Nov 07, 2013

New Air Charter Transparency Rules Proposed

Background

In its report on the fatal 2004 crash of a chartered Canadair Challenger CL-600-2A12 aircraft, the National Transportation Safety Board (“NTSB”) determined the aircraft stalled following takeoff in winter conditions because the pilots failed to inspect the wings and have them de-iced.  On-demand charter operator Key Air received a request from its customer GE Corporate Air Transport to fly executive Dick Ebersol and family from Montrose, Colorado to South Bend, Indiana in late November.  Key Air could not conduct the flight itself and “subbed out” the work to Air Castle Corporation d/b/a Global Aviation.  In its 2006 accident report, the NTSB stated its review of the pilots’ records showed that they lacked experience with winter operations.  Also, although Key Air, its pilots and Air Castle were all approved by safety auditor Wyvern Consulting Ltd., Air Castle’s pilots were not Wyvern-approved.  It appeared that GE was not informed about the assignment of Air Castle to perform the flight.  These factors led the NTSB to argue forcefully for greater transparency in on-demand charter arrangements.  In a 2006 letter to the U.S. Department of Transportation (“DOT”), the NTSB recommended that the DOT require Part 135 on-demand air taxi operators to provide greater disclosure to charter customers regarding who is doing the flying.  The NTSB’s expressed issue was that an on-demand charter customer should have the opportunity to investigate the actual operator, its pilots and their safety reputation.

In February 2005 another crash highlighted similar problems with on-demand Part 135 flights.  A chartered CL-600-1A11 overran the end of a runway on departure from Teterboro, New Jersey, crossed a highway and crashed into a warehouse, causing several injuries and destroying the aircraft.  In its report, the NTSB determined the accident was caused by the pilots’ failures to consider the aircraft’s center of gravity and to use the full capability of the aircraft to decelerate and stop.  The aircraft was operated by Platinum Jet Management, LLC (PJM), which engaged the pilots.  PJM held no Part 135 charter authority or DOT economic authority itself but operated under a “certificate-sharing” agreement with Darby Aviation, a Part 135-certificated charter operator.  The charter customer, Kelso & Co., had contacted Blue Star Jets, Inc., an air charter broker, to arrange the flight because Kelso’s aircraft was undergoing maintenance.  Blue Star found PJM in a directory and did not request a copy of a Part 135 operating certificate for PJM.  The NTSB found that Darby Aviation, the certificate holder, had failed to maintain required operational control over flights conducted by PJM. 

In enforcement proceedings, the DOT found that PJM engaged in air transportation without required economic authority, Darby engaged in an unfair and deceptive practice and an unfair method of competition, and Blue Star misrepresented itself as an air carrier and misrepresented the safety records and certification of those whose services it marketed.  As a result, all three were found to have violated DOT economic regulations.  The NTSB in its report recommended among other things that the FAA (1) issue guidance to certificated Part 135 operators for them to avoid yielding operational control over aircraft to unauthorized parties under certificate-sharing agreements and (2) review leases and management agreements with Part 135 operators to determine where operational control was being lost.  In December 2006, the FAA adopted the guidance and review recommendations by issuing Operations Specification A008 on operational control, leaving to the DOT the issues of carrier substitution and charter brokerage.

Carrier Substitution Rules

In January 2007, the DOT issued an Advance Notice of Proposed Rulemaking (“ANPRM”) based on the NTSB’s 2006 letter on carrier substitutions.  In the Notice, the DOT described the items of enhanced disclosure recommended by the NTSB and requested public comment on them.  Existing DOT regulations already required public disclosure of the names of actual operators in both code-shares and long-term wet lease operations among scheduled carriers.  New regulations, if published and adopted, would impose the disclosure requirements on parties arranging on-demand charters.  The DOT later reported receiving 23 written comments on this ANPRM.

