DOT Rule Aims To Curb Shady Charter Broker Practices

The U.S. Department of Transportation recently released its long-awaited rule regulating charter brokers, creating a new indirect-air-carrier category, calling for disclosures to consumers from brokers and air taxis, and spelling out some of what would constitute unfair or deceptive practices. However, the rule does not establish the charter broker registry that some industry groups pushed for it to require, nor does it provide a permanent exemption for air ambulance transportation.

To take effect February 14, the rule was released five years after the DOT issued the proposed rulemaking. It has been in the works for more than a decade and, in fact, the department initially released an advanced notice of proposed rulemaking in early 2007.

That effort stemmed from concerns the charter community raised about the practice of some brokers portraying themselves as air carriers. A lack of clarity surrounding the differences between brokers and direct carriers also came to light during a few high-profile accidents in the early 2000s, leading the National Transportation Safety Board to recommend certain disclosures and a prohibition of certain practices.

The rule comes as the business aviation community internationally has stepped up efforts to tackle the issue of illegal, so-called gray charter. And over the past decade, the number of charter and brokering models has rapidly expanded.

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Titled “Increasing Charter Air Transportation Options,” the rule is designed to “facilitate innovation and growth of the air charter industry while strengthening the legal protections provided to consumers of charter air transportation,” the DOT said.

Broker Class

As proposed, nearly all comments support the concept of introducing a new air charter broker class of indirect air carrier, the DOT said. The class, under a newly created Part 295, enables brokers to facilitate a transaction for air charter transportation aboard large and small aircraft and permits the brokers to self-identify rather than obtain a license or registration.

As a result of several comments surrounding the definition of air charter broker, the DOT expanded the scope to include those acting as indirect air carriers and bona fide agents, whether representing the consumer or the carrier. “This is a natural outgrowth of the NPRM,” the DOT said, adding that it further is harmonizing the regulations surrounding disclosure requirements for air-taxi operators/commuter carriers and air charter brokers.

However, it decided against creating a formal registry. The DOT said it could revisit the possibility, should a need become apparent, but believes the benefits of a registry at this time are “ill defined.” The agency added that it does not prevent voluntary registrations developed by third parties.

Regarding disclosures, the DOT is calling for the broker “to clearly and conspicuously” define its status and the fact that it is not a direct air carrier. “The Department believes that on the whole consumers, regardless of sophistication level, would benefit from an increased amount of information,” it said.

Disclosures include the name of the direct air carrier (both U.S. and foreign) that will have operational control. Also, the broker must explain the capacity in which it is acting in contracting for the charter transportation (whether as an indirect air carrier, indirect foreign air carrier, agent of the charterer, or agent of the air carrier). Further, the agent must disclose any business relationships with the direct air carrier. Other disclosures concern the total cost of transportation and whether the broker has insurance covering the trip. However, the DOT did not require insurance, saying most provide it anyhow and that it is good business practice to do so.

The disclosures must be made within a reasonable time, but the DOT did not regulate the exact advance notice based on the needs for flexibility within the air charter industry. It decided against disclosures on type of aircraft, because that already is part of most charter negotiations.

Accurate Representation

Air charter brokers may display their name and logo on aircraft “provided the name of the direct air carrier is displayed prominently and clearly on the aircraft and consumers are not otherwise misled into thinking that the air charter broker is a direct air carrier or direct foreign air carrier.”

To curb deceptive or unfair actions, the DOT said it is enumerating practices that involved misrepresentations of entities with operational control, quality of aircraft involved, the schedule and itinerary, insurance carried, fares or charges levied, presence of contracts with specific carriers or for specific aircraft, and the legal impossibility of completing the flight. Further, all contracts must be made with carriers that have full authority to conduct the flight. Also, refunds can be required from both brokers and operators, particularly in cases of changes to the original contract.

The DOT opted against a permanent blanket exemption for entities that arrange air ambulance services as indirect carriers, and that included similar protections as provided for under the air charter broker requirements. These exemptions have been granted on an individual basis since 1983, and the proposal received strong support. However, the DOT said it needed to further study the issue.

It estimates that the cost of the rule primarily would stem from the disclosure provisions and could range from $1.3 million to $2.7 million a year, in 2017 dollars.

On initial glance, the charter-broker rule generally drew positive reviews from the National Air Transportation Association (NATA), which has worked with the agency for more than a decade on the regulations. “On the whole, NATA believes this is a strong step in the right direction for addressing industry concerns about brokers,” said Jacqueline Rosser, NATA’s senior adviser of regulatory affairs for air charter. The DOT carefully considered all industry comments and many of them, including several submitted by NATA, were accepted. “The level of transparency and disclosures that brokers will make empowers the consumer,” Rosser added.

NATA was among those, however, pushing for a broker registry. “We understand but are disappointed in the decision against making a registry. But we appreciate that the DOT is willing to reconsider it in the future,” she said.