Quarterly Report (10-q)

Large accelerated filer

Accelerated Filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 0-23224

GREAT LAKES AVIATION, LTD.

(Exact name of registrant as specified in its charter)

Iowa

42-1135319

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


1022 Airport Parkway, Cheyenne, WY		82001
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (307) 432-7000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 23, 2015, 8,974,990 shares of Common Stock of the registrant were issued and outstanding.

GREAT LAKES AVIATION, LTD.

FORM 10-Q

For the Quarterly Period Ended September 30, 2015

INDEX


PART I - FINANCIAL INFORMATION
Item 1.	CONDENSED FINANCIAL STATEMENTS	2
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	23
Item 4.	CONTROLS AND PROCEDURES	24

PART II - OTHER INFORMATION
Item 1.	LEGAL PROCEEDINGS	24
Item 1A.	RISK FACTORS	24
Item 6.	EXHIBITS	26

SIGNATURES		27

EXHIBIT INDEX		E-1

Item 1.

FINANCIAL STATEMENTS

GREAT LAKES AVIATION, LTD.

Balance Sheets

(unaudited)


	September 30,			December 31,
	2015			2014
Assets
Current assets:
Cash and cash equivalents	$	922,287		$	2,202,273
Accounts receivable and other receivables		3,838,967			5,337,193
Inventories		6,382,657			6,578,419
Prepaid expenses and other current assets		3,389,690			1,785,433
Deferred income taxes		1,273,111			1,249,365

Total current assets		15,806,712			17,152,683

Property and equipment:
Flight equipment		126,392,996			126,252,883
Other property and equipment		10,769,976			10,692,328
Less accumulated depreciation and amortization		(95,749,344	)		(93,119,738	)

Total property and equipment		41,413,628			43,825,473

Other assets		1,371,485			3,283,360

Total assets	$	58,591,825		$	64,261,516


Liabilities and Stockholders’ Equity

Current liabilities:
Long-term debt payable on demand	$	27,500,000		$	—
Accounts payable		1,938,058			2,177,376
Accrued interest, unearned revenue and other liabilities		3,419,287			2,131,928

Total current liabilities		32,857,345			4,309,304

Long-term debt		—			25,000,000
Deferred income taxes		1,895,474			3,705,007

Total liabilities		34,752,819			33,014,311

Commitments and contingencies
Preferred stock; $0.01 par value; Authorized: 25,000,000 shares.
No shares issued or outstanding		—			—
Common stock; $0.01 par value; Authorized: 50,000,000 shares.
8,974,990 shares issued and outstanding		89,750			89,750
Paid-in capital		31,494,609			31,494,609
Accumulated deficit		(7,745,353	)		(337,154	)

Total stockholders’ equity		23,839,006			31,247,205

Total liabilities and stockholders’ equity	$	58,591,825		$	64,261,516

See accompanying notes to the financial statements.

GREAT LAKES AVIATION, LTD.

Statements of Operations

(Unaudited)


	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2015			2014			2015			2014
Operating Revenues:
Passenger	$	3,342,439		$	8,147,891		$	11,429,643		$	23,208,086
Public service		6,314,010			8,190,285			21,293,874			21,035,344
Freight, charter, and other		34,677			40,330			123,724			123,595

Total operating revenues		9,691,126			16,378,506			32,847,241			44,367,025

Operating expenses:
Salaries, wages, and benefits		4,213,032			4,797,153			13,771,581			15,832,953
Aircraft fuel		1,737,478			4,454,621			6,004,688			12,937,966
Aircraft maintenance, materials, and repairs		1,185,368			746,730			5,142,754			3,371,064
Depreciation and amortization		1,108,164			1,532,579			4,140,331			4,742,283
Other rentals and landing fees		431,186			668,183			2,602,651			3,259,683
Other operating expenses		2,127,709			3,290,289			6,739,395			10,497,015

Total operating expenses		10,802,937			15,489,555			38,401,400			50,640,964


Operating income (loss)		(1,111,811	)		888,951			(5,554,159	)		(6,273,939	)

Other expense:
Interest expense, net of interest income of $275, $319, $692 and $639, respectively		(1,200,725	)		(1,258,928	)		(3,697,813	)		(3,376,231	)


Loss before income taxes		(2,312,536	)		(369,977	)		(9,251,972	)		(9,650,170	)


Income tax benefit (expense)		(681,115	)		134,647			1,843,773			3,534,891


Net loss	$	(2,993,651	)	$	(235,330	)	$	(7,408,199	)	$	(6,115,279	)


Net loss per share:
Basic	$	(0.33	)	$	(0.03	)	$	(0.83	)	$	(0.68	)
Diluted	$	(0.33	)	$	(0.03	)	$	(0.83	)	$	(0.68	)

Weighted average shares outstanding:
Basic		8,974,990			8,974,990			8,974,990			8,974,990
Diluted		8,974,990			8,974,990			8,974,990			8,974,990

See accompanying notes to the financial statements.

GREAT LAKES AVIATION, LTD.

Statements of Cash Flows

(Unaudited)


	For the Nine Months Ended September 30,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(7,408,199	)	$	(6,115,279	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		4,140,331			4,742,283
Loss on property and equipment		122,790			107,421
Amortization of debt issuance costs		405,907			625,219
Deferred tax benefit		(1,833,279	)		(3,529,012	)
Change in current operating items:
Accounts receivable and other receivables		1,498,226			1,464,938
Inventories		195,762			1,500,399
Prepaid expenses and other assets		(98,290	)		901,418
Accounts payable		(239,318	)		(1,048,405	)
Accrued interest, unearned revenue and other liabilities		1,287,359			(544,360	)

Net cash used in operating activities		(1,928,711	)		(1,895,378	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of flight equipment and other property and equipment		(1,851,275	)		(759,949	)

Net cash flows used in investing activities		(1,851,275	)		(759,949	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable and long-term debt		—			(1,452,000	)
Proceeds from borrowing		2,500,000			2,000,000
Payment for debt issuance costs		—			(564,436	)

Net cash provided by (used in) financing activities		2,500,000			(16,436	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,279,986	)		(2,671,763	)

Cash and Cash Equivalents:
Beginning of period		2,202,273			6,597,927

End of period	$	922,287		$	3,926,164

Supplementary disclosures of cash flow information:
Cash paid during the period for interest	$	2,575,556		$	2,720,975

Cash paid during the period for income taxes	$	—		$	5,661

See accompanying notes to the financial statements.

GREAT LAKES AVIATION, LTD.

Statements of Stockholders’ Equity

Nine Months Ended September 30, 2015

(unaudited)


	Common stock						Accumulated deficit
	Shares		Amount		Paid-in capital		Accumulated deficit			Total
Balance at January 1, 2015		8,974,990	$	89,750	$	31,494,609	$	(337,154	)	$	31,247,205
Net loss		—		—		—		(7,408,199	)		(7,408,199	)

Balance at September 30, 2015		8,974,990	$	89,750	$	31,494,609	$	(7,745,353	)	$	23,839,006

See accompanying notes to financial statements.

Great Lakes Aviation, Ltd.

Notes to Financial Statements

September 30, 2015

(unaudited)

1.	Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, the accompanying unaudited condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial statements for the respective periods. Interim results are not necessarily indicative of results for a full year. The financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2014.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets; the salvage value of fixed assets; the valuation allowance for deferred tax assets, inventory allowances; and allowances for other contingencies.

Business

Passenger Revenue

Great Lakes Aviation, Ltd. (Great Lakes, the Company, we or us) is a regional airline operating as an independent carrier and as a code share partner with United Air Lines, Inc. (United or United Airlines). Our code share agreement allows our mutual customers to purchase connecting flights through our code share partner and to share other benefits such as baggage transfer and frequent flyer benefits (in certain instances). The Company maintains its own branding on its planes and ticket counters and its own designator code on all its flights. In addition to our code share agreement and independent branding, the Company has developed electronic ticketing (e-ticket) interline agreements with American Airlines, Delta Airlines and United Airlines.

The Company estimates that approximately 48% of Great Lakes’ passenger traffic utilized the United code share product line in the nine months ending September 30, 2015. During the quarter the Company recorded a reduction in revenue of $420,000 related to the settlement of interline billings with another carrier.

Public Service Revenue

Approximately 65% and 47% of the Company’s total revenue during the nine months ended September 30, 2015 and 2014 respectively, were generated by services provided under the Essential Air Service (EAS) program administered by the United States Department of Transportation (DOT). The FAA Modernization and Reform Act of 2012 was enacted into law on February 14, 2012. This legislation provided for the authorization of the Essential Air Service program through September 30, 2015, and has been subsequently extended for an additional six months.

As of November 23, 2015 the Company served 22 airports, in nine states of which 14 locations receive EAS subsidy and four cities serve as destinations for the EAS markets. We operate a fleet of 34 aircraft consisting of six Embraer EMB-120 Brasilia and 28 Beechcraft 1900D regional airliners. The Company currently operates hubs in Denver, CO, Los Angeles, CA, Minneapolis, MN and Phoenix, AZ.

Valuation of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analysis in accordance with ASC 360-10-15 “Impairment or Disposal of Long-Lived Assets”. ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.

During the quarter, the Company concluded it had a triggering event requiring assessment of impairment for its aircraft fleet and related rotable parts in conjunction with the ongoing pilot turnover and flight cancellations. As a result, the Company evaluated the asset group against the sum of the undiscounted future cash flows and determined the assets are not recoverable based on that analysis and subsequently evaluated whether an impairment charge was necessary. Based on a September 30, 2015 appraisal prepared by an independent third party appraiser, the Company determined the asset group’s carrying amount was less than its fair value, and accordingly no impairment charge was required. The impairment was deemed not necessary based on a market approach utilizing an appraisal to determine fair values of the asset group. These methods are consistent with the methods the Company employed in prior periods to value other long-lived assets. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, “Fair Value Measurement”.

