UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.

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1 Order Served: February 1, 2012 DEPARTMENT UNITED OF STATES TRANSPORTATION OF AMERICA UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C. Issued by the Department of Transportation on the 1 st day of February, 2012 Application of THE YELLOWSTONE MOUNTAIN CLUB, L.L.C. DOCKET DOT-OST for an exemption pursuant to 49 U.S.C from the provisions of 49 U.S.C Summary ORDER GRANTING EXEMPTION By this order, we grant an exemption from 49 U.S.C and applicable Department regulations to The Yellowstone Mountain Club, L.L.C. ( Yellowstone ) to the extent necessary to permit it to engage in indirect air transportation, subject to conditions. Background By application dated July 31, 2011, Yellowstone requested an exemption from the requirements of 49 U.S.C and certain sections of the Department s economic regulations to the extent necessary to permit it to conduct indirect interstate air transportation of persons and property. Yellowstone is the proprietor of a private ski and golf community known as Yellowstone Club. The company was formed in 1997 and reorganized in 2009 as a result of the Chapter 11 bankruptcy filing of its original owners. According to the company, Cross Harbor Capital Partners, LLC ( Cross Harbor ), 1 and a group of Yellowstone members, together with Discovery Land Company ( Discovery Land ), 2 purchased the community out of bankruptcy in July Cross Harbor is a Boston-based investment management company. 2 Discovery Land is a Scottsdale, Arizona-based developer of golf and residential resort properties. 3 Ownership of Yellowstone is divided as follows: Yellowstone is owned by YC Holdings, LLC ( YC Holdings ), a Delaware limited liability company, and several institutional investors and club members. YC Holdings is a joint venture between Discovery YC Investors, LLC, owned by Discovery Land, and a holding company owned by Cross Harbor; it is also owned by CHYC Manager, LLC, which acts as a manager of YC Holdings interests.

2 2 Yellowstone proposes to contract with one or more U.S. direct air carriers to provide air transportation to its members between Bedford, Massachusetts; White Plains, New York; North Philadelphia, Pennsylvania; Los Angeles, California; and/or the San Francisco California Bay area, on the one hand, and Bozeman, Montana, on the other hand, where the members maintain vacation homes at Yellowstone Club. Yellowstone Club, located in the Rocky Mountains near Big Sky, Montana, is a 13,600 acre members-only resort. Members own home sites limited to 864 properties, 4 paying sizable initiation fees and annual dues for membership in Yellowstone. Additional services are made available to its members and are billed to their individual membership accounts. According to Yellowstone, the isolation of the community and the limited air transportation available to its members living in the Boston/New York/Philadelphia, Los Angeles and San Francisco areas, makes access by air to the community less convenient than many other locations in the United States. To address these issues, Yellowstone offered its members more convenient air transportation to their vacation homes and arranged with Aerodynamics, Inc. ( ADI ), in December 2009 and Swift Air, LLC ( Swift ) in October 2010, to perform a limited number of charter flights linking Bozeman, Montana, with three East Coast points where a concentration of its members reside, Bedford, Massachusetts; White Plains, New York; and North Philadelphia, Pennsylvania. 5 The Department, by letters dated December 11, 2009, and October 22, 2010, granted waivers to ADI and Swift, respectively, from the affinity (pro rata) charter rule (14 CFR 212.5) authorizing each to provide limited charter flights on behalf of Yellowstone. The flights were operated in 2009 using one 120-seat A319 aircraft and in 2010 using a 68-seat B , with schedules built around peak travel times, particularly holidays and three-day weekends. Yellowstone is submitting the subject application for an exemption so that it may arrange air service for its members (acting as an indirect air carrier) on a more frequent basis than what it previously arranged with ADI and Swift. In order to resolve any issues about any service it may choose to operate under this proposal, Yellowstone asks that it be exempted from the certification requirements of 49 U.S.C to the extent necessary to permit it to operate as an indirect air carrier. Yellowstone further requests relief from the relevant portions of 14 CFR Part 212 and any other provision of the regulations to the extent necessary to permit it to provide the services described herein. Specifically, Yellowstone requests an exemption from the specifications of particular types of charters set forth in 212.4, the rules governing group formation and membership eligibility in should these operations be deemed pro-rata or mixed charters, the provisions governing the protection of customer s payments in 212.8, and the Public Charter provisions of 14 CFR Part 380. In support of its application, Yellowstone states that the proposed flights are identical to those operated under waivers granted to ADI and Swift and that the flight schedules will vary by season. The company anticipates using Swift s aircraft or similar aircraft during the heavy travel season and, when demand is low, contracting for aircraft with fewer than 60 passenger seats. In addition, Yellowstone states that flights will be restricted to its members who specifically enroll in the flight 4 Current membership at Yellowstone is 313 members. The maximum number of memberships will be 864, one for each home site, plus up to 150 national members who do not own real estate in the community, but who are permitted to participate in Yellowstone Club s membership. 5 Yellowstone states that while North Philadelphia was added as a point in 2010, to date, no flights have taken place.

