GUESTS: Chris Holladay and Michael Hayes, Sunrise Air; Shawn Simpson and Matthew Butcher, Boutique Air (arrived at 5:20 p.m.).

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1 MINUTES OF THE STUDY SESSION OF THE SHOW LOW CITY COUNCIL HELD ON TUESDAY, MAY 10, 2016 AT 5:00 P.M. AT THE CITY COUNCIL CHAMBERS, 181 NORTH 9TH STREET, SHOW LOW, NAVAJO COUNTY, ARIZONA 1. Call to Order. Mayor Seymore called the meeting to order at 5:00 p.m. 2. Roll Call. COUNCIL MEMBERS PRESENT: Mayor Daryl Seymore; Vice Mayor John Leech, Jr.; Council members Rennie Crittenden, Michael Allsop, Brent Hatch (arrived at 5:21 p.m.), Connie Kakavas, and Gene Kelley. COUNCIL MEMBERS ABSENT: None. STAFF PRESENT: Ed Muder, City Manager; F. Morgan Brown, City Attorney; Bill Kopp, Public Works Director; Glen Boyd, Airport Manager; and Tamra Reidhead, Deputy City Clerk. GUESTS: Chris Holladay and Michael Hayes, Sunrise Air; Shawn Simpson and Matthew Butcher, Boutique Air (arrived at 5:20 p.m.). 3. Discussion of Essential Air Service Carrier Proposals for Show Low Regional Airport. Mayor Seymore said Sunrise Air representatives Dr. Michael Hayes, Program Director, and Chris Holladay, Director of Operations, would be first to present their proposal to the Council. Dr. Hayes said Sunrise Air was a local company formed in 2011 by several local doctors and investors. In 2012, they began working with Precision Aeromedical, a Part 135 air carrier. They worked so well together that Sunrise Air expanded by purchasing the carrier and adding an airplane and a base in Safford. They now had three planes and eight pilots, three of whom lived locally. Sunrise Air was established in this community and was very interested in expanding itsbusiness by becoming the Essential Air Service (EAS) provider for Show Low. Dr. Hayes said Sunrise Air already had its air carrier certificate. The next step would be to prove that they were financially fit by acquiring their Economic Authority from the U.S. Department of Transportation (USDOT), which could take a few months. They had been in business five years and already had the required number of planes. Mr. Holladay said Sunrise Air currently had a twin-engine 690B Turbo Commander, which was an extremely safe aircraft. However, it cost more to

2 Study Session Minutes 2 May 10, 2016 operate than a Pilatus, which was what Boutique used. They preferred acquiring a Pilatus PC-12 as their primary aircraft and had a lease secured if their proposal was accepted. The Commander could seat eight people and could fly to Phoenix in 26 minutes. The Pilatus would seat eight or nine depending on the configuration and could reach Phoenix in 40 to 45 minutes. The Pilatus was more desirable for a commuter service, but Sunrise would absorb the higher cost of the Turbo Commander if it was needed. Councilman Crittenden asked whether Sunrise had the license to operate an airline. Mr. Holladay said no, they were currently an on-demand air carrier. To become a scheduled air carrier, they needed the USDOT Economic Authority which verified they had financial sustainability. Mr. Holladay said there were two parts to the application, the air carrier certificate and proof that the company was financially viable. They already had the air carrier certificate, and felt it wouldn t be a problem to prove financial viability. They owned two planes outright and the third had a small loan against it. They planned to lease a Pilatus, for a total of four planes. Councilman Crittenden asked if proving financially fitness was a lengthy process through USDOT and if it would interfere with changing carriers. Mr. Holladay said it would take at least three to four months to obtain Economic Authority. He was unsure if USDOT would want to choose a carrier now or if the agency would allow Sunrise the time it needed to secure the necessary approval. Sunrise was definitely physically fit for the service and had a strong financial foundation, but it would take time to get USDOT approval. Dr. Hayes said getting USDOT approval that Sunrise was financially fit was more of a formality. The most difficult part was getting the air carrier certificate, which they already had. Councilwoman Kakavas asked how many flights flew out of Safford. Mr. Holladay said 25 to 30 per month, with one plane. Most of their flights were out of Show Low and Safford. Mr. Holladay said Sunrise Air would be in Show Low longer than most other carriers because the company had a vested interest in the community. The biggest hurdle would be securing USDOT s final approval. Mayor Seymore asked if Sunrise was flying air passenger service out of Safford. Mr. Holladay said no, it was for air ambulance services. Sunrise could charter and fly on-demand, but they weren t allowed to have scheduled flights.

