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A Rift Among Aircraft Brokers

In a historic first, an industry stamp of approval for preowned aircraft brokers and brokerages has been adopted, with the initial group of applicants now qualified. “We’re really excited about where this is going,” says Brian Proctor, chairman of the sanctioning trade group, the International Aircraft Dealers Association. Proctor is also president and founder of the Mente Group, a consultancy and brokerage that is a charter IADA accredited dealership.

An accreditation process has long been called for by advocates of greater professionalism and ethical behavior in the unregulated aircraft brokerage business. But some industry champions of such goals say IADA’s initiative is dividing the brokerage community and creating a competitive advantage for an exclusionary group to the detriment of aircraft buyers and sellers.

The problem that standards seek to address is longstanding: with no licensing or certification requirements, no standard brokerage agreements, and wingtip-to-wingtip multimillion-dollar deals, the field can draw unscrupulous and incompetent practitioners who harm both customers and the profession’s reputation. 

Don’t expect Washington to come to the rescue. The Department of Transportation only last year published decades-in-the-making rules governing air charter brokers; and with sympathies for complaining business jet buyers and sellers likely low, the Federal Trade Commission doesn’t have preowned aircraft on its radar. 

IADA, formerly the three-decades-old National Aircraft Resale Association (NARA), has stepped in to fill the gap. Rebranded last year to reflect its members’ and the industry’s increasingly global scope, IADA retains NARA’s code of ethics but also mandates that members pass a test to earn approval (accreditation for brokerages/dealerships, certification for brokers) and sign an oath to observe the ethics code, among other new requirements. 

Since the rebranding, IADA has grown from some two dozen to more than 40 member firms, a cohort that handles about half of retail preowned transactions, though comprising just 3 percent of all brokerages, according to the trade group.

IADA wants its approvals to become the industry standard for signifying quality and ethical behavior to buyers and sellers alike. But we spoke with several opponents of its code (all of whom requested anonymity, citing concerns including privacy and about being accused of sour grapes). Among the issues they noted is that IADA allows only large, high-volume brokerages to join, precluding many reputable and successful companies from earning its approval. IADA requires members to have a brick-and-mortar office infrastructure and at least three brokers on staff; it also requires that brokers conduct a minimum number of transactions per year (typically about 10), based on factors such as aircraft category and value. Some brokerages that would qualify resist joining (as they did with NARA) for reasons that include a lack of perceived benefit and a preference for independence.

In response to claims that IADA is exclusionary, Proctor says the organization was simply eager to take a bold step in advancing the cause of industry ethics, starting with its current members and similarly configured brokerages. 

“We don’t want to disenfranchise smaller firms,” Proctor says, but he cites IADA’s limited ability to process candidates and concerns about being “overwhelmed” by applications. He adds that the organization had “a lot of pushback internally” about the program. But, he emphasizes, “Twelve months ago, none of [the standards] existed. Today we have an accreditation program that’s gone through one cycle. I think it’s a little unfair to shoot bullets while we’re trying to develop” the standards.

To ensure that its broker and dealership certification tests are rigorous and objective, IADA selected Joseph Allen Aviation Consulting to create them, based on industry knowledge culled from the organization’s most experienced members. But it doesn’t bolster IADA’s inclusiveness assertions that the Joseph Allen website states its accreditation programs “create a competitive advantage in your market.” 

Among other changes accompanying the rebranding was creation of a web-based aircraft exchange listing platform on which all members must post their inventory (currently some 500 aircraft). The aircraft are listed market-wide, but IADA intends the site to become the industry’s go-to source for preowned action, and members have access to data that is not available market-wide, Proctor says. The platform, he adds, is one element of the kind of value that IADA, like all trade groups today, must offer members.

IADA’s international ambitions have also been questioned in the context of its intentions of raising ethical standards. Acknowledging that in parts of the world “kickbacks and referral fees”—both prohibited by IADA’s code—"are normal” in preowned-aircraft transactions, Proctor says, “If you operate in places that can’t be successful [without such tactics] and can’t live according to the standards we created,” then you shouldn’t apply to join the group. “We’re not going to change our ethics position; people will have to adapt,” he adds.

The organization’s makeover was born in the wake of the collapse of Singapore-based charter fleet owner/operator Zetta Jet, which imploded amidst claims of malfeasance, including insider deals and kickbacks involving fleet transactions. IADA instituted a more aggressive approach to confronting allegations of member misconduct under its new regime (Proctor was named NARA president and CEO in late 2017), but its ability to police and enforce its code remains untested. 

IADA aside, no industry institution has claimed interest in creating standards. The National Business Aviation Association’s Certified Aviation Manager (CAM) program accredits flight department professionals, but small, noncommercial Part 91 operations are at the core of the NBAA’s constituency; aircraft brokers and brokerages are not. Moreover, the CAM program has no code of ethics to enforce or requisite policing arm to ensure compliance. FBOs, meanwhile, have the National Air Transportation Association, which confronts lower-stakes ethical issues. 

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But a concerted effort was underway to develop brokerage standards by a loose coalition that included many NARA and non-NARA members; and many in the latter group feel IADA’s approach has subverted those efforts for its own benefit. 

Without making pledges, Proctor says IADA will likely revisit membership requirements, though “we don’t know the timing,” and the first change would “probably” be a downward revision in the minimum number of brokers. 

“My request to the industry is give us a little more time,” he adds. “If we step forward five years, I think the industry is a lot better off. In the short run, it’s imperfect.” 

Whatever IADA’s membership rules, “the goal is to get 200 to 250 brokers” in the group, Proctor says, which would consign the majority of professionals to operating without access to the industry-wide code of ethics and seal of approval the organization seeks to create. 

For now, since IADA acknowledges that its limited resources and policies exclude many fine brokers and brokerages from its ranks, what’s its advice to buyers and sellers considering working with any of the 1,200 non-affiliated entities? 

“We aren’t qualified to speak [about] non-IADA members,” Proctor says. “We can only speak about those we do know.”

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