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Case number 4-1358.

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Southern Airways Express LLC petitioner versus United States Department of Transportation and Sean Hiddelby in his official capacity as Secretary of Transportation.

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Mr. Nanking for the petitioner, Ms.

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Henryson for the respondents.

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Mr. Nanking, good morning.

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Good morning, Honors.

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Let me tell both counsels that we have caucused and you can rely on your briefs on the jurisdictional issue.

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So if you'll just go straight to the... Thank you, Your Honour.

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May it please the court.

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My name is Kenneth Nankin.

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I represent the petitioner in this appeal, Southern Airways Express LLC.

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Your honors, in preparing for this argument, one line in the department's brief caught my eye on page 11, that in selecting Sky West to receive subsidies for central air service at Morgantown, West Virginia, the department's, quote, determination was wholly reasonable in light of the evidence received by the department in this proceeding.

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So your honors, this statement raises the question,

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What was the evidence received by the department in this proceeding?

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In particular, what was the evidence received on perhaps the most critical factor that the department was required to consider under the mandatory EAS statute?

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Quote, the demonstrated reliability of the applicant in providing scheduled air service.

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That's 49 USC 41733C1A.

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On the topic of your honors.

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Yes, your honor.

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Ask you.

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So there is an exhaustion requirement.

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Yes.

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And I'm just, I guess I'm not sure how in a proceeding like this for for an EAS, you know, in this type of proceeding, how would a competing bidder make an objection?

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Yes, your comments that were submitted as part of the proceeding were understandably focused on why Southern Airways should get the subsidy, but not necessarily.

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There were no real comments about

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why, for instance, Sky West shouldn't get the subsea.

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So how would you preserve objections or exhaust objections in this type of proceeding?

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Yes, Your Honor.

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Well, first, I would note that exhaustion was not an issue that was argued in the briefs by the department.

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Of course, this does not waive the issue.

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But if

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The respondents thought this was a valid argument.

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Certainly, I would think that they would argue.

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They would argue exhaustion and standing freely.

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But more important, Your Honor, I do believe that Southern complied with the statute, the form, and the substance of the statute.

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There was a requirement, yes, that's 49 USC 46110D, requirement for prior objection, Your Honor.

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And there were some comments that were submitted.

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Proceedings go to the insufficiency of the order granting Sky West.

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You know, the EAS award.

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You are the comments were actually submitted prior to the final order.

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Yes, I'm wondering if there's some I can maybe ask your colleagues on the other side.

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Like, is there.

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is there a mechanism for

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Southern, the petitioner did in fact not only tout its own proposal, but exhorted the, of course, the department to consider the mandatory factors that was required to consider, including the total cost.

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And it did deal in fact with some of the elements of the other proposals that were made by the other applicants.

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So, your honor, I think it's important to note that in the statute, the requirement for prior objection, there's no requirement that there's a prior objection to the order that was issued by the department, just that the prior objection be made.

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And I think that, in fact, there was a prior objection because

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Southern saw the other proposals and saw that they were deficient and saw that this was an opportunity before there was a ruling, an order by the department to go ahead and address those deficiencies and also to suggest that it had the superior proposal.

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So, yes, there was a mechanism for reconsideration, Your Honor, but I don't believe that it was necessary because these comments were made.

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And these are the exact points that are made now in the petition for review, Your Honor.

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Southern didn't seek reconsideration.

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That is correct, Your Honor, because I believe that these same points were addressed in the comments, and that's at JA101.

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And then, of course, in the final order itself at JA109, the DOT, in fact,

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itself recognizes that the incumbent, which Southern was, submitted comments in this case, arguing that the error care proposal meets preponderance of the evidence and required to consider it in an ES selection case, including by offering the least expensive service option.

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Of course, that's one of the critical objections that's made that its proposal, the proposal that was accepted, was one third more expensive, Sky West.

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And Southern's was much less expensive.

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So yes, there was no objection to the order, but there was an objection to kind of the guts of the order.

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And there was an encouragement by Southern encouraging the department to make sure that it considered all the relevant factors as required to consider under 49 USC 41733, Your Honor.

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And then also there's not only do I believe that the subsection D, 49 USC 46110D, the prior objection was made, there's also an exception here if there's a reasonable ground for not making the objection in the proceeding.

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And I believe that's met as well.

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the department was already required to consider these five elements, these five mandatory selection factors under 49 USC 41733, your honor.

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So I do believe there was a prior objection that was properly made in the proceeding, your honor.