3 Study Session Minutes 3 May 10, 2016 Dr. Hayes said between Show Low and Safford, Sunrise flew about 50 to 60 flights per month. Going from unscheduled on-demand flights to scheduled flights should be fairly easy. They had two shifts of pilots at each base. Councilman Allsop asked how long it would take for Sunrise to schedule connections at Sky Harbor and if they planned to use Transportation Safety Administration (TSA) security screenings in Show Low. Mr. Holladay said they had already spoken to the individual who rents the counter at Sky Harbor, and it would take less than a month to do all the paperwork. They also anticipated keeping the employees in Show Low that were already trained by TSA. Councilman Allsop said he read that Sunrise representatives believed they could make 98% of their scheduled flights. Citizens needed to know that they could depend on the reliability of scheduled flights so they could make their connecting flights at Sky Harbor. Mr. Holladay said Sunrise s airplane would be housed in a hangar at the Show Low Airport. They would be flying from Show Low and returning to Show Low, so their reliability would be high. The pilots also lived in town. If there were mechanical problems, they would have the Commander as a backup. Their plan was to have two Pilatus aircraft eventually. The company would be based in Show Low, and they would purchase fuel and take care of maintenance in Show Low. They wouldn t have any other legs that would require them to divert an airplane off of Show Low s route, like other carriers had done. Dr. Hayes said all their pilots had logged over 2,500 hours and weren t afraid to fly in inclement weather. Vice Mayor Leech asked if Sunrise would stop transporting patients if they were awarded the EAS service. Dr. Hayes said no, they would not stop transporting patients. Vice Mayor Leech asked if they would have separate airplanes for transport and for the commuter service. Mr. Holladay said the airplanes would be separate. The aircraft they anticipated purchasing would be strictly outfitted for passengers. Shawn Simpson and Matthew Butcher of Boutique Air arrived at this time. Councilman Kelley asked Sunrise to clarify it was currently operating a sixpassenger plane but would move to a Pilatus. Dr. Hayes said the Commander could accommodate eight passengers. Mr. Holladay said the Pilatus they were considering would accommodate nine passengers. Councilman Kelley asked if they would have a backup plane ready if the airplane that would be flown regularly had mechanical issues. Mr. Holladay said yes, it would be in the hangar ready to fly.

4 Study Session Minutes 4 May 10, 2016 Councilman Kelley asked what would happen if the airplane broke down in Phoenix. Mr. Holladay said he would be dual-rated, so he could fly to Phoenix to pick up passengers in the event of mechanical failure or pilot sickness. Councilman Kelley said there had been complaints lodged against the other airline because of flight unreliability so people had stopped flying. Dr. Hayes said they had two Commanders available in Show Low, so they would always have a backup. Councilman Hatch arrived at this time. Mayor Seymore said one of the City s biggest concerns now and in the past was to ensure it continued to have Essential Air Service. The City was fortunate to have EAS, and the Council had to seriously evaluate which carrier it felt could do the best job at the least risk. Mr. Holladay said as a member of the aviation community, he knew the importance of EAS. Sunrise s goal was to have 10,010 passengers in the upcoming year. He understood that more money was available for the community if they carried over 10,000 passengers. With consistency and on-time reliability, they felt they could reach that goal. They had a marketing department that was excited about putting advertising packages together. Mayor Seymore asked if Sunrise had an online system where passengers could book a reservation and see what flights were available. Mr. Holladay said yes, their Web designer knew that it had to be simple to use and consistent. Dr. Hayes encouraged the Council to look at the Sunrise Air Ambulance and Precision Air Medical websites. Mayor Seymore asked Mr. Boyd to provide some information about EAS at the airport. Mr. Boyd said on April 17, 2015, the USDOT served Order selecting Boutique Air as the EAS provider for the Show Low to Phoenix route and Boutique started service in August Mr. Boyd said during the first five months, Boutique posted excellent results with passenger enplanements increasing to a respectable daily average of almost The winter months resulted in a significant reduction of enplanements because of schedule changes caused by losing airplane in a ground-handling accident. The current schedule was once again full and numbers were increasing. Mr. Boyd said in late February 2016, Boutique s upper management mentioned to him the possibility of terminating service at Show Low for an opportunity to renegotiate the contract. Apparently, Boutique was having difficulty maintaining economic viability for the route at the funding level of its original proposal. As their upper management stated, their intention from the start was to remain in

