AINsight: FAA Actively Pursues Illegal Flight Ops

 - January 10, 2019, 6:28 PM

Unauthorized air charter—often called gray charter and even “Part 134 1/2” operations—has long been illegal. Yet some aircraft operators still flout or inadvertently violate the FARs involving proper on-demand or charter operations. Continuing to operate such disguised charters with impunity or in obscurity might be short-lived, however, as the FAA has recently ramped up its investigations and enforcement actions against such offenders.

These illegal operations frequently occur when an operator with one or more aircraft holds itself out for hire or receives any compensation (not just monetary) for carrying people or property without the required certification or other approvals from the FAA and the U.S. DOT. As a result, the offender might fail to meet the operations criteria under FAR Part 135 and the certification requirements under FAR Part 119.

To illustrate, the FAA might probe companies that operate flights without the required certificates; operate aircraft for charter where the aircraft has not been placed on the operator’s Part 135 operating specifications as required; or enter into a sham dry leasing arrangement, purporting to lease an aircraft with no crew when, in reality, the lessor enters into a prohibited commercial wet lease since the lessor actually insisted the customer use its crew and aircraft.

Determined by a complex matrix, “Order 2150.3C-FAA Compliance and Enforcement Program” allows the FAA and Department of Justice (DOJ) to impose high-dollar civil penalties, including approximately $33,333 per incident for flight operations in violation of the FARs. The FAA has many tools to carry out its mission of “promot[ing] safe flight of civil aircraft,” including the ability to investigate any aircraft use, propose civil penalties and revoke Part 119 operating certificates.

Even though an operator assumes he or she has put proper lease, timeshare, or other agreements in place, the FAA can, and will, make its own decision (substance over the form) on whether the operator has conducted a lawful or disguised charter business. It does take into account specific and complex exemptions in Section FAR 91.501 and Part 119 that allow certain commercial operations.

The FAA identifies offenders, in part, using information supplied by legal Part 135 operators, FAA personnel, and others. And the National Air Transportation Association (NATA) and NBAA publish a hotline phone number and other information that facilitates contacting the FAA and educates customers, operators, and other industry participants to recognize and conform their operations to Part 135 or Part 91, as appropriate.

Powerful allies help the FAA deter and punish offenders, including the DOJ and the FAA’s own version of SWAT called Special Emphasis Investigations Team (SEIT). SEIT has interagency partners, including multiple law enforcement agencies, to take and coordinate enforcement actions against offenders. Although the FAA has wide prosecutorial discretion, Order 2150.3C, issued on September 18, guides the FAA’s actions.

Last year, the FAA and DOJ sent a message loud and clear to illegal charter offenders and to the business and general aviation industries—not in words—but in the following, diverse enforcement cases, among many others:

Timesharing Violations. In a June 29 press release, the FAA announced a proposed $3.3 million civil penalty, its largest ever for a private company, against The Hinman Co. of Portage, Michigan, operating through its wholly owned subsidiary Hincojet LLC. Hincojet allegedly conducted 850 commercial aircraft operations in violation of the FARs by using timesharing agreements involving six unrelated third persons.

The FAA alleged that Hincojet overcharged customers, invoicing for more than the specific costs allowed for timesharing agreements in Part 91; failed to operate flights under Part 135 as a commercial operation; failed to meet the FAA’s Part 135 requirements for recordkeeping, including pilot records and load manifests, for each flight; had no Part 135 pilot training program; did not possess proper certification under Part 119 or economic authority from the DOT; and used pilots to operate flights without authorization to conduct the flights under Part 135. Importantly, the FAA has also investigated the pilots with a view toward commencing enforcement actions against them.

On October 4, the DOJ filed an enforcement lawsuit against Hinman for alleged illegal charter activity with fines of up to $11,000 per violation. Order 2150.3C dictates such a referral to DOJ when the proposed civil penalty exceeds $50,000. Hinman is a clear example of the FAA looking beyond the form of the arrangements to the actual substance of the operation.

Gray Charter Violations. In a December 4 press release, the FAA announced a proposed $624,000 civil penalty against Steele Aviation of Beverly Hills, California, for allegedly conducting 16 customer-carrying jet flights “for hire” when the company did not have the air carrier certificate required for these operations and allegedly used unqualified pilots. The case illustrates how the FAA will pursue charter operations that appear normal but blatantly fail to qualify for charter services under Parts 135 and 119.

Leasing Violations. In a November 13 press release, the DOJ announced that James Johnson of Oklahoma City and his company, Interstate Helicopters Inc., pleaded guilty to failing to report to the FAA under the “Truth in Leasing” requirements from 2014 to 2016. This case is important because it shows how the FAA will investigate and prosecute operators under civil and criminal laws for not complying with the Truth-in-Leasing disclosure to lessees (under Advisory Circular 91-37B)-opening a back door to investigating leasing arrangements generally.

Offenders should not look to insurance as a safety net, because insurance rarely, if ever, pays government penalties or related costs, including attorneys’ fees, which can run sky high. An insurer could refuse to cover claims that involve an unqualified pilot. If the aircraft owner is a limited liability company (LLC), the shield against personal liability of the LLC owner could collapse under FAA legal pressure and expose the owner to personal liability for civil monetary penalties (see AINsight: Piercing the Aircraft LLC Veil).

Overall, offenders should weigh the legal risks of engaging in a protracted and expensive dispute with the FAA and DOJ against the cost of realigning their operations to comply with the FARs. Given the heightened interest of the FAA in punishing disguised charters, it should be obvious that, on balance, every operator should opt for compliance with the FARs in consultation with knowledgeable aviation counsel.