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So back on the topic of reliable service, which was the C1A factor that the department was required to consider,

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Skywest stated in his proposal, our combination of safe and reliable aircraft, well-timed schedules and access to one of the world's largest airline networks will provide passengers with quality air service and stimulate economic growth in the region.

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That's at JA96.

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So Skywest in his proposal mentioned safe and reliable aircraft were provided no evidence as to the reliability of its scheduled air service.

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Reliable aircraft and reliable service are two very different things.

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didn't stop the department from making conclusion as to the reliable service of Skywest in its final order, where it concluded that Skywest has a proven record of providing... Can I ask you, so obviously there's a lot at stake for Southern here in terms of this award, but I'm wondering why isn't any error here by the department harmless?

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There's no evidence in your briefing or allegations in your briefing that, for instance, Sky West doesn't provide reliable service.

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So the claim in some ways is, well, the department should have provided a little bit more explanation of how it reached its conclusion.

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But you still have to overcome the harmless error bar.

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Your honor, I believe that this is a mandatory factor that the department was required.

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In the briefing, the department touts the submission of Sky West, and then maybe even the comments of the community saying, well, they're saying that it's reliable.

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They can't punt or abdicate this obligation to consider.

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And this is the mandatory language under 49 USC 41733C.

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The secretary shall consider, among other factors.

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He did consider.

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Yeah, okay.

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Well, we had no evidence that they can- Where were they wrong?

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They made a finding that the carrier's consistent reliability providing EAS nationwide.

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Is that wrong?

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Well, Your Honor, there's no evidence in the record supporting that conclusion.

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I think under Getty that the department was required to show its work, to show how they came up with that conclusion that there's a proven record of reliable EAS markets around the country.

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They're confined to this record.

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And it just simply doesn't exist.

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Whether or not it's a contested issue that's really, or a disputed issue, that's beside the point.

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Their obligation is rock solid here.

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Demonstrated the reliability of the applicant in providing scheduled air service.

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The department just couldn't phone it in and presume that because nobody disputed it, that in fact there was reliable service.

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So I don't believe that under Getty that there was reason consideration of the service reliability factor.

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This deficiency alone renders the final order arbitrary and capricious in our view.

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But this was not the only fatal deficiency in the final order.

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The department also failed to engage in reason consideration of the total compensation factor that it was required to consider, 49 USC 41733C15.

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As I noted before, Skywest subsidy request was about $2 million per year more expensive than Southerns proposal or one-third more expensive.

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The department concluded that Skywest request was acceptable because it falls within the quote-unquote competitive range of options.

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That's at J109.

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But the department never defined what this competitive range was.

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How was a proposal costing one third more competitive?

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The department didn't explain this.

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It seems that the department's competitive range was defined by whatever request the applicants happened to submit.

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But that's not reason consideration of the mandatory cost factor.

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It's reason consideration when they took into account all the factors in reliability, which I'm not sure what you're objecting to.

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point to anything to suggest that they were wrong in saying that the competing airline had a record of reliability, code share, where you're clearly on the wrong end of it, and preferred choice, where you're clearly on the wrong end of it.

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When you read this record, it's pretty clear what the agency is saying.

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They have the

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They have the support of the market, clearly over you.

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They have the co-chair, clearly over you, and they are reliable.

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And the money is not unacceptable to the agency.

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That's a terribly reason to me.

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I don't know what's tricky about that.

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And they beat you out in two or three factors easily, undisputedly.

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And so you want to make a lot on the fact that the agency wouldn't count the cost

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as being disqualifying, and wouldn't count it more.

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Why should they have to?

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They said it was within a range, and it was not in the range that was out of the question.

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They made that very clear.

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What's tricky about this decision?

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This is not a hard decision.

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Well, Your Honor, I believe that reason consideration of costs, which is required by the statute.

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They did.

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They said it was within the range, and they said, reliability, code share, and preferred choice by the community beats you out.

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And you want to say, well, forget all those things.

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We want to go right to cost because we beat them on cost.

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And the agency was saying, no, it was not within the range where we would say unacceptable.

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I would disagree.

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My view is that raising consideration of cost is having a budget, having parameters in mind based on the experience.

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And they have to put in an accountant's statement.

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What do they have to do to win the whole thing on cost?

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What is it that they have to show?

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I say we went on not just cost but on the reliability factor as well.

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I think they have to explain why in fact so much more is justified in terms of the past experience of other subsidies at Morgantown.

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I don't think that they ever explain why a proposal is that much more acceptable.

