Gray Charters become a Federal Case

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FAA Refers Hinman Gray Charter Case To District Court

$3.3 Civil Penalty referred to US District Court WMi

Significance: both DOT and DOJ have endorsed FAA case against Gray Charter

NATA also educating those who might buy Gray Time Share Agreements

This enforcement case escalated quickly from an FAA enforcement case to a proceeding before the US District Court of Western Michigan. In a civil complaint filed by the US Attorney Andrew B. Birge against the Hinman Co. of  Portage, Michigan, for conducting hundreds of commercial aircraft operations in violation of the Federal Aviation Regulations, including failing to hold the required operator certificate for the flights being performed.

Only three months ago, the FAA sought a civil penalty of $3.3 million based on Hinman’s entering into six time share agreements, which are permitted if the terms meet 14 C.F.R. § 91 .501(d). The timeshare agreements may charge for fuel, oil, lubricants, and other additives plus an additional charge equal to 100 percent of the costs for fuel, oil, lubricants, and other additives used for each flight. Hinman, however, charged expenses exceeding these allowances for 850 flights and, as such, was required to conduct the flights in accordance with regulations applicable to commercial operations, according to the FAA. This skirting of the FARs is such a common practice that it is earned a name the “Gray Market.”

It is fair to assume that Hinman and the FAA could not come to an agreement (i) that the FARs were violated by the facts alleged and/or (ii) a suitable civil penalty. Thus, the case was referred to the Justice Department for collecting the $3.3M and the US Attorney for the Western District filed the above action.

It is unusual for an enforcement case to seek such a large penalty and extraordinary that a US Attorney agreed to initiate a case. If one examines the dockets of most US Attorneys’ Offices they are overburdened by huge criminal (primarily drug-related) backlogs. Thus, getting one office to file indicates that this issue is significant to the FAA and the DOT (which must concur) and the Department of Justice headquarters in Washington.

The stop at Main Justice is usually a test of the strength of the legal case. DOJ subject matter experts review the authorities and statutory bases for the claim of a violation. It is also quite possible that the FAA Chief Counsel, Charles M. Trippe, Jr. and/or the DOT General Counsel, Steven G. Bradbury. They are invited to explain the policy rationales which justify the commitment of US Attorney time. Both of the likely advocates are litigators by trade and Mr. Bradbury previously headed DOJ’s elite Office of Legal Counsel.

What may have been said is not known, but here are some good articulations of the WHY:

“Such a referral is not common and speaks to the significance of the violations,” stated NATA’s Director of Regulatory Affairs John McGraw. “The FAA’s decision to involve the Justice Department sends a clear message to aircraft owners and the industry that the government takes noncompliance seriously; particularly when unauthorized air carrier operations occur.”

 “This case should give all aircraft owners pause and demonstrates that engaging in illegal timesharing, participating in improper leasing schemes or establishing so-called flight department companies creates significant risk for aircraft owners,” said McGraw. “We are pleased to see the FAA taking action to ensure aircraft are operated in accordance with the applicable safety regulations and we expect to see more in this area as our Task Force continues its outreach efforts.”

Any trial of a technical legal issue is a difficult process; federal judges, as a gross generalization, are excellent deciders of the law. Sometimes, however, an aberration occurs and for a variety of reasons the decision reaches a conclusion other than what the US seeks.

NATA has taken steps to educate the owners of aircraft and extended its reach to those who might buy into a Gray Charter.

NATA’s initiative to combat illegal charter is overseen by a sub-committee of its Air Charter Committee called the NATA Illegal Charter Task Force and consists of the following action areas:

Work with the FAA to provide guidance on identifying and steps to avoiding illegal operations

Work with the IRS to understand and educate industry on the tax consequences for illegal charter operations

Work with Congress to better equip the FAA in combating this real safety issue

Educate the public on the importance of flying legally

Assist the FAA in enforcement through data collection and reporting

Leverage existing FAA data sources to help the FAA focus enforcement efforts

Help industry provide the FAA with illegal charter reports that provide more actionable data

Update and relaunch the “Chartering an Aircraft, A Consumer Guide” and “Risks of Illegal Charter” publications

“The goal of this effort is to protect the safety and integrity of an industry held to a very high standard. Safety and fair competition are paramount to the continued success of the air charter industry. Illegal charter must be stamped-out, not only from a fairness standpoint, but also to ensure the safety of the traveling public,” added Obitts.

Gray market, as its moniker suggests, is difficult to detect; anyone intentionally seeking to avoid the limitations of 14 C.F.R. § 91 .501(d) is not likely to advertise the transactions. NATA’s effort to educate those who may unwittingly become party to this illegal and unsafe practice.




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