Air Charter Broker Rules: What Law Governs?

The DOT published a Notice of Proposed Rulemaking to require air charter broker disclosures. That was back in 2013. Prior to this proposal, the NTSB began calling for such a regulation after the 2004 charter flight crash in Montrose, Colorado.  How is the DOT regulating “unfair and deceptive practices,” which are prohibited by statute, without a regulation in place to spell out what is unfair? When it comes to air charter broker rules, what law governs supreme?

The DOT continues to penalize “unfair and deceptive practices” in the air charter world. In April of this year, the DOT assessed a civil penalty of $30,000 against a Part 135 air carrier named Paradigm Jet Management because the carrier allowed a company identified as “IBX” to pretend to be an air carrier. The case harkens back to the Darby Aviation-Platinum Jet Management enforcement saga that followed the Teterboro Challenger accident in 2005.

In assessing a civil penalty against the air carrier, the DOT noted that it was still investigating IBX. The DOT Consent Order went on to say that:

In isolation, IBX’s behavior would have been extremely serious because it amounted to engaging in air transportation without a license. However, IBX’s behavior was particularly pernicious because it was done under the guise of lawful authority, a condition that would have been impossible without Paradigm’s involvement. Thus, Paradigm bears some responsibility for IBX’s conduct. Thus, Paradigm, which was or should have been aware of IBX’s conduct and the fact that it lacks any economic authority, facilitated IBX’s engaging in indirect air carrier service without any economic authority from the Department.

The lesson for both charter operators and charter brokers is that the DOT continues to enforce its statutory authority in this arena. The lesson for operators is that they will be held responsible for the misdeeds of the brokers that they contract with.

The Napkin Notice

The DOT has been regulating brokers in the absence of air charter broker rules for many years now. In 2004, before accidents brought air charter brokers to the attention of the NTSB and the FAA, the DOT had noticed the growth of these brokers and published a policy notice explaining how brokers could avoid running afoul of existing statutes prohibiting deceptive practices in aviation. Often referred to as the “Napkin Notice,” the 2004 policy notice taught the broker industry that they needed to identify themselves as agent of their customers in buying charter from air carriers, and it taught the brokers not to mislead their customers into believing that the brokers had “fleets” of aircraft when in fact they didn’t operate any aircraft. The “Napkin Notice” came about because some charter brokers were requiring carriers to remove any carrier cups/napkins from the aircraft cabins and replace them with the broker’s napkins, creating the illusion that the broker was operating the flight.

The 2013 NPRM proposed to clarify and codify these marketing requirements, and it proposed more transparency in the information to be provided to customers. The NPRM also proposed that a new class of charter brokers would be allowed to sell charter as “indirect air carriers” without the regulatory burdens of FAR Part 380.

Is a Final Rule on the Horizon?

When might we see a final set of air charter broker rules? No one wants to comment. President Trump’s Executive Order 13771 states in part “…it is essential to manage the costs associated with the governmental imposition of private expenditures required to comply with Federal regulations. Toward that end, it is important that for every one new regulation issued, at least two prior regulations be identified for elimination, and that the cost of planned regulations be prudently managed and controlled through a budgeting process.”

The air charter broker rules will have a budget impact for both the industry and the Department. The industry comments in response to the NPRM were uniform in supporting a registration requirement for air charter brokers, but the commenters differed on how much information should be maintained on the new registry. The DOT expressed concern in the NPRM about the costs to the government and to the industry of such a registry.

Some industry observers are concerned that the sale and re-sale of charter flights have grown more complex and dynamic than the market that existed in 2013. Will the rule be outdated before it is published? Perhaps, particularly with respect to the timing of the transparency required. Charter operators and charter brokers today do an amazing job of dealing with substitutions required by weather and mechanical issues. This often means that the customer flies with a different aircraft flown by a different operator at the last minute. Did the customer get the opportunity to accept or reject the change? The DOT rules will most likely require that the customer get the chance to make an informed decision. Because of the fluid nature of the market, the delays caused by the transparency requirements may result in an increase in delayed or stranded charter passengers.