5 Study Session Minutes 5 May 10, 2016 Show Low and rebid the contract, hoping to infuse the route with additional cash to keep it viable. Mr. Boyd said termination of service was made official on March 10, Termination resulted in USDOT issuing a new request for proposals for the Show Low to Phoenix service. Mayor Seymore asked if Boutique was flying daily. Mr. Boyd said yes, they were back to 18 flights per week. A component of the notice of termination was USDOT required the airline to continue to provide service throughout the process. Mr. Holladay added that USDOT would require the existing carrier to continue until the City had a viable company to replace it. Councilman Allsop asked if Sunrise would fly to other destinations if they were awarded the EAS contract. Mr. Holladay said they would only consider other destinations if they thought expanding would not hurt Show Low s service. In off season, they might consider doing charter flights to Las Vegas once a month. Mr. Muder said in addition to tonight s presentations from Sunrise and Boutique, Great Lakes would give a presentation next Tuesday, May 17, at 6:00 p.m. No decision would be made tonight. Mayor Seymore thanked Sunrise Air s representatives for their presentation. Mayor Seymore said Boutique Air representatives Shawn Simpson, CEO, and Matthew Butcher, Director of Operations, would now make a presentation to the Council. Mr. Simpson said it was never Boutique s intention to terminate service. Termination was the verbiage used by USDOT. There were many factors that drove standing here tonight. Mr. Simpson said Boutique was currently serving 13 cities. The airplane they flew was a Pilatus PC-12, which had modern avionics and was known for its safety and reliability. Mr. Butcher said their airplanes had an average of 3,200 in service, carried eight passengers, flew at 300 miles per hour, and had a pressurized cabin. Mr. Simpson said Boutique s intention was to focus on reliability and customer service at a reasonable price. They had seven pilots based in Phoenix and were able to retain good employees with good benefits, pay, and schedules.

6 Study Session Minutes 6 May 10, 2016 Mr. Simpson said Show Low had a solid passenger stream in 2015 and Boutique had received positive feedback from its passengers. Their reliability had been 99.2% in Show Low, even with maintenance and weather issues. The USDOT felt that their subsidy rate was very reasonable. During the first week of May, passenger counts were increasing and they were operating on a full schedule. The demand for service was there, but they needed to get their damaged airplane repaired so they were fully staffed. Mr. Simpson said the first five months of service in Show Low went well, but then the tail section of their aircraft was hit by a luggage cart in Denver in February. That airplane was still out of service, which resulted in a reduced flying schedule in March and April. It was removed from the fleet for repairs, but despite the problem with the airplane, they were again operating a full schedule as of two weeks ago. Vice Mayor Leech said he wanted service to Show Low to be a priority for Boutique. Mr. Simpson said pulling back the flights was a difficult decision operationally. Pilots expected to work for Boutique for years, so it was difficult to tell them that the schedule had to be scaled back. Mr. Butcher said Boutique wanted to remain in Show Low for as long as they could. They were committed to growing this market and to have more resources in the area. Mr. Simpson said the reason to rebid the contract was so they could provide a consistent schedule year-round, build passenger traffic, and stimulate the economy. They were asking for more money but would provide more flights in return three round trips daily year-round, for 18 trips per week. Vice Mayor Leech asked what would happen if they returned in 90 days and said they didn t want to do three round trips a day. Mr. Simpson said the current situation was very rare. Show Low was an isolated route, but it had to be staffed even though there weren t many passengers. As a remedy, they worked with Silver City and USDOT, so they now had flights from Phoenix to Silver City and from there to Albuquerque. This created better economies of scale and allowed the Show Low route to function with the current bid. The new bid was only $1.5 million, and USDOT was surprised it was so low. They were able to keep it low because of the flights to Silver City. Mr. Butcher said Boutique s reliability system-wide was 99%+. Even factoring in weather, their reliability was still 98%. No other EAS carrier in the country matched that. Mr. Simpson said to rebid the service, they had to file a notice of termination. Councilwoman Kakavas said her main concern was that Boutique reduced the number of flights to one a day for a period of time, so the high percentage of

