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"(13) the term 'new', when referencing a carrier, means a carrier that,

(A) meets the respective requirements of clause (i) or (ii) of subsection (g)(1)(D), depending on the type of route being served and the size of aircraft being used to provide service; and

“(B) began providing nonpriority bypass mail service on a city pair route in the State of Alaska after January 1, 2001;

“(14) the term “part 121' means part 121 of title 14, Code of Federal Regulations;

"(15) the term “part 135' means part 135 of title 14, Code of Federal Regulations; "(16) the term 'scheduled service' means

"(A) flights are operated in common carriage available to the general public under a published schedule;

“(B) flight schedules are announced in advance in systems specified by the Postal Service, in addition to the Official Airline Guide or the air cargo equivalent of that Guide;

"(C) flights depart whether full or not; and

“(D) customers contract for carriage separately on a regular basis;

"(17) the term ‘Secretary' means the Secretary of Transportation;

“(18) the term ‘121 bush passenger carrier' means a bush passenger carrier providing passenger service on bush routes under part 121;

"(19) the term '121 mainline passenger carrier' means a mainline carrier providing passenger service through scheduled service on routes under part 121;

"(20) the term ‘121 passenger aircraft means an aircraft flying passengers on a city pair route that is operated under part 121;

"(21) the term '121 passenger carrier' means a passenger carrier that provides scheduled service under part 121;

“(22) the term ‘135 bush passenger carrier' means a bush passenger carrier providing passenger service through scheduled service on bush routes under part 135; and

"(23) the term '135 passenger carrier' means a passenger carrier that provides scheduled service under part 135.".

(2) REQUIREMENTS FOR SELECTION.—Section 5402(g)(1) of title 39, United States Code, is amended

(A) in the matter preceding subparagraph (A), by inserting after "in the State of Alaska,” the following: “shall adhere to an equitable tender policy within a qualified group of carriers, in accordance with the regulations of the Postal Service, and”;

(B) in subparagraph (C) by striking "to the best” and all that follows before the semicolon; and

(C) in subparagraph (D) by inserting "with at least 3 scheduled (noncontract) flights per week between two points" after “scheduled service”.

(3) APPLICATION OF RATES.-Section 5402(g)(2) of title 39, United States Code, is amended

(A) by striking “and” at the end of subparagraph (A);

(B) by striking the period at the end of subparagraph (B) and inserting a semicolon; and

(C) by adding at the end the following: "(C) shall offer a bush passenger carrier providing service on a route in the State of Alaska between an acceptance point and a hub not served by a mainline carrier the opportunity to receive equitable tender of nonpriority bypass mail at mainline service rates when a mainline carrier begins serving that route if the bush passenger carrier

"(i) meets the requirements of paragraph (1);

"(ii) provided at least 20 percent of the passenger service (as calculated in subsection (h)(5)) between such city pair for the 6 months immediately preceding the date on which the bush carrier seeks such tender; and

"(iii) continues to provide not less than 20 percent of the passenger service on the city pair while seeking such tender;

“(D) shall offer bush passenger carriers and nonmail freight carriers the opportunity to receive equitable tender of nonpriority bypass mail at mainline service rates from a hub point to a destination city in the State of Alaska if the city pair is also being served by a mainline carrier and

"(i) for a passenger carrier

"(I) the carrier meets the requirements of paragraph (1);

"(II) the carrier provided at least 20 percent of the passenger service (as calculated in subsection (h)(5)) on the city pair route for the 6 months immediately preceding the date on which the carrier seeks such tender; and

"(III) the carrier continues to provide not less than 20 percent of the passenger service on the route; or "(ii) for a nonmail freight carrier

"(I) the carrier meets the requirements of paragraph (1); and

"(II) the carrier provided at least 25 percent of the nonmail freight service (as calculated in subsection (i)(6)) on the city pair route for the 6 months immediately preceding the date on which the carrier seeks

such tender; "(E)(i) shall not offer equitable tender of nonpriority mainline bypass mail at mainline rates to a bush carrier operating from an acceptance point to a hub point in the State of Alaska, except as described in subparagraph (C); and

