Document ID: DOT-OST-2009-0092-0277
Agency: dot
Document Type: Notice
Title: Guidance on Review and Approval of Public Charter Prospectuses
Posted Date: 2013-01-24T05:00Z

[Federal Register Volume 78, Number 16 (Thursday, January 24, 2013)]
[Notices]
[Pages 5239-5242]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01395]

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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

Public Charter Prospectuses

AGENCY: Office of the Secretary, Department of Transportation.

ACTION: Guidance on review and approval of public charter prospectuses.

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SUMMARY: The Department is publishing the following notice on 
clarifying new policies affecting the review and approval of public 
charter filings under 14 CFR part 380 and related changes in the 
Department's enforcement policies. These revisions refer to a notice 
dated November 13, 2012, appearing at 77 FR 69692 (Nov. 20, 2012).

FOR FURTHER INFORMATION CONTACT: Nicholas Lowry, Attorney, Office of 
Aviation Enforcement and Proceedings (C-70), 1200 New Jersey Ave. SE., 
Washington, DC 20590, (202) 366-9349.

Clarification of November 2012 Guidance on Review and Approval of 
Public Charter Operations and Prospectuses

    On November 13, 2012, the Department's Office of International 
Aviation and Office of Aviation Enforcement and Proceedings issued a 
joint notice regarding future filings under 14 CFR part 380, the 
Department's rule on public charters and enforcement policy under those 
rules.\1\ That notice, which was an effort to prevent the kind of harm 
to consumers that took place when the charter operator Southern Sky Air 
& Tours, LLC d/b/a Direct Air ceased service, explained that the 
Department would in the future not approve prospectuses under part 380 
absent certain supplemental assurances designed to avoid practices 
evident in the Direct Air case that were in violation of the public 
charter rules.
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    \1\ In addition to being published in the Federal Register (77 
FR 69692 (Nov. 20, 2012)), the notice was also posted at 
www.regulations.gov and on the Enforcement Office Web site http://www.dot.gov/airconsumer/guidance-aviation-rules-and-statutes and was 
widely distributed by email to persons who regularly communicate 
with the office.
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    Specifically, the notice described the Department's plan to reject 
public charter prospectus filings that do not affirmatively state that: 
(1) The contract between the charter operator and the direct air 
carrier is for the full price of the air transportation; and (2) the 
charter operator will retain control and access to its reservations 
records, and share those records with the direct air carriers. 
Furthermore, we stated that we would not permit the charter operator to 
accept payment by debit card (although we did state our willingness to 
consider waivers from this prohibition on demonstration that consumers 
would receive the protections of the Fair Credit Billing Act). The 
notice also stated that voucher programs, such as that offered by 
Direct Air, are not acceptable and will be considered to be per se 
violations of 14 CFR part 380.
    Shortly after issuance of this notice, the Department received a 
number of comments from the public charter

[[Page 5240]]

