Sept. 27, 2018
The Department of Transportation (DOT) recently published new regulations related to air charter brokers, establishing a new 14 Code of Federal Regulations (CFR) Part 295, Air Charter Brokers, and revising 14 CFR 298, Exemptions for Air Taxi and Commuter Air Carrier Operations.
“This rulemaking, while begun in response to consumer protection-related recommendations made by the National Transportation Safety Board following accidents in 2005 and 2006 involving brokered flights, is deregulatory and pro-competitive in nature by giving brokers more opportunities to market and offer their services, while ensuring necessary consumer protections,” said Brian Koester, NBAA’s senior manager of flight operations and regulation and current staff liaison to the NBAA Regulatory Issues Advisory Group. “Overall, it should prove beneficial for the air transportation industry and its consumers.”
While the final rule is largely consistent with the Notice of Proposed Rulemaking (NPRM) published in 2013, there are a few key differences.
The final rule contains five main components:
- Defines “air charter brokers” and allows them to provide single-entity charter air transportation of passengers as principals or bona fide agents
- Requires air charter brokers to automatically make certain disclosures to consumers in some cases and upon request in others
- Describes certain practices by air charter brokers as prohibited or unfair practices or unfair methods of competition
- Requires air taxis and commuter air carriers that sell charter air transportation to make the same disclosures to consumers as air charter brokers
- Describes certain practices by an air taxi or commuter air carrier as prohibited or unfair practices or unfair methods of competition
The final rule takes effect Feb. 14, 2019. View the final rule.
Perhaps the most important difference between the final rule and the NPRM is the DOT’s decision to expand the definition of “air charter broker” to include brokers who act as agents for the air carrier or the passenger, in addition to those who act as principals – a change that had been urged by NBAA and other commenters. This significantly expands the applicability of Part 295 while retaining the new option for brokers to act as principals (indirect air carriers) for plane-load charters. That option will enable a broker to contract in its own right with an air carrier, and resell the charter, as a principal, to the broker’s customer.
Another important clarification in the final rule involves DOT’s proposal to require a broker to disclose any business relationship between itself and the air carrier. NBAA recommended the disclosure requirement be clarified to require disclosing a business relationship between the two parties only if the relationship had an actual bearing on the transaction. DOT agreed.
“The DOT accepted NBAA’s recommendation and included appropriate language in the final rule,” said Dayton Lehman, president of the aviation group of Capitol Business Solutions. “DOT’s adoption of NBAA’s suggestion will avoid unnecessary disclosure of unrelated business arrangements and minimize confusion.”
The final rule also recognizes self-aggregation among individuals as an acceptable form of single-entity charter, although the final rule’s limited discussion of the topic appears to leave considerable room for subjectivity.
“The final rule allows for self-aggregation in chartering small aircraft (up to 60 seats) but leaves open some questions,” said Aaron Goerlich, partner at aviation law firm Garofalo Goerlich Hainbach PC. “For example, how aggressively can an individual or a broker promote self-aggregation? What crosses the line between self-aggregation and holding out air transportation to the public as a principal, which requires authority from DOT?”
In another change from the 2013 proposal, DOT decided against bringing brokers of air ambulance services within the scope of the final rule. Instead, such brokers may continue to act as indirect air carriers under a blanket exemption dating from 35 years ago.
The DOT did not explain why, despite considerable support from commenters for inclusion of air ambulance brokers in the final rule, it chose not to do so. DOT did state, however, that it will study the area further, and Lehman pointed out that in the meantime, brokers of air ambulance services remain subject to the general statutory prohibition on unfair and deceptive practices enforced by DOT.
“These new regulations address many concerns from the past caused by ‘bad actor’ brokers and will allow increased opportunities for legitimate air charter brokers to continue providing the good service they have provided for years,” said Mike Nichols, NBAA’s vice president of operational excellence and professional development. “In general, it is a step in the right direction while giving the DOT a stepped-up opportunity to take action against unscrupulous businesses and individuals in the industry.”
The key issues for business aviation include:
- The rule formally defines air charter brokers and is applicable not only to those acting as principals but also to bona fide agents of either the air carrier or the passenger.
- Brokers and air carriers must provide certain disclosures to passengers.
- Brokers and air carriers may be required to provide a full refund in the event of a failure to provide required disclosures within a reasonable time period.
- Brokers must clearly and conspicuously state in advertising and marketing materials that they are air charter brokers and not air carriers. However, brokers may display their company name on the aircraft, provided the operating air carrier’s name is also prominently displayed.
The new rule will be the focus of a special education session at NBAA’s Business Aviation Convention & Exhibition (NBAA-BACE) on Wednesday, Oct. 17 at 9 a.m. The session will be moderated by attorney Gary Garofalo with panelists including other aviation attorneys and a broker. Brokers, air carriers, users of broker services and other interested parties are encouraged to attend.
Over the next several months, NBAA will provide additional analysis and guidance to its membership. The association will also request clarification from the DOT on specific issues, if necessary.