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This is why the exhaustion requirement is important because your main claim is a failure to explain claim.

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And if you had raised that to the agency, they could have written a few more paragraphs.

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explaining their view.

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And then we would have that here.

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But instead, you've come straight to this court without bringing those objections to the agency.

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And so if we were to remand, you haven't shown that they would come up with a different conclusion.

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So these things are interrelated, the failure to not raise objections and the type of failure to explain claim that you're bringing.

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Your Honor, I would respectfully disagree, because in the comments that were submitted before the final order, Southern could see that this was coming, potentially.

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So that's why Southern took the extraordinary step of submitting these comments before the final order that specifically highlighted the importance of reasoned consideration of that fifth factor, the total compensation proposed.

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And what did those comments say to show that Sky West was not reliable?

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It did not, Your Honor.

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Of course it didn't.

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And the agency's claim or suggestion was not refuted.

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So you didn't have anything there.

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You certainly have nothing on code share.

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And you have nothing on preferred choice because the community has had expressed its preference.

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So I'm not getting it.

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You're boasting on having had the opportunity to present the case before the order came out.

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And so I'm saying, well, what did you present unreliable?

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And you say nothing.

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Even though you knew that was going to be a factor against you.

[00:14:17] Speaker 01:
Well, when the comments were submitted, of course, that was before the order came out.

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So you just got finished telling us you knew what was coming.

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And so you might have guessed that reliability was not going to work well for you.

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You certainly knew code share was not going to work well for you and you knew preferred choice was not going to work for you.

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So I'm not sure what you have an obligation if you're challenging the absence of substantial evidence or reason decision making and you want to take that chance and you want to present something to make sure the records complete.

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You got to say something.

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You didn't say anything.

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You're just saying we don't want to lose.

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And we got costs.

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We think we'll win on costs.

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Well, the agency said, you know, maybe you are better on costs, but it's not this positive.

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And they explained it.

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Again, Your Honor, respectfully, I would disagree, especially as to the cost factor that was extensively addressed there in the comments that were submitted before the final order.

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The agency gave its explanation.

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They were within a range that was not

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the agency was not going to find that was impermissible.

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It was not the best, but it was not the worst, and it was not out of a range that the agency was willing to pay.

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Again, I think the department and obligation to define what that competitive range was and engage in reason decision making, explain why a proposal that's so much more expensive was going to be acceptable in the selection of an airline other than the incumbents.

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Southern, Your Honor.

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I think what they're saying on this record is because they're so much better than you on reliability, co-chair, and the community prefers them, not you.

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It kind of speaks for itself.

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So then the only thing the agency has to think about is, do we have the money and are we willing to spend at this level?

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And they explained it and they said, yes, we are.

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We don't think this is prohibitive.

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It's pretty straightforward.

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Talking about substantial evidence, we've seen cases up here where there's nothing and the agency has said nothing.

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That's not this case.

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I don't know what more you want them to do.

[00:16:26] Speaker 01:
Again, Your Honor, especially on the factor of reliability, yes, it wasn't a disputed issue, but I think they had an obligation to fulfill the statutory requirement of explaining why in the record this particular applicant had demonstrated reliability of its scheduled air service.

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And they simply didn't do that.

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It was just taken as a granted.

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It was just phoned in, Your Honor, and I think that on its face is insufficient.

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Let me ask you just one question.

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Did you make any attempt to say, well, we can offer flights to Chicago, or we can get bigger planes?

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I mean, I see this as an issue of service.

[00:17:08] Speaker 03:
The locals and the leaders or whatever, they wanted, first of all, larger planes, and they wanted to be able to get to Chicago rather than Pittsburgh.

[00:17:20] Speaker 01:
No, Your Honor, this was the routing that was proposed there.

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There was no attempt to change that.

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Could you have said, well, let us see if we can get a Chicago route with bigger planes?

[00:17:33] Speaker 01:
Well, that was just incompatible with the routing network that Southern had and also the aircraft that says Cessna aircraft that have the very reliable, very popular nine passenger aircraft as opposed to the 50 seat regional jet aircraft that I believe Skywest has.

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Okay.

[00:17:50] Speaker 03:
Okay.

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We'll give you a couple minutes to reply.

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Thank you, Your Honor.

[00:18:05] Speaker 03:
Ms.

[00:18:08] Speaker 03:
Hendrickson.

[00:18:23] Speaker 02:
Good morning.

[00:18:24] Speaker 02:
May it please the court, Erin Hendrickson for respondents.

