United States: DOT Publishes Long-Awaited Final Rule On Air Charter Brokers

Jennifer M Nowak is an Associate in our Washington DC office.

On Sept. 17, 2018, the U.S. Department of Transportation (DOT) completed its rulemaking on air charter brokers, after it had been pending for five years. The Final Rule, which becomes effective on Feb. 14, 2019, creates a new class of indirect air carrier able to hold out and contract for planeload single-entity charters as a principal. Thus, entities wishing to arrange for such transportation have the ability to do so without worrying about crossing the line into offering unauthorized air transportation. This boundary had proved fraught for many carriers and resulted in numerous civil penalties and consent orders.

Background

In order to engage in air transportation of passengers to, from or within the U.S., an entity must hold economic authority granted by the DOT pursuant to 49 U.S.C. § 41101 (for U.S. domestic carriers) or 49 U.S.C. § 41301 (for foreign carriers), or pursuant to an exemption from the applicable statutory provision granted by DOT. This applies equally to direct air carriers (DACs) – entities directly operating flights, and to indirect carriers (IACs) – entities that, as a principal, hold out, sell or arrange air transportation and separately contract with a direct air carrier to perform the air transportation.

For several decades, DOT has allowed U.S. and foreign entities to engage in indirect air carriage of cargo and of passengers in public charter operations under blanket exemptions from the economic authority requirements.1 Indirect cargo carriers are required to comply only with certain consumer disclosure provisions, as well as registration requirements for foreign freight forwarders.2 Public charter operators, who hold out passenger charter air transportation on a per-seat basis, are subject to more stringent exemption conditions such as contracting requirements applicable to their agreements with both direct air carriers and passengers, financial security measures to protect passenger payments, consumer disclosure requirements, and mandatory advance notification of anticipated flights.3

During this period, DOT had not created a broad exemption that would allow IACs to hold out and sell planeload single-entity charters. Accordingly, any entity wishing to arrange for such charters could only do so as an agent for the passenger or the carrier, or as a "true middle-man" (i.e., it could not hold out, sell or contract to provide such charters as a principal). The growth in demand for business aviation and concierge travel services over the years created a demand for brokers to arrange such transportation, but these entities were limited to acting as ticket agents. In an attempt to market their services, these brokers often crossed the line into offering unauthorized air transportation (i.e., the holding out of air transportation without DOT economic authority) – for example, by entering into a contract as a principal or advertising in a way that made it appear as though the broker were a DAC. Such violations often resulted in tens of thousands of dollars in civil penalties.4

Air Charter Broker Rulemaking

In 2013, DOT sought to fill this gap by creating a blanket exemption applicable to entities interested in arranging planeload charters. The Notice of Proposed Rulemaking (NPRM) suggested creating a new class of IACs to be called "air charter brokers." These IACs would be permitted to contract, offer and sell air transportation in their own right subject to certain proposed requirements, such as registration with DOT and making required consumer disclosures.

Five years later, DOT is giving these entities the green light by granting a blanket exemption to air charter brokers and finalizing the conditions under which they must operate. After taking into consideration public comments submitted in response to the NPRM:

  • DOT decided to forego a registration requirement for air charter brokers, as DOT was unable to adequately define the benefits of requiring registration;
  • DOT codified 11 specific unfair and deceptive practices in regulation to make air charter brokers fully aware of what constitutes prohibited behavior (e.g., misrepresentations regarding pilot, aircraft or DAC qualifications or safety records; misleading use of trade names or logos; and mischaracterization of air charter broker as a DAC);
  • DOT is requiring air charter brokers to make certain disclosures as proposed in the NPRM, but DOT will require only three of the disclosures to be made proactively (name of operating DAC, air charter broker's role in providing the transportation, and information regarding liability insurance and limitations), and will require an additional three to be disclosed upon request (disclosure of any business relationship affecting air charter broker's selection of DAC, total cost of air transportation including taxes and fees, and applicable third-party fees, if known).

Other Provisions in Final Rule

The Final Rule also provides resolution on the following proposals set forth in the 2013 NPRM:

  • DOT finalized disclosure requirements for air taxis and commuter air carriers selling charter air transportation. DOT harmonized these disclosures with those required by air charter brokers, as described above.
  • DOT also codified enumerated unfair and deceptive practices for air taxi and commuter air carriers, which also have been harmonized with those applicable to air charter brokers.
  • DOT declined to codify existing exemption authority allowing IACs to engage in the sale of air transportation related to air ambulance services. As part of that decision, DOT declined to enumerate certain prohibited practices applicable to air ambulance IACs.

DOT also declined to finalize a proposal to codify that certain air transportation services performed under contract with the federal government are in common carriage.

Footnotes

1 Additionally, indirect air carriers holding out air ambulance services are subject to a blanket exemption under Order 81-1-36.

2 14 C.F.R. Parts 296 and 297.

3 14 C.F.R. Part 380.

4 See, e.g., Order 2012-10-20; Order 2017-7-11.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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