[Federal Register Volume 63, Number 99 (Friday, May 22, 1998)]
[Rules and Regulations]
[Pages 28225-28251]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-12980]
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DEPARTMENT OF TRANSPORTATION
Office of the Secretary
14 CFR Parts 207, 208, 212, and 380
[Docket OST-97-2356]
RIN 2105-AB91
Aviation Charter Rules
AGENCY: Office of the Secretary, DOT.
ACTION: Final rule.
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SUMMARY: DOT is amending its charter air transportation regulations to
update the rules, make changes reflecting current operating procedures
and include the following specific modifications:
Eliminate the 10-day waiting period after the filing of a
prospectus or an amendment before Public Charters may be advertised or
sold;
Allow charter operators to accept payment by credit cards for
Public Charter flights;
Delete the minimum contract size of 20 seats for passenger
charters;
Permit direct air carriers to sell charter flights within 7 days of
departure;
Codify the Department's practice allowing a ``sub-operator'' to buy
into another Public Charter operator's prospectus as a principal;
Eliminate the requirement for brief or ``mini'' prospectus to be
filed by direct air carriers conducting foreign-originating flights for
foreign charter operators;
Consolidate the rules applicable to U.S. and foreign direct air
carriers into a single part; and
[[Page 28226]]
Broaden the definitions of ``immediate family'' in parts 212 and
380 to include the member's (or student participant's) spouse,
children, and parents, whether or not they share a household with the
member. This action is taken at the Department's initiative and
responds to President Clinton's Regulatory Reinvention Initiative.
EFFECTIVE DATE: The rule shall become effective on June 22, 1998.
FOR FURTHER INFORMATION CONTACT: Charles W. McGuire, Chief, Special
Authorities Division (X-57), Department of Transportation, 400 Seventh
Street, SW., Washington, DC 20590 (202) 366-1037.
SUPPLEMENTARY INFORMATION:
Background
On September 16, 1992, the Department of Transportation issued a
notice of proposed rulemaking (NPRM) [57 FR 42864, September 16, 1992]
which proposed to (1) replace the filing of prospectus for Public
Charters with an annual registration by charter operators; (2)
eliminate the regulation of ``major changes'' in charter itineraries
and the specific terms of Public Charter operator-participant
contracts, but require that consumers receive actual notice of
important terms affecting the charter; (3) simplify the financial
security arrangements applicable to charter operators; (4) eliminate
the financial security arrangements applicable to direct air carriers;
(5) permit consumers to make credit card payments to charter operators
for Public Charters; (6) remove the prohibition against charter sales
within 7 days of departure by direct air carriers or charter operators
affiliated with direct air carriers; (7) simplify and eliminate
unnecessary requirements applicable to non-public charters (i.e.,
single entity, affinity, and mixed charters), and add provisions for
the operation of gambling, junkets; and (8) consolidate the rules
applicable to direct air carriers into a single part, removing obsolete
and repetitive references and requirements.
Comments and reply comments on the Department's proposals were
filed by 17 direct air carriers, 20 charter operators, 6 trade
associations, 3 banks that serve (or served) as depository banks for
charters, 1 state department of transportation, and 15 private
citizens.\1\ While many of those responding supported the basic goals
of reducing the burden of paperwork, simplifying the regulatory
process, eliminating obsolete requirements, and liberalizing
relationships in the marketplace, when it came to the proposed changes
to the basic consumer protection provisions of the regulations, the
majority urged the Department to retain the existing requirements.
Except as discussed below we have decided not to adopt many of the rule
changes proposed in the NPRM.
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\1\ Specifically, comments in this proceeding were filed by
Aeronautica de Cancun, Air 2000 Limited, Air Canada, Air Espana
S.A., Air Transport Association of America (on behalf of Alaska
Airlines, American Airlines, Continental Airlines, Delta Air Lines,
Trans World Airlines, United Air Lines, and USAir), Airline Brokers
Company, Association of Retail Travel Agents, American Society of
Travel Agents, American Trans Air, Apple Vacations, Av Atlantic,
Azores Express, Balair, Bruce Hall Sports, Condor Flugdienst, First
of America Bank, Funway Holidays, Funjet, Great American Airways,
GMV International, Hapag-Lloyd Fluggesellschaft, Harrah's Casino
Hotel Atlantic City, Jamaica Express, Marazul Charters, Military
Travel Corporation, Minnesota Department of Transportation, MLT
Vacations, National Air Carrier Association (on behalf of American
Trans Air, Evergreen International Airlines, Miami Air, Tower Air,
and World Airways), National Bank of Royal Oak, North American
Airlines, NW Tours, Northwest Airlines, Private Jet Expeditions,
Regional Airline Association, Relvas Tours, Rich International
Airways, Ryan International Airlines, Santo Tours, