SERVED JUL 17 1995
Fitness determination of CORPORATE FLIGHT MANAGEMENT, INC. as a commuter air carrier under 49 U.S.C. 41738
We have received an application from Corporate Flight Management, Inc. (CFM) to conduct commuter operations, and, upon review of the information in this application and the safety and compliance information on the applicant received from the FAA, we tentatively conclude that CFM is a U.S. citizen and has met the fitness test to conduct commuter operations. We will, however, give interested persons an opportunity to show cause why we should not adopt as final our tentative determination that CFM is fit, willing, and able to provide commuter service.
The Company
CFM, a Tennessee corporation, is headquartered in Smyrna, Tennessee. The company, founded in 1982 by Charles Howell III and his son, James Allan Howell, is registered with the Department as an air taxi operator under Part 298 of the Aviation Economic Regulations.2 Eighteen individuals, all U.S. citizens, currently hold an ownership interest in the company, although only three of these persons hold a substantial (i.e., 10 percent or more) share of the stock--James Howell and David Augustin, both Vice Presidents of the company (30 percent each), and Charles Howell IV, Chairman, Chief Executive Officer and President (18 percent).
CFM's on-demand charter aircraft fleet currently includes 15 aircraft--six Beech 200s, two Learjets, five Mitsubishi MU-2Bs, and two Piper aircraft. In 1989, CFM became a fixed base operator (FBO) in Smyrna. In 1991, it took over the operations of an FBO at John C. Tune Airport in Nashville, and in 1993 it became the FBO in Bowling Green, Kentucky.
CFM has now decided to move into scheduled passenger services. If granted the authority requested here, CFM proposes to provide commuter flights between Bowling Green and Cincinnati, Ohio, using two Beech King Air 200s, each configured for up to 13 passengers.
FITNESS Managerial Capabilities
Charles Howell IV has been CFM's Chairman, President and Chief Executive Officer since 1985. He is a 1979 graduate of the University of Tennessee and worked as a real estate broker prior to joining CFM. His brother, James Allen Howell, graduated from Auburn University in 1982 and has been Vice President and Secretary of CFM since co-founding the company with his father that year.
David J. Augustin is also a Vice President of CFM, a position he has held since 1983. Mr. Augustin graduated from Middle Tennessee State University in 1982 with a degree in Aerospace Administration. He also holds Airframe and Powerplant Mechanic and Private Pilot licenses from the FAA.
Diane Young has been CFM's Chief Financial Officer since 1988.3 Ms. Young graduated from the Tennessee Technological University with a B.S. in Business Administration in 1987. Before joining CFM, she was a credit reporter and loan documentation clerk for First City Bank in Murfreesboro, Tennessee, and a staff accountant at Dempsey Wilson & Company, also in Murfreesboro.
John Ellington joined CFM as Director of Operations in 1994. Prior to that, Mr. Ellington spent 32 years as a pilot with Delta Airlines where, in addition to his pilot responsibilities, he also served as Chief Flight Instructor (1971-1974), Manager of Flight Training (1975-1979) and Chief Pilot (1988-1990) at Atlanta. Mr. Ellington has an FAA Airline Transport Pilot license.
The applicant's Director of Maintenance is Michael A. Noblin.4 Prior to joining CFM in this capacity in 1986, he was employed as an aircraft mechanic for Nashville Jet Center (1981-1985), IASCO (1981) and Fayetteville Aviation (1977-1981). Mr. Noblin holds an FAA Airframe and Powerplant Mechanic license.
Granville Watson is CFM's Chief Pilot.5 He joined the company in 1987 as a line pilot and was promoted to Director of Operations in 1988. He became Director of Training in April 1995 and assumed the responsibilities of Chief Pilot in June 1995. Prior to 1987, he served as a pilot for Hamilton Oil Corporation (1984-1987). Mr. Watson holds an FAA Airline Transport Pilot license and has over 13,000 total flight hours.
Given the qualifications of CFM's key managers, the fact that these individuals are managing the company's current air taxi operations, plus the fact that the FAA must also review the qualifications of certain of these individuals to determine if they meet the requirements for their positions,6 we tentatively conclude that CFM has the management and technical ability to conduct the proposed operations as a commuter air carrier.
Financial Plan and Operating Proposal
If found fit, CFM intends to provide 24 weekly round trips between Bowling Green and Cincinnati using two Beech King Air 200 aircraft modified to accommodate up to 13 passengers.7
The applicant furnished information on its proposed flight schedules, traffic forecast, and a first-year projection of the revenues and expenses for its prospective commuter services. It also provided a listing of expenses it expects to incur prior to beginning scheduled passenger services. In this regard, CFM states that it already has the aircraft and most of the personnel needed to commence commuter services. Thus, its pre-operating expenses are expected to primarily consist of the costs associated with obtaining commuter operating authority, setting up stations and advertising. We have examined CFM's direct operating cost forecasts and find them to be reasonable.
The carrier provided unaudited balance sheets at August 31, 1993 and 1994, and March 31, 1995, as well as profit-and-loss statements covering the 12-month periods ending August 31, 1993 and 1994, and the 7-month period ending March 31, 1995. These statements show that CFM's operations for the reporting periods covered were profitable and that its financial position is stable. Its March 31, 1995, balance sheet shows that, at that date, it had considerable cash-on-hand, a current-assets-to-current-liabilities ratio of 1.64 to 1, positive retained earnings and positive stockholders' equity.
