[Federal Register Volume 69, Number 200 (Monday, October 18, 2004)]
[Notices]
[Pages 61429-61431]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-23268]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary


Notice on the Role of Air Charter Brokers in Arranging Air 
Transportation

AGENCY: Office of the Secretary, Department of Transportation.

ACTION: Notice on the role of air charter brokers in arranging air 
transportation.

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SUMMARY: The Department is publishing the following notice to provide 
guidance to the aviation industry on the permissible role of air 
charter brokers in the provision of air transportation.

FOR FURTHER INFORMATION CONTACT: Dayton Lehman, Jr., Deputy Assistant 
General Counsel, or Jonathan Dols, Senior Attorney, Office of Aviation 
Enforcement and Proceedings (C-70), 400 7th Street, SW., Washington, DC 
20590, (202) 366-9349.

Notice

    The purpose of this notice is to provide guidance regarding the 
lawful role of air charter brokers (i.e., entities, including persons, 
that link prospective charter customers with direct air carriers) in 
the provision of air transportation.\1\ This guidance will be used by 
the Office of the Assistant General Counsel for Aviation Enforcement 
and Proceedings (Enforcement Office) in its compliance and enforcement 
activities associated with 49 U.S.C. 41101 and 41301, which establish 
the certificate and permit requirements for U.S. and foreign air 
carriers, respectively, and 49 U.S.C 41712, which prohibits unfair and 
deceptive practices.
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    \1\ This notice does not apply to activities that are permitted 
under 14 CFR parts 296, 297, or 380.
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    In order to hold out or otherwise engage in air transportation, 
either directly or indirectly, as a common carrier, a person is 
required to hold economic authority from the Department of 
Transportation pursuant to 49 U.S.C. 41101 or 41301, or an exemption 
from those provisions, such as that provided to air taxis under 14

[[Page 61430]]