community. Some comments questioned the legality of the notice. Other 
comments sought clarification or revision of aspects of the guidance 
addressed in the notice. In order to have sufficient time to review and 
consider these comments, we extended the effective date of the guidance 
to January 14, 2013.\2\ Then, on January 4, 2013, after considering the 
comments received on our November 13 guidance, we issued a draft 
clarification and invited additional public comments by January 8, 
2013. We received six comments from four attorneys who represent public 
charter industry participants, one charter company and a prospective 
charter operator.\3\
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    \2\ 77 FR 74729 (Dec. 17, 2012).
    \3\ Attached is a discussion of the comments received on the 
draft clarification we posted on our Web site (http://www.dot.gov/airconsumer/latest-news) and placed in DOT-OST-2013-0002 at http://regulations.gov on January 4, 2013.
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    We have now fully considered the comments previously received and 
additional comments we solicited on the draft clarification, and we are 
convinced that requiring supplemental assurances to prospectus filings 
is within our authority and is needed to prevent consumer harm. 
However, we agree with the public charter community that further 
clarification and revision of the guidance is needed to make certain 
that the assurances to be filed as part of the prospectus filings 
address the practical business problems raised in the comments we 
received but still prevent the problematic situation that took place 
when Direct Air ceased service. As such, this notice modifies the prior 
guidance by providing citations to the existing laws that are the basis 
for the guidance, further clarifying the supplemental information/
assurances that should be included in public charter prospectus filings 
and further clarifying our enforcement policy with respect to certain 
matters discussed in the guidance. In response to comments that the 
charter operator, the bank, and the direct air carrier should not be 
asked to make assurances in areas where they have no responsibility, 
the required assurances will only be expected with respect to the 
portions of the charter operations in which the entity making the 
assurance is directly involved.
    Our prior notice stated that charter operators could not have 
contracts with direct air carriers that are limited to providing 
aircraft, crew, maintenance and insurance (ACMI). We stated that the 
contract between the charter operator and the direct air carrier must 
be for the full price of the air transportation.\4\ This guidance is 
based on section 380.11 which provides that a direct air carrier shall 
be paid in full for the cost of the charter transportation prior to the 
scheduled date of flight departure. However, as a matter of enforcement 
policy, we have decided not to take action against public charter 
operators that have ACMI contracts provided that the charter operators 
and their escrow banks offer assurances that all passenger funds in 
charter programs are deposited in the relevant escrow and that the 
escrow banks involved maintain accounts and full and accurate 
accounting of disbursements to vendors such as fuel or ground handling 
providers in accordance with 14 CFR 380.34(b). For charter operators 
using a security instrument under section 380.34(a), ACMI contracts may 
also be utilized provided that the amount of the security instrument is 
unlimited or for the full cost of the air transportation. (See footnote 
4). Further, in the limited circumstances where a government requires 
payment directly from a public charter operator rather than the escrow 
bank as required by section 380.34(b)(2)(v), as a matter of enforcement 
policy, we will not pursue enforcement action against the public 
charter operator for doing so.\5\ In addition, in situations where a 
public charter operator is required to pay government taxes and fees in 
advance of the passenger date of travel, we will not take action 
against these entities for paying the fees out of the escrow account 
prior to payment to the direct air carrier irrespective of the 
requirement in section 380.34(b)(2)(ii) for the direct air carrier to 
be paid in full prior to other payments being made, so long as the bank 
and public charter operator maintain a full accounting of records of 
such disbursements.\6\ Our rules require that disbursements be 
identified on an individual flight by flight basis. Our primary intent 
is to reaffirm that all passenger funds must be deposited initially in 
the escrow accounts, apart from certain deductions allowed in travel 
agent sales.
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    \4\ The full cost of the direct air transportation includes the 
cost of aircraft, crew, maintenance, insurance, fuel, ground 
handling, landing fees, reservations costs, passenger facility fees 
and taxes, and all other costs associated with the direct air 
transportation.
    \5\ We are aware of markets, for example Cuba, in which payments 
for ground services may only be made by the charter operator.
    \6\ In case the charter is cancelled, the charter operator must 
also be prepared to make full refunds to consumers, including 
amounts disbursed as pre-paid taxes (14 CFR 380.32(k)).
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    Another area of clarification concerns control by public charter 
operators of passenger reservation records and the sharing of these 
records with direct air carriers. Our prior notice indicated that we 
would not approve public charter prospectus filings that do not include 
an assurance that the public charter operator will retain direct 
control of all passenger reservation records and will share those 
records with the direct air carrier to ensure that, in the event of a 
major disruption in the program, the direct air carrier would be able 
to identify and contact tour participants regarding returning flights. 
Representatives of charter operators contended that the Department was 
creating new requirements through guidance. However, a number of 
sections in part 380 require public charter operators to provide 
notifications to passengers under certain specific circumstances. See, 
e.g., sections 380.12 and 380.33. In addition, sections 249.21 and 
380.36 require public charter operators to maintain passenger records 
for six months after the completion or cancellation of the flight or 
series of flights. To comply with these obligations, public charter 
operators must have access to passenger reservation records. In 
addition, section 14 CFR 212.3(f) requires direct air carriers 
conducting public charter operations to return passengers who purchased 
round trip transportation on the charter and who were transported by 
that carrier on their outbound flights to their point of origin. 
Without passenger reservation records, direct air carriers would be 
unable to comply with this existing requirement. Therefore, we view the 
existing requirements as mandating that public charter operators share 
these records with direct air carriers when needed to return passengers 
to their points of origin.
    Representatives of charter operators also appeared to believe that 
the guidance would not allow charter operators to rely on reservations 
systems provided by third-parties. This is not correct. Direct air 
carriers and charter operators can rely on such outside vendors for 
these services but must ensure that they still have access to the 
records. Our intent was and remains to emphasize, to both the charter 
operator and the direct carrier, the importance of the obligation to 
return passengers under section 212.3, and not to preclude the use of 
third-party vendors. Both the public charter operator and the direct 
air carrier have discretion in how to meet this obligation, but the 
Department needs assurances in the prospectus filings that the public 
charter operator will maintain access to the reservation records as 
required by existing rules and share this information with the direct