"(ii) may tender nonpriority bypass mail at bush rates to a bush carrier from an acceptance point to a hub point in the State of Alaska if the Postal Service determines that,

"(I) the bush carrier meets the requirements of paragraph (1);

“(II) the service to be provided on such route by the bush carrier is not otherwise available through direct mainline service; and

"(III) tender of mail to such bush carrier will not decrease the efficiency of nonpriority bypass mail service (in terms of payments to all carriers providing service on the city pair route and timely delivery) for the route; “(F) may offer tender of nonpriority bypass mail to a passenger carrier from an acceptance point to a destination city beyond a hub point in the State of Alaska at a composite rate if the Postal Service determines that,

"(i) the carrier provides passenger service in accordance with the requirements of subsection (h)(2);

“(ii) the carrier qualifies under subsection (h) to be tendered nonpriority bypass mail out of the hub point being bypassed;

"(iii) the tender of such mail will not decrease efficiency of delivery of nonpriority bypass mail service into or out of the hub point being bypassed; and

"(iv) such tender will result in reduced payments to the carrier by the Postal Service over flying the entire route; and

“(G) notwithstanding subparagraph (F), shall offer equitable tender of nonpriority bypass mail in proportion to passenger and nonmail freight mail pools described in this section between qualified passenger and nonmail freight carriers on a route from an acceptance point to a bush destination in the State of Alaska at a composite rate if

“(i)(I) for a passenger carrier, the carrier receiving the composite rate provided 20 percent of the passenger service on the city pair route for the 12 months immediately preceding the date on which the carrier seeks tender of such mail; or

"(II) for a nonmail freight carrier, the carrier receiving the composite rate provided at least 25 percent of the nonmail freight service for the 12 months immediately preceding the date on which the carrier seeks tender of such mail; and

"(ii)(I) nonpriority bypass mail was being tendered to a passenger carrier or a nonmail freight carrier at a composite rate on such city pair route on January 1, 2000;

or

"(II) the hub being bypassed was not served by a

mainline carrier on January 1, 2000. The tender of nonpriority bypass mail under subparagraph (G) shall be on an equitable basis between the qualified carriers that provide the direct service on the city pair route and the qualified carriers that provide service between the hub point being bypassed and the destination point, based on the volume of nonpriority bypass mail on both routes.”.

(4) SELECTION OF CARRIERS TO HUB POINTS.—Section 5402(g) of title 39, United States Code, is amended by adding at the end the following:

“(4)(A) Except as provided under subparagraph (B) and paragraph (5), the Postal Service shall select only existing mainline carriers to provide nonpriority bypass mail service between an acceptance point and a hub point in the State of Alaska.

“(B) The Postal Service may select a carrier other than an existing mainline carrier to provide nonpriority bypass mail service on a mainline route in the State of Alaska if

"(i) the Postal Service determines in accordance with criteria established in advance by the Postal Service) that the mail service between the acceptance point and the hub point is deficient and provides written notice of the determination to existing mainline carriers to the hub point; and

"ii) after the 30-day period following issuance of notice under clause (i), including notice of inadequate capacity, the Postal Service determines that deficiencies in service to the hub point have not been eliminated.

"(5)(A) The Postal Service shall offer equitable tender of nonpriority bypass mail to a new 121 mainline passenger carrier entering a mainline route in the State of Alaska, if the carrier

"(i) meets the requirements of subsection (g)(1)(D)(ii); and

"(ii) has provided at least 75 percent of the number of insured passenger seats as the number of available passenger seats being provided by the mainline passenger carrier providing the greatest number of available passenger seats on that route for the 6 months immediately preceding the date on which the carrier seeks tender of such mail.

"(B) A new 121 mainline passenger carrier that is tendered nonpriority mainline bypass mail under subparagraph (A)

"(i) shall be eligible for equitable tender of such mail only on city pair routes where the carrier meets the conditions of subparagraph (A);

"(ii) may not count the passenger service provided under subparagraph (A) toward the carrier meeting the minimum requirements of this section; and

"(iii) shall provide at least 20 percent of the passenger service (as determined for bush passenger carriers in subsection (h)(5) on such route to remain eligible to be tendered nonpriority mainline bypass mail.