CFR part 298, to certain indirect air carriers functioning as public 
charter operators pursuant to 14 CFR part 380, or to air freight 
forwarders pursuant to 14 CFR parts 296 and 297. (This economic 
authority is in addition to any safety authority necessary under 
applicable Federal Aviation Administration requirements.) Therefore, 
air charter brokers without appropriate economic authority may not hold 
out air transportation in their own right or enter as principals into 
contracts with customers to provide air transportation.\2\ Rather, in 
entering into contracts to provide air transportation, these air 
charter brokers must act either as an agent of the direct air carrier 
or of the customer.\3\
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    \2\ Under Department enforcement case precedent, violations of 
49 U.S.C. 41101 and 41301 and the Department's licensing 
requirements constitute unfair and deceptive practices and unfair 
methods of competition in violation of 49 U.S.C. 41712. See, e.g., 
DB Air, Ltd., Violations of 49 U.S.C. 41101 and 41712, Order 2004-2-
21 (Feb. 23, 2004); Trans National Travel, Inc., Violations of the 
Public Charter Rules, 49 U.S.C. 41101 and 49 U.S.C. 41712, Order 94-
8-17 (Aug. 12, 1994). Pursuant to 49 U.S.C. 46301, violations of 
these statutory provisions subject violators to the assessment of 
civil penalties of up to $25,000 for each violation and $25,000 for 
each day each such violation continues. The maximum amount is $2,500 
per violation per day for individuals or an entity that is a ``small 
business'' as defined in 15 U.S.C. 632.
    \3\ A broker would not be considered to be engaging in air 
transportation and thus would not need to be acting as an agent 
where, for example, it did not hold out air transportation and 
merely arranged for the charterer to sign a contract for air 
transportation directly with the airline.
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    The Enforcement Office has become aware that there are air charter 
brokers not holding economic authority from the Department who solicit 
and contract directly with a charter customer for air transportation 
and then solicit and separately contract directly with a direct air 
carrier to operate the air service promised to the charter customer 
under the charter broker's contract with that customer. With respect to 
payment for the proffered air transportation, two separate transactions 
commonly occur: (1) The air charter broker collects all of the monies 
paid by the charter customer pursuant to the broker's contract with the 
customer, and (2) the air charter broker then turns over a portion of 
these monies to the direct air carrier pursuant to the broker's 
separate contract with the carrier. In such instances, the air charter 
broker is not acting as an agent for the operating carrier or for the 
charter customer. Rather, the air charter broker is acting as a 
principal in both transactions, and, with respect to its relationship 
with the customer, is engaged in air transportation as an indirect air 
carrier without economic authority in contravention of the statutory 
and Department licensing requirements described above.
    In addition, the Enforcement Office has recently learned that 
certain air charter brokers that lack economic authority have 
arrangements with licensed air carriers, in which the brokers hold out 
in their own right and, as principals, sell charter flights on aircraft 
that they own or lease and have had placed on the operating 
certificates of the licensed carriers. In such situations, the 
Department has found that, to the extent that a direct air carrier 
knows or has reason to know of the broker's unlawful conduct, the 
direct air carrier is also engaged in an unfair and deceptive practice 
or unfair method of competition in violation of 49 U.S.C. 41712.\4\ 
However, we recognize that air charter brokers can provide important 
public benefits in connection with air transportation, particularly 
when, akin to public charter operators, they assume the economic risk 
of such service and are also involved in purchasing and funding the 
operation of aircraft by certificated carriers. We note that this 
notice does not preclude brokers from seeking from the Department 
exemption authority that could permit them to offer services directly 
to the public in their own right, subject to their implementation of 
necessary consumer safeguards.
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    \4\ See, e.g., Frontier Airlines, Inc., Violations of 49 U.S.C. 
41712 and 14 CFR part 212, Order 2004-8-19 (Aug. 18, 2004); Miami 
Air International, Inc., Violations of 49 U.S.C. 41712, Order 2004-
4-15 (Apr. 20, 2004); Ryan International Airlines, Inc. Violations 
of 49. U.S.C. 41712 and 14 CFR part 212, Order 2003-12-15 (Dec. 15, 