Recently on September 30, 2013, the DOT published a Notice of Proposed Rulemaking (“NPRM”) requesting public comment on proposed regulations that would apply the NTSB-recommended disclosure requirements and cover other issues.  The proposed regulations would prohibit any soliciting carrier from marketing or signing charters with customers where flights will be performed by another carrier without providing clear and conspicuous written disclosure of (1) the name of the direct air carrier designated to fly the trip, including any d/b/a names it uses, (2) the capacity in which the soliciting carrier is acting in the transaction, (3) the relationship between the soliciting carrier and the direct air carrier, (4) the make and model of the carrying aircraft, (5) the total cost of the transportation, and (6) any fees to be charged by third parties.  If after entering into a contract the direct air carrier should change, the customer must be alerted in writing within a reasonable time.  If the change should occur without such notice, the customer must be offered a full refund.  The DOT requests readers also comment on whether it should require confirmation of the customer’s receipt of the change information.

Charter Broker Rules

The NPRM also notes the growth of air charter brokers in on-demand chartering activity, in the manner of Blue Star Jets’ role in the 2005 incident.  The DOT proposes to adopt regulations recognizing air charter brokers as “indirect air carriers” authorized to provide passenger transportation, similar to air freight forwarders, public charter operators, air ambulance arrangers and ticket agents already covered by existing rules.  In exchange for this authority, the new regulations would subject air charter brokers to consumer protection provisions but no formal licensing or registration.  These regulations would apply only to a broker acting as a true middle-man in a transaction, and not to a bona fide agent acting strictly for either an air carrier or a charterer in procuring passengers or transportation services pursuant to agreement.  All broker solicitation literature must state “clearly and conspicuously” that the broker is not a direct carrier holding operational control of aircraft.  The broker must disclose to the customer the six items of information recited above, plus (7) the existence and amount (or nonexistence) of the broker’s liability insurance for the benefit of the charterer, passengers and property on the flight.  Failure to provide all disclosures in a reasonable time will result in the charterer’s option to cancel and receive a full refund.  If after entering into a contract the direct air carrier should change, the charterer must be alerted in writing within a reasonable time.  In the absence of such notice, the charterer must be offered a full refund.  When the transportation cannot be performed or a refund is otherwise due, the broker must refund the customer’s money promptly.

Air Ambulance Services

The DOT’s proposed regulations also tighten rules applicable to indirect air carriers that arrange air ambulance services.  Currently such entities exercise authority to arrange air carriage under an existing exemption.  The regulations would impose consumer protections in the form of prohibitions against unfair and deceptive practices similar to those imposed on brokers, including specific prohibited practices such as misrepresentation.

 Federal Government Contracting

The DOT and the General Services Administration (GSA) have disagreed in the past over whether air charter brokers arranging flights through the GSA for federal government agencies are subject to DOT consumer-protection regulations.  In 2009 the DOT sent a warning letter to CSI Aviation Services, Inc., an air charter broker listed on the GSA Schedule, charging that CSI by its listing was unlawfully holding out to the public as a “common carrier” without DOT economic authority to do so.  CSI brought suit challenging the DOT’s action.  In 2011 the U.S. Court of Appeals for the District of Columbia Circuit found that the DOT had failed to provide an explanation sufficient for the Court to determine the agency’s rationale for decision.  The Court struck down the DOT’s action as arbitrary and capricious but left the door open for the DOT to find CSI to be engaged in common carriage if it did so on a basis more clearly connected to the Federal Aviation Act.  The DOT’s current NPRM contains its response in the form of a discussion and a proposed regulation holding that entering into contracts with the federal government arranged under the GSA air transportation schedule constitutes “common carriage” subjecting the broker to DOT regulation.  Also, the NPRM declares such contracts must comply with the Fly America Act, requiring federal-government travelers and shippers to use the services of U.S. air carriers.

Public Comment

The DOT is soliciting comments from the public on the proposed rules.  The related DOT summary and Supplemental Information, as well as the full text of the proposed regulations, may be viewed on-line at www.federalregister.gov.  The last day for submission of comments is November 29, 2013.  If you wish to discuss the proposed regulations or to obtain assistance in filing comments on them, please contact your SGR Air Transport Industry Group.