Grey outlook

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The grey market for business aircraft charter is thriving. Around 50% of the world's charter flights are illegal, say industry experts. The problem is exacerbated by the nonchalant attitude taken by regulators to this growing market and a lack of awareness by many consumers of the consequences of illegal chartering.

"All operators of aircraft which are available for public transport must possess an aircraft operating certificate [AOC] and be approved by the relevant aviation authority to carry paying passenger," says Marwan Khalek, chief executive of international business aviation services provider Gama Aviation.

"If an operator carrying paying passengers does not hold an AOC, then they are providing an illegal public charter," he adds.

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Are passengers stepping into a charter trap?

Khalek argues that the increase in the number of illegal charters is causing concern to professional operators. Grey charters can be significantly cheaper than flights offered by holders of aircraft operator's certificates, he concedes "but they are illegal and do not adhere to the same stringent operational safety standards as the regulated provider".

This view is echoed by David Macdonald, director of international aircraft broker Air Partner. He argues that the increase in illegal flying is partly driven by the economic landscape. "Owners see an opportunity to make some money to cover costs, passengers see a discounted charter available, but the gap between the benefits and consequences are wide," he says.

"The implications are serious," says Aoife O'Sullivan, joint head of commercial and business aviation at law firm Gates and Partners. "Many aircraft owners, and charter passengers are simply unaware of the consequences." An AOC holder takes all of the operational risk of public transport and is responsible if something goes wrong, she says.

OWNERS' RISK

For private owners who allow their aircraft to be used for illegal public charter, that risk and liability remains with them. "Stakeholder liability is a crucial, but misunderstood, issue. Should an illegal charter incident occur it is possible that insurance cover would be denied as the owner would be operating in contravention of insurance policy conditions, leaving them to foot the bill," O'Sullivan adds.

"For aircraft owners, financial contracts are likely to include a clause stating the aircraft is not to be used for public transport. Financiers can recall financing or associated security if the owner is in breach of the clause," she says.

There is also a trend, particularly in Europe, towards criminalisation of aircraft accidents, so in a worst case scenario the private owner could end up in jail as the onus sits with them to prove they have shown due care at all levels as the aircraft operator, O'Sullivan says.

To beat the AOC requirement, passengers are increasingly requesting dry-lease agreements "but are often unaware that under dry-lease terms, they in effect become the operator and are responsible for compliance and liability."

Legal charter providers have become increasingly frustrated with the lacklustre approach taken by safety authorities towards the offenders. "Enforcement can lead to a tap on the hand. There appears to be no consequences and no deterrent," says O'Sullivan.

The industry is actively seeking to raise awareness of illegal chartering. A campaign is being launched by the European Business Aviation Association to encourage customers to check the legality of each charter flight.

"We are getting frustrated as we don't want to wait until an accident for the serious implications of the grey market to receive the attention it should," says Khalek. "We are a well-regulated industry, yet it may need a case going to court for real awareness to be achieved."

He adds: "While there is a lack of understanding from consumers and providers, and regulators are under-resourced, all we can do is continue to highlight the considerable risks and liabilities corporations and business travellers face if they do fly with a non-AOC operator."

SHIFTING TRADE

Meanwhile, the trade in illegal charter is shifting from "under the counter" to blatant selling through websites and other prominent advertising mediums. Air Partner's Macdonald says: "The underground market is on the increase. Unlicensed aircraft that should obviously not be sold for hire are being promoted openly by people who are holding themselves up as brokers. This is an illegal act," he says.

For operators like Gama, such flouting of the charter regulations has put law-abiding companies at a disadvantage. "There seems to be a culture within the industry where you are scrutinised more if you hold a licence and play by the rules than if you don't," says Khalek. "If nothing is going to be done, let's make it a free-for-all so we all play by the same rules."