Liquidity

As a result of the new federal regulations increasing the experience requirements for pilots, the airline industry and the Company have experienced a severe shortage of qualified pilots. This has had an adverse impact on the Company causing us to curtail operations and reduce aircraft seating capacity. The pilot shortage and its effect on operations is expected to continue until we can recruit, hire, train, and retain sufficient pilots to reverse these negative trends.

Due to the pilot shortage and resultant downsizing of our operation and resulting effect on operating results, the Company was not in compliance with the fixed charge coverage ratio covenant contained in the Company’s Loan Agreement for the second and third quarters of 2015. Specifically the Company is required to maintain a fixed charge coverage ratio, calculated by dividing trailing 12 month earnings before interest, taxes, depreciation and amortization (EBITDA), less unfinanced capital expenditures, by trailing 12 month interest expense, as defined in the Loan Agreement, of 0.76:1 and 0.66:1 for the second and third quarters respectively. The Company does not expect to be in compliance with the fixed charge coverage ratio covenant throughout the balance of 2015 as EBITDA is calculated on a trailing 12-month basis.

Under the Loan Agreement, a “Cure Period” existed until August 28, 2015 for the Company to cure the covenant non-compliance, which it did not accomplish. As a result, an event of default occurred which permits the Lender to exercise its right to declare our debt obligations immediately due and payable, to terminate the Lender’s obligation to advance any additional borrowings under the original terms of the Loan Agreement, and to take possession of substantially all of the Company’s assets.

To date, the Lender has not exercised any of these rights under the default provisions of the loan except for the change in interest rate resulting from the default, and continues to discuss with management various ways to resolve the default and amend the agreement going forward. The Company also continues to make all scheduled interest payments while working with the Lender to obtain a satisfactory outcome to the default condition.

As a result of our ongoing non-compliance with the terms of the Loan Agreement, total borrowings of $27.5 million (including $1.0 million advanced by the Lender in July 2015), are now classified as long-term debt payable on demand as of September 30, 2015. The Company has also reclassified related debt issuance costs from long-term other assets to other current assets. Additionally, the timing of payment for a 1.25% facility fee of $425,000 was accelerated by the default condition and has now been classified in accrued liabilities, and the rate of interest paid on outstanding loan balances increased from 14% to 17% per year.

In the event that the Company and its Lender are unable to resolve the issues related to covenant non-compliance the Company will need to consider several alternatives, including, but not limited to, additional equity financings, debt financings, and other funding transactions, including the sale or sale-leaseback of certain aircraft. In addition, the Company will continue to adjust its level of operations as necessary based on pilot availability.

The Company cannot make assurances that its assets or cash flow from operations will be sufficient to repay borrowings under its existing debt obligations, either upon maturity or acceleration, or that it will be able to negotiate an amendment to our existing Loan Agreement. In addition, the Company cannot make assurances that other sources of capital or liquidity will be available, which would have a material adverse impact on our liquidity and financial position.

Until the Company is able to cure the covenant violation or to successfully renegotiate our existing debt obligations, it is expected that the Company will not have sufficient liquidity to service its existing debt obligations for the next 12-month period. These factors raise significant doubts about our ability to continue as a going concern.

2.	Earnings per share

The following table shows the computation of basic and diluted earnings per common share:


	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Numerator:
Net loss	$	(2,993,651	)	$	(235,330	)	$	(7,408,199	)	$	(6,115,279	)
Denominator:
Weighted average shares outstanding, basic		8,974,990			8,974,990			8,974,990			8,974,990

Weighted average shares outstanding, diluted		8,974,990			8,974,990			8,974,990			8,974,990

Net loss per share, basic	$	(0.33	)	$	(0.03	)	$	(0.83	)	$	(0.68	)
Net loss per share, diluted	$	(0.33	)	$	(0.03	)	$	(0.83	)	$	(0.68	)

For the three month and nine month periods ended September 30, 2015 and September 30, 2014 there were no options or other potentially dilutive securities outstanding.

3.	Accrued Liabilities

Accrued liabilities consisted of the following balances at September 30, 2015 and December 31, 2014:


	September 30, 2015		December 31, 2014
Unearned revenue	$	1,115,793	$	645,320
Accrued property taxes		223,305		68,140
Accrued interest		393,079		89,491
Accrued payroll		1,118,075		1,290,555
Accrued Facility Fee		425,000		—
Other		144,035		38,422

Total accrued liabilities	$	3,419,287	$	2,131,928

4.	Long-Term Debt

The following table sets forth, as of September 30, 2015 and December 31, 2014, the carrying amount of the Company’s long-term debt. Under the terms of the Loan Agreement, no scheduled principal payments are required until the earlier of the lender declaring all obligations due and payable or the December 2017 maturity date.


	September 30, 2015			December 31, 2014
Long-term debt:
Term Loan	$	25,000,000		$	25,000,000
Revolving Loans		2,500,000			—

Total long-term debt		27,500,000			25,000,000

Less amounts payable on demand:
Term Loan (1)		(25,000,000	)		—
Revolving Loans (1)		(2,500,000	)		—

Total current protion		(27,500,000	)		—

Total long-term debt portion		—		$	25,000,000

(1)	All debt is classified as current as a result of not being in compliance with our loan agreement and the lender’s ability to declare our obligations due and payable.

On December 22, 2014, the Company entered into a Loan Agreement (the “Loan Agreement”) with Callidus Capital Corporation (the “Lender”). Pursuant to the Loan Agreement, the Lender agreed to make available to the Company: (i) a $25,000,000 single advance term loan facility, (ii) a revolving loan facility with availability of up to $6,000,000 and (iii) a second revolving loan facility with availability of up to $3,000,000. The $25,000,000 term loan was disbursed at closing, and substantially all of its proceeds were used to pay all outstanding borrowings, fees and expenses under the Credit Agreement with our previous lenders. The revolving loan facilities may be used for the Company’s working capital needs.

Through June 30, 2015, outstanding principal under the term loan and revolving loans paid interest at a fixed rate of 14% per year. In addition, the Company paid a 1% facility fee at closing and will be required to pay a 1.25% facility fee on the maturity date or in an event of default. While the Lender has not declared this facility fee due and payable, the event of default triggers the accelerated payment due date. The Company is also assessed a maintenance and monitoring fee of $3,000 per month and a 1% unused line fee. The 1% facility fee paid at closing

was recorded to other assets and is being amortized as interest expense using the effective interest rate method. The 1.25% facility fee due at maturity was being accrued as an increase to other accrued liabilities and interest expense each period using the effective interest rate method. The accelerated portion of $350,739 was accrued during the second quarter. The maintenance and monitoring fee and the unused line fee are also recorded as interest expense as incurred. Debt issuance costs of $1.2 million have also been reclassified from long-term other assets to other current assets.

In connection with the Loan Agreement, the Company granted first-ranking security interests to the Lender covering substantially all of the assets of the business. The Loan Agreement contains certain affirmative and negative covenants which are usual and customary with asset based loans. The Company agreed to maintain a fixed charge coverage ratio beginning with the period ended March 31, 2015. In an event of default, the Lender may terminate its obligation to make further loans and may declare all obligations under the Loan Agreement to be immediately due and payable.

As of September 30, 2015, the Company was unable to achieve the fixed charge coverage ratio covenant contained in the Company’s Loan Agreement for the second and third quarters of 2015. Specifically the Company is required to maintain a fixed charge coverage ratio, calculated by dividing trailing 12 month earnings before interest, taxes, depreciation and amortization (EBITDA), less unfinanced capital expenditures, by trailing 12 month interest expense, as defined in the Loan Agreement, of 0.76:1 and 0.66:1 for the second and third quarters respectively. The Company does not expect to be in compliance with the fixed charge coverage ratio throughout the balance of 2015 as EBITDA is calculated on a trailing 12-month basis.

Under the Loan Agreement, a “Cure Period” existed until August 28, 2015 for the Company to cure the covenant non-compliance, which it did not accomplish. As a result, an event of default occurred which permits the Lender to exercise its right to declare our debt obligations, originally due to mature on December 22, 2017, immediately due and payable, to terminate the Lender’s obligation to advance any additional borrowings under the original terms of the Loan Agreement, and to take possession of substantially all of the Company’s assets.

To date, the Lender has not exercised any of these rights under the default provisions of the loan except for the change in interest rate resulting from the default, and continues to discuss with management various ways to resolve the default and amend the agreement going forward. The Company also continues to make all scheduled interest payments on time while working with its Lender to obtain a satisfactory outcome to the default condition.

As a result of our ongoing non-compliance with the terms of the Loan Agreement, total borrowings of $27.5 million (including $1.0 million advanced by the Lender in July 2015), are now classified as long-term debt payable on demand as of September 30, 2015. The Company has also reclassified related debt issuance costs from long-term other assets to other current assets. Additionally, the timing of the payment for a 1.25% facility fee of $425,000 was accelerated by the default condition and has now been classified in accrued liabilities, and the rate of interest paid on outstanding loan balances increased from 14% to 17% per year.

5.	Related Parties

The Company rents two six-passenger aircraft and a vehicle from Iowa Great Lakes Flyers, Inc., a corporation solely owned by Douglas G. Voss, the Company’s Chairman, CEO, and majority stockholder. Total payments for these leases were $21,375 for each of the nine month periods ending September 30, 2015 and 2014, respectively. As of September 30, 2015, Mr. Voss controlled 4,160,247 shares of common stock of the Company, representing approximately 46.4% of the Company’s outstanding common stock.