[[Page 5241]]

air carrier in case of a disruption in a charter program to comply with 
the requirement to return passengers under section 212.3.
    The third issue that we addressed in our guidance concerned the use 
of debit cards in the purchase of charter transportation. Our November 
13 notice prohibited the use of debit cards in the purchase of charter 
transportation, citing the explicit language of section 380.31 \7\, 
which only provides for payment by check, money order or credit card, 
but not by debit card. We were particularly concerned that debit cards 
lack the chargeback protections afforded credit card users under the 
Fair Credit Billing Act (15 U.S.C. 1601 et seq.). As a matter of 
enforcement policy, we have now determined not to pursue action against 
charter operators that accept payment by debit card if they can provide 
assurances to the Department that their merchant banks and credit card/
debit card processors will provide the same chargeback protections to 
those using debit cards as credit card users receive. If a charter 
operator cannot obtain such assurances then it may not accept debit 
card payments for transportation.\8\
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    \7\ The provision cited should have been 14 CFR 380.34(b)(2)(i).
    \8\ With respect to charters protected by a security agreement 
covering the full cost of the air transportation (14 CFR 380.34(a)), 
our rules allow charter operators to accept payment in any form. 
(See, 63 FR 28225, 28232, May 22, 1998; fn. 10).
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    Finally, we wish to clarify our position regarding vouchers. We 
stated in our November 13 notice that the Enforcement Office would 
consider any voucher program similar to that offered by Direct Air to 
be a per se violation of 14 CFR part 380. In the case of Direct Air, 
the charter operator sold vouchers for travel at unspecified dates in 
the future. Consumer funds did not, as a result, receive the escrow 
protection required under Part 380. However, the proscription on the 
use of vouchers applies only to voucher programs for which the charter 
operator receives money.
    Purely gratuitous or complimentary vouchers distributed for 
passenger goodwill are not affected by this policy and they will not be 
considered to be per se violations.\9\
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    \9\ Complimentary vouchers will, however, continue to be subject 
to statutory provisions on unfair and deceptive trade practices (49 
U.S.C. 41712) and unauthorized holding out of air transportation (49 
U.S.C. 41101) wherever applicable. For example, distributing 
vouchers in excess of the capacity of aircraft contracted for in a 
specific program would constitute such a violation.
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    This revised policy regarding approval of charter prospectuses 
clarifies the notice of November 13, 2012, and will take effect 60 days 
from the date of this notice. Prospectuses filed after that date will 
not be approved without the supplemental assurances, outlined above. 
The Enforcement Office intends to undertake enforcement action, where 
appropriate, if it obtains evidence of violations of commitments made 
in those statements, or of the acceptance of debit purchases without 
the appropriate assurances as discussed above, or of sales initiatives 
such as the voucher program described above. Moreover, 14 CFR 380.24 
continues to require the Department ``to deny the exemption authority 
of any charter operator, without hearing, if [the Department] finds 
that such action is necessary in the public interest or is otherwise 
necessary in order to protect the rights of the travelling public'' and 
it will do so. Questions regarding this notice may be addressed to the 
Office of Aviation Enforcement and Proceedings (C-70), 1200 New Jersey 
Avenue SE., Washington, DC 20590 or you may contact Lisa Swafford-
Brooks, Chief, Aviation Licensing Compliance Branch (lisa.swafford-brooks@dot.gov), or Nicholas Lowry, Senior Attorney 
(nick.lowry@dot.gov) in that office, at (202) 366-9342.