3 3 program, their families, and their invited guests. The company anticipates limiting enrollment in the flight program to 350 members, which includes Yellowstone s management. Members will not be charged per flight; instead, participating members will pay annual dues, which will be assessed at different levels depending on the number of flights a passenger uses. 6 The flights will not be held out to the public, and participants will be solicited from Yellowstone members and prospective members, who may be invited to use the charters as guest of a participating member. Yellowstone claims that no purchase, trade, or other form of compensation from a guest is permitted. Further, the company asserts that the relief requested is similar to the exemption granted by the Department to Kona Associates, L.L.C. ( Kona ), 7 which permitted the association to offer air transportation to its members between Oakland, California, and Kailua Kona, Hawaii, where they owned vacation homes in three exclusive communities. No answers opposing Yellowstone s application were filed and no special issues regarding the applicant have come to our attention. 8 Under these circumstances, we propose to decide the issue of the applicant s requested exemption from certain statutory and regulation requirements on the basis of the written record. Decision After careful consideration, we have decided to grant Yellowstone the requested exemption from 49 U.S.C and 14 CFR Parts 212 and 380 of the Department s regulations to the extent necessary to enable it to engage in the transportation services and operating arrangements described in this order. 49 U.S.C (a)(2) provides that any person who engages directly or indirectly in air transportation is deemed to be an air carrier. Any air carrier holding out or providing air transportation must hold a certificate of public convenience and necessity from the Department under 49 U.S.C or an exemption from that statute. (See, e.g., 49 U.S.C ) In the contractual arrangements that Yellowstone describes in its application, Yellowstone is acquiring access to aircraft and air services on behalf of its community members, as well as marketing those air services to community members. In effect, Yellowstone is holding out and selling air transportation to its community members through membership fees and dues, which would be used to pay for air transportation. Under these circumstances, Yellowstone is engaging in a type of indirect air carrier activity for which authority is required. 6 Yellowstone states that it expects the dues to cover the cost of the charters. However, the company does recognize that increases in charter costs may require increases in dues or supplemental fees charged to members to cover the increases. Yellowstone proposes to estimate each member s contribution in advance and then periodically, or at the end of the season, calculate the costs, and if necessary, adjust the contributions going forward. 7 See Order On August 4, 2011, the City of Philadelphia filed a comment in the public docket, not objecting to the application, but to the use of the North Philadelphia Airport (PNE) or the kind of scheduled passenger charter service described in the subject application. The City of Philadelphia states that PNE is not a certified airport within the meaning of 14 CFR Part 139 and does not have the facilities to accommodate commercial air carriers.

4 4 We believe that Yellowstone has shown that the grant of an exemption to implement the arrangement described above is in the public interest, provided certain limited conditions are observed. As described in Yellowstone s application, its proposal would provide additional service options to community members, the pool of potential individuals eligible to participate is narrowly defined and is not expected to exceed 350 members, there will be no advertising, mailings, or mass solicitations to the general public about the services, neither the memberships nor any seat on the aircraft may be sold to a third party, and the direct air transportation will be provided by a U.S. certificated air carrier under a long-term contract. The aircraft to be used for providing the air transportation will be on the air carrier s operations specifications and all of the flights will be fully under the operational control of the direct air carrier. Furthermore, any additional charters with other groups or individuals would be provided in full accordance with Department regulations. We are not prepared, however, to grant an open-ended exemption to Yellowstone for its proposal. In all respects, the exemption granted by this order is limited to the transaction described above with respect to the aforementioned city-pair markets. In the event that Yellowstone desires to expand the arrangement beyond that described above, especially with respect to the maximum number of 350 participants, the use of additional aircraft beyond the single aircraft proposed here, or service to additional cities, it must first obtain approval from the Department. In addition, Yellowstone will be required to use a U.S. certificated air carrier. Since the number of potential individuals eligible to participate is limited to 350 members and each participant will be a member of Yellowstone, we are willing to waive any escrow requirements that would otherwise be applicable to Yellowstone as an indirect air carrier, provided that adequate notice is given by Yellowstone to each member or potential member of their rights and responsibilities with respect to the air transportation to be provided, including their rights, if any, to refunds of amounts paid. Lastly, Yellowstone must meet all applicable Transportation Security Administration requirements. With these conditions, we find no basis to be concerned that the arrangement proposed with respect to the members of the Yellowstone Club would contravene any Department policies regarding licensing or consumer protection or would otherwise be contrary to the public interest. We do not, however, believe it to be in the public interest similarly to exempt Yellowstone from our requirements to the extent it desires to arrange charter flights on behalf of other entities or individuals. Yellowstone does not need such an exemption so long as it acts either as the agent of the air carrier, as it proposes in its filing, or of the customer. Moreover, Yellowstone has not made an adequate showing why it is in the public interest to exempt it, and any direct air carrier with which it may contract, from our rules designed to protect purchasers of charter transportation, such as our rules requiring signed contracts and financial security protection for charter payments found in 14 CFR Parts 212 and 380. ACCORDINGLY: 1. We grant The Yellowstone Mountain Club, L.L.C., an exemption from the requirements of 49 U.S.C and applicable economic regulations of the Department to the extent necessary to permit it to engage in indirect air transportation, as described above, provided that The Yellowstone Mountain Club, L.L.C., meets the conditions described above. 2. We reserve the right to amend, modify, or revoke this authority at any time, in the public interest, without notice or hearing.

5 5 3. The Yellowstone Mountain Club, L.L.C., must obtain approval from the Department, as described in this order of major changes in the program, including, but not limited to, additions of city-pair markets, or additions to the number of individual participants beyond 350, or the use of more than one aircraft under this exemption. 4. We will serve a copy of this order on the persons listed in Attachment A. BY: SUSAN L. KURLAND Assistant Secretary for Aviation and International Affairs An electronic version of this document is available at:

6 Attachment A SERVICE LIST FOR YELLOWSTONE MOUNTAIN CLUB, LLC MARK W ATWOOD COZEN O CONNER THE ARMY AND NAVY CLUB BLDG 1627 I STREET NW WASHINGTON DC PETER LYNCH AGC-300 ASST CHIEF COUNSEL FOR ENFORCEMENT FEDERAL AVIATION ADMINISTRATION 800 INDEPENDENCE AVE SW WASHINGTON DC ANNE SUISSA RTS-42 OFFICE OF AIRLINE INFORMATION DOT/RITA/BTS E NEW JERSEY AVE SE WASHINGTON DC 20590