6.	Income Taxes

The Company estimates what its effective tax rate will be for the full fiscal year and records a quarterly income tax provision based on the anticipated rate. As the year progresses, the Company refines its estimate based on the facts and circumstances by each tax jurisdiction. The effective tax rate for the nine months ended September 30, 2015 and 2014 was 19.9% and 36.6%, respectively. The effective tax rate of 19.9% for the nine months ended September 30, 2015 includes the effect of a valuation allowance to reflect the net realizable value expected to be necessary for deferred tax assets at the end of the year as a result of losses anticipated for the year. As a result of the estimated

effective tax rate for the year, as well as a change in the estimated rate during the quarter, the Company recorded income tax expense of $681,115 and income tax benefit of $1,843,773 for the three and nine months ended September 30, 2015, respectively.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The net operating losses (NOLs) that have been generated are due in large part to losses from operations incurred in the current and prior years. The majority of the Company’s NOLs consist of federal NOLs, which will expire between 2021 and 2034. The book basis of property and equipment was $29.9 million greater than the tax basis at September 30, 2015. At December 31, 2014 the Company’s net deferred tax liabilities were recorded at $2.5 million. For the period ended September 30, 2015 the Company’s net deferred tax liabilities were recorded at $0.6 million as a result of the tax benefit described above.

7.	Fair Value Measurements

A fair value hierarchy that prioritizes the inputs used to measure fair value has been established by ASC 820, Fair Value Measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:


Level 1		Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2		Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and other inputs that are observable or can be corroborated by observable market data.

Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then we rank the estimated values based on the reliability of the inputs used following the fair value hierarchy set forth by the Financial Accounting Standards Board (the “FASB”).

Our financial instruments consist of cash and cash equivalents, accounts receivable and other receivables, accounts payable, accrued liabilities and long-term debt. The carrying values of cash and cash equivalents, accounts receivable and other receivables, accounts payable, and accrued liabilities approximate their fair values. These are considered Level 1 measurements. The fair value of our long-term debt approximates the carrying value of $27.5 million at September 30, 2015 and $25.0 million at December 31, 2014, respectively because the rate on this debt was recently negotiated and we believe is similar to the rate that we could negotiate at each period-end. For additional information, see Note 4 Long-Term Debt.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company

We were incorporated on October 25, 1979 as an Iowa corporation and became a publicly traded company in January 1994. We commenced scheduled air service operations on October 12, 1981. Great Lakes Airlines currently operates hubs at Denver, CO, Los Angeles, CA, Minneapolis, MN, and Phoenix, AZ.

We are a regional airline operating as an independent carrier and as a code share partner with United Air Lines. Our code share agreement allows our mutual customers to purchase connecting flights through our code share partner and to share other benefits such as baggage transfer and frequent flyer benefits (in certain instances), while the Company maintains its own branding on our planes and ticket counters and our own designator code on all our flights. In addition to our code share agreement and independent branding, the Company has developed electronic ticketing (e-ticket) interline agreements with American Airlines, Delta Airlines, and United Airlines.

As of November 23, 2015, we served 22 airports in nine states with a fleet of six Embraer EMB-120 Brasilias and 28 Beechcraft 1900D regional airliners.

Essential Air Service (“EAS”) Program

For the nine months ended September 30, 2015 we derived approximately 65% of our total revenue from the EAS program which is administered by the United States Department of Transportation (DOT). The EAS program was instituted under the Airline Deregulation Act of 1978 (the “Deregulation Act”), which allowed airlines greater freedom to introduce, increase, and generally reduce or eliminate service to existing markets. Under the EAS program, certain communities are guaranteed specified levels of “essential air service.” In order to promote the provision of essential air services, the DOT may authorize the payment of federal subsidies to compensate an air carrier that is providing essential air services in otherwise unprofitable or minimally profitable markets.

The FAA Modernization and Reform Act of 2012 was enacted into law on February 14, 2012. This legislation provided for the authorization of the EAS program for federal fiscal years 2011 through 2015 ending on September 30, 2015. Congress subsequently extended the EAS for six additional months pending a new reauthorization bill. The EAS program obtains a portion of the funding through annual Congressional appropriations.

An airline serving a community that qualifies for essential air services is required to give the DOT advance notice before the airline may discontinue, suspend, or reduce service. Depending on the circumstances, the DOT may require the continuation of existing service until a replacement carrier is found. EAS rates are normally set for two-year periods for each city. Significant fluctuations in passenger traffic, fares and associated revenues, as well as fluctuations in fuel and other costs, may cause EAS routes to become unprofitable during these two-year terms. Near the end of the two-year term for EAS service to a particular city, the DOT will request service proposals from the Company and competitive proposals from other airlines. Proposals, when requested, are evaluated on, among other things, the level of service provided, the amount of subsidy requested, the fitness of the applicant, and comments from the communities served.

As of November 23, 2015, we served 14 EAS communities on a subsidized basis.

Pilot Shortage

New Federal Aviation Administration (“FAA”), pilot qualification rules imposed as part of the Airline Safety and Federal Aviation Administration Extension Act of 2010 in combination with revised FAR Part 117 Flight Crewmember Flight and Duty Limitations and Rest Requirements, (“FAR Part 117”), created an industry-wide shortage of qualified pilots negatively effecting our level of operations and financial performance.

The new rules have increased the demand for qualified pilots among air carriers as they strive to offset the loss in flight crew productivity that has resulted from the increased rest period requirements. In addition, the new and more stringent qualification requirements have reduced the supply of pilots qualified to fly for FAR Part 121 carriers. The net result of the new regulations is that Great Lakes has lost large numbers of Airline Transport Pilot (“ATP”) certified crewmembers to airlines operating larger jet aircraft and offering greater compensation.

The Airline Safety and Federal Aviation Administration Extension Act of 2010 was enacted in August 2010. Among many other pilot training directives, the legislation mandated that first officers (co-pilots) obtain an Airline Transport Pilot certification (“ATP”) prior to being qualified to perform crewmember duties in scheduled airline passenger service under FAR Part 121 regulatory requirements. A key factor enabling a pilot to earn an ATP certificate is the accumulation of 1,500 flight hours.

Furthermore, the legislation directed the FAA Administrator to conduct a rule making proceeding, to identify specific academic training courses that would provide for exemptions to the 1500-hour requirement. The FAA published the final rule in the Federal Register on July 15, 2013. The rules which became effective August 1, 2013, established that first officers would be eligible to receive a “restricted privileges” ATP with a minimum of 750 flight hours if they were a military-trained pilot, 1,000 flight hours if they received a bachelor’s degree from an accredited educational institution with an aviation major, and 1,250 flight hours if they received an associate’s degree from an accredited educational institution with an aviation major. It should be noted that accredited educational institutions provide very limited actual flight experience and that graduates from these institutions typically will have earned between 250 to 350 hours of actual flight time. These schools also do not provide Airline Transport Pilot training or certification. As a result graduates of these programs and other newly certified commercial pilots have had to find alternative ways to accumulate the flight hour experience required by the new regulations.

Prior to the new rules, the regulatory experience requirement for pilots to be hired as First Officers for a FAR Part 121 air carrier was 250 flight hours, a commercial pilot certificate, and an instrument rating. The new rules now require that in addition to being an ATP or a restricted ATP with the associated flight hour experience, a pilot must also have 1,000 flight hours of experience as a First Officer with a FAR Part 121 air carrier prior to being eligible to serve as a Captain in a FAR Part 121 airline. As an alternative, the rule also allows pilots with an ATP or restricted ATP, the opportunity to be eligible for upgrade to Captain of a FAR Part 121 air carrier if they have at least 1000 hours of pilot in command (“PIC”) experience for a FAR Part 135 air carrier.

The supply of pilots who have the flight time experience required by the new regulations is severely limited, and is being further depleted by the age 65 mandatory pilot retirement rule. Finally, the higher flight hour requirements to become a pilot for a FAR Part 121 airline has created a significant financial burden for new pilots to acquire the added flying experience.

For over 32 years Great Lakes has provided an important and crucial career path in the airline industry by offering the opportunity for new-hire pilots to train and gain experience in a rigorous airline operating environment while being paid to acquire flight time. Great Lakes, at its expense, provides these new pilots with FAR Part 121 training, ATP certification, and type ratings in turbine powered, multi-engine aircraft.

It is difficult for a turboprop operator such as Great Lakes to compete for qualified pilots with other airlines operating larger jet equipment. These jet operators have greater revenue generating capability due to the greater number of aircraft seats, and therefore can afford to offer higher compensation. All of these factors put Great Lakes at a disadvantage and the result is that small community air service is being lost as we reduce our level of operations to match pilot supply. Great Lakes has eliminated statutorily compliant scheduled air service to many communities which are eligible for EAS, as well as other cities that are not in the Essential Air Service program.

In order to mitigate the adverse financial consequences resulting from the new regulations the Company has pursued and implemented a number of initiatives. In April of 2013, Great Lakes submitted a written proposal to the FAA seeking authority to operate Beech 1900D aircraft in a nine seat passenger configuration utilizing FAR Part 135 pilot hiring requirements, while maintaining and complying with all other FAR Part 121 operational and maintenance standards.

On March 18, 2014, the Company received from the FAA new operations specifications (“OpSpec”), allowing the Company to hire First Officers under FAR Part 135 regulatory requirements. This provided the Company with the unique capability to hire pilots while maintaining FAR Part 121 training and performance standards as we have always done as a Part 121 carrier.

We have been significantly challenged by pilot attrition and the rate at which we can recruit, hire, train, and retain our pilot workforce. Nevertheless, the Company continues to seek other solutions.

