Feb. 8, 2019

Illegal charters take many forms and pose risks for consumers and operators alike. Here’s how you can identify and avoid them.

The FAA recently proposed a $3.3 million civil penalty against The Hinman Co., alleging that its subsidiary, Hincojet LLC, conducted hundreds of commercial aircraft operations in violation of FAA regulations. The agency contends that the company failed to hold the required operator certificate for the flights being performed. Specifically, the FAA alleges that because Hinman was charging more than the expenses allowed under Part 91, the company should have been operating these flights under Part 135.

Forms of Illegal Charter

Illegal charter operations can take many forms. Some of the more formal types of illegal charters include “flight department companies,” illegal dry leases or excessive timeshare agreements, which exceed the FAA’s rules as outlined in 14 CFR 91.501.

Informal illegal charters can occur when an aircraft owner has a casual agreement with a friend, family member, or colleague that provides the aircraft owner with compensation for the flight operation exceeding the allowances in 14 CFR 91.501.

Another form of illegal charter occurs when an air charter broker appears to be the actual air carrier, instead of an agent for either the air carrier or the customer.

Part 91 operators are not the only ones that fly illegal charters. Part 135 carriers may be conducting illegal charters if they fly any commercial operation outside the scope of the air carrier’s authority, such as performing a charter in a larger aircraft than the air carrier is authorized to fly, or when a flight is conducted outside of the air carrier’s authorized areas of operations.

Certification Issues

The biggest risk of flying with an illegal charter operator is that they are not certificated by the FAA. Since Part 135 operators transport passengers or property for hire, they are subject to more stringent regulations. While many Part 91 operators adhere to similar standards, they have not gone through the FAA certification process to carry passengers and property for hire.

Also, a noncommercial operator typically doesn’t carry the same type of insurance as a commercial operator. In the event of an accident or incident, it’s possible an insurance carrier would not cover a claim if the insurer believes the flight was actually for compensation or hire. If you own an aircraft that is used in illegal charter operations, whether you know about the illegal activity or not, an accident claim may be denied, and your coverage cancelled.

Consumers of illegal charter operations also face potential Internal Revenue Service and Customs and Border Protection (CBP) problems as well. While most non-commercial operations are not subject to federal excise tax (FET), if the IRS determines that an operator is providing commercial air transportation, there can be FET liability. Commercial operations also are subject to additional fees when using CBP services, and the agency is cracking down on operators that inadvertently or intentionally circumvent the fees levied on commercial operations (see sidebar on collecting and remitting fees).

Finally, illegal charter operations can result in other serious sanctions. In 2005, Platinum Jet Management and Darby Aviation faced civil penalties, revocation of FAA certificates and even prison sentences for some executives and employees for conducting illegal charter activities.

How to Identify a Suspected Illegal Charter

Unfortunately, most charter passengers don’t know how to vet operators properly.

“The flying public doesn’t have the knowledge to make the decision that an operation is safe,” said W. Ashley Smith Jr., CAM, president and director of operations at Jet Logistics. “Some Part 91 operators far exceed the safety standards of Part 135, but the average passenger has no way of knowing that without FAA oversight.”

However, a charter customer can verify if an operator has authorization to conduct commercial flights in a specific aircraft by visiting the FAA’s website.

Passengers also should exercise due diligence before engaging an operator for air transportation. Ask your intended charter provider for a copy of its air carrier certificate, or at least its air carrier number. If the operator refuses to provide this information, illegal charter activity should be suspected.

After a flight is conducted, passengers may see signs that indicate they flew on an illegal charter. Receiving multiple bills for a single flight can be indicate illegal activity. For example, receiving one bill for use of the aircraft and another bill for pilot services may indicate suspicious activity. Consumers should also review invoices for FET charges. An operator conducting an illegal charter will not typically charge FET.

Exceptionally low prices or fees significantly out of line with other charter quotes should be questioned. As the FAA warns, “If the price is too good to be true, it probably is.”

“Another warning sign is if the pilot or someone associated with the company coaches passengers on what to say or do if an FAA inspector meets the aircraft at its destination,” said an FAA representative.

Pilots should also be attentive to suspicious activity.

“The only way to change the culture is to educate the people in the industry who see what’s going on,” said Tim Sullivan, chief operating officer and director of operations at Chantilly Air. “Pilots are the first line of defense.”