To meet the Department's fitness test in this area, an applicant should have access to financial resources sufficient to cover pre-operating expenses as well as expenses that are reasonably expected to be incurred during three months of normal commuter operations.8 Based on the applicant's expense projections, CFM expects that its start-up and first year operating expenses associated with its commuter services will be in the low-seven figures and that it will need funding in the mid-six-figures to meet our financial test.
CFM states that it intends to finance its commuter operations internally and, in this regard, we note that, as of March 31, 1995, CFM's working capital equaled approximately 91 percent of the funds that a strict interpretation of our financial fitness test would require. However, to the extent that outside funding is required to support its commuter flights, CFM has provided a letter from Sirrom Capital Corporation, Nashville, Tennessee, indicating that Sirrom Capital is willing to lend CFM additional funds for the commuter operations if needed.9
In view of this, the fact that the company does not expect to incur any significant pre-operating costs, as well as the fact that we would expect that its on-going air taxi/fixed base operations, which have been profitable, should provide a reliable source of cash flow for the applicant's commuter operations, we tentatively conclude that CFM has developed a reasonable operating proposal and has access to funds sufficient to enable it to commence the proposed commuter services without posing an undue risk to consumers or their funds.10 We note, however, that this finding is based on the service proposal set forth in the application before us. Were CFM to substantially expand its commuter operation, our finding of financial fitness here may no longer apply. Therefore, we will limit the carrier's commuter services to aircraft having a maximum seating capacity of no more than 30 passenger seats or a payload capacity of no more than 7,500 pounds--the maximum allowable under Part 135 of the FARs--until it has filed the information required by section 204.5 of our rules and the Department has determined that it is fit to conduct scheduled passenger services with larger aircraft.
Compliance Disposition
CFM also appears to possess an acceptable compliance disposition. The applicant states that no charges of fraud, felony or antitrust violations, or of unfair, anticompetitive or deceptive business practices have been filed against it, its owners or its key personnel within the past ten years, and that there are no judgments outstanding against these entities or individuals.
We have searched the Department's records and found no compliance actions or consumer complaints involving CFM or its key personnel. In addition, a review of the Securities and Exchange Commission files produced no record of any litigation, actions or proceedings involving CFM or any of its key personnel. The FAA has advised us that CFM has applied to that agency for scheduled passenger authority; that the applicant's current on-demand air taxi operations are satisfactory with respect to safety and compliance matters; and that it knows of no reason why the Department should act unfavorably on CFM's application.
Based on the above, we tentatively conclude that CFM has the proper regard for the laws, rules, and regulations governing its service to ensure that its aircraft and personnel conform to applicable safety standards and that acceptable consumer relations practices are followed.
CITIZENSHIP
The statute requires that authority to engage in air transportation operations be held only by citizens of the United States as defined in 49 U.S.C. 40102(a)(15). That section specifies that the president and two-thirds of the board of directors and other managing officers be U.S. citizens and that at least 75 percent of the outstanding voting stock be owned or controlled by U.S. citizens. We have also interpreted the statute to require that, as a factual matter, the carrier must actually be controlled by U.S. citizens.
As noted earlier, all of the individuals holding stock in the applicant are U.S. citizens.11 CFM has provided an affidavit attesting that it is a citizen of the United States and there is nothing in the record that would lead us to conclude that control of this applicant is not with U.S. citizens.
In view of the foregoing, we tentatively conclude that CFM is a U.S. citizen and that it is fit, willing, and able to provide the scheduled passenger services it proposes as a commuter.
OBJECTIONS
We will give interested persons 15 days following the service date of this order to show cause why the tentative findings and conclusions made here should not be made final; answers to objections will be due within 10 days thereafter. We expect that persons objecting to our tentative findings and conclusions will support their objections with relevant and material facts. We will not entertain general, vague, or unsupported objections. If no substantive objections are filed, we will enter an order making final our tentative findings and conclusions.
EFFECTIVE COMMUTER AUTHORIZATION
CONDITIONS AND LIMITATIONS
In the event that we find CFM fit, willing, and able to conduct the proposed scheduled passenger service, we will issue to it a Commuter Air Carrier Authorization. However, that authorization will not become effective until the carrier has fulfilled all of the requirements for effectiveness as set forth in the Terms, Conditions, and Limitations attached to its authorization. Among other things, this includes our receipt of evidence of CFM's authority from the FAA to conduct scheduled passenger air transportation under Part 135 of the FARs, evidence of liability insurance coverage that meets the requirements of section 204.5(b) of our rules, and evidence that the company continues to have sufficient financial resources available to it.
Furthermore, we remind CFM of the requirements of 49 U.S.C. 41110(e). Specifically, that section requires that, once a company is found fit initially, it must remain fit in order to hold its authority. To be assured that commuter air carriers continue to be fit after effective authority has been issued to them, we require that they supply information describing any subsequent substantial changes they may undergo in areas affecting fitness. In this regard, should CFM propose any substantial changes in its operations which would result in the operation of aircraft with a maximum seating capacity of 30 seats or more or a maximum payload of 7,500 pounds or more, we will require the carrier to provide the information required by section 204.5 of our regulations and have its fitness redetermined prior to the commencement of any such operations. Moreover, should the company undergo any other substantial changes in its ownership, management, or operations, it must first comply with the requirements of section 204.5 of our regulations.12 The compliance of the carrier with this requirement is essential if we are to carry out our responsibilities under the statute. 13
ACCORDINGLY,