The Company’s pilots are represented by the Sheet Metal, Air, Rail, Transportation Union (“SMART”). On September 16, 2014, Great Lakes entered into a new four-year labor agreement with its pilots that substantially increased rates of pay.

On October 9, 2015, the Company submitted an exemption request to the FAA (exhibit. 99.1), relating to the definition of a Commuter Operation as set forth in 14 C.F.R. § 110.2 (which limits a commuter operation to an aircraft of 9 seats or less), as follows:

“This exemption would allow Great Lakes Aviation to operate Beechcraft 1900D aircraft in a 19 seat configuration under a “Commuter Operation” definition and apply the provisions of FAR Part 135 Sections 135.245, 135.243(a)(1) and 135.265 while maintaining the provisions of FAR Part 121 for all other requirements.”

The Company believes that the granting of this exemption will enable it to generate more revenue, provide more passengers with air service to small communities, improve financial performance, and maintain the same level of safety for the flying public.

On November 1, 2015, the Company implemented a new Captain Incentive Plan (“CIP”), which pays quarterly cash bonuses to its Captains. The goal of the CIP is to retain existing Captains and provide a financial incentive for First Officers to upgrade to Captain.

EAS Program Activity Subsequent to January 1, 2015

On January 4, 2015 the Company transitioned Essential Air Service in Silver City, NM to another carrier.

On February 9, 2015 the Company transitioned Essential Air Service in Visalia, CA to another carrier.

On April 30, 2015, Kingman, AZ became ineligible for Essential Air Service subsidy.

On June 30, 2015 the Company transitioned Essential Air Service in Alliance and Chadron, NE to another carrier.

During the third quarter 2015 the Company declined to start air service to Moab and Vernal, UT as a result of the loss of TSA security screening at the airports.

On November 15, 2015 the Company commenced Essential Air Service in Pueblo, CO.

On November 16, 2015 the Company submitted a renewal bid for Essential Air Service to McCook, NE, and a new bid submission for service to Salina, KS.

Financial Highlights

We had operating revenue of $32.8 million for the nine-month period ending September 30, 2015, a 26.5% decrease compared to operating revenue of $44.4 million for the nine-month period ending September 30, 2014. We realized an $11.8 million decrease in passenger revenue and a $0.3 million increase in public service revenue compared to the prior year period. The $11.8 million period-over-period decrease in passenger revenues was attributable to a 24.5% reduction in the number of departures in the first nine months of 2015 compared to the first nine months of 2014, in combination with operating the Beechcraft 1900D in a nine seat versus 19 seat configuration. These contributing factors are directly related to a nationwide shortage of qualified pilots which has had an adverse impact on our operations, revenue, income and liquidity. The $0.3 million increase in public service revenue is mostly attributable to earning higher subsidy per departure rates as we renewed Essential Air Service that required higher subsidy amounts as a result of operating the Beechcraft 1900D with a reduced seating capacity. Fewer seats available to generate passenger revenue requires a higher proportional amount of public service revenue to operate the same flight.

We had an operating loss of $5.6 million for the nine-month period ending September 30, 2015, compared to an operating loss of $6.3 million for the nine-month period ending September 30, 2014. The $0.7 million decrease in operating loss is attributable to a $12.2 million decrease in operating expenses, partially offset by a $11.6 million decrease in operating revenue. We realized a net loss of $7.4 million for the nine-month period ending September 30, 2015, compared to net loss of $6.1 million for the nine-month period ending September 30, 2014. The increase in net loss is primarily a result of the decrease in operating loss discussed above, offset by an increase in interest expense, and a reduction of income tax benefit.

Results of Operations for the Three Months Ended September 30, 2015 and 2014

The following table sets forth certain financial information regarding our results of operations for the three months ended September 30, 2015 and 2014.

(unaudited)


	For the Three Months Ended September 30,
	2015									2014
	Amount (in thousands)			Cents per ASM (1)			Year over Year Amount Revenue/Cost Increase (Decrease) Percentage			Amount (in thousands)			Cents per ASM (1)
Operating revenues:
Passenger	$	3,342			20.3	¢		(59.0	)%	$	8,148			30.1	¢
Public service		6,314			38.3			(22.9	)		8,190			30.2
Freight, charter and other		35			0.2			(12.5	)		40			0.1

Total operating revenues		9,691			58.7			(40.8	)		16,378			60.4

Operating expenses:
Salaries, wages, and benefits		4,213			25.5			(12.2	)		4,797			17.7
Aircraft fuel		1,738			10.5			(61.0	)		4,455			16.4
Aircraft maintenance, materials and repairs		1,185			7.2			58.6			747			2.8
Depreciation and amortization		1,108			6.7			(27.7	)		1,532			5.7
Other rentals and landing fees		431			2.6			(35.5	)		668			2.5
Other operating expenses		2,128			12.9			(35.3	)		3,290			12.1

Total operating expenses		10,803			65.5			(30.3	)		15,489			57.2

Operating income (loss)		(1,112	)		(6.7	)		(225.1	)		889			(3.3	)

Interest expense, net		(1,201	)		(7.3	)		(4.6	)		(1,259	)		(4.6	)

Loss before income taxes		(2,313	)		(14.0	)¢		525.1	%		(370	)		(1.4	)¢

Income tax benefit (expense)		(681	)		(4.1	)		(604.4	)		135			0.5

Net Loss	$	(2,994	)		(18.1	)¢		1,174.0	%	$	(235	)		(0.9	)¢

1.	Available Seat Miles

Selected Operating Data

The following table sets forth certain selected operating data regarding our operations for the three months ended September 30, 2015 and 2014.


	September 30, 2015			Increase (Decrease) from 2014			September 30, 2014
Selected Operating Data:
Available seat miles (in thousands) (1)		16,496			-39.1	%		27,101
Revenue passenger miles (in thousands) (2)		6,677			-52.2	%		13,963
Revenue passengers carried		24,633			-50.2	%		49,448
Departures flown		5,596			-38.8	%		9,147
Passenger load factor (3)		40.5	%		-21.4	%		51.5	%
Average yield per revenue passenger mile (4)		50.1	¢		-14.2	%		58.4	¢
Revenue per available seat miles “RASM” (5)		58.7	¢		-2.8	%		60.4	¢
Cost per available seat mile “CASM” (6)		65.5	¢		14.5	%		57.2	¢
Average passenger fare (7)	$	135.69			-17.7	%	$	164.78
Average passenger trip length (miles) (8)		271			-3.9	%		282
Average cost per gallon of fuel	$	2.16			-38.6	%	$	3.52

(1)

“Available seat miles” or “ASMs” represent the number of seats available for passengers in scheduled flights multiplied by the number of scheduled miles those seats are flown. For comparative purposes, the change in period over period ASMs was primarily affected by the reduction of 10 seats on the BE-1900D aircraft in 2015 as well as by fewer departures due to the reduced level of flying caused by the pilot shortage.

(2)	“Revenue passenger miles” or “RPMs” represent the number of miles flown by revenue passengers.

(3)	“Passenger load factor” represents the percentage of seats filled by revenue passengers and is calculated by dividing revenue passenger miles by available seat miles.

(4)	“Average yield per revenue passenger mile” represents the average passenger revenue received for each mile a revenue passenger is carried.

(5)	“Revenue per available seat mile” or RASM represents the average total operating revenue received for each available seat mile. As noted in (1) above the reduction in seating capacity on the BE-1900D and the reduction in departures in 2015 reduced the number of ASMs used in the calculation of RASM.

(6)	“Cost per available seat mile” or CASM represents operating expenses divided by available seat miles. As noted in (1) above, the reduction in seating capacity and departures in 2015 reduced the number of ASMs used in the calculation CASM.

(7)	“Average passenger fare” represents passenger revenue divided by the number of revenue passengers carried.

(8)	“Average passenger trip length” represents revenue passenger miles divided by the number of revenue passengers carried.

Comparison of Third Quarter 2015 to Third Quarter 2014

Passenger Revenues. Passenger revenues were $3.3 million in the third quarter of 2015, a decrease of 59.0% from $8.1 million in the third quarter of 2014. The $4.8 million quarter-over-quarter decrease in passenger revenues was attributable to the curtailment of operations as a result of a severe shortage of available qualified pilots and operating a large portion of our Beechcraft 1900D fleet in a nine-seat configuration. During the quarter the Company recorded a reduction in revenue of $420,000 related to the settlement of interline billings with another carrier.

Public Service Revenues. Public service revenues collected through the EAS Program decreased 22.9% to $6.3 million during the third quarter of 2015, as compared to $8.2 million during the third quarter of 2014. The decrease in public service revenue can be attributed to a decrease in the number of markets served partially offset by higher subsidy rates per departure. Fewer seats available to generate passenger revenue require a higher proportional amount of public service revenue to operate the same flight. As we renewed EAS contracts utilizing nine seat aircraft, we increased our subsidy per departure rates. At September 30, 2015 and September 30, 2014, we served 14 and 20 communities, respectively, on a subsidized basis under the EAS Program.

Other Revenues. The year over year change in Other Revenues was not significant.

Operating Expenses. Total operating expenses were $10.8 million, or 65.5 cents per ASM, in the third quarter of 2015, as compared to $15.5 million, or 57.2 cents per ASM in the third quarter of 2014.

Salaries, Wages, and Benefits. Salaries, wages, and benefits were $4.2 million in the third quarter of 2015, a decrease of 12.2% from $4.8 million in the third quarter of 2014. The decrease in salaries, wages, and benefits was mostly attributable to the decreased number of employees as a result of the reduced level of operations caused by a shortage of qualified pilots.