Sullivan says many pilots do not understand the risks to their own airman certificate – and career – by intentionally or inadvertently conducting illegal charter flights.

For example, a pilot might think they’re conducting Part 91 operations under a timeshare agreement or other legal arrangement under 14 CFR 91.501, but they notice that different trips involve unrelated passengers. According to Sullivan, flying multiple unrelated passengers from multiple unrelated companies might be a sign of questionable activity.

“Obviously business aircraft pilots – whether conducting commercial or noncommercial flights – are expected to be discreet and respect the privacy of their passengers,” said Sullivan. “However, pilots should consider the relationship between passengers, and if they suspect illegal activity, take additional steps and ask questions to fully understand the type of operations they are conducting. Ignorance is not a defense. The pilots’ careers could be on the line.”

How to Report Suspected Illegal Charter Activity

The Air Charter Safety Foundation (ACSF) manages an illegal charter hotline on behalf of the FAA. Those who want to report possible illegal charters in the U.S. should call 888-759-3581 or 888-SKY-FLT1.

People can file reports – either anonymously or by name – and then the ACSF forwards reports to the FAA for follow up and investigation. Some reports are investigated by local FAA office representatives. Others are elevated to the FAA’s Special Emphasis Investigative Team based in Dallas. The Hinman case mentioned above was the result of an ACSF hotline report.

“About 50 percent of callers want to remain anonymous,” said ACSF President Bryan Burns. “The rest are willing to contribute more information. When a call comes in, we ask the caller how much they really know about the situation because we need to have a solid case to the present to the FAA.”

The more information someone can provide about the suspected illegal activity, the more likely the FAA can investigate and put together a case.

“At the end of the day, the goal of the hotline is to deter operators from conducting illegal operations,” said Burns.

In some cases, it may be appropriate to report suspected illegal charter to the Department of Transportation’s Office of Aviation Enforcement and Proceedings. The DOT focuses more on the economic aspects of illegal charter operations

This article originally appeared in the November/December 2018 issue of Business Aviation Insider, the official magazine of NBAA. For more information, review NBAA’s charter resources.

Operators Are Responsible for Collecting, Remitting CBP Fees

Commercial aircraft operations are subject to certain U.S. Customs and Border Protection (CBP) fees that are not applicable to noncommercial operations. Passengers of commercial aircraft arriving in the U.S. from outside the country are subject to a Customs Inspection User Fee (CUF), plus an Immigration User Fee (IUF), in addition to any CBP User Fee Airport charges.

A commercial operator is required to collect and remit these fees no later than 31 days after the close of the calendar quarter in which the fees were required to be collected. The CUF is currently $5.65 per air passenger, and the IUF is currently $7.00 per air passenger.

“Some operators – whether legitimate charter operators or operators conducting illegal charters – believe they are only required to pay the CBP User Fee Airport charges, but that is not the case,” said Sarah Wolf, CAM and NBAA’s senior manager of security and facilitation. “All passengers on commercial aircraft are subject to these fees, with very few exceptions. An aircraft operator intentionally or unintentionally conducting commercial flights illegally under Part 91 may find themselves in violation of these CBP requirements.”

The only exemptions are for passengers whose trip originated in a territory or possession of the U.S., or originated in the U.S. and travel was limited to territories and possessions of the U.S.

Violators may be subject to interest and late payment penalties. Operators holding a Customs bond may be charged damages from that bond. Legitimate charter operators should retain records related to these fees, including proof of remittance, for five years.

Visit the CBP website to obtain more information on these Customs fees, or call the U.S. Customs and Border Protection Revenue Division, User Fee Team at 317-381-4500.

Not Just an American Problem

Illegal charters are not just a U.S. problem. For instance, the Middle Eastern Business Aviation Association (MEBAA) has long been committed to educating aviation professionals and vendors, including FBOs, about the risks of “grey market charter.” Also, the Air Charter Association Ltd. (BACA) and European Business Aviation Association (EBAA) recently announced an effort similar to the Air Charter Safety Foundation’s U.S. hotline. BACA and EBAA will collectively gather data through a joint reporting mechanism. According to EBAA, the goal of the organizations is to “gain traction with regulators and authorities and to thereby empower them to take steps to deal with and reduce this activity.”