EBAA pushes for rule harmonization as tax and flexibility concerns blur safety standards

 - February 24, 2011, 6:00 AM

The European Business Aviation Association (EBAA) is refocusing its lobbying efforts as it seeks to address regulatory inconsistencies not only between Western Europe and the emerging market in Eastern Europe, but also within Western Europe itself. At the same time, the group is pushing for greater regulatory harmonization between the rules governing commercial and non-commercial operations of business aircraft.

These were the main conclusions of EBAA’s notably purposeful “One Europe” Regional Forum held in the Austrian capital Vienna on January 20 and 21. The event was attended by 100 delegates and culminated with delegatesπ drawing up a list of lobbying priorities that EBAA will assign to working groups.

Forum speakers identified what is arguably the core paradox or foundation for regulatory inconsistency in business aviation: the differences in operating requirements between commercial and non-commercial operations and the fact that many aircraft owners and operators opt for one code over another for reasons that have nothing to do with any intention or desire to fly less safely.

Gray-market Charter

At the same time, operators gathered in Vienna were candid in acknowledging that extremely tough trading conditions in the wake of the financial crisis are exposing fault lines in business aviation safety, or at least its attitude to risk. At the fringes of the market, some operators are blurring lines on issues such as the divide between private and commercial operations and illegal charter is clearly on the rise in Europe.

EBAA believes that operators of aircraft registered offshore in jurisdictions that are supposed to allow only private operations are increasingly making charter flights in the so-called gray market through a variety of ruses, including bogus short-term leases. “More than 500 aircraft [based] in Europe are registered offshore, and they are not supposed to operate commercially. Are we sure they are not operating commercially?” asked EBAA president and CEO Brian Humphries, making it clear that he believes these offshore registers are being abused.

“Responsible operators should not distinguish between private and commercial in terms of safety,” said NetJets Europe COO Mark Wilson. “Operating privately shouldn’t be an excuse for avoiding safety standards, and what is disappointing is the lack of progress in harmonizing rules for non-commercial operations. We self-limit on rules such as flight-time limitations and runway performance because we donπt want to erode safety margins.”

Wilson highlighted the potential lack of clarity surrounding the circumstances in which the operation of a business aircraft can switch between the commercial and private regulatory jurisdictions. Referring to the contentious topic of so-called “flip-flop” operations, he argued that aircraft owners should be able to take advantage of the flexibility that this brings, but only if the status of every flight is abundantly clear and the owner accepts personal legal liability when flying privately.

NetJets Europe requires that aircraft share owners who want to fly privately sign legal documents to formally accept their liability in these situations. However, aviation attorney Aoife OπSullivan of London-based law firm Gates & Partners warned operators that courts will not necessarily accept this transfer of responsibility at face value. “Transferring risk through an owner signing a piece of paper isn’t that easy,” she told the meeting. “Your duty of care as an operator is not that easy to transfer and you could get into [liability] difficulties on this.”

Some individual operators questioned the extent to which passenger/owners genuinely grasp what having full operational control over the aircraft means in the legal context of private operations. “People wouldn’t fly if they had to sign something that really spelled out all the possible consequences,” said the president of one long-established aircraft management/charter group.

Rule Harmonization Needed

According to Dannys Famin, CEO of French charter operator Unijet, the lack of legal clarity of the distinction between private and commercial operations cuts across the borders of Western Europe between main founding states of the European Union (EU), which have supposedly been working toward regulatory harmonization for more than four decades.

“The main task is to align West with West because everywhere there is a problem with definition,” he told the conference. “What does private mean? It is different from one country to another. Is it when the owner is physically on board the aircraft or simply when the flight is paid for by the owner? Do you [as an operator] have to be permanently commercial or can you shift to and from private [rules]? The debate over issues like flight crew licensing [FCL] has really revealed the differences between countries.”

These inconsistencies in operational regulations and how they are interpreted are further distorted, said Famin and others, by continuing differences in fiscal rules among European states. Quite simply, differences in tax and customs rules are inducing aircraft owners and operators to switch between private and commercial codes for largely financial reasons, the unintended consequence being a blurring of the lines on operational standards.

The consensus at the forum appeared to be that if authorities would remove what are widely viewed as arbitrary and unjustified differences between private and commercial rules in areas such as permitted usable runway length then much of the motivation for switching between operational codes would be removed. Similarly, if taxation rules within Europe were more consistent and less opaque there would be less motivation for switching between rules. “We need to remove the temptations to going private,” said Humphries, pointing to fiscal considerations such as value added tax (VAT), mineral taxes (covering jet fuel) and the emissions trading scheme.