Aircraft Fuel Expense. Aircraft fuel and into-plane expense was $1.7 million, or 10.5 cents per ASM, in the third quarter of 2015. In comparison, our aircraft fuel and into-plane expense for the third quarter of 2014 was $4.4 million, or 16.4 cents per ASM. The average cost of fuel decreased from $3.52 per gallon in the third quarter of 2014 to $2.16 per gallon in the third quarter of 2015. We estimate that of the $2.7 million decrease in year-over-year fuel cost that $1.0 million is attributable to fuel price decreases and $1.7 million is attributable to the reduction in operations. At third quarter 2015 rates of consumption, a one-cent increase or decrease in the price per gallon of fuel will increase or decrease our fuel expense by approximately $36,000 annually.

Aircraft Maintenance, Materials, and Component Repairs. Aircraft maintenance, materials, and component repairs expense was $1.2 million during the third quarter of 2015, which was a 58.6% increase from $0.7 million during the third quarter of 2014. The increase resulted from expenditures related to the timing of maintenance events, component repairs and engine overhaul expense.

Depreciation and Amortization. Depreciation and amortization expense was $1.1 million during the third quarter of 2015 that decreased from $1.5 million in the third quarter of 2014, as a result of additional aircraft becoming fully depreciated.

Other Rentals and Landing Fees Expense. Other rentals and landing fees expense was $0.4 million during the third quarter of 2015, which was a decrease of $0.3 million from the third quarter of 2014. The decrease was mainly attributable to decreased landing fees resulting from the 38.8% reduction in departures along with reduced hub rental expense.

Other Operating Expenses. Other operating expenses were $2.1 million, or 12.9 cents per ASM during the third quarter of 2015, which was a decrease from $3.3 million, or 12.1 cents per ASM during the third quarter of 2014. The decrease was mainly attributable to decreases in legal and professional fees of $430,000, security related expenses $297,000, passenger related expenses of $175,000, pilot related expenses $136,000, insurance related expenses of $52,000 and other expenses of $73,000.

Interest Expense. We incurred interest expense of $1.2 million in the third quarter of 2015 compared to $1.3 million in the third quarter of 2014. The decrease in year over year interest expense reflects a reduction in the amortized amount of prepaid debt issuance costs.

Income Tax Expense. For the three months ended September 30, 2015, we recorded an income tax expense of $0.7 million and for the three months ended September 30, 2014, we recorded an income tax benefit of $0.1 million. Our estimated effective federal and state income tax rate is 19.9% for 2015 and 36.6% for 2014. The tax expense recognized during the quarter results from a change in the estimated effective tax rate caused by the expectation that a valuation allowance is necessary to reflect the net realizable value of deferred tax assets at year-end.

Results of Operations for the Nine Months Ended September 30, 2015 and 2014

The following table sets forth certain financial information regarding our results of operations for the nine months ended September 30, 2015 and 2014.

Statement of Loss Data

(dollars in thousands)

(unaudited)


	For the Nine Months Ended September 30,
	2015									2014
	Amount (in thousands)			Cents per ASM (1)			Year over Year Amount Revenue/Cost Increase (Decrease) Percentage			Amount (in thousands)			Cents per ASM (1)
Operating revenues:
Passenger	$	11,430			20.1	¢		(50.7	)%	$	23,208			24.1	¢
Public service		21,294			37.4			1.2			21,035			21.8
Freight, charter and other		124			0.2			0.0			124			0.1

Total operating revenues		32,848			57.7			(26.0	)		44,367			46.0

Operating expenses:
Salaries, wages, and benefits		13,772			24.2			(13.0	)		15,833			16.4
Aircraft fuel		6,005			10.6			(53.6	)		12,938			13.4
Aircraft maintenance, materials and repairs		5,143			9.0			52.6			3,371			3.5
Depreciation and amortization		4,140			7.3			(12.7	)		4,742			4.9
Other rentals and landing fees		2,603			4.6			(20.2	)		3,260			3.4
Other operating expenses		6,739			11.8			(35.8	)		10,497			10.9

Total operating expenses		38,402			67.5			(24.2	)		50,641			52.5

Operating loss		(5,554	)		(9.8	)		(11.5	)		(6,274	)		(6.5	)

Interest expense, net		(3,698	)		(6.5	)		9.5			(3,376	)		(3.5	)

Loss before income taxes		(9,252	)		(16.3	)¢		(4.1	)%		(9,650	)		(10.0	)¢

Income tax benefit		1,844			3.2			(47.8	)		3,535			3.7

Net Loss	$	(7,408	)		(13.0	)¢		21.1	%	$	(6,115	)		(6.3	)¢

1.	Available Seat Miles

Selected Operating Data

The following table sets forth certain selected operating data regarding our operations for the nine months ended September 30, 2015 and 2014.


	September 30, 2015			Increase (Decrease) from 2014			September 30, 2014
Selected Operating Data:
Available seat miles (in thousands) (1)		56,899			-41.0	%		96,392
Revenue passenger miles (in thousands) (2)		21,467			-51.3	%		44,070
Revenue passengers carried		77,603			-48.7	%		151,176
Departures flown		18,535			-24.5	%		24,560
Passenger load factor (3)		37.7	%		-17.5	%		45.7	%
Average yield per revenue passenger mile (4)		53.2	¢		0.9	%		52.7	¢
Revenue per available seat miles (5)		57.6	¢		25.2	%		46.0	¢
Cost per available seat mile (6)		67.5	¢		28.6	%		52.5	¢
Average passenger fare (7)	$	147.28			-4.1	%	$	153.52
Average passenger trip length (miles) (8)		277			-5.1	%		292
Average cost per gallon of fuel	$	2.27			-37.3	%	$	3.62

(1)

“Available seat miles” or “ASMs” represent the number of seats available for passengers in scheduled flights multiplied by the number of scheduled miles those seats are flown. For comparative purposes, the change in period over period ASMs was primarily affected by the reduction of 10 seats on the BE-1900D aircraft as well as by fewer departures in 2015 due to the reduced level of flying caused by the pilot shortage.

(2)	“Revenue passenger miles” or “RPMs” represent the number of miles flown by revenue passengers.

(3)	“Passenger load factor” represents the percentage of seats filled by revenue passengers and is calculated by dividing revenue passenger miles by available seat miles.

(4)	“Average yield per revenue passenger mile” represents the average passenger revenue received for each mile a revenue passenger is carried.

(5)	“Revenue per available seat mile” or RASM represents the average total operating revenue received for each available seat mile. As noted in (1) above the reduction in seating capacity on the BE-1900D and the reduction in departures in 2015 reduced the number of ASMs used in the calculation of RASM.

(6)	“Cost per available seat mile” or CASM represents operating expenses divided by available seat miles. As noted in (1) above, the reduction in seating capacity and departures in 2015 reduced the number of ASMs used in the calculation CASM.

(7)	“Average passenger fare” represents passenger revenue divided by the number of revenue passengers carried.

(8)	“Average passenger trip length” represents revenue passenger miles divided by the number of revenue passengers carried.

Comparison of First Nine Months 2015 to First Nine Months 2014

Passenger Revenues. Passenger revenues were $11.4 million in the first nine months of 2015, a decrease of 50.7% from $23.2 million in the first nine months of 2014. The $11.8 million period-over-period decrease in passenger revenues was attributable to the curtailment of operations as a result of a shortage of qualified pilots and operating a large portion of our Beechcraft 1900D fleet in a nine-seat configuration. During the third quarter 2015 the Company recorded a reduction in revenue of $420,000 related to the settlement of interline billings with another carrier.

Public Service Revenues. Public service revenues collected through the EAS Program increased 1.2% to $21.3 million during the first nine months of 2015, as compared to $21.0 million during the first nine months of 2014. The increase in public service revenue can be attributed to higher subsidy rates per departure as a result of operating the Beechcraft 1900D in a nine-seat configuration. Fewer seats available to generate passenger revenue require a higher proportional amount of public service revenue to operate the same flight. As we renewed EAS contracts utilizing nine seat aircraft, we increased our subsidy per departure rates. At September 30, 2015 and September 30, 2014, we served 14 and 20 communities, respectively, on a subsidized basis under the EAS Program.

Other Revenues. The year over year change in Other Revenues was not significant.

Operating Expenses. Total operating expenses were $38.4 million, or 67.5 cents per ASM, in the first nine months of 2015, as compared to $50.6 million, or 52.5 cents per ASM in the first nine months of 2014.

Salaries, Wages, and Benefits. Salaries, wages, and benefits were $13.8 million in the first nine months of 2015, a decrease of 13.0% from $15.8 million in the first nine months of 2014. The decrease in salaries, wages, and benefits was mostly attributable to the decreased number of employees as a result of the decreased operations due to the shortage of pilots.

Aircraft Fuel Expense. Aircraft fuel and into-plane expense was $6.0 million, or 10.6 cents per ASM, in the first nine months of 2015. In comparison, our aircraft fuel and into-plane expense for the first nine months of 2014 was $12.9 million, or 13.4 cents per ASM. The average cost of fuel decreased from $3.62 per gallon in the first nine months of 2014 to $2.27 per gallon in the first nine months of 2015. We estimate that of the $6.9 million decrease in year-over-year fuel cost that $3.5 million is attributable to fuel price decreases and $3.4 million is attributable to the reduction in operations. At third quarter 2015 rates of consumption, a one-cent increase or decrease in the price per gallon of fuel will increase or decrease our fuel expense by approximately $36,000 annually.

Aircraft Maintenance, Materials, and Component Repairs. Aircraft maintenance, materials, and component repairs expense was $5.1 million during the first nine months of 2015, which was a 52.6% increase from $3.4 million during the first nine months of 2014. The increase resulted from expenditures related to the timing of maintenance events, component repairs, and engine overhaul expense.

