Order 97-10-6 / OST-95-676 / OST-95-677 / OST-97-2592 / Falcon Air Express / October 7, 1997

Application of

for amendment of its certificates of public convenience and necessity

Application of

for an exemption

By this order we (1) grant Falcon Air Express, Inc. (Falcon) an exemption to add up to two aircraft to its aircraft fleet, subject to its first being issued amended Operations Specifications by the Federal Aviation Administration (FAA) authorizing the use of such additional aircraft, and (2) defer further action on the carrier's pending application for certificate amendment.

Falcon holds certificates authorizing it to provide interstate and foreign charter passenger air transportation using one B-727 aircraft. 1/ In issuing those certificates, the Department required that, if Falcon wanted to expand its operations beyond the one aircraft proposed in the company's initial business plan, it must first have its fitness to do so redetermined by the Department. 2/ Falcon began operations in March 1996. On November 4, 1996, it filed an application in Dockets OST-95-676 and OST-95-677 requesting that the Department remove the one-aircraft restriction from its certificate; at the same time, Falcon filed a separate

1/ See Order 96-4-32, served April 16, 1996.

2/ The limitation on the use of one aircraft was imposed for two reasons: the carrier's limited financial resources at the time of the initial fitness finding and its relatively inexperienced management team. (See Order 96-2-34, issued February 20, 1996.)

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application in Docket OST-96-1922 requesting that the Department grant it a pendente lite exemption authorizing it to operate additional aircraft pending final action on its certificate restriction-removal application. After reviewing Falcon's request, on December 5, 1996, we orally granted the carrier an exemption authorizing it to operate one additional aircraft. By Order 97-2-5, issued February 10, 1997, we confirmed our December 5 oral action; however, since Falcon had not yet obtained its second aircraft, we deferred further consideration of the restriction-removal application until the carrier had obtained this additional aircraft and had some operating experience with it. Falcon added its second aircraft to its fleet in May.

In support of its application, the carrier has advised us of recent changes in its key management personnel, /3 and states that it is hiring additional flight personnel as necessary to enable the company to fully support the operation of as many as four aircraft. Falcon has provided recent financial statements showing that, at June 30, 1997, it had S299,2S1 in cash, $48,946 in working capital, a current assets to current liabilities ratio of 1.02 to 1, no long term debt, and positive retained earnings and stockholders' equity of S375,069 and $562,843, respectively. For the calendar year 1996, Falcon reported net income of approximately $112,000 on approximately $5 million in revenues. For the six months ending June 30, 1997, it reported operating and net income of $471,807 and $452,869, respectively, on total revenues of approximately $4.6 million. Falcon states that the deposit for its prospective third aircraft has already been paid and that it believes that it will be able to cover other costs

3/ In May 1997, Jose (Joe) Talentto began serving in the FAA-required position of Director of Quality Control. Mr. Talentto has held aviation maintenance positions at various companies since the 1960's. including U.S. and. foreign airlines and FAA-approved repair stations. Positions he has held include Director of Quality Control for Spirit of America Airline (1977-1986) and TPI International Airways (1986-1991). Mr. Talentto holds an FAA Airframe and Powerplant Mechanic certificate and has been approved by the FAA to hold his current position. In rune, Falcon hired lames Sprinkle to serve as Vice President-Maintenance. Mr. Sprinkle holds an FAA Airframe and Powerplant Mechanic license and has held aviation maintenance positions since the late 1980's, including, most recently, Technical Representative/Inspector of World Airways (October 1992-November 1996) and Maintenance Controller for Carnival Air Lines (November 1996-June 1997). Finally, on September 15, Anna Perez, who had previously been providing consulting services to the company, became Vice President-Finance on a full-time basis. Ms. Perez has held accounting positions since the early 1980's, including serving as an accountant with Southern Air Transport (1988-1995). Since 1995, she has been providing financial and accounting consulting services to airlines and other companies.

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(primarily crew training and the deposit for the fourth aircraft) using internal funds or, if necessary, funds provided by its owners. 4/

Falcon advises that it has recently agreed to pay a $2,000 civil penalty to the FAA in connection with a violation of that agency's rules regarding the training of a member of its flight crew. Falcon also recently entered a Consent Order with the Department whereby it agreed to an assessed civil penalty of $20,000 as a result of Falcon's failures to timely file Form 41 reports with the Department. 5/

The FAA has advised us that Falcon's current operations are satisfactory and that it has no objection to the Department allowing Falcon to increase its fleet up to four aircraft. The FAA confirms that Falcon is preparing for its fleet expansion by adding resources to improve current operations and management effectiveness and that the airline is also taking steps to expand its ground facilities for maintenance and operations purposes, commensurate with its proposed fleet expansion.

In light of these positive considerations, we find that Falcon is fit to expand its operations as proposed, and that it is in the public interest to allow the carria to increase its fleet to a maximum of four aircraft, subject, of course, to its compliance with all relevant FAA requirements and the receipt of appropriate FAA operating authority.

However, we have also decided to defer for at least an additional six months action on the carrier's request that the aircraft limitation currently contained in its certificates be eliminated in its entirety. We do so out of concern about the carrier's aforementioned FAA problem and its past failure to properly meet our reporting requirements. 6/ It does appear that Falcon has taken steps to rectify its past reporting problems. To this end, in addition to hiring Ms. Perez as its Vice President-Finance, 7/ the company's outside accountant has also conducted an audit of Falcon's financial position at December 31, 1996, and has worked with Ms. Perez and Falcon to ensure the accuracy of its current and future financial statements. That step is an important factor in our willingness to grant the exemption we are conferring in this order. Over the coming months, we intend to monitor Falcon's conduct, particularly with respect to our reporting requirements, as well as its operating experience with the additional aircraft

4/ Falcon's owners have provided capital to the carrier in the past and have committed to doing so if necessary in the future.

6/ The Department relies on air carrier reports for a number of responsibilities, including monitoring carrier fitness, analyzing the effects of air transportation policy initiatives, allocating airport development funds, and forecasting traffic.. Thus, it is important that carriers meet the reporting requirements on a timely basis and that the information filed therein be accurate.

7/ Ms. Perez will be responsible for insuring that the carrier's reports are filed accurately and on time in the future. Ms. Perez's resume indicates that she has had prior experience in preparing air carrier Form 41 reports.

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authorized here, before deciding whether or not to remove or modify the aircraft fleet limitation contained in its certificated

ACCORDINGLY, Acting under authority assigned by the Department in its Regulations, 14 CFR 385.120b)(1):

1. We grant Falcon Air Express, Inc., an exemption from the terms and conditions of its certificates of public convenience and necessity to the extent necessary to increase its aircraft fleet up to a total of four aircraft.

 

2. We defer for a period of at least six months further action on the application filed by Falcon Air Express, Inc., in Dockets OST-95-676 and OST-95-677 requesting removal of the restriction on the number of aircraft it may operate contained in its certificates of public convenience and necessity issued by Order 96-4-32.

 

3. The exemption granted here may be amended or revoked at any time without notice.

 

4. We will serve a copy of this order on the persons listed in Attachment A.

Persons entitled to petition the Department for review of this order, under 14 CFR 38S.30, may file their petitions within 10 days of the date of service of this order.

The action taken in this order shall be effective immediately, and the filing of a petition for review shall not alter its effectiveness.

By:

JOHN V. COLEMAN

Director

Office of Aviation Analysis

In this regard, before considering whether or not to remove the restriction in its certificates, we will expect that Falcon first submit updated information detailing any changes in areas impacting its fitness.