2003). We note that, pursuant to 14 CFR 212.3(d), a direct air 
carrier ``must make a reasonable effort to verify that any charterer 
with which it contracts, and any charter it conducts, meets the 
applicable requirements of this chapter.''
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    The Enforcement Office is particularly concerned about the unlawful 
practices described above pertaining to brokers that lack economic 
authority because they bypass the protections put in place by the 
Department to afford the public a measure of financial protection where 
charter flights are involved. In this regard, with respect to 
traditional single-entity charters using large aircraft,\5\ section 
212.8 of the Department's rules (14 CFR 212.8) requires a direct air 
carrier that engages in charter air transportation to maintain a bond, 
in an unlimited amount, to guarantee performance of all charter flights 
for which it has contracted, or to maintain an escrow account into 
which it must deposit immediately all payments received for charter 
flights until after the flight has been operated.\6\ Where an air 
charter broker is the principal in the transaction with a charter 
customer and receives payment directly, its actions are not only 
unlawful, but also create the type of unacceptable risk to the public's 
funds that the economic licensing requirements of 49 U.S.C. 41101 and 
the Department's regulations, when followed, are designed to preclude.
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    \5\ A ``large aircraft'' means any aircraft designed to have a 
maximum passenger capacity of more the 60 seats or a maximum payload 
capacity of more than 18,000 pounds. 14 CFR 298.2. The Department 
and the Civil Aeronautics Board, which held jurisdiction over 
aviation licensing matters prior to the Department, have 
consistently used an aircraft's original design capacity as the test 
for determining whether an aircraft met this definition, rather than 
the number of seats or the payload capacity that the aircraft is 
configured to hold. Order 2003-7-7, issued July 7, 2003; Order 2002-
9-4, issued September 5, 2002; See also Part 298 Weight Limitation 
Investigation, 60 CAB 142, 143 (1972); 44 FR 30081 (May 24, 1979).
    \6\ Similar protections exist for public charter flights, where 
the authorized indirect air carrier is required to have a bond or 
other security arrangement and to escrow payments from charter 
participants until payment is made to the direct air carrier's own 
escrow account. 14 CFR 380.34.
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    Moreover, such arrangements by air charter brokers that do not hold 
economic authority from the Department also violate specific Department 
regulations designed to protect the public in other respects from 
unfair and deceptive practices and unfair methods of competition in 
violation of 49 U.S.C. 41712. In this regard, air charter brokers are 
ticket agents pursuant to 49 U.S.C. 40102(a)(40), which defines a 
ticket agent as a person, other than a carrier or its employee, who, 
``as a principal or agent sells, offers for sale, negotiates for, or 
holds itself out as selling, providing, or arranging for air 
transportation.'' Various provisions of 14 CFR part 399 state that the 
Department will regard it to be an unfair and deceptive practice or 
unfair method of competition for a ticket agent, among other things, to 
create the false impression that it is an air carrier, to advertise in 
certain ways that confuse the traveling public with respect to a ticket 
agent's status, and to enter into a contract for air transportation 
with a customer without first obtaining a binding commitment with an 
air carrier to perform the promised air transportation.\7\ Accordingly, 
any advertising by an air charter broker without economic authority 
should clearly convey the fact that the broker is not a direct air 
carrier and that the air service advertised will be provided by a 
properly licensed carrier.\8\
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    \7\ 14 CFR 399.80(a), (b) and (j), respectively.
    \8\ Arrangements in which the air charter broker markets its own 
aircraft that it has paid a direct air carrier to place on the air 
carrier's operations specifications have raised issues when the 
broker seeks to use its livery on the aircraft. Bearing in mind the 
prohibition in 14 CFR 399.80(b) on a ticket agent displaying its 
name on aircraft in a manner that may mislead or confuse the 
traveling public as to the agency status of the ticket agent, the 
Enforcement Office has reviewed such matters on a case-by-case basis 
and has generally declined to take enforcement action where the name 
of the carrier is also displayed prominently on the aircraft and 
consumers are not otherwise misled into believing that the ticket 
agent is an airline.