Depreciation and Amortization. Depreciation and amortization expense was $4.1 million during the first nine months of 2015 that decreased from $4.7 million in the first nine months of 2014, as a result of items becoming fully depreciated.

Other Rentals and Landing Fees Expense. Other rentals and landing fees expense was $2.6 million during the first nine months of 2015, which was a decrease of $0.7 million from the first nine months of 2014. The decrease was mainly attributable to decreased landing fees resulting from the 24.5% reduction in departures along with reduced hub rental expense.

Other Operating Expenses. Other operating expenses were $6.7 million, or 11.8 cents per ASM during the first nine months of 2015, which was a decrease from $10.5 million, or 10.9 cents per ASM during the first nine months of 2014. The decrease was mainly attributable to decreases in legal and professional fees of $1,098,000, security $895,000, passenger related expenses of $832,000, station equipment and expenses $422,000, pilot related expenses $308,000, deicing $66,000, insurance $64,000 and other expenses of $73,000.

Interest Expense. We incurred interest expense of $3.7 million in the first nine months of 2015, which was an increase of $0.3 million from $3.4 million in the first nine months of 2014. This increase was mainly attributable to the recognition of $0.4 million of expense in the second quarter 2015 relating to the accelerated portion of the 1.25% loan facility fee, which is payable when the loan matures or is declared payable as a result of an event of default.

Income Tax Expense. For the first nine months ended September 30, 2015, we recorded an income tax benefit of $1.8 million and for the first nine months ended September 30, 2014, we recorded an income tax benefit of $3.5 million. Our estimated effective federal and state income tax rate is 19.9% for 2015 and 36.6% for 2014.

Seasonality

Seasonal factors, related to weather conditions and changes in passenger demand, generally affect our monthly passenger enplanements. We have historically shown a higher level of passenger enplanements in the May through October period as compared with the November through April period for many of the cities served. These seasonal factors have generally resulted in reduced revenues, lower operating income, and reduced cash flow for us during the November through April period. As a result of such factors, our revenues and earnings have shown a corresponding increase during the May through October period. EAS revenues are generated under subsidy per departure rates established by the DOT and we realize revenue as departures are performed. Inherently, most of our EAS revenues, other than winter weather related cancellations, are not affected by seasonality, but certain EAS markets do receive summer season increased departures which are eligible for subsidy revenue.

Liquidity, Financing and Capital Resources

On December 22, 2014, we entered into a Loan Agreement (the “Loan Agreement”) with Callidus Capital Corporation (the “Lender”). The Lender agreed to make available to the Company: (i) a $25,000,000 single advance term loan facility, (ii) a revolving loan facility with availability of up to $6,000,000 and (iii) a second revolving loan facility with availability of up to $3,000,000. The $25,000,000 term loan was disbursed at closing, and substantially all of its proceeds were used to pay all outstanding borrowings, fees and expenses under our prior credit agreement. In the second quarter of 2015 we borrowed $1.5 million under our revolving loan facility to fund capital expenditures related to flight equipment. In the third quarter of 2015 we borrowed $1.0 million for working capital purposes bringing total borrowings under the Loan Agreement to $27.5 million.

Due to the pilot shortage and the resultant downsizing of our operation the Company was not in compliance with the fixed charge coverage ratio covenant contained in the Company’s Loan Agreement for the second and third quarters of 2015. Specifically the Company is required to maintain a fixed charge coverage ratio, calculated by dividing trailing 12 month earnings before interest, taxes, depreciation and amortization (EBITDA), less unfinanced capital expenditures, by trailing 12 month interest expense, as defined in the Loan Agreement, of 0.76:1 and 0.66:1 respectively. The Company does not expect to be in compliance with the fixed charge coverage ratio covenant throughout the balance of 2015 as EBITDA is calculated on a trailing 12-month basis.

Under the Loan Agreement, a “Cure Period” existed until August 28, 2015 for the Company to cure the covenant non-compliance, which it did not accomplish. As a result, an event of default occurred which permits the Lender to exercise its right to declare our debt obligations, originally due to mature on December 22, 2017, immediately due and payable, to terminate the Lender’s obligation to advance any additional borrowings under the original terms of the Loan Agreement, and to take possession of substantially all of the Company’s assets.

As a result of our ongoing non-compliance with the terms of the Loan Agreement total borrowings of $27.5 million (including $1.0 million advanced by the Lender in July 2015), are now classified as long-term debt payable on demand as of September 30, 2015. The Company has also reclassified related debt issuance costs from long-term other assets to other current assets. Additionally, the timing of payment for a 1.25% facility fee of $425,000 was accelerated by the default condition and has now been classified in accrued liabilities, and the rate of interest paid on outstanding loan balances increases from 14% to 17% per year.

For the nine months ending September 30, 2015, we invested $1.9 million of cash in aircraft, engines, spare parts and other equipment.

Sources and Uses of Cash. As of September 30, 2015, our cash balance was $0.9 million.

Cash Provided by Operating Activities. During the nine months ended September 30, 2015 and September 30, 2014, our cash used by operating activities was $1.9 million. During the nine months ended September 30, 2015 we generated a net loss of $7.4 million compared to a net loss of $6.1 million for the nine months ended September 30, 2014. We recorded non-cash depreciation and amortization of $4.1 million and $1.8 million of deferred tax benefit in the first nine months of 2015. The timing of other working capital items generated $3.2 million of cash in the first nine months of 2015.

Cash Flows from Investing Activities. For the nine-month period ending September 30, 2015, we invested $1.9 million for the purchase of replacement aircraft rotable components and other property and equipment, which was an increase as compared to the $0.8 million of purchases in the period ended September 30, 2014.

Cash Flows from Financing Activities. For the nine-month period ending September 30, 2015, there were $2.5 million in incremental borrowings under our working capital lines of credit and we were not required to make any principal payments on our long-term debt. In the nine month period ended September 30, 2014, we made a $1.5 million principal payment on our debt and borrowed an additional $2.0 million under a prior loan with a different lender.

Forward-Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Great Lakes Aviation, Ltd. (Great Lakes, we, our, its, it or the Company) notes that certain statements in this Form 10-Q and elsewhere are forward-looking and provide other than historical information. Our management may also make oral, forward-looking statements from time to time. These forward-looking statements include, among others, statements concerning our general business strategies, financing decisions, and expectations for funding expenditures and operations in the future. The words “may”, “will”, “believe,” “plan,” “continue,” “could”, “should”, “hope,” “estimate,” “project,” “intend,” “expect,” “anticipate” and similar expressions reflected in such forward-looking statements are based on reasonable assumptions, and none of the forward-looking statements contained in this Form 10-Q or elsewhere should be relied on as predictions of future events. Such statements are necessarily dependent on assumptions, data, or methods that may be incorrect or imprecise, and may be incapable of being realized. The risks and uncertainties that are inherent in these forward-looking statements could cause actual results to differ materially from those expressed in or implied by these statements.

Factors that could cause results to differ materially from the expectations reflected in any forward-looking statements include:

1)	our ability to hire and retain sufficient pilots to service existing routes and expand into other profitable routes;

2)	the fact that we are not in compliance with our current debt obligations and covenants;

3)	our ability to amend our current debt obligations and covenants or obtain additional sources of capital to provide for operating cash requirements either through additional financings and/or sales of assets;

4)	the continuation of Essential Air Service and our ability to capitalize on it;

5)	the level of regulatory and environmental costs;

6)	airline industry and broader economic conditions;

7)	the continued connection capacity at our hubs and activities of our code share partner;

8)	our ability to utilize our net operating loss carry forwards;

9)	the incidence of domestic or international terrorism and military actions;

10)	competition from other airlines and ground transportation companies;

11)	the volatility of fuel costs;

12)	the incidence of labor disruptions or strikes;

13)	our ability to retain key personnel;

14)	the incidence of aircraft accidents;

15)	the incidence of technological failures or attacks;

16)	maintenance costs related to aging aircraft;

17)	the limited market for our securities;

18)	the volatility of the market price of our common stock;

19)	our concentration of stock ownership and control of the company by our Chairman and President;

20)	our ability to timely remediate any deficiencies in our internal controls;

21)	no expectation of dividend;

22)	anti-takeover provisions and other restrictions in our credit agreements.

Readers are cautioned not to attribute undue certainty on the forward-looking statements contained herein, which speak only as of the date hereof. Changes may occur after that date, and we do not undertake to update any forward-looking statements except as required by law in the normal course of our public disclosure practices.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risks

We are susceptible to certain risks related to changes in the cost of aircraft fuel and changes in interest rates. As of September 30, 2015, we did not have any derivative financial instruments.

Aircraft Fuel

Due to the airline industry’s dependency on aircraft fuel for operations, airline operators including Great Lakes are impacted by changes in aircraft fuel prices. Aircraft fuel represented approximately 15.6% of our operating expenses in the nine-month period ending September 30, 2015. At rates of consumption for the first nine months of 2015, a one cent increase or decrease in the per gallon price of fuel will increase or decrease our fuel expense by approximately $36,000 annually.

Interest Rates

Our operations are capital intensive because the vast majority of our assets consist of flight equipment, which is financed primarily with long-term debt. At September 30, 2015, we had $27.5 million of fixed rate debt.

Item 4. CONTROLS AND PROCEDURES

We maintain a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of September 30, 2015, our disclosure controls and procedures were effective.

During the Company’s most recent fiscal quarter, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

We are a party to ongoing legal claims and assertions arising in the ordinary course of business. Management believes that the resolution of these matters will not have a material adverse effect on our financial position, results of operations, or cash flows.