"(C) Notwithstanding subparagraph (A) and paragraph (1)(B), a new 121 mainline passenger carrier, otherwise qualified under this subsection, may immediately receive equitable tender of nonpriority mainline bypass mail to a hub point in the State of Alaska if the carrier meets the requirements of subparagraphs (A), (C), and (D) of paragraph (1) and subsection (h)(2)(B) and

“(i) all qualified 121 mainline passenger carriers discontinue service on the city pair route; or

"(ii) no 121 mainline passenger carrier serves the city pair route.

"(D) A carrier operating under a code share agreement on the date of enactment of the Rural Service Improvement Act of 2002 that received tender of nonpriority mainline bypass mail on a city pair route in the State of Alaska may count the passenger service provided under the entire code share arrangement on such route if the code share agreement terminates. That carrier shall continue to provide at least 20 percent of the passenger service (as determined for bush passenger carriers in subsection (h)(5)) between the city pair as a 121 mainline passenger carrier while seeking such tender.

"(6)(A) Notwithstanding paragraph (1)(B), passenger carriers providing essential air service under a Department of Transportation order issued under subchapter II of chapter 417 of title 49, United States Code, shall be tendered all nonpriority mail, in addition to all nonpriority bypass mail, by the Postal Service to destination cities in the State of Alaska served by the essential air service flights consistent with that order unless the Postal Service finds that an essential air service carrier's service does not meet the needs of the Postal Service.

“(B) Service provided under this paragraph, including service provided to points served in conjunction with service being subsidized under the Essential Air Service contract, may not be applied toward any of the minimum eligibility requirements of this section.”.

(5) SELECTION OF CARRIERS TO BUSH POINTS.-Section 5402 of title 39, United States Code, is amended by adding at the end the following:

"(h)(1) Except as provided under paragraph (7), on a city pair route in the State of Alaska, the Postal Service shall offer equitable tender of 70 percent of the nonpriority bypass mail on the route to all carriers providing scheduled passenger service in accordance with part 121 or part 135 that,

"(A) meet the requirements of subsection (g)(1);

"(B) provided 20 percent or more of the passenger service (as calculated in paragraph (5)) between the city pair for the 12 months preceding the date on which the 121 passenger aircraft or the 135 passenger carrier seek tender of nonpriority bypass mail; and

“(C) meet the requirements of paragraph (2). "(2) To remain eligible for equitable tender under this subsection, the carrier or aircraft shall

“(A) continue to provide not less than 20 percent of the passenger service on the city pair route for which the carrier is seeking the tender of such nonpriority bypass mail;

"(B)(i) for operations under part 121, operate aircraft type certificated to carry at least 19 passengers;

"(ii) for operations under part 135, operate aircraft type certificated to carry at least 5 passengers; or

"(iii) for operations under part 135 where only a water landing is available, operate aircraft type certificated to carry at least 3 passengers;

"(C) insure all available passenger seats on the city pair route on which the carrier seeks tender of such mail; and “(D)

operate flights under its published schedule. "(3)(A) Except as provided under subparagraph (E), if a 135 passenger carrier serves a city pair route in the State of Alaska and meets the requirements of paragraph (1) or (2) when a 121 passenger carrier becomes qualified to be tendered nonpriority bypass mail on such route with a 121 passenger aircraft in accordance with paragraphs (1) and (2), the qualifying 135 passenger carriers on that route shall convert to operations with a 121 passenger aircraft within 5 years after the 121 passenger aircraft begins receiving tender on that route in order to remain eligible for equitable tender under paragraph (1). The 135 carrier shall

"(i) begin the process of conversion not later than 2 years after the 121 passenger aircraft begins carrying nonpriority bypass mail on that route; and

"(ii) submit a part 121 compliance statement not later than 4 years after the 121 passenger aircraft begins carrying nonpriority bypass mail on that route.

"(B) Completion of conversion under subparagraph (A) shall not be required if all 121 passenger carriers discontinue the carriage of nonpriority bypass mail with 121 passenger aircraft on the city pair route.

"(C) Any qualified carrier operating in the State of Alaska under this section may request a waiver from subparagraph (A). Such a request, at the discretion of the Secretary, may be granted

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