$10 million civil penalty ends TAG, FAA dispute

 - November 26, 2007, 8:00 AM

The FAA and TAG Aviation USA have settled “all matters” between them in an agreement that calls for TAG Aviation USA and its Swiss parent, TAG Aviation Holding, to pay $10 million to the FAA. Both parties, including FAA Eastern region counsel Loretta Alkalay and TAG Aviation Holding chairman Roger McMullin, signed the agreement on November 8. Under the agreement, the FAA said that payment of the penalty– the highest ever assessed or agreed to by the agency–does “not constitute an admission of violation, wrongdoing or liability by TAG USA, et al.”

The FAA had been investigating AMI Jet Charter, which is 49 percent owned by TAG Aviation USA, since March and on October 12 revoked AMI’s charter certificate. The agency’s investigation, according to a September 17 letter the FAA sent to AMI president Charles McLeran, “centered on whether AMI has surrendered operational control by causing, permitting or allowing uncertificated entities, including TAG Aviation USA (a foreign entity ineligible to operate air carrier flights) and various ‘charter ally’ companies, to exercise such control.”

In the letter, the FAA cited problems with flight- and duty-time limitations and the improper exercising of operational control over AMI charter flights. The letter warned McLeran that “if the information described above is correct, the FAA will take enforcement action, including possible emergency suspension or revocation of AMI’s air carrier certificate.”

AMI responded to the FAA’s allegations on September 21, but the agency continued its investigation. After issuing an emergency suspension notice on October 4, the FAA withdrew that notice, then revoked AMI’s charter certificate on October 12. The revocation notice said that “AMI and TAG knowingly, intentionally and willfully engaged in a scheme and/or deceptive practice to make it appear to federal regulatory entities, including the FAA, as if AMI remained in control, including operational control, when in fact TAG exercised control of passenger-carrying flights ostensibly operated under the authority of AMI’s air carrier certificate.”

AMI vigorously disputed the FAA’s action, by appealing the suspension notice with a point-by-point rebuttal of the FAA’s allegations. But after the revocation, AMI did not issue another appeal, and a short time later TAG Aviation Holding announced that it had agreed to sell TAG Aviation USA and its 49-percent share of AMI Jet to Sentient Flight Group.

The $10 million settlement agreement required that TAG Aviation USA deliver a $4 million check to FAA counsel Alkalay on November 8, followed by another check for $6 million by December 31. Under the agreement, TAG Aviation USA is required to divest itself of Elan Express, a Part 125 certificate holder that operates a Boeing 767 for Google founders Sergey Brin and Larry Page and a 727 used for sports team charters.

According to the FAA, the agreement also “settles any and all existing and potential FAA enforcement actions, including civil penalty actions, against TAG [Aviation] USA, et al, and their shareholders, officers, directors and employees that may arise from this matter, including, without limitation, allegations of impermissible control, alleged unauthorized operations or otherwise ‘holding out’ of air transportation by TAG [Aviation] USA or any act or omission causing or contributing to such alleged violations.” In fact, beyond AMI’s and Elan Express’ operating certificates, the FAA has no formal jurisdiction over any of TAG’s operations and could not bring any further action against TAG unless it chose to prosecute individual pilots or mechanics.

The agency also agreed not to refer any civil enforcement action to the Department of Justice (DOJ), but it is unclear why the FAA would have wanted to do so or what the DOJ might have found prosecutable in anything that TAG Aviation USA or AMI did. The FAA also agreed to help aircraft that used to be on AMI’s charter certificate move to other charter operators and not to delay requests to transition to new operators.

AMI to Sentient
This last point is important for Sentient Flight Group, which hopes to retain all the former AMI customer aircraft after it buys AMI. “We’re confident that the vast majority of the airplanes and AMI employees are coming over [to Sentient],” said CEO Steven Hankin. He added that all the real-estate leases owned by AMI will be transferred to Sentient after the acquisition becomes final.

While TAG Aviation USA owns a portion of the CitationShares fractional-share operation, that will not be part of Sentient’s purchase of TAG Aviation USA.

Hankin is confident that Sentient Flight Group has the processes in place to prevent what happened to AMI, although Sentient doesn’t present the foreign-ownership issue that attracted such intense scrutiny of TAG Aviation USA and AMI. Sentient has for a long time been building the foundation to ensure that its seven charter companies are safe and meet FAA operational control requirements. “We wouldn’t take [TAG Aviation USA] on if we were not ready,” he said, “with a significant, well resourced effort to build the finest infrastructure to support general aviation flying. It’s not something we did at the last minute.”

As well as adding the TAG aircraft and customers to one or more of its charter certificates, Sentient is also working to consolidate its seven charter certificates into one. “The consolidation process is fairly far along,” said Hankin, and he expects most of the development of necessary core processes to be finished this month, followed by moving all Sentient aircraft onto the single certificate in the first half of next year. “There is a huge simplicity benefit from this process,” he said. “Life will be more simple, and the employees will benefit from clarity of culture, communication and leadership.”