During the period covered by this Quarterly Report on Form 10-Q, there were no material developments in any legal proceedings previously reported in our Annual Report on Form 10-K for the year ended December 31, 2014.

Item 1A.

RISK FACTORS

We are not in compliance with a covenant under our Loan Agreement.

We are currently experiencing a shortage of qualified pilots that has materially impacted our operations and financial condition.

The Company received from the FAA new operations specifications allowing the Company to hire pilots under FAR Part 135 regulatory requirements. This provides the Company with the unique capabilities to hire first officers while maintaining FAR Part 121 hiring, training and employment standards as we have always done as a Part 121 carrier. We have been challenged with the pace in which we can hire, train, and retain pilots versus the rate at which pilots have resigned to fill positions with larger carriers. The decrease in the availability of qualified pilots has materially impacted our operations and financial condition.

If we cannot staff enough pilots to sustain a revenue stream that generates positive cash flow, we will have to seek additional sources of capital to provide for operating cash requirements either through additional financings and/or sales of assets.

The Company cannot make assurances that it will be able to staff enough pilots to sustain a revenue stream that generates positive cash flow or obtain additional sources of capital. This would have a material adverse impact on our liquidity and financial position. These factors raise significant doubts about our ability to continue as a going concern.

Our senior credit facility with Callidus Capital Corporation requires us to maintain certain financial ratios, maintain sufficient collateral values and comply with various operational and other covenants.

As described in the risk factor above regarding the fixed charge coverage ratio, we are not in compliance with a covenant under the Loan Agreement, which has resulted in an event of default. The holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. We cannot assure you that our collateral values supporting our borrowings or cash flow will be sufficient to fully repay borrowings under our outstanding debt instruments, either upon maturity or if accelerated, upon an event of default, or that we would be able to refinance or restructure the payments on those debt instruments. In addition, the recent strength of the U.S. dollar versus various international currencies would increase the cost of our aircraft to potential buyers located in jurisdictions outside the United States. This could result in a decreased pool of potential buyers for the Company’s aircraft.

With the exception of the foregoing there have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the Securities and Exchange Commission on March 30, 2015.

Item 6. EXHIBITS

See “Exhibit Index.”

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	GREAT LAKES AVIATION, LTD.

Dated: November 23, 2015		By:	/s/ Douglas G. Voss
		Douglas G. Voss
		Chief Executive Officer

	By:	/s/ Stanley J. Gadek
		Stanley J. Gadek
		Vice President and Chief Financial Officer

EXHIBIT INDEX



3.1		Amended and Restated Articles of Incorporation. (1)

3.2		Amended and Restated Bylaws. (1)

4.1		Specimen Common Stock Certificate. (2)

31.1		Certification pursuant to Rule 13a-14(a) of Chief Executive Officer.

31.2		Certification pursuant to Rule 13a-14(a) of Chief Financial Officer.

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Executive Officer.

32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Financial Officer.

99.1		Petition of Great Lakes Aviation Ltd. for an exemption from 14 C.F.R. Section 110.2 (definition of “Commuter Operation” submitted to the Federal Aviation Administration on October 9, 2015.

101		Financial Statements in XBRL format.

(1)	Incorporated by reference to the Company’s Registration Statement on Form S-1/A, Registration No. 333-159256, as filed September 3, 2009.

(2)	Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No. 033-71180.

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a)

I, Douglas G. Voss, certify that:

1.	I have reviewed this quarterly report on Form 10-Q for Great Lakes Aviation, Ltd. for the quarterly period ended on September 30, 2015;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a)

I, Stanley J. Gadek, certify that:

1.	I have reviewed this quarterly report on Form 10-Q for Great Lakes Aviation, Ltd. for the quarterly period ended on September 30, 2015;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Great Lakes Aviation, Ltd. (the “Company”) for the quarterly period ended September 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Douglas G. Voss, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Great Lakes Aviation, Ltd. (the “Company”) for the quarterly period ended September 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stanley J. Gadek, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Exhibit 99.1

LOGO


By Electronic Submission		October 9, 2015

U.S. Department of Transportation

Federal Aviation Administration

Docket Management System

1200 New Jersey Avenue, SE

Washington, DC 20590

Re:

PETITION OF GREAT LAKES AVIATION, LTD

FOR AN EXEMPTION FROM 14 C.F.R. § 110.2

(definition of “Commuter Operation”)

Dear Sir or Madam:

Pursuant to 14 C.F.R. Part 11, Great Lakes Aviation, Ltd. (“GLA”) hereby petitions the Administrator of the Federal Aviation Administration (“FAA”) for an exemption to the definition of “Commuter Operation” set forth in 14 C.F.R. § 110.2, for the purpose of authorizing GLA to operate turboprop aircraft with 19 or fewer passenger seats and apply the provisions of FAR Part 135 Sections 135.245, 135.243(a)(1) and 135.265 while maintaining the provisions of FAR Part 121 (Part 121), for all other requirements. As explained below, this exemption will maintain an equivalent level of safety and is in the public interest.

Background.

GLA currently operates scheduled passenger air service to small communities in the United States under its FAR Part 121 aircraft operating certificate. Access for small communities to large hubs in Denver, Los Angeles, Minneapolis/St. Paul and Phoenix is accomplished utilizing Beechcraft 1900D (BE-1900D) aircraft having a maximum certificated seating of 19 passenger seats, and Embraer Brasilia (EMB-120) aircraft having a maximum certificated seating of 30 passenger seats.

GLA has safely served as a vital link in this country’s air transportation system for 34 years. Since commencing operations on October 12, 1981, the company has performed over 2.3 million scheduled service departures, and has transported over 14.9 million passengers.

The new second-in-command (SIC) flight experience requirements for the issuance of an Airline Transport Pilot (ATP) certificate have created a pilot shortage for Part 121 air carriers including GLA. This ATP pilot shortage has had an acute impact on GLA’s ability to provide service, including government subsidized Essential Air Service (EAS), to many small communities. In fact, this has resulted in GLA discontinuing air service in 24 markets and reducing service levels to other communities.

GLA’s Part 121 operations were significantly disrupted upon implementation of the new rules beginning in August of 2013. For the past two years the company has continued to reduce the scope of its operations in direct proportion to its pilot staffing capabilities.

Due to the more stringent pilot flight experience requirements for Part 121 operations and the shortage of qualified pilots, GLA experienced an 82% reduction in Part 121 operations, and a 58% reduction in overall operations between 2012 and 2014. The following table shows the reduction in GLA’s FAR Part 121 departures from 2012 to 2014 including year to date departures through September 30th, 2015:


YEAR	Part 121 Operations	Part 121/135 OpSpec	Total Operations
2012	79,699	0	79,699
2013	70,540	0	70,540
2014	14,697	18,113	32,810
% Diff - 2012 vs. 2014	82% reduction		59% reduction
Sep 2015 YTD	4,472	14,063	18,535

GLA’s BE-1900D operations are now limited to the Part 135 Operations Specification (“OpSpec”, see below) that restricts the aircraft to 9 passenger seats.

In April 2013, in anticipation of the industry-wide pilot shortage and uncertainty regarding the potential alternatives that would be available when the final rule was released, GLA began to pursue relief in order to sustain Essential Air Service in many of its smaller markets. Attached, as Exhibit One, is a letter dated April 8, 2013, to the FAA’s Certificate Management Office in Denver addressing this issue.

In March 2014, the FAA issued to GLA a Part 135 OpSpec authorizing it to operate the BE-1900D aircraft in a 9-passenger seat configuration using First Officers who met the Part 135 pilot hiring minimums of Section 135.245. While this action imposed a seat reduction on GLA’s BE-1900D aircraft, it helped avoid a complete operational shutdown of GLA’s EAS services.

Today, GLA’s pool of qualified Part 121 Captains is being depleted as pilots leave to pursue career-advancing opportunities that exist at carriers operating larger aircraft with substantially more seating and revenue generating capacity. The pilot turnover and resulting vacancies have created a waterfall effect throughout GLA’s pilot group and operation. In order to staff Captain positions, GLA upgrades First Officers utilizing the Part 135 OpSpec for its 9 seat aircraft while operating under Part 121 regulations.

Consequently, GLA’s ability to fly 19-passenger seat configured aircraft under Part 121 has been virtually eliminated. All of the current Part 121 BE-1900D operations are therefore limited to operating with a maximum of 9 passenger seats under the Part 135 OpSpec, imposing a 53% seat penalty on the carrier.

In order to continue providing service to small communities GLA has had to operate the BE- 1900D in a 9-seat configuration, which represents only 47% of the aircraft’s certificated seating capacity. This is not economical and when coupled with the reduced service to small communities driven by the fewer numbers of seats, results in an unacceptable outcome for the communities we serve and GLA.

While utilizing a Part 135 OpSpec for purposes of crew qualification, GLA conducts all of its flight operations under the more stringent Part 121 regulations. All crews are trained according to Part 121 training requirements, aircraft are maintained under Part 121 maintenance requirements, and Part 121 required management personnel oversee the operation.

The requested exemption will allow GLA to provide more seat capacity to small communities, better manage pilot staffing, and permit GLA to operate its BE-1900Ds at the aircraft’s certified seat capacity of 19 seats, without any adverse effect on safety. As discussed below, this will not adversely affect safety, but will maintain an equivalent level of safety. Furthermore, a “Risk Assessment Matrix” analysis would place any safety “Risk” associated with the granting of this exemption in the “Remote” probability of occurrence.

II.

The Requested Exemption.

