AMI Jet Charter, Inc. (AMI) was one of the largest Part 135 charter operators in the United States. Although it had been reported that the FAA was investigating AMI with respect to AMI's compliance with the new operational control requirements (A008), the actions taken by the FAA were surprising (to say the least). FAA first suspended and soon thereafter revoked AMI's charter certificate. AMI was essentially forced out of business and recently, TAG Aviation USA (a subsidiary of TAG Aviation Holdings and 49% equity holder of AMI) agreed to pay a $10 million fine as part of a settlement with the FAA. That settlement allowed for the sale of AMI's assets and orderly transfer of aircraft without interference from the FAA. These unusual events have left many in the industry questioning what will happen next.
FAA Investigation and Action
The FAA launched an investigation into AMI in March 2007. On October 4, 2007, in its first public announcement regarding the investigation, the FAA issued an "Emergency Order of Suspension" of AMI's charter certificate (Suspension) based on authority granted under 49 U.S.C. § 46105(c) (regarding safety in air commerce). See Emergency Order of Suspension from the Eastern Region, Office of Regional Counsel, FAA Docket No. 2008SW000001 (October 4, 2007). The Suspension had the effect of shutting down AMI's operations, affecting the 79 aircraft under AMI's charter management. The Suspension Notice laid out detailed allegations of failure to comply with Federal Aviation Regulations §§ 119.5(g), 135.63(a)(4), 135.63(b), 135.63(c) (and potential violations of §§ 135.77 and 119.69(a)), focusing on:
- Flight and duty time limitations and rest requirements for pilots;
- Improper designation of pilot in command for Part 135 flights by unauthorized persons;
- Improper exercise of operational control by unauthorized persons; and
- Failure to maintain and/or produce (or timely produce) records, including maintenance, pilot training (flight, RVSM, international), personnel, drug testing, duty and rest records.
AMI quickly filed a Petition for Review on October 9, 2007 (Petition), responding in detail to the FAA's allegations. While AMI accepted some responsibility for failing to provide records in a timely manner, the general tone of the response was one of frustration. Indeed, the response called many of the FAA's allegations "unsubstantiated," "baseless," "inaccurate," and "exaggerated," and criticized the FAA for going on fishing expeditions and unfairly focusing on minor deficiencies. AMI vehemently denied relinquishing operational control and noted that where safety is concerned, in nine years of operation and "thousands of hours and flights, AMI has never had an accident." In sum, based on the facts and AMI's track record, AMI felt that there was no justification for the emergency action taken by the FAA. AMI asked for "a meaningful opportunity to contest the The FAA's emergency determination by submitting evidence which contests the allegations which form the basis of the purported emergency, and by having such evidence fully considered by the NTSB as part of its review."
The FAA's next move was stunning. On October 12, 2007, it revoked AMI's charter certificate (Revocation)—just three days after the Petition was filed—based on a determination that "an emergency exists related to safety in air commerce and that immediate action to revoke AMI Jet Charter, Inc.'s Air Carrier Certificate is required." This quick action by FAA imparted an air of retaliation to the Revocation.
The Revocation alleged that AMI continued to operate in violation of the regulations. Specifically, the FAA alleged 22 violations of the FAR, asserting that AMI "knowingly, intentionally, and willfully engaged in a scheme and/or deceptive practice" to make it appear that AMI was in operational control, when "in fact TAG exercised control of passenger-carrying flights ostensibly operated under the authority of AMI's air carrier certificate." The Revocation cites the fact that TAG is not a U.S. citizen (per 49 U.S.C. § 40102(a)(15)), making it appear that this issue is central to FAA's decision. This was a curious citation in that it is the U.S. Department of Transportation (DOT) domain to enforce citizenship requirements, and TAG's citizenship for purposes of DOT requirements is not a dispositive factor in the operational control analysis. FAA may have felt that this issue bolstered its argument that emergency action was required.
