Arabian Aerospace – Grey’s Anatomy
in Features
The Dubai Airshow heralded the celebrations of the nation’s 40th year. Halls, pavilions and chalets displayed the colours of the UAE national flag in celebration of the anniversary. But, running in parallel, there were also darker discussions and dire warnings surrounding the murkier aspects of business aviation.
The Dubai Airshow was, once again, an excellent platform to promote the UAE and display how far it has come since inception.
Innovation was very much part of the event, with much state-of-the-art technology reflecting how the region has become a significant player in the aviation arena.
Running in parallel to the show, the Middle East Business Aviation Association (MEBAA) conducted a number of focused events. One of the highlights was when members joined a round table discussion to debate the issues that keep business aviation experts awake at night.
Illegal charters, training issues, operational challenges and regulatory issues were all debated.
A major one-day seminar took place on November 14 – the last day of the show – when aviation legal firm Gates and Partners and international management company Kenyon International Emergency Associates joined with MEBAA to debate topical issues.
Kenyon recently signed a memorandum of agreement with MEBAA allowing members to take advantage of the company’s experience when handling a disaster or preparing for a crisis, demonstrating that being prepared is as important as managing the outcome.
The Risk Management for Business and Private Aviation seminar was welcomed by Ali Al Naqbi, chairman and co-founder of MEBAA, who recognised the importance of the sector of the aviation market. Al Naqbi opened the day with the announcement that MEBAA was now offering specialised insurance services for the business aviation community.
A broad brush overview of the industry introduced the event and summarised the current state of play of risk management within the business and private aviation industry.
Said to be in its tenth year, the business aviation market in the Middle East is now at a crucial developmental stage as it is poised to reach an annual value of $1 billion by 2018, according to Al Naqbi.
Growth is coming not just from high-net-worth individuals but also from operators, such as Gama and ExecuJet, which are managing more aircraft for charter in the region. this demonstrates the need for business aviation as a valuable business tool, not just a luxurious means of travel. the need for managing the risk associated with aircraft is therefore intensifying.
The grey market, otherwise known as illegal charter, was the main topic of discussion with Aoife O’Sullivan, lead partner at Gates, explaining that it was still an area of concern. she explored the effect of illegal public transport in business and private aviation in a number of different areas including ownership, liability, insurance and regulation.
The grey market is made up by private aircraft owners who, without an air operator’s certificate (AOC), conduct illegal charter flights. They effectively make private jets available to either unlicensed brokers or just to friends in exchange for reward. this may be in the form of money or in exchange for other goods of value like hotel accommodation.
Due to the rapid growth of the Middle East business community, and what could be described as a booming aviation industry, the practise is still occurring widely.
O’Sullivan was at pains to point out that MEBAA is working hard to reduce the problem and, while legal loopholes in operating rules and a lack of enforcement initiative on the part of aviation officials mean that the so-called grey market activity is still a major concern for the region, the Middle East charter market has gone a long way to shed the reputation and demonstrate that the industry aims to be regulated to the highest standards, comparable to those in the west.
The seminar provided the opportunity to explain the risks involved in the grey market and why carriers should avoid stepping into the market, not only for insurance reasons.
All aircraft operators that are legal for public charter must have an AOC and the certificate must be approved through the relevant aviation authority. Information is usually contained in part 135 regulations, which hold operators to a very high level of standards and keep certificate holders accountable for their actions or omissions. O’Sullivan suggested that there are a number of reasons that encourage aircraft owners to ignore the risks. Ignorance is one reason, with owners just not realising that they must follow set process if they are chartering their jet to a friend or colleague.
However, there’s the darker side driven by those who, in the current economic climate, are looking at other ways to finance the very expensive costs associated with ownership. It was also suggested that there are some pilots who operate illegal charters to generate extra cash. the fact that from the airport runway you can’t tell a legitimate charter from an illegal one only makes things easier.
A private owner is not required to maintain the same standards as one that has a valid AOC and, while these are likely to be equally as good as a professional operator, maintenance logs are not monitored as strictly. these flights are likely to not adhere to the operational safety standards set forth by the governing authority, which may well put the “customer” at risk on many levels.
Moreover, if there is an incident or accident, most aircraft insurance policies for private owners specifically state that the aircraft is not to be used for public transport. Taken in hand with the brand damage this could lead to and the loss arising from an accident, it is highly recommended to avoid this route.
One of the key outcomes of the seminar was the confirmation that insurance companies cannot pay out for incidents that occur on illegal charters, precisely because the incident occurs during an illegal act. So not only could an owner be liable for an excessive insurance claim from injured third-party families, it is quite likely the financiers will also make a reclaim of the money used to buy the jet.
The grey market seeks out loopholes and is a global problem, with some reports suggesting that as many as half of all private charter flights in some markets don’t operate on a completely legal basis.
There are a number of significant consequences of illegal charter besides the denial of insurance cover. It is highly likely that financiers will have a clause in their loan document that suggests that an illegal charter would result in a default of the covenant and consequently the financial establishment can reclaim financing on the aircraft. Customs can also make a claim against an illegal charter. for example, in Russian law, false declaration at customs may result in an administrative fine imposed on the responsible individual or legal entity. the amount of fine can range from half to twice the value of the aircraft and, even on occasion, the confiscation of the aircraft.
Illegal charter really does have major consequences and is something that MEBAA is keen to raise awareness about within the region.
There may also be criminal consequences of operating in the grey market. Carriers are advised to remember that operating such flights may result in criminal charges (not restricted to just the owner but management and shareholders) and can include heavy fines.
O’Sullivan cited a number of events where illegal charter had resulted in far from happy endings. a Cessna 208 Caravan aircraft crashed on approach to Domodedovo airport on November 19, 2005. the flight was illegal as it was operating under cabotage (i.e. not licensed to fly public transport in that country) and consequently the flight was denied coverage by the insurer.
In Teterboro, Florida, in 2007 a Platinum Jet Challenger 600 had a major incident and the owner was served a civil penalty USD 1.86 million and underwent criminal charges. O’Sullivan advised that owners must also take note of corporate manslaughter legislation, where burden of proof of gross negligence often shifts to the defence party. what seems like a good idea to do a favour for a friend can turn into a complete disaster for a private or corporate aircraft. It is just not worth the risk, stressed O’Sullivan.
Looking to the future, she suggested that closer co-operation between industry players could help to protect the aircraft as an asset and could encourage growth in the industry. for example, management companies and operators could help financiers protect their financial interests in the asset by ensuring safe and secure operation and control of the aircraft at all times. Gates is continually trying to try and encourage the sector to actually resolve issues themselves by working together rather than requiring heavy regulation in an already densely regulated industry. through activities such as collaborating with associations such as MEBAA to create intensive one day seminars the aviation focused firm is aiming to make the industry act, rather than just discuss and debate.
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