The term “Commuter Operation” is defined in 14 C.F.R. § 110.2 as:

“Any scheduled operation conducted by any person operating one of the following types of aircraft with a frequency of operations of at least five round trips per week on at least one route between two or more points according to the published flight schedules:

(1) Airplanes, other than turbojet-powered airplanes, having a maximum passenger- seat configuration of 9 seats or less, excluding each crewmember seat, and a maximum payload capacity of 7,500 pounds or less; or

(2) Rotorcraft.”

GLA respectfully requests an exemption from the definition of “Commuter Operation” to allow it to operate the BE-1900D fleet with 19 passenger seats and apply the provisions of FAR Sections 135.245, 135.243(a)(1), and 135.265 while maintaining the provisions of FAR Part 121 (Part 121) for all other requirements.

The flights operated under the requested exemption are currently operated and will continue to be operated in accordance with GLA’s operating requirements and safety standards for GLA’s Part 121 operation, utilizing the Part 135 OpSpec as set forth in Paragraph A008 (see Exhibit 2), which requires the following:

All BE-1900D operations utilizing the Part 135 OpSpec will be dispatched and tracked in accordance with Part 121 Subpart U;

All BE-1900D pilots operating under the Part 135 OpSpec will be trained in accordance with Part 121 Subparts N and O;

All BE-1900D operations utilizing the Part 135 OpSpec will be conducted in accordance with § 121.434 operating experience requirements; and

All BE-1900D operations utilizing the Part 135 OpSpec will utilize the approved Part 121 “exit row-seating program”.

III.

Granting the Exemption Will Provide an Equivalent Level of Safety.

Granting GLA the requested exemption with the proposed conditions and limitations set out in this Petition, will not adversely affect safety, but rather will provide an equivalent level of safety to that provided by the current regulations. In fact, this exemption will be an enhancement to the present Part 135 requirements by allowing for the operation of an aircraft with up to 19 passenger seats in a “Commuter Operation” with First Officers performing to the higher Part 121 standards already required under GLA’s Part 121 Certificate.

The BE-1900D was originally certificated as a Part 23 commuter category aircraft with a 19-passenger seat capacity, and has been operated safely and successfully in that category and configuration for decades. It is the same aircraft, having the same flight characteristics, the same operational and crew procedures, and the same flight manuals, regardless of whether it operates with 9 seats or 19 seats. Therefore we believe there is no significant difference in safety by operating the aircraft as originally configured in a Commuter Operation versus how it is flown today with a 9 seat restriction.

The regulatory limitation to 9 passenger seats allowing the aircraft to be operated under our FAR Part 135 OpSpec has no basis in fact for improving safety. The inescapable conclusion is that there is no safety-related rationale or safety-based reason for continuing to distinguish between 9 seats and 19 seats in the operation of the BE-1900D aircraft. Yet, the requirement to remove 10 seats to comply with the 9-passenger seat commuter operation definition imposes a significant economic penalty on the communities served by GLA.

Safety is and has been the most important aspect of GLA’s operations. GLA has operated under Part 121 utilizing the Part 135 OpSpec since April 2014, safely conducting more than 38,000 flights to date in 9-seat configured aircraft. This record is the result of GLA’s comprehensive and extensive Part 121 pilot training and safety programs, along with continued focus on its historically demanding flight standards.

All flights are operated under the more stringent Part 121 regulations, and are dispatched in accordance with Part 121 Subpart U with the requisite management oversight required by 14 C.F.R. § 119.65. Taken together, GLA’s focus on safety and our commitment to the training of our flight crews, reflect our belief that the BE-1900D aircraft can be operated with 19 seats under our Part 135 OpSpec while maintaining the same level of safety.

As part of the focus on safety GLA has implemented a number of safeguards for both Part 121 and Part 135 operations, including the following:

•

GLA will continue to maintain, operate, and conduct operations in accordance with Part 121 standards, including the training of all its personnel for Part 121 operations utilizing the Part 135 OpSpec.

•

Part 135 OpSpec operations will continue to be dispatched and monitored in accordance with Part 121.

•

GLA provides a unique training program for its pilots that exceeds FAR Part 121 regulatory requirements and is tailored to enhance overall pilot proficiency to ensure passenger and crew safety.

•

All GLA First Officers are trained and evaluated to ATP standards. Pilots who do not meet ATP flight experience minimums are evaluated against ATP standards during initial First Officer training. At the conclusion of initial First Officer training they are not provided an ATP certificate or type rating. Rather, they must still satisfy the experience requirements of the regulations to become an ATP, and are continually evaluated against ATP standards as they progress toward that goal.

•

There are recurrent training events for all GLA pilots at 3 months and 9 months for individuals with low-time or remedial issues. This provides a means of tracking pilot proficiency and guaranteeing that the pilot’s level of proficiency meets ATP standards for the safety of the flying public.

•

In addition, all GLA First Officers undergo a 6 month training event to validate proficiency, even if that pilot is not in a low-time or remedial program.

•

GLA currently operates a Continuous Airworthiness Maintenance Program (CAMP) under Part 121, which has been approved by the FAA and is monitored by the FAA’s System Approach for Safety Oversight System (SAS).

•

GLA regularly meets with the FAA and is on-track for completing the required milestones for Safety Management System (SMS), implementation.

•

GLA participates in the Aviation Safety Action Program (ASAP), for pilots, flight attendants, dispatchers, and maintenance personnel.

•

GLA will continue to maintain its Part 121 operating certificate and ensure that it maintains the required staffing under § 119.65 for Part 121 management personnel.

The continued adherence to these safeguards for operations performed under the requested exemption will ensure that safety will not be adversely affected.

GLA has a long history of safe operations utilizing First Officers with 500 hours of flight experience, who have been hired and trained to Part 121 standards. Given GLA’s established track record on safety and operations, its extensive and comprehensive training program, and the conditions described above, operations pursuant to the requested exemption will not adversely affect safety. Indeed, the requested exemption will provide an equivalent level of safety while permitting GLA to operate aircraft with up to 19 passenger seats as a “Commuter Operation”.

IV.

Granting the Exemption Would Be in the Public Interest.

In order to maintain access to the national transportation system for small, remote communities, GLA was compelled to limit its BE-1900D aircraft to 9 passenger seats, dramatically reducing the level of seat capacity to these markets. The consequences of this have adversely affected the communities served by GLA.

Allowing GLA to operate 19 passenger seat aircraft under the requested exemption will provide benefits to these communities in the following ways:

•

Achieve The Goals of EAS.

•

A BE-1900D operation utilizing 19 seats will allow GLA to reinstate seat capacity to the communities GLA serves. Today, operating 9-passenger seat aircraft and offering two or three round trip flights per day, dramatically reduces potential daily passenger enplanements by the corresponding 40 or 60 seats (at least 12,520 or 18,300 seats per year). Granting the request for exemption will reverse the economic penalty communities experience due to passenger enplanement reductions. The exemption will also support the congressionally mandated goals of the Essential Air Service Program.

•

Ticket Prices/EAS Seat Costs.

•

Several non-EAS communities that are not subsidy-eligible have lost all air service as a result of the 9-passenger seat limitation. This is due to the fact that the amount of revenue from the fewer number of available seats is insufficient to cover the operating expenses of the flight. The only option to recover these costs absent an increase in the number of seats is to increase ticket prices. As a result, communities eventually lose their air service. The requested exemption will reverse this negative trend by allowing GLA to provide added seats and flights, which will benefit the communities and lower EAS seat costs.

•

Enhanced Safety.

•

In a number of EAS markets formerly served by GLA, communities now have to use air service provided by 9-seat aircraft that do not meet the statutory requirement for multi-engine aircraft. Granting this exemption will allow GLA to operate the multi-engine BE-1900D aircraft in a 19 seat configuration thereby enhancing the level of safety for the flying public.

•

Restore Airport Improvement Grants.

•

With the reduction or loss of seat capacity many of these communities have lost the ability to achieve the 10,000 annual passenger enplanements goals. Meeting this target threshold results in airports qualifying for additional Airport Improvement grants. These funds allow airports to carryout necessary safety- related upgrades for terminal space, runways, taxiways, Part 139 requirements, and other improvements. Granting this exemption will allow GLA to add seats that will help the airports achieve the enplanement goals and restore this important source of funding.

For the reasons stated above, GLA believes it is clearly in the public’s interest to restore scheduled operations to small communities with 19 passenger seat aircraft. This exemption, with the associated FAR Part 121 training, evaluation criteria, and operating limitations, will result in service improvements for the communities while providing an equivalent level of safety.

Summary for Federal Register Publication, if needed:

The rule from which exemption is sought:

14 CFR 110.2 “Commuter Operation” definition.

A brief description of the nature of the exemption sought:

This exemption would allow Great Lakes Aviation to operate Beechcraft 1900D aircraft in a 19 seat configuration under a “Commuter Operation” definition and apply the provisions of FAR Part 135 Sections 135.245, 135.243(a)(1) and 135.265 while maintaining the provisions of FAR Part 121 for all other requirements.

VI.

Point of Contact for Petition:

Scott R. Lewis / Director of Safety

Great Lakes Aviation, Ltd.

1022 Airport Parkway

Cheyenne, WY 82001

Office - 307-432-7115

slewis@flygreatlakes.com

Joe Linnebur / Director of Operations

Great Lakes Aviation, Ltd.

1022 Airport Parkway

Cheyenne, WY 82001

Office – 307-432-7210

jlinnebur@flygreatlakes.com

VII.

Conclusion.

For the reasons set forth above, GLA requests that the FAA grant the exemption requested in this Petition.

Respectfully,


/s/ Scott R. Lewis				/s/ Joe Linnebur
Scott R. Lewis				Joe Linnebur
Director of Safety				Director of Operations
Great Lakes Aviation Ltd.				Great Lakes Aviation Ltd.