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[[Page 61431]]

    Although the proscriptions on deceptive and anticompetitive conduct 
found in Part 399 are written in general terms, at a minimum, air 
charter brokers without economic authority (or other ticket agents for 
that matter) should take care not to hold out as ``airlines,'' ``air 
carriers,'' ``operators,'' ``airways,'' or in any other way likely to 
create the false impression that they are direct air carriers in their 
own right. Toward this end, such entities should not refer to an 
aircraft used in the air services that they are marketing in a manner 
that conveys the false impression that they are an air carrier or the 
operator of the air transportation (e.g., ``our fleet,'' or ``our 
charters,'' ``our charter service,'' ``our jet operators,'' or ``we 
operate a fleet of'').
    In the course of several recent enforcement investigations, the 
Enforcement Office has also become aware of the use of air charter 
brokers by operators of commercial service with large aircraft operated 
pursuant to 14 CFR part 125. Such operators may not hold out or provide 
air transportation to the public for compensation or hire, directly or 
indirectly through third parties.\9\ Therefore, air charter brokers who 
offer transportation services to the public, regardless of whether they 
hold economic authority in their own right, may not act as an agent of 
a Part 125 operator with respect to the provision of air 
transportation. Such actions may be unfair and deceptive practices and 
unfair methods of competition on the part of the air charter broker, in 
violation of 49 U.S.C. 41712, and would subject the Part 125 operator 
to enforcement action for unlawfully engaging in common carriage.
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    \9\ See, e.g., Premier Aircraft Management, Inc., Violations of 
49 U.S.C. 41101 and 41712 and 14 CFR Part 375, Order 2004-5-11 (May 
13, 2004); SportsJet, LLC, Violations of 49 U.S.C. 41101 and 41712, 
Order 2003-12-23 (Dec. 29, 2003). In addition, 14 CFR 125.11(b) 
provides that ``[n]o certificate holder may conduct any operation 
which results directly or indirectly from any person's holding out 
to the public to furnish transportation.''
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    Another area of interest regarding the relationship between Part 
125 carriers and air charter brokers that has recently come to our 
attention involves the use of so-called Internet ``bid bonds'' The 
Enforcement Office understands that some air charter brokers, who often 
style themselves as ``charter managers'' or ``logistics companies,'' 
manage the transportation of cargo for the major auto manufacturers, as 
well as scores of other customers,\10\ who may be the actual shippers 
of goods or air freight forwarders. These charter managers conduct 
business through an Internet bid-quote solicitation system that allows 
subscribing air carriers and Part 125 operators to see and bid on the 
transportation needed. With respect to such computerized bidding 
processes, a Part 125 carrier could contract with customers through the 
charter manager, with the charter manager being an agent for the 
customers to be served, so long as either (1) the charter manager 
represents only a few customers or (2) the contracts signed by the Part 
125 carrier with the charter manager as agent are specific as to only a 
small number of delineated customers with whom the Part 125 carrier is 
dedicated to contracting.\11\ The Enforcement Office would likely 
investigate for unlawful common carriage any situation where the number 
of different customers whose trips the Part 125 carrier bid on, or with 
whom the Part 125 carrier contracted through the charter manager, 
exceeded three.\12\
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    \10\ We understand that some charter managers may manage air 
services for up to 200 separate customers.
    \11\ A Part 125 carrier may only contract to transport goods 
through a charter manager if the charter manager is acting legally 
as the agent of the customer. A Part 125 carrier may not enter into 
a contract with a charter manager in which the Part 125 carrier's 
obligation is to the charter manager (not the customer) to perform 
the transportation and the charter manager has a separate agreement 
to provide the customer air transportation. This is the case 
because, if the charter manager is not acting as the lawful agent of 
the customer in its contract with an air carrier, it would be acting 
either as a direct air carrier, in effect sub-servicing the 
operation (some charter managers do, in fact, hold authority as 
direct air carriers), or as an indirect air carrier, i.e., freight 
forwarder, pursuant to 14 CFR Part 296. A Part 125 carrier can never 
lawfully carry the traffic of an air carrier (Part 135 or 121) or a 
freight forwarder since such transportation clearly would be in 
common carriage. Indeed, we would view seriously the actions of any 
charter manager acting as a direct or indirect air carrier that 
contracted in such a manner with a Part 125 carrier. Such actions 
could, at a minimum, constitute an unfair and deceptive practice and 
unfair method of competition in violation of 49 U.S.C. 41712.
    \12\ Presuming the Part 125 carrier signs a contract with a 
charter manager/agent representing three customers, the carrier 
should not participate in any other bid quote solicitation system 
operated by another charter manager/agent unless doing so involved 
only bidding on and operating trips for the same three customers. To 
do so would likely trigger an investigation by the Enforcement 
Office to determine whether the carrier is engaging in common 
carriage.
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    If there are any questions regarding this notice, please contact 
Dayton Lehman, Deputy Assistant General Counsel, or Jonathan Dols, 
Senior Attorney, Office of Aviation Enforcement and Proceedings (C-70), 
400 7th Street, SW., Washington, DC 20590, (202) 366-9349.
    An electronic version of this document is available on the World 
Wide Web at http://dms.dot.gov

    Dated: October 8, 2004.
Samuel Podberesky,
Assistant General Counsel for Aviation Enforcement and Proceedings.
[FR Doc. 04-23268 Filed 10-15-04; 8:45 am]
BILLING CODE 4910-62-P