7 Study Session Minutes 7 May 10, 2016 reliability was actually misleading. She knew people who lived in the Valley and used the commuter service to get to work, so the reduced number of flights caused a hardship. Mr. Simpson said the reduced schedule was only for two months, and it wasn t planned. They were adding more airplanes for better resilience, but when unanticipated incidents occurred, they had to deal with them. They dropped from 12 round trips to seven. They provided one round trip daily for two months, which was during the slower season. As of the last two weeks, they were back to three round trips per day, and passenger traffic was growing nicely. Mr. Simpson said their new proposal included 18 round trips per week with three on most days. USDOT treated the weekend as a single day, meaning one round trip on Saturday and two on Sunday. It might be possible to move one of the round trips from Tuesday or Wednesday to Sunday. They felt the new proposal was beneficial for Show Low. Mr. Butcher said Boutique was committed to increasing passenger numbers to a higher level than they had ever been. Mr. Simpson said Boutique was available on all the major Global Distribution Systems and all the major online travel agencies. They had done some marketing/advertising and planned to do more in print, television, and radio advertising. They were also active on social media, including Facebook and Twitter. They had no crew cancellations or accidents since July He added that their website was easy to use. Show Low was welcome contact other airport managers to check their references. They had never had to file a termination notice and didn t plan to do it again. Councilman Allsop asked if they planned to continue TSA screenings so connections could be made at Sky Harbor. Originally, Boutique stated that no TSA employees would lose their jobs. Mr. Simpson said they didn t want anyone to lose their jobs. He also knew that there was a certain amount of hassle for passengers to deal with TSA. He had seen enplanements increase when passengers didn t have to deal with TSA before boarding. However, he gave his word that they would not try to opt out of TSA screenings unless the City was supported the idea. Mr. Muder asked if they intended to remain at Sky Harbor. Mr. Simpson said yes. Mr. Muder asked if they would give the City plenty of notice if their plans changed. Mr. Simpson said yes. Mayor Seymore asked if they had any other flights that would evolve out of the Show Low route. Mr. Simpson said if there was enough community interest, they might consider flying to Las Vegas or perhaps Albuquerque. Mayor Seymore said there would probably be more interest in flying to Las Vegas.

8 Study Session Minutes 8 May 10, 2016 Councilman Crittenden said if Boutique was considering flying to other destinations from Show Low, it would probably be best if Boutique conducted a survey locally to find out where people wanted to go. Mayor Seymore said the Council appreciated the presentation and thanked Messrs. Simpson and Butcher for coming. Mr. Muder said to let him know if the Council had any questions for staff to research prior to next week s meeting. The May 17 special meeting agenda would allow the Council to make a recommendation. USDOT was requesting comments from the City by May Adjournment. There being no further discussion, MAYOR SEYMORE ADJOURNED THE STUDY SESSION OF THE SHOW LOW CITY COUNCIL OF MAY 10, 2016 AT 6:04 P.M. ATTEST: Ann Kurasaki, City Clerk APPROVED: Daryl Seymore, Mayor T/docs/c051016ss CERTIFICATION I hereby certify that the foregoing minutes are a true and correct copy of the minutes of the STUDY SESSION of the City Council of Show Low held on May 10, I further certify that the meeting was duly called and held and that a quorum was present. Dated this day of, 20. (SEAL) Ann Kurasaki, City Clerk

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