FAA mulled $100M deal for Tag/AMI

 - November 23, 2009, 9:18 AM

The FAA considered trying to extract $100 million from Tag Aviation during its investigation of the firm in 2007 before revoking the charter company’s operating certificate on Oct. 12, 2007, the agency recently confirmed.

At a meeting of the Pacific Northwest Business Aviation Association and Pacific Rim Schedulers & Dispatchers Association at the Museum of Flight in Seattle on November 12, former AMI Jet Charter chairman and CEO Chuck McLeran for the first time publicly revealed the FAA’s attempt to settle for a $100 million payment and other concessions. That revelation and others were part of a two-and-a-half-hour recap by McLeran of how the FAA spent seven months investigating what it said was an unsafe charter operator and then revoked AMI’s charter certificate.

In prosecuting AMI Jet Charter, the FAA put the company in the same category as another company that fueled the agency’s crackdown on operational control. This was Platinum Jet Management, a company that flew many illegal charters and was involved in a high-profile crash when a Challenger it was operating beyond the forward center-of-gravity limit ran off the runway at Teterboro Airport in February 2005. By contrast, during its nine years of operation, AMI, with 79 aircraft and 300 employees, flew more than 66,000 hours and 37,000 flights without an accident, incident or violation.

The FAA points out that it doesn’t matter whether or not an operator has accidents; what matters is whether it complies with the regulations. The revocation was based on the premise that a foreign company controlled AMI flights. The FAA accused AMI, which was owned 49 percent by Tag Aviation USA (a subsidiary of Switzerland-based Tag Aviation Holding) in accordance with Department of Transportation regulations, of the following:

“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 Federal Aviation Administration (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.”

The FAA never had to prove its allegations in a court; it simply first suspended then revoked AMI’s charter certificate. This put AMI and Tag into a precarious situation: fight the revocation or try to sell the company while it still retains a shred of value before it’s too late?

Meeting with the FAA
According to McLeran, on Aug. 16, 2007, he, Tag Holding chairman Roger McMullin, attorney Gary Garofalo and other company officials met with FAA eastern regional counsel Loretta Alkalay (now retired) and other FAA personnel at the eastern region offices in New York. The lead FAA attorney said, “We’re going to give you a proposal for settlement,” and added that the proposal would not be in writing but would be flashed on a screen and that McLeran and his colleagues could take notes but would not receive a copy. There were eight items on the list, McLeran recalled, including full recertification of AMI, replacement of all upper management, signing of a settlement agreement and payment of $100 million.

Subsequent to that meeting, FAA inspectors conducted a three-day inspection of AMI and Tag facilities in San Francisco and White Plains, N.Y. On October 4, the agency issued an emergency letter of suspension, shutting the company down. AMI responded in two days with a detailed rebuttal of all of the charges in the suspension, but on October 12 the FAA revoked AMI’s charter certificate.

“We were in a position of a fire sale of the company,” McLeran related. Forced to decide whether to sell or fight the FAA, Tag decided to sell AMI and some Tag Aviation USA assets to Sentient Flight Group, which later merged with JetDirect.

Terms of Settlement
Tag Aviation Holding agreed to settle with the FAA for a record $10 million civil penalty. “AMI Jet Charter [by that point] was virtually worthless,” McLeran said. “I believe it was a poster child [for the operational control issue.]” McLeran said he can’t help wondering whether the FAA’s action against AMI improved or worsened safety, because instead of a safe company like AMI operating those 79 aircraft with a well trained workforce, all of those aircraft are now scattered amongst operators that he isn’t sure meet AMI’s stringent standards. “The new FAA Administrator [Randy Babbitt], made a statement that we need a renewal of professionalism in the pilot ranks. I wish Randy Babbitt could ride in an AMI Jet cockpit.”

“What good came out of the whole AMI/Tag revocation and subsequent demise?” asked a charter industry executive who was at the Seattle meeting.

The FAA’s institutional knowledge about what happened at the $100 million meeting has dimmed. Asked why it tried to impose a $100 million penalty on Tag/AMI, the agency responded, “The $100 million figure was discussed ‘within’ the FAA based on the large number of violations over a long period of time. We cannot confirm that figure was ever discussed with Tag or AMI. One of our attorneys recalls there was some sort of PowerPoint presentation, but doesn’t remember any specific number of settlement points nor ‘flashing’ it on a screen.”

Alkalay is now general counsel for Continental Translation Service, in turn a partner firm to JDA Aviation Technology Solutions, a company that helps charter operators comply with FAA regulations. The ranks of JDA’s management and “associates” (see www.jdasolutions.aero/about/leadership.php) are populated extensively by former FAA staffers, and the company is led by Joseph Del Balzo, whose titles while he worked at the agency included Acting Administrator, deputy Administrator, executive director of systems operations and system development, and Technical Center director.

While at the FAA, Alkalay refused all interview requests. More recently, she told AIN that she would not speak publicly about what happened to AMI Jet Charter. o