Black market air charter is alive and well in Europe, the Middle East – and the U.S.A. How do we stop it?
Flight Department Traps
Another common mistake that Part 91 operators often make bears on the ownership and operation of the aircraft.
“It is still common for an aircraft owner to place the aircraft into a separate entity — an LLC, S-Corp and so forth — in order to isolate potential liability resulting from the operation of the aircraft,” Nichols said. “When the aircraft is owned and operated in that separate entity and there is no business other than air transportation, that separate entity underrules is required to be a licensed air carrier. When companies are looking to protect themselves from liability, this may sound alien; however, it is a position the FAA has been clear and firm about as evidenced by at least three FAA chief counsel ‘interpretations on point.'” So take heed.
In and of itself, placing ownership of the aircraft in a separate entity is not illegal — it's the ownership and operation of the aircraft in a vessel engaged in no other business that casts it as an illegal charter operation in the eyes of the feds. “One of the most common questions we get [at NBAA] from member companies is how to limit liability for the operation of the aircraft,” Nichols related, “and the answer is operating legally and carrying proper aviation insurance. Operators who have aircraft placed in ‘flight department companies' should consult immediately with qualified aviation legal counsel, that is, lawyers who are familiar with Part 91.501. Many times in-house legal and accounting departments, or contracted outside firms, both of which may not be familiar with the labyrinth of Federal Aviation Regulations, may recommend placing the aircraft in one of these flight department companies, not knowing the FAA views them as illegal charter.”
But wait, there's still a web in which the unsuspecting operator can become inadvertently snared: the aircraft placed in a management company for operation under both Part 91, for the owner's use, and Part 135 for third-party charters.
“To this day, the area where we still see the most amount of confusion in operational control is when aircraft are placed with management companies,” Nichols claimed. “First, often the owner doesn't understand operational control and thinks that the management company is the operator of the airplane, even for Part 91 flights, and second, there are still some management companies that do not fully understand operational control and want to retain it for all flights, yet still conduct owner flights under Part 91. There are tax issues involved here, as well, and once the FAA is through with you, the IRS will come knocking on your door.”
NATA Regulatory Affairs Director Jackie Rosser adds a subcategory to the lexicon of illegal charter. “Yes,” she said, “there's the Part 91 inadvertent business structure receiving compensation for transportation. And there's the operator that does not hold an AOC and is receiving money for flying bogus charters, but I would add a ‘sub-definition,' a much smaller population, and that would be the certificate holder fielding an aircraft that is not listed in its op specs [e.g., the TEB Challenger].” But the category NATA is most concerned about “is the operator who straight up does not have a certificate but is engaged in illegal activity,” Rosser asserted. “It is a very difficult number to pin down. Most legitimate operators will tell you they have seen it, so it's prevalent enough to get their attention when they have to compete with an illegal operator who's undercutting them on price.”
Given that in any line of activity there will always be those who will try to cheat the system, the lack of enforcement is a real problem. According to Rosser, the FAA system is not set up to police illegal activity, beginning with insufficient numbers of inspectors in the field. Existing inspectors are dedicated to enforcing and inspecting the operators with certificates and thus are familiar with those commercial operators on the FAA andregistries.
“There is no office in FAA headquarters similar to the operational control emphasis team [set up by Ballough] or the alcohol emphasis team,” Rosser pointed out. “There is no cop on the corner, or to use another analogy, if the troopers are not using radar on the highway, drivers will be more inclined to speed. It is the threat of enforcement that gets people to comply. And enforcement in the air charter business — weeding out the bad actors — is essentially nil.”