Changes ahead for charter industry

 - July 7, 2008, 6:21 AM

Government oversight and discussions about recent enforcement actions dominated the second annual NATA Air Charter Summit, held June 9 to 11 in Chantilly, Va. In his opening remarks, NATA president James Coyne said that politics have become more important than safety, and he warned attendees that the industry is going to see more change in the next 12 months than it has at any other time.

“It’s an interesting time in the industry,” Coyne said, adding that the last five months have been “difficult.” Conflicting interpretations of industry regulations and recent actions by the FAA have led many operators to believe that they can no longer trust the judgment of their local FSDOs, he said. “When a regulator speaks, is that decision going to be overruled in three weeks?” Coyne asked. He also questioned whether the FAA has demonstrated “fairness” in its evaluation of Part 135 and Part 121 operators.

FAA associate administrator for aviation safety Nicholas Sabatini acknowledged the allegations of “inconsistency” in the agency’s decision making. “Will there be times when inspectors incorrectly apply guidance? Yes. We need to correct that,” he said. “We need to function as a seamless entity.” Sabatini said the ultimate goal of the FAA is to treat all air carriers– Part 135 and Part 121–exactly the same. The agency responded to the allegations, he said, by implementing the Customer Service Initiative, which allows operators to request reconsideration of a decision made by an Aviation Safety office. “We need to be sure we’re walking in step,” he said, adding that he hopes the initiative will improve the relationship between the FAA and the Part 135 industry.

Sabatini added that the role of the 21st-century FAA regulator will be to mitigate and prevent accidents through the use of new technologies. “Risk will always be greater than zero, so we will continue to investigate and make rules,” he said. “But it would be irresponsible and reckless to wait until the next accident happens to make changes.”

Operational Control

Over the past year, the FAA has addressed a number of operational control issues, including foreign ownership and operational control within Part 91 operations, according to Joseph Conte, FAA operations law manager of the regulations division. He did not cite any specific examples, but he did use hypothetical situations to describe the issues that agency regulators have addressed.

Foreign ownership, especially, is under close scrutiny by the government, Conte said. “The DOT and FAA will look beyond paper compliance,” he said. “We want to know if there are other financial strings attached.” Current regulations state that a foreign entity cannot own more than 25 percent of a company’s voting stock, but there are certain exceptions. A foreign owner can operate an air carrier, but only if the operations are limited to one state and the air carrier does not transport U.S. mail, Conte said.

The sale of Part 135 certificates has also come into question. An operator can sell his entire business, including the certificate, airplanes and liabilities, but cannot sell the certificate itself. “It has been the FAA’s longstanding position that an air carrier certificate is not transferable,” Conte explained. “If a buyer does not want all the liabilities associated with that operation, including accidents, it cannot be sold. It’s all or nothing.”

DOT Enforcement

While the FAA enforces all issues related to safety, the Department of Transportation oversees the economic aspects of the charter industry, including advertising, contracts and deceptive or unfair business practices. “Our world is a little different from the FAA world,” said Dayton Lehman, deputy assistant general counsel of the DOT’s office of aviation enforcement and proceedings.

The DOT does not have authority to suspend an operating certificate, but it can issue cease-and-desist orders, civil penalties up to $25,000 for each day a violation continues and criminal penalties for knowing and willful violations. Some of the issues the DOT addressed in the past year include broker business practices, scheduled and on-demand carrier operations, per-seat charters and contracts for managed aircraft.

There has been much criticism in the industry of questionable business practices among brokers, and although the DOT did issue in 2004 a guideline for brokers to follow, the industry is not regulated. “Brokers have been deceiving the public with unfair, deceptive practices,” Lehman said.

In the last year, the DOT has fined four brokers for violations, including unlawful holding out of an air charter broker and unlawful holding out by a managed aircraft broker. The penalties included a $60,000 fine to Jet One Jets in March; a $55,000 fine to Private Jet Services Group in August 2007; a $50,000 fine to OneSky Network in June 2007; and a $45,000 fine to Imperial Jets in April 2007. Lehman added there are a “handful of investigations” currently under way.

In nearly all of the ongoing investigations, the brokers in question established Web sites or advertising that contained statements that would lead the public to conclude that the broker was an air carrier. For example, Jet One Jet’s home page stated, “We offer a range of aircraft, from heavy jets to helicopters.” In addition, according to the DOT consent order, each Web page contained a footer stating that the company was a “full service private aviation provider,” and services included “private jet operations” with “our private jets.”

Lehman said rulemaking on brokers is pending. In the meantime, the DOT uses 49 U.S.C. 41712, which prohibits deceptive business practices.