Gray Market Charter Flights, Again And Again

Capt. W. Patrick Gordon, M.Sc.
February 2013
​Aviation International News

“Everybody talks about the weather but nobody does anything about it.” Whether Mark Twain or Dudley Warner said it first remains debatable. The point is that the same thing could be said about gray-market charters. I have been in corporate and VIP aviation for decades, and I have been hearing the legal charter operators complain about this issue for my entire career.

Gray-market charter refers to the practice of an aircraft owner or operator taking money for flying people when that owner and/or operator has no legal right to do so. These scam artists can use pilots who may not be licensed properly and airplanes that may not be maintained to meet commercial minimum safety regulations. Other well-intentioned but poorly informed people make the mistake of letting their airplane go out on an illegal charter not knowing that they might well be in breach of their lending and insurance covenants. Even companies that are lax in their controls over who, or which division, has access to the corporate airplane, and their charge-back system could be gray-market charterers and not even know it.

This is a worldwide problem, not just an American or European one, and it seems to be getting worse year by year.

The most difficult gray-market operators to recognize are those who have an airplane registered in one country, an air operator certificate (AOC) from another country and operate from a base in a third country. The multiple layers of accountability and responsibility are extremely difficult to monitor thoroughly to ensure enforcement of regulatory issues. Such airplanes are like the tramp steamers that ply the world under flags of convenience, registered in countries that, too often, have no interest in anything but collecting the registration fees.

Gray-market operators in the Americas or Europe are much easier to find. They are, more than likely, the aircraft owners down the row of hangars who make their airplane available for a wide variety of “friends.”

Encouraging Whistleblowers

With virtually all airplane flight activity now being recorded and stored on computers, the raw data for authorities to check for “unusual patterns of flight activity” is available at regulators’ and enforcers’ fingertips. The problem has been the magnitude of the task confronting those who would sift through this mass of data to extract readily usable information. Justifying this sort of investigative effort has been even more difficult. The legal investigation, with the aim of prosecution, must have a key that opens the door to expose the perpetrators.
Here’s where the whistleblower concept should enter the picture. In the western world, whistleblowers have brought entire industries to their knees. Tobacco, oil, banking and other industries have been sent down the righteous path by whistleblowers. Why not gray-market chartering? Because, at this time, there is no financial incentive for the whistleblower to give a toot. Build in a financial reward and they will come.

Investigations with the goal of prosecution would have to begin on the inside of the offending company. “Disgruntled employee” is a term often applied to a whistleblower, but even happy employees with a sense of honesty and integrity could become whistleblowers. If they are aware of illegal activities they could begin a program of collecting invoices, flight records and passenger lists and noting frequency of flights and specific passengers. This includes the time-honored scam of invoices for “demo flights.” (“Oh no, inspector. That wasn’t a charter flight. The principal passenger wanted to buy that clapped-out old airplane and we gave her a demo flight.”)

The potential whistleblower must do some research before embarking on a path that could be a bit dangerous to one’s career or health. First consideration should be determining approximately how much the illegal operator is making from gray-market chartering and realistically, how much of the skullduggery can be proven. Whistleblower rewards are generally a percentage of damages. For example, the IRS will pay up to 30 percent of the tax, penalty and other amounts recovered. But let’s be conservative and figure that the most our whistleblower will collect is 10 percent.

Ten percent hardly makes it worthwhile to track down the amounts involved on a Cessna 172 that makes the occasional flight into graydom. But for a frequently used jet, the amount of cash flow can quickly become substantial, running into hundreds of thousands of dollars. In this case, percentages can become considerable and the amount of money to a whistleblower can merit the risk.

Since the gray-market operator is breaking the law anyway, it might be safe to assume that it is also not declaring on its tax return the money it receives for this charter service. Cash would be king for this kind of transaction since it’s difficult to trace. Solid proof would open the door to an IRS audit. On its whistleblower website the IRS makes this statement: “The IRS is looking for solid information, not an ‘educated guess’ or unsupported speculation. We are also looking for a significant Federal tax issue–this is not a program for resolving personal problems or disputes about a business relationship.”

A visit to the FAA whistleblower website will give you some pointers on how to begin. However, when I visited that website I saw nothing about financial rewards. Perhaps action by some aviation alphabet groups would convince the FAA to enact a financial reward for whistleblowers.

Another,  perhaps more involved, method of punishing gray-market charter operators is this: Once the offender has been identified by the regulatory authorities, would it be possible for neighbors on the departure and arrival ends of airports used on specific charter flights to enter into a class action suit against the operator? The justification for the lawsuit could be that they were unduly, deliberately and dangerously exposed to unreasonable risk by being underneath the unsafe operations. It could be assumed that the flights were inherently unsafe because they did not comply with the appropriate regulations.

In conclusion, it seems obvious that absolutely nothing will be done about unscrupulous, gray-market charter operators until their scam becomes financially beneficial to someone other than the seller and buyer of the product. The best way to see how to become a whistleblower is to Google whistleblower. A wealth of information is available for you to research. You might be in a position to earn a substantial reward while doing some good for aviation in an area that should have been addressed long ago. In other words, you could do something about the weather rather than just talk about it.

Good hunting.