Charter Market: Illegal ops compromise safety, costs

 - October 26, 2010, 11:34 AM

Illegal charter flights are increasingly common, according to operators and brokers who spoke to AIN, most of whom declined to go on the record with specific accusations, but agreed that the practice is especially prevalent in emerging markets such as Russia and that, generally, the authorities are not doing enough to police the situation.

Essentially, there are two categories of illegal charter. The first, and most serious, occurs when flights on privately owned aircraft are offered for financial gain despite the fact that they are not registered under a commercial air operator’s certificate (AOC). Another breach of the rules occurs when aircraft registered outside a market–most often in the U.S. or offshore registrations such as the Cayman Islands–are offered for hire in a market, such as Europe, where they are not entitled to fly commercially without permission.

According to Air Partner product director David Macdonald, the economic downturn has seen an increase in the number of aircraft offered for unlicensed charter. In his view, illegal charter flights are being promoted in the marketplace far more brazenly by what he characterized as “pseudo aviation companies.”

Legal Considerations
Apart from the potential safety risks to passengers and the unfair competition to which it subjects commercial AOC operators, illegal charter exposes just about everyone involved to potentially serious legal penalties and liabilities. Aviation authorities can impose stiff fines on people operating illegal charters, but liability issues could be even more serious in the event of an accident.

Macdonald said companies providing financing for aircraft must be more alert to this issue. “They need to realize that a lot of their precious assets are being touted illegally,” he told AIN.

According to Macdonald, illegal charter operations put pilots in a particularly difficult predicament. “The pilot [flying an illegal charter] has no operations manual to defend him if the flight is not for an AOC [operator], and this can put him under enormous pressure in a commercial situation,” he said, referring to customer demands to fly in dangerous weather conditions, for example. In addition, when officials conduct ramp checks to ascertain whether the aircraft is legally cleared for charter flights, it will be the pilot who is first held accountable.

Not only can the illegal use of a privately owned aircraft for paid charter compromise financing, it could invalidate insurance coverage on the aircraft. “Insurance companies hate surprises, and [if they find out that a client has been conducting illegal charter flights] they will be less accommodating [in terms of issuing insurance coverage],” warned aviation attorney Tim Scorer of London-based Ince. He said the industry needs to be more willing to report suspicious activity to national aviation officials, who can ground aircraft and prosecute those involved.

Need To Catch the Thiefs
In practice, the task of policing the charter sector seems to be stymied by the need to catch culprits red-handed. Charter brokers and operators told AIN they reported specific planned flights to the authorities, who failed to get officials to the airport in time to conduct an inspection.

Air Partner’s Macdonald said brokers can often tell when a legitimate operator has been undercut in bidding for a flight by an illegal alternative, and the illegal operator’s intent to conduct a flight can be revealed by tracking tail numbers on Eurocontrol’s central flow management system. Expressing frustration at the failure of regulators to crack down on illegal charter flights, Macdonald said that, in Europe at least, more effort goes into pursuing people selling counterfeit branded goods than in stopping illegal flights that could kill people.

Several operators and brokers complained to AIN about aircraft registered in the Isle of Man being offered for hire despite the fact that the offshore registry includes only privately owned aircraft that cannot be covered by a commercial AOC. In some cases, these operators are alleged to be trying to bend the rules by offering flights covered by short-term leases that can span just a few weeks (even though the usual minimum term is one year). There are approximately 260 private aircraft registered in the Isle of Man.

However, Brian Johnson, the Isle of Man’s director of civil aviation, said his department is unaware of any such activity and that owners joining the register are required to sign an assurance that they will not operate commercially. He added that his officials have investigated accusations of illegal activity and, despite checking aircraft technical logs and seeking information from the airports involved, have found no evidence to support the claims.

Under Isle of Man law, those convicted of operating illegal charters can be fined £5,000 ($7,900) and jailed for up to two years. “Investigating false accusations like these is time consuming and costly,” Johnson told AIN. “Some AOC holders seem to want to blame anybody but themselves for losing charters.”

Gama Aviation CEO Marwan Khalek complained that enforcement of rules on commercial charters is “nonexistent” to the extent that there is “no serious disincentive” to break the rules. He said in some countries a lack of funding for aviation authorities is to blame, but he argued that enforcement could be self-funded through fines levied.

Khalek described “a worrying change of mindset” in which aircraft owners and operators convince themselves it is acceptable to offer non-AOC aircraft for hire. “It could be driven by harder trading conditions, but there is also a lot of confusion about what you are and are not allowed to do,” he said.

Many operators identified Russia as a hot spot for illegal charters. “The problem in Russia is that charter is being heavily promoted there with third parties actively offering unlicensed aircraft,” said Macdonald.

Another key factor in Russia is that legal and tax restrictions on foreign-owned aircraft and the importation of foreign-made aircraft appear to have impeded the development of a soundly structured, well regulated charter sector. In the absence of what the industry would consider a rational and coherent legal structure, many see illegal or barely legal operations thriving to fill the vacuum. 

One Operator Stands Out
However, at least one operator is trying to change this poor perception of the Russian charter industry–JetAlliance East, a Moscow-based joint venture between Austrian operator Jet­Alliance and Aeroflot Plus, the executive charter division of Aeroflot Russian Airlines. In compliance with Russian law, Aeroflot holds the majority stake in the new business, with 51 percent of its equity.

A Cessna Citation CJ3 and a Citation Sovereign are due to be placed on JetAlliance East’s AOC and registered in Russia this month. The company is already operating two Tupolev Tu-134 twinjets and a pair of Yakovlev Yak-42s, but these Russian aircraft are likely to be phased out of service and replaced by Western-built equipment.

JetAlliance East board member Sergei Koltovich told AIN that, over and above the legal requirement, it makes sense for Western operators to ally themselves with Russian partners who have better knowledge of the local market. He said there are widely held suspicions about illegal charter activity but emphasized that the details of the extent to which this is happening are hard to prove. One of the key motives for establishing the new joint venture between Aeroflot and JetAlliance is to assure Russian clients of access to a fully legal charter service.