[00:18:28] Speaker 02:
The petition for review should be denied.

[00:18:30] Speaker 02:
The department selected SkyWest to provide essential air service in Morgantown, West Virginia based on a reasoned evaluation in which it considered all five of the statutory factors.

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The statute does not single out any one factor as dispositive.

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The statute only requires the department to consider all five factors, which it did, and provide a reasoned explanation for choosing SkyWest.

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Skywest's proposal was the best fit for Morgantown for several reasons.

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First, it was the only airline that had a co-chair agreement with a larger airline.

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Skywest proposed operating United Express Jet Service direct to two United hubs, Dallas International Airport and Chicago O'Hare.

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Once you have one airline that has this co-chair, does that knock out other airlines from having a co-chair?

[00:19:20] Speaker 02:
I don't believe so, your honor.

[00:19:21] Speaker 02:
In this particular case, Skywest was the only carrier that had a co-chair with a larger airline.

[00:19:28] Speaker 02:
The remaining proposals were all interline agreements, which provides a less integrated travel experience for the passenger.

[00:19:35] Speaker 00:
Look, you have the co-chair argument clear and it was stated.

[00:19:40] Speaker 00:
Do you have the preferred community choice that's clear?

[00:19:44] Speaker 00:
They can't contest either.

[00:19:46] Speaker 00:
The reliability made a lot of noise about that today.

[00:19:50] Speaker 00:
What's your response on what was the agency looking at with respect to its finding that this was reliable service?

[00:19:58] Speaker 02:
Your honor, there's nothing derogatory in the record about Skywest Service.

[00:20:02] Speaker 02:
In their proposal, they explained they would provide quality service with their safe, reliable aircraft, well-timed schedules, and access to United's extensive network.

[00:20:11] Speaker 02:
And the community agreed after it had an opportunity to interview the candidate.

[00:20:16] Speaker 02:
There's nothing in the record that disputes this and Skywest is a repeat player at the Department of Transportation in terms of EAS proceedings.

[00:20:27] Speaker 02:
We're familiar with their operations.

[00:20:29] Speaker 02:
They serve over 40 EAS communities across the United States.

[00:20:34] Speaker 02:
Ms.

[00:20:34] Speaker 05:
Sanderson, why did the department not brief the exhaustion issue?

[00:20:41] Speaker 05:
Is it common for there to be a motion for reconsideration of these orders when someone is disappointed they didn't get the subsidy?

[00:20:48] Speaker 05:
What is the process for that?

[00:20:51] Speaker 02:
That often is the case, Your Honor, where a disappointed bidder will file a motion for reconsideration with the agency.

[00:20:59] Speaker 05:
And if it's a failure to explain, does the agency just provide more explanation?

[00:21:03] Speaker 05:
I mean, what's the normal

[00:21:04] Speaker 02:
Yes, your honor.

[00:21:05] Speaker 02:
That's typically what happens.

[00:21:07] Speaker 02:
The department will engage in a more detailed analysis in their order to further explain why they selected the carrier in the first instance.

[00:21:16] Speaker 02:
Yes, we did raise that in our opposition to petitioners emergency stay motion, which this court denied last December.

[00:21:26] Speaker 00:
My understanding of the record on the reliability is that Sky was the surrogate that is

[00:21:32] Speaker 00:
the reliable nature of their service.

[00:21:36] Speaker 00:
And that is on the record for anyone to refute if they wanted to.

[00:21:41] Speaker 00:
That material with respect to the performance of airlines is readily available, right?

[00:21:46] Speaker 02:
That's correct, Your Honor.

[00:21:47] Speaker 00:
And the Southern didn't put anything in their papers opposing the commission's coming decision to suggest that in fact

[00:21:59] Speaker 00:
That is not true.

[00:22:00] Speaker 00:
They really have not been reliable.

[00:22:02] Speaker 00:
And here's what shows it.

[00:22:03] Speaker 00:
So if you look at it as the burden of the party asserting the absence of substantial evidence, they certainly didn't meet that.

[00:22:10] Speaker 00:
They didn't say anything to suggest it.

[00:22:13] Speaker 00:
Sky West was simply saying, essentially, the record is clear.

[00:22:17] Speaker 00:
We are reliable.

[00:22:18] Speaker 00:
And indeed, they suggested nothing to the contrary.

[00:22:21] Speaker 00:
Is that your argument?

[00:22:22] Speaker 02:
That's our argument, Your Honor, and you're correct that Southern did submit a comment in this proceeding and they did have the opportunity to raise any issue that they thought SkyWest had in regard to service reliability and they failed to do so.