Hankin would rather have been able to purchase TAG Aviation USA before the FAA revoked AMI’s charter certificate, but he also acknowledges that as an outsider, he is not privy to the internal situation at TAG. “There is a lot of emotion around this topic,” he said. “TAG remains the leading management company, and I’m thrilled to work with TAG and AMI.”

As far as whether the FAA’s move against AMI signals increasing FAA scrutiny of the charter industry, Hankin said that Sentient is well prepared. “We’re very open about welcoming oversight to our company. It’s a way to get better and be safer.” Sentient has its own safety board that evaluates all operations and also a team that ensures that operational control is properly maintained. “It’s just by nature [for us] to be proactive on this topic, and I hope those efforts are recognized and serve the company well.”

It was not known at press time when the Sentient purchase of TAG Aviation USA would be signed and sealed. By the end of last month, TAG Aviation USA was required to have divested itself of its small share of Elan Express, and this was expected to occur on schedule, a TAG Aviation Holding spokesman told AIN. “It’s not a sale. It’s a matter of reverting their shares back to Elan. There isn’t a third party involved at all,” he said.

The FAA is also investigating Elan Express, according to an FAA spokeswoman, but she didn’t elaborate on the nature of that investigation. She did confirm, however, that Part 135 and Part 125 have similar operational control requirements.

The TAG Aviation Holding spokesman added, “At this point, TAG USA or TAG Holding are not involved in any of the FAA’s inquiry into Elan.”

FAA Investigation
Although the FAA closed the books on its investigation of AMI Jet Charter when it signed the settlement agreement with TAG Aviation Holding, the agency remains convinced that it found serious safety defects during its investigation of AMI.

The FAA responded to one of AIN’s Freedom of Information Act Requests regarding the investigation and provided copies of the September 17 letter and AMI background information as well as the FAA’s response to AMI’s appeal following suspension of AMI’s Part 135 certificate.

The agency’s documents detail how it first began looking into AMI in March when inspectors conducted an on-site inspection of AMI’s Burlingame, Calif. headquarters. “Based on that inspection, including the review of documents and personnel interviews and ramp inspection of aircraft, the FAA determined that questions existed with regard to AMIJC’s operational control. In particular, questions arose regarding TAG’s control over flights ostensibly operated under AMIJC’s charter certificate.”

The FAA continued investigating, and in July, AMI president McLeran told the FAA that it had made changes to AMI’s operations to address the FAA’s concerns about operational control. In a document recently obtained by AIN, it is clear that in July AMI management was seriously concerned about the FAA’s investigation and that AMI was preparing for how to handle a possible emergency suspension or revocation of its charter certificate.

In August, the FAA did a follow-up inspection of AMI’s revised processes and deemed that there were still major problems with operational control, specifically “that personnel not authorized by AMI’s operational specifications are designating the pilot-in-command and the second-in-command in Part 135 flights” and “that operational decisions are being regularly made by persons not authorized under the certificate to do so.”

The September 17 letter highlighted these problems, and AMI continued to try to show the FAA that it was in compliance. Finally, on October 1 through 4, the FAA conducted more inspections in Burlingame and at AMI offices in Rye Brook, N.Y., and ramp inspections of AMI aircraft.

Among other problems that the FAA said it found with operational control, one stands out because of the way AMI and the FAA dispute the turn of events. On October 2, FAA inspectors asked AMI personnel for records about an AMI charter aircraft that was in the air. According to the FAA, “AMI… had no knowledge that the flight referenced…was being operated.”

In its appeal, AMI said that the FAA’s allegation was false and pointed out that the FAA inspectors asked AMI employees “to find [the aircraft] on the flight tracker,” referring to an online flight tracking program that is used for convenience but that is not part of any regulatory requirement. “FAA regulations concerning flight locating are satisfied when the operator files an FAA flight plan,” AMI said in the appeal.

The FAA, however, disagreed, and in its response to the appeal noted that, “AMIJC’s Flight Coordination Department had no knowledge that the referenced flight was airborne. In fact, the flight coordinator specifically stated the aircraft was not in flight. The request of the FAA was not a challenge to the flight location process, but about monitoring the progress of a flight to effect changes if the safety of flight is compromised. AMIJC again failed to demonstrate that it has a system to ensure that it had operational control over its Part 135 operations.”

Operational Control Issues
There is much more to this story, both in the voluminous documents that now record the back-and-forth arguments between AMI and the FAA and also in what the FAA has so far refused to disclose about why it went after AMI and TAG Aviation so relentlessly. The $10 million civil penalty and the sale of TAG Aviation USA to Sentient Flight Group puts this issue to rest for now, but what happened to AMI might just be the first salvo in the FAA’s current battle against the charter industry over operational control issues. Or, the FAA’s move could have had more to do with TAG Aviation USA’s ownership by a non-U.S. company. Beyond the documents released thus far, the FAA has refused to comment on or to consent to any interviews about this subject.

No one has yet presented any information to AIN that suggests that AMI ever operated in an unsafe manner. AIN has repeatedly asked the FAA to show how AMI was risking the physical safety of its charter passengers, as was the case where an actual illegal charter resulted in the crash of a Platinum Jet Management Challenger in Teterboro, but the FAA has not been able to do so.