618.18 1/
Harrison and Hot Springs $382.16 2/
COMPENSATION CEILING
EACH WEEK
El Dorado/Camden $37,091 3/
Harrison and Hot Springs $41,273 4/
FOOTNOTES APPEAR ON FOLLOWING PAGE
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
plan 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 no6t schedule or operate its
flights in full conformance with this 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 these
rates, it must first notify the Office of Aviation Analysis in
writing and receive written approval from the Department to be
assured 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 overly 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 agreed amounts or at the agreed service
levels, the 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 parities to
the agreement do not constitute a total or partial reduction of
cessation of payment.
Subsidy contracts are subject to, and incorporate by reference,
rele4vent statues and Department regulation, as they may be
amended from time to time. However, any such statues, regulation
or amendments thereto shall not operate to controvert the
foregoing paragraph.
FOOTNOTES
1/ Annual compensation of $1,886,693 divided by the estimated
annual completed departures and arrivals at 97.5 percent
completion factor; 10 x 313 x .975 = 3,052
2/ Annual compensation of $2,099,224 divided by the estimated
annual completed departures and arrivals at 97.5 percent
completion factor; 10 x 313 x .975 = 3,052 to Dallas and
8x13x.975=2,441 to St. Louis. Total 5,493
3/ Subsidy rate per arrival/departure of $618.18 multiplied by 60
subsidy-eligible arrivals and departures each week.
4/ Subsidy rate per arrival/departure of $382.16 multiplied by
108 subsidy-eligible arrivals and departures each week.
Part II. Other Information
BIG SKY TRANSPORTATION CO.
B) Reports on Form 8-K
No reports on Form 8-K were filed during the September 1998
quarter.
October 9, 1998 Form 8-K, Item #5 was filed announcing the
expansion of Essential Air Service in South Central United
States.
C) Item 27 Financial Data Schedule
(Only for filings via EDGAR)
BIG SKY TRANSPORTATION CO.
Signature
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BIG SKY TRANSPORTATION CO.
Registrant
By: /s/ Kim B. Champney
Kim B. Champney
President & CEO
November 13, 1998