[00:22:37] Speaker 02:
The department also considered total compensation.

[00:22:40] Speaker 02:
In the final order, the department explains that the SkyWest proposal fell within the competitive range, meaning it wasn't the highest nor was it the lowest proposal.

[00:22:51] Speaker 02:
It fell within the middle.

[00:22:53] Speaker 02:
And the department naturally considered the value it was receiving for this cost.

[00:22:58] Speaker 02:
Skywest proposed 50-seat jet service to two large hub airports.

[00:23:04] Speaker 02:
In fact, they were the only carrier that proposed flying west to Chicago.

[00:23:09] Speaker 02:
In comparison, although Southern's proposal was the cheapest, they proposed flying nine-seat turboprop aircraft to one medium hub airport, Pittsburgh, and one large hub airport, Dallas International.

[00:23:21] Speaker 02:
When Congress included the total compensation factor during the 2024 FAA Reauthorization Act, it did not instruct the department to pick the cheapest bid, nor did it say that this should be given greater weight than any of the other factors.

[00:23:37] Speaker 02:
The department did consider total compensation.

[00:23:44] Speaker 02:
All right.

[00:23:45] Speaker 02:
Thank you.

[00:23:46] Speaker 02:
Thank you.

[00:23:53] Speaker 03:
Thank you.

[00:23:59] Speaker 03:
Thank you.

[00:24:00] Speaker 01:
Thank you, Your Honor.

[00:24:02] Speaker 01:
The only point that I really would like to make in rebuttal, listening carefully to the argument of the department, was the statement that, well, we knew that Skywest was a repeat player in the essential air service network serving 40 communities around the country.

[00:24:21] Speaker 01:
We knew it had reliable service due to this.

[00:24:24] Speaker 01:
Again, Your Honors, that's not in the record.

[00:24:27] Speaker 01:
And we're here.

[00:24:27] Speaker 01:
We're confined to the record.

[00:24:29] Speaker 01:
And we're confined to the representations that Skywest made about just having reliable aircraft, not having reliable service.

[00:24:37] Speaker 01:
And then we have the department making a conclusion about what they believe is reliable service.

[00:24:43] Speaker 01:
But there's no reason consideration of evidence.

[00:24:46] Speaker 01:
It's in the record that is supporting that conclusion, Your Honor.

[00:24:49] Speaker 01:
So for that reason, I believe alone that the final order was arbitrary and capricious

[00:24:55] Speaker 01:
in the petition for a view should be granted, Your Honor.

[00:24:58] Speaker 00:
You're suggesting that SkyWest said, I want to make sure I'm hearing you straight.

[00:25:02] Speaker 00:
You're suggesting SkyWest merely said, we have reliable planes, but we don't have reliable service, or we're not going to tell you, not going to suggest we have reliable service.

[00:25:13] Speaker 00:
That's your assertion?

[00:25:14] Speaker 01:
Your honor, that's their statement, not mine.

[00:25:16] Speaker 01:
Your honor, that's JA-96, our combination of safe and reliable aircraft.

[00:25:22] Speaker 01:
Maybe they just, they presumed everyone just knew they had reliable service.

[00:25:25] Speaker 01:
But again, it's a statutory requirement.

[00:25:27] Speaker 00:
If we get to where we're supposed to go on time and safely.

[00:25:31] Speaker 00:
Well, I mean, that's again.

[00:25:33] Speaker 00:
Unreliable, you don't get there.

[00:25:35] Speaker 00:
You have problems, accidents.

[00:25:38] Speaker 00:
They're making the assertion of reliable.

[00:25:40] Speaker 00:
And the problem for you is there is a public record

[00:25:44] Speaker 00:
of airline performance.

[00:25:46] Speaker 00:
And if you would want it to refute that on reconsideration, that was easy.

[00:25:52] Speaker 00:
That was easy because they have a bad record.

[00:25:54] Speaker 00:
You could have shown that in a heartbeat.

[00:25:56] Speaker 01:
Again, I believe that the burden was on the department to show that its conclusion that there was reliable service was supported by the evidence in this record.

[00:26:05] Speaker 01:
And again, I don't believe that that evidence exists in this record, Your Honor.

[00:26:10] Speaker 03:
Okay.

[00:26:10] Speaker 03:
All right.

[00:26:11] Speaker 03:
Thank you.

[00:26:11] Speaker 03:
Thank you.

[00:26:12] Speaker 01:
Thank you, Your Honors.