Black market air charter is alive and well in Europe, the Middle East – and the U.S.A. How do we stop it?
“It is very difficult to identify the perpetrators because you can't follow the money,” said Greg Thomas, president and CEO of PrivatAir, a charter operator based in Geneva. “Often [payment] can occur far away from the operation, and the aircraft ownership may be vague — second-parties, LLCs, offshore companies and so forth. Payment can flow through a broker, a family member of the owner, even take the form of a barter — ‘I'll let you use my vacation home in the Bahamas if you let me take a flight on your jet.'”
EBAA President and CEO Brian Humphries estimates illegal charter as high as 40% “in some countries” but disparaged the lack of clear figures due to the few enforcement actions that have taken place in greater Europe. “We think that in Eastern Europe it's quite high,” Humphries speculated, “and we also know of one EU country where we have reports of high levels of illegal activity.” (While Humphries declined to identify the country, we subsequently and independently learned that it is Greece.)
Illegal chartering has been going on for years in Europe, Humphries believes, “but in the current financial crisis, where profit margins are down and people want more for less, there is an incentive for both brokers and passengers to go to people who can offer something more cheaply. That's why we are trying to get the message out to the passengers that, if you fly with one of these illegal operators, you will be putting your insurance and your family at risk.”
In the Middle East, it's long been acknowledged that there is a so-called “gray market” in charter activity. “The Middle East comprises a fleet of some 300 business jets,” Thomas said, “some of which are large Boeings and Airbuses, all fitted out very luxuriously and few of which could pass a commercial category test. For many years these aircraft have been used for commercial charters. I recently met a broker who does $5 million a year on charters from aircraft in this region that are not commercially certified. The flight departments operating them may have high standards, but these commercial forays they're taking are patently illegal.”
In Saudi Arabia, officials are trying to curb the practice by granting more commercial certificates. “For comparison,” Thomas continued, “Saudi Arabia currently has six AOCs [Air Operator Certificates] in its registry, while the United States has 2,000. People there are beginning to see the stirring of a regulated environment. Over time, you will see the guys who are currently conducting illegal charters forced into obtaining their proper certification. It's a difficult situation, but the public statement [at least out of Saudi Arabia] is that they will clamp down on the gray market.”
Oliver King, managing director for the Avinode Marketplace, an online empty-leg listing service exclusively for the trade (that is, it's a B2B resource closed to the public) based in Gothenburg, Sweden, spotlighted Greece and the Balkan region as a hotbed of illegal charter activity. “People know it is taking place, and we need the authorities to investigate and see what is happening,” he said.
King also had a perspective on the Middle East, which he described as “a developing market,” and as such, “there are a lot of new operators there, and it ‘grays out' between the private and commercial operation. So a lot of illegal activity may be taking place, but people accept it because it is a private operation. As a result, we have to be careful to recognize when a market is in a place of development. Where you have a lot of aircraft for private use, you will see the gray zone [growing] quite large.”
In Europe, the illegal charter situation is further complicated by the fact that each country — even those within the EU — maintains its own often unique set of cabotage rules. “If we had an open skies agreement in Europe, things would be much simpler,” King said. “But the current regime, where each country has its own bilateral agreements based on what it's negotiated — individual country pairs — prevents a simple solution.” (More on this later.)