““CEOs go to their vacation homes just after companies report favorable news, and CEOs return to headquarters right before subsequent news is released. More good news is released when CEOs are back at work, and CEOs appear not to leave headquarters at all if a firm has adverse news to disclose. When CEOs are away from the office, stock prices behave quietly with sharply lower volatility. Volatility increases immediately when CEOs return to work.” —David Yermack, a New York University finance professor, whose recently released study shows a correlation between when CEOs take their private jets on vacation and movements in their companies’ stock price ”
Last Fall, the U.S. Department of Transportation (DOT) unveiled proposed rules for enhancing protection for air charter customers. Since then, several influential charter brokers have gone on record as saying the proposals don’t go far enough—even though brokers are the primary targets of those rules.
Neither the proposals nor the industry’s call for stronger regulation reflect any rampant ethical problems among charter providers, but they underscore realities you should be aware of. How the rules will affect you depends on your charter purchasing habits and on how the regulations read after the agency considers public comments—including the charter industry’s—about its Notice of Proposed Rulemaking (NPRM). Here’s what you should know about the proposed rules, along with tips that can help protect you, whatever the regulatory environment.
The proposed rules are a by-product of a nearly decade-long investigation of a pair of high-profile business jet accidents by the National Transportation Safety Board. The NTSB couldn’t determine exactly what company was operating the chartered aircraft and recommended that the DOT mandate more transparency in the air charter industry to ensure consumers can make informed purchasing decisions.
As such, the proposed rules call for licensing brokers as “indirect air carriers” and requiring charter providers to give customers complete details of their flights—including all costs and the name of the company in operational control of the aircraft—at the time of purchase. Knowing the identity of the operator is critical to evaluating the service you’re buying. The cost provision aims to ensure customers aren’t blindsided by charges such as fuel, federal excise tax and landing fees.
The act of brokering—arranging for a third party to conduct a flight—was at the root of operational-control issues the NTSB highlighted in its investigation. Moreover, operators of Part 135 on-demand air-taxi services are already highly regulated, whereas brokers are unregulated, and charter transactions via brokers can be more ambiguous than those arranged directly with an operator. (At times, operators subcontract charter flights to other operators, and the proposed rules would require that customers be notified of such arrangements.) The Air Charter Association of North America (ACANA), a brokers’ trade group established to promote best-practice standards in the wake of the aforementioned accidents, provided input to the DOT during its deliberations on the NPRM and encouraged strong broker regulations.
ACANA feels the proposed rules fall short on three counts, according to president David McCown, a vice president at mega broker Air Partner in Los Angeles:
• The proposals provide for no registry, making it difficult to police brokers.
• There are no minimum requirements or standards to become a broker, leaving the ranks open to unqualified and unscrupulous providers.
• The rules offer no protection for funds that on-demand charter customers pay brokers in advance. (No official data on charter broker activity exists, but McCown says Air Partner estimates brokers book about 20 percent, or $600 million, of the $3 billion spent on Part 135 air charter annually.)
In its formal response to the DOT’s NPRM, ACANA says, “A basic air charter broker registration system for licensing is essential.” The group also wants a financial and ethical fitness test for prospective brokers and proof that the would-be broker understands all applicable regulations and obligations to customers. ACANA bars charter brokers with a felony conviction from membership and would like to see formal prohibitions against such individuals engaging in air charter.
“This business is incredibly sexy—that’s the reason a lots of people get into it,” says Ben Schusterman, founder of ElJet in Los Angeles, a charter brokerage and ACANA member. “You rarely see people flocking to be dry cleaners. Something like this is tempting for people who see deep pockets and easy money.”
Many in the charter industry also want to see a requirement that both operators and brokers carry liability insurance. Currently, providers aren’t even required to have insurance for errors and omissions, which garden-variety travel agents routinely carry.
The public comment period for the NPRM ended in late November. A DOT spokesman says the agency has no timetable for issuing final rules and does not comment on pending rulemaking.
If you’re dealing with a reputable, qualified charter provider, you are likely getting most of these protections already, though few providers offer escrow accounts for deposited funds. You should already be provided with the identity of the aircraft operator and accurate pricing information without hidden costs when booking a charter flight. (Deicing is often cited as a charge that cannot be anticipated in advance, but you should be made aware that such a charge might be incurred on flights when it may be necessary.)
Check the liability insurance limits for the aircraft you’re flying on. A high-quality operator will have coverage ranging from about $10 million for a piston aircraft to about $300 million for a large-cabin jet, says Tracey Deakin, COO of San Luis Obispo, California-based charter company Le Bas International (which maintains escrow accounts for client deposits).
Many experts advise checking crew qualifications as well. Working only with an operator whose aircraft and crews are evaluated by a third-party auditor such as Argus International or Wyvern Consulting can also help you avoid below-par providers, as many such operators lack the financial wherewithal to maintain these ratings.
Fortunately, the Great Recession washed many marginal brokers out of the profession. “A few years ago, we did see many more fly-by-night type brokers,” says Denise Wilson, CEO of charter operator and ACANA member Desert Jet in Palm Springs, California. “This is more to have protection for the future if that trend occurs again.”
James Wynbrandt (email@example.com), a private pilot, has -written for the New York Times, Forbes and Barron’s.