The Revocation cited numerous factors in support of its claim that the line between AMI and TAG was blurred and that TAG was exercising operational control, including:
- TAG and/or the aircraft owners "made all safety-critical decisions regarding the initiation, conduct, and termination" of Part 135 flights;
- TAG and/or the aircraft owners made numerous decisions under the authority of AMI's Part 135 certificate, including initiating and scheduling charter flights, selecting and releasing aircraft, monitoring flight and duty time, monitoring flight progress, performing maintenance, determining airworthiness, invoicing customers, collecting charter revenue, providing quotes and booking charters, and other flight coordination functions;
- There were officers that served in that capacity for both TAG and AMI and TAG managers had signatory authority on AMI operating and payroll accounts and were responsible for AMI Part 135 expenditures;
- TAG and AMI share space, TAG is the guarantor of AMI's lease, the parties share employees and TAG paid the salary of a majority of AMI employees, TAG provides employment benefits to all of AMI's employees, and AMI carried only 22 to 37 employees compared to TAG's 700 employees; and
- TAG held the fleet insurance policy for AMI aircraft and TAG was the first named insured under that policy and the insurance policy requiring that TAG or its designee approve all pilots in AMI's Part 135 flights.
The FAA concluded that Revocation is necessary because AMI "does not have operational control of the flights purportedly operated under the authority of its certificate, a situation that poses an unacceptable risk to safety in air commerce. Under these circumstances, the immediate protection of the public is paramount."
The Revocation seemed extreme; however, there is relevant history that may explain some of what transpired. In September 2005, DOT assessed AMI a $250,000 fine and ordered AMI to "cease and desist" from violations of regulations regarding "interstate and foreign air transportation while it was under the actual control of foreign interests." See AMI Jet Charter Inc., (2005-9-11, Sept. 9, 2005). The Consent Order addressed the issue of influence by foreign owners of the company, finding that "AMI was clearly under the actual control of TAG USA and, as a result, AMI did not satisfy the Department's citizenship requirements." It could be that TAG and AMI were not diligent in their efforts to maintain the separation, resulting in further scrutiny by the FAA.
Industry reaction was sharp. NATA took the position that the Revocation was "shocking," and that the FAA's action "raises legitimate concerns about the unilateral authority select members of the FAA legal team have over operational control issues affecting the Part 135 industry." Clearly, the events raised a question as to whether there has been a policy shift at FAA. Regrettably, the revocation of AMI's certificate creates a climate of uncertainty for charter operators.
The draconian result of the AMI investigation leaves the impression that there is no room for error with respect to operational control. It also implies that informal acceptance of past practices will not carry the day. For example, in its Petition, AMI argued that its policies and procedures were "developed in a close collaboration with the FAA as its evolving and changing views of what constitutes 'operational control' will permit." AMI further argued that it "tried to find out from FAA what was required" regarding operational control, that AMI "personnel attended FAA educational sessions, obtained FAA materials, and made a series of enhancements to its operational control policies and procedures." AMI showed its Operational Control Manual with "FAA officials, including James Ballough, Hooper Harris and its local FSDO, and has received almost no feedback from these individuals or others at the FAA." However, AMI's efforts did not protect it from drastic regulatory action.
In sum, there are some take-aways from this story:
- The FAA is willing to perform detailed operational control reviews and take serious action against certificated entities that are not in compliance;
- The FAA appears to be interested in foreign ownership, although the extent of this interest is unknown and could be limited to AMI/TAG's specific circumstances;
- Charter companies should carefully review the Suspension and Revocation, focusing on the alleged violations, to ensure that they are in compliance on these points; and
- Charter companies cannot rely on the FAA's silence with respect to its past practices and Operational Control Manuals. What's Next
Unfortunately, we will need more time to discern the FAA's agenda. Special inspections regarding operational control are supposed to take place over the coming months. The FAA's enforcement actions will provide more information regarding its concerns.
Although we cannot yet know for sure, it seems likely that AMI is an unusual case. The suspension, revocation and fines were so extreme as to lead one to believe that there is more to this story than has been publicly disclosed. It is hoped that the FAA will reveal more as to its enforcement plans and Part 135 objectives. In the meantime, charter companies should take note of what the FAA has revealed and continue their vigilance with respect to operational control.