On occasion, someone's carelessness and bad luck results in significant monetary penalties. In rare cases, the government responds with a radical change in regulatory oversight. In very rare cases, there is jail time. The five-year saga following an off-runway excursion by a 2005 charter flight resulted in all three, and culminated with criminal guilty pleas in June and July 2009 by co-founders of the operating company. If the other defendants do not reach plea agreements, their criminal trials begin in January 2010.
You could argue that no event, since the September 11, 2001 attacks has had a greater impact on the air charter business, financially and operationally, than the Platinum Jet excursion, which is credited with spurring the Federal Aviation Administration's (FAA's) 2006 revised Op Spec A008 and related "operational control" audits. As the instigators of revised Op Spec A008 and audits, perhaps Platinum's founders should spend some time in a safe place.
It started innocently in the Winter of 2003, when Platinum Jet Management, LLC entered into an agreement with Darby Aviation, Inc., to connect Darby's charter capabilities with Platinum's managed aircraft. Under this alliance, Platinum and Darby jointly operated over 100 revenue charter flights, including the ill-fated flight departing Teterboro Airport for Chicago Midway on a morning in February 2005. The Bombardier Challenger never left Teterboro that night, and instead ran off the end of the runway and the airport property. Fortunately, nobody was killed, but there were four people on board who were seriously injured, including the flight crew. The aircraft was a total loss. The National Transportation Safety Board (NTSB) Aircraft Accident Report (NTSB/AAR-06/04) determined that the probable cause of the incident was pilot error--specifically, failure to properly load the aircraft within its weight and balance parameters.
Cited as contributing factors by the NTSB were Platinum's improper role in the aircraft's operation, and "the FAA's tacit approval of arrangements such as between Darby and [Platinum]." This last point is critical. When one federal agency calls out another one as having failed to perform its essential mission, you can expect action. In this case, that action was the revised Operations Specification 008 and a sweeping national audit initiative by the FAA to establish that it does not "tacitly approve" of arrangements of the type between Platinum and Darby. Remember TAG and AMI?
The core issue that formed the basis of the federal enforcement activity was Platinum's offering of air transportation for hire, without holding the necessary economic authority or certification to do so. Adding insult to injury, the Department of Transportation's (DOT's) June 2006 Consent Order (2006-06-14) also noted that Platinum—as a non-U.S. controlled entity—could not have held the authority for its charter flight activity without further authorization, which it did not have. The DOT determined that Darby was essentially "renting" its certificate for a fee to Platinum, and that Platinum was far too actively involved in the offer, sale, initiation and conduct of charter flights. The facts seemed to support the DOT's views. But, Platinum claimed, the law and interpretations were not crystal clear, and in any event, Darby was the certificated, regulated entity and Platinum justly relied upon their approval and oversight. Platinum and the DOT settled up for $175,000 ($150,000 due from Platinum, and $25,000 from the founders). Half of each amount would be forgiven for "good behavior" by the company and its officers. Ironically, many certificated Part 135 operators invested more than that amount in the course of the resulting Op Spec A008 operational control audits.
In addition to the loss of the business and the DOT fines, five principals of Platinum became the target of a federal fraud prosecution. Federal prosecutors alleged conspiracy to defraud charter customers and charter brokers, and actions to impede and obstruct the FAA. Among the allegations was the falsification of weight and balance data for aircraft under Platinum's operation—a brazen and dangerous action, which may have caused the crash. Arrest warrants were issued in February 2009 for five Platinum principals, including the chief pilot and maintenance director. Two pleaded guilty in June and July 2009, and one will serve at least four years in federal prison. In addition to jail time, there may be a fine of $250,000 or twice the ill-gotten gains (whichever is higher), and the judge may order restitution to the victims of the offense.
The Platinum/Darby relationship was well outside regulatory requirements in existence at that time; but as the NTSB noted, the FAA may have tacitly approved this sort of business relationship. Where would we be today if that Challenger has taken off successfully and had an uneventful trip to Chicago? Were Platinum and its officers simply the victim of bad luck and timing, or, like many operators skirting the edges of the regulations, were they the beneficiaries of good luck until that luck ran out?
Sadly, if the Platinum/Darby relationship had been properly structured (with Darby in operational control, and passengers aware that it was a Darby-operated flight), there would have been no regulatory issue, and the economics would have been the same. The risk was far in excess of Platinum's expectations, and the reward for taking that risk was dubious.
It is legal counsel's role to advise a client of the legal requirements applicable to an activity, and of the consequences of noncompliance. Predictably, clients will often elect to bear the economic risks in exchange for the economic rewards. The Platinum saga reminds us that the risks may go well beyond the dollars. It is doubtful that Platinum's founders considered jail time among the risks associated with their venture, and they certainly would have acted differently with that foresight.