“It will be difficult to have one level [of operational regulation] in Europe while we still have differences in VAT, but the West needs to get its act together,” argued TAG Aviation CEO Robert Wells. Fluctuations between Europe’s fiscal regimes are a big factor in why TAG feels the need to have three separate aircraft operator certificates (AOCs) in three European states, so as to be able to base aircraft in the most fiscally viable state for each owner. “From an operatorπs perspective, we would prefer to have a single standard because it would be less expensive to administer, but it would also allow us to have best practice,” he said.

Wells highlighted in particular the requirement that, as an additional safety margin, commercial operators ensure they have runway length 1.67 times the landing distance for which their aircraft is certified. “The 1.67 runway requirement is absurd and it drives people into a less safe environment [under private rules] with no limitations at all,” he argued.

Similarly, despite what is supposed to be a level playing field among the 27 EU states, Famin claimed there are gross inconsistencies in the way traffic rights for charter operators are interpreted and policed. Wells echoed this, commenting that TAG now finds itself at a disadvantage in the charter market because flight permit rules are being widely flouted. “Many operators are ignorant of seventh freedom issues or choose to ignore them due to the fact that there is little fear of enforcement,” he explained.

Seventh-freedom traffic cabotage rights allow an operator from one country to make a flight from a second country to a third country without the trip originating or ending in its home country. So, for example, a U.S. operator should apply for a permit to make a charter flight between Italy and Poland. According to EBAA members, many such operators simply ignore the requirement to apply for a permit, either because they are ignorant or because they are convinced that the authorities in the countries concerned will never catch them in the act of operating what is an illegal flight.

“It is easy for operators to lose sight of the fact that a flight permit is part of the regulatory environment,” said Gama Aviation chief executive Marwan Khalek, who has been at the forefront of EBAA’s new campaign against illegal charter activity. “In terms of legal compliance, having a permit is just as important as having an AOC. In fact, not having one invalidates the AOC, as well as insurance and finance terms for the aircraft itself.”

Another aviation attorney, Moscow-based Derek Bloom, confirmed that operators flying commercially without flight permits expose themselves legally in these ways. He pointed to a recent court ruling that had upheld an insurance company’s decision to invalidate coverage because an operator had breached requirements in flying a commercial operation without permission.

At the same time, Bloom also maintained that “risk aversion“ on the part of financiers has played a part in fueling illegal charter activity. “The banks have set the bar too high so owners canπt get credit from the conventional sources and this pushes them into unofficial charter,” he said.

Also unclear, according to Khalek, are the terms under which commercial operators can object to permits being issued when they are applied for correctly. He and other operators would actually favor deregulation of permit requirements if the outcome was a simplified legal structure that might prove to be consistently enforceable.

Famin urged EBAA members to be far more assertive in making it clear how harmonization on these issues can be achieved in a way that matches the realities of business aviation as the European Aviation Safety Agency (EASA) is preparing to take over responsibility for operational regulation. “We need to get involved now or EASA will do things that we donπt like, as has been the case with flight-crew licensing,” he said.

Famin is leading EBAA’s lobbying efforts over new proposals for flight- and duty-time limits for commercial operations. “You wouldn’t believe how far EASA rulemakers are from understanding business aviation,” he said. “Even the pilot unions are starting to grasp that it is different.”

Tough economic times have only made it harder for the mainstream business aviation industry to hold the line against breaches of standards, according to Herve Laitat, CEO of Belgium-based operator Abelag Aviation. “Since the crisis, safety has not increased at all,” he proposed. “There has been a surge in the number of aircraft and a surge in the number of small operators looking to break into charter and a big risk of private operators shifting into charter [illegally].”

Laitat said he is increasingly aware of owners opting to have their aircraft operated under private rules, because they find the disadvantages associated with commercial rules prohibitive. From his perspective, these owners see little reason to fear punishment by the authorities, and so “more and more operators are moving into charter this way.”

Humphries concluded that the association must play both a short and long game in its efforts to ensure a level and safe playing field for business aviation in Europe. “In the short term, we must mount a strong campaign against illegal charter, with AOC holders demanding that the rules be enforced,” he said. “In the medium term we want to align the [safety] standards between commercial and non-commercial sectors so we have the right rules for factors such as appropriate runway performance and flight-time limitations regardless of whether a flight is private or charter. We must remove the temptation to operate non-commercially purely on safety grounds by having common standards based on safety management systems and risk assessment.”