• That carrier must first file a notice of its intent to suspend service--a 90-day notice under the EAS statutes.
• During that 90-day period, we try to find a carrier willing to enter the market on a subsidy-free basis. If we are successful, we issue a decision allowing the incumbent to suspend service, but not until the incoming carrier begins service
• If we are not able to secure subsidy-free replacement service, we issue a request for proposals to all interested carriers and proceed with a carrier selection decision. Again, the incumbent could not suspend service until a replacement carrier actually begins service.
• Under both scenarios, the incumbent carrier is eligible for compensation for being held in after the end of its original 90-day notice period.
  

• Again, that carrier must first file a notice of its intent to suspend service--a 90-day notice under the EAS statutes.
• We follow the same drill as we do in the subsidy-free example, although the likelihood of securing subsidy-free replacement service is much less. We hold the incumbent in and issue a request for proposals. In this case, however, the incumbent carrier continues to receive the same subsidy rate for six months, at which time it is eligible for a rate increase. [The six-month period was designed to prevent carriers from deliberately submitting below-cost proposals to get selected and then coming back to the Department and immediately expecting to get a higher subsidy rate.]
• The important thing to remember is that eligible communities are guaranteed to receive at least a minimum level of air service; thus, absent a carrier’s going out of business, there should not be a service hiatus at any EAS communities.

• The Department’s mandate is to provide the EAS communities with access to the national air transportation system. As a general matter, this is accomplished by subsidizing two to four round trips a day--with three being the norm--with 19-seat aircraft to a major hub airport
• There are a handful of cases in the west in which we subsidize service to two hubs when the distances are very great requiring large backhauls and where the historical passenger traffic is fairly evenly split in each direction

• When Congress passed the Airline Deregulation Act on October 24, 1978, they simply said that any community receiving scheduled air service from a certificated carrier on that date was an eligible EAS community, and they instructed the regulatory agency (then the Civil Aeronautics Board, later the Department of Transportation) to establish procedures to determine when and how to invoke the law’s provisions on behalf of individual communities. Thus, technically, even the very largest cities, such as New York, are EAS-eligible communities, but as a practical matter the Department only invokes the provisions of the EAS program for communities that have a very limited amount of air service.
• Over the years the Congress and the Department have worked to streamline the EAS program and increase its efficiency, mostly by eliminating service guarantees and subsidy support for communities that are within a reasonable drive of a major hub airport.
• Currently, communities are not eligible to receive subsidized air service if they are within 70 driving miles of an FAA-designated Large or Medium Hub airport, or if their subsidy per passenger exceeded $200 (there is an exception from the $200-per-passenger standard for communities that are more than 210 highway miles from the nearest Medium or Large Hub).

• We generally negotiate subsidy rates for two-year periods. The periodic repetition of the competitive bidding process is a necessary discipline on the subsidy costs.
• By design, the contracts for carriers to provide EAS at some 100 communities across the nation expire on a staggered basis throughout the year.
• Thus, the Department is continually negotiating subsidy rates for new, two-year contracts.

• We currently subsidize 26 communities in Alaska and 78 more in the rest of the United States.
• The EAS budget has ranged from about $100 million early in the program down to about $25 million as recently as the last couple of years. Beginning in fiscal year 1998, Congress has set up a permanent funding mechanism at a $50 million level.

• Carriers submit proposals in response to our request for proposals. We require the applicants to document the basis and the reasonableness of the subsidy amounts they are requesting.
• That involves negotiations in which carriers are asked to supply financial information to back up their claims. Depending on the sophistication of the applicant, documents could include internal financial statements, audited financial statements, or filings with the Securities and Exchange Commission.
  

SELECTING AN EAS CARRIER

• We do not use a low-bid system, but rather consider a number of factors as carrier selection criteria.
• Our governing statutes require that we consider carriers’ abilities to offer thru ticketing and joint fares for connecting passengers, any code-share relationships the applicants may have with a major partner, and the carriers’ experience in providing scheduled air service.
• Although not required by statute, we also consider the applicants’ requested subsidy amounts.
• The Department announces and explains its decision in an order that designates the successful air carrier and specifies the service pattern (routing, frequency and aircraft type), the exact subsidy rate, and the dates of effectiveness and termination of the rate.

PAYING AN EAS CARRIER