     Dated: January 14, 2013.
Paul L. Gretch,
Director, Office of International Aviation.
Samuel Podberesky,
Assistant General Counsel for Aviation Enforcement and Proceedings.

    An electronic version of this document is available at http://www.regulations.gov.

Discussion of Comments on Draft Clarification of November 2012 Guidance 
on Review and Approval of Public Charter Operations and Prospectuses

    In our draft notice placed in DOT-OST-2013-0002 on the 
clarification of our November 13 guidance, we invited public comments 
by January 8, 2013 on our revised guidance on the review and approval 
of public charter prospectuses under 14 CFR part 380. We received six 
comments from four attorneys who represent public charter industry 
participants, one charter company and a prospective charter operator. 
The notice, as revised, is included above this summary of comments.
    With respect to AMCI contracts, one commenter states that 
assurances regarding depositing all funds in escrow accounts, as the 
notice suggests, is redundant, as it is already part of the rule but 
did not offer any further objection. A second comment queried whether 
payments to vendors and tax payments would be paid by the escrow bank 
or the charter operator and whether payments could be made prior to the 
flight completion date. The notice explains that payment may be made by 
the charter operator in limited circumstance subject to certain 
conditions. We also clarify that we will allow prepayment of fees out 
of escrow if required by a government entity.
    On reservations records, again we received a comment stating that 
assurances regarding access to passenger records are redundant since 
they are already implicitly required by the rule. Another comment 
pointed out that charter carriers and operators are not able to 
maintain independent reservations systems. Our notice recognizes this 
and states that the carriers and charter operators have discretion in 
how they maintain records and can use third party vendors, so long as 
they are in a position to make reasonable efforts to contact passengers 
in case of a stranding.
    With respect to the use of debit cards, two commenters point out 
that bond-only programs should be free to accept debit cards without 
the assurances described in the order because the bonds cover the full 
amount of the air transportation. We agree and have modified the notice 
to reflect that qualification.
    In addition, the comments of a prospective charter operator 
generally denied that the Department had authority to prohibit the use 
of debit cards or voucher programs or to seek assurances regarding AMCI 
contracts. We believe he is wrong on these points. He also asserts that 
the Department should provide free bonding protection for all public 
charter programs. These comments are outside the scope of our notice 
and beyond our authority. Another charter operator suggested, with 
respect to voucher programs, that pre-paid voucher programs should be 
in compliance with part 380, provided all consumer funds remained in a 
general escrow account until the consumer selected a date and then 
could be allocated to a specific flight date. In addition, the 
commenter suggests that carriers should be free to enter into AMCI 
contracts with charter operators if special security accounts were 
established to cover flight expenses, such as fuel, not covered in the 
AMCI contract. We remain open to consider such proposals in the context 
of waiver or exemption requests so long as we are convinced that 
consumer funds receive adequate protection.
    Several of the commenters expressed interest in the exact form the 
assurances discussed in the notice should take. We

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plan to place sample assurances in the docket for public review and 
comment shortly (DOT-OST-2013-0002; at http://regulations.gov).

[FR Doc. 2013-01395 Filed 1-23-13; 8:45 am]
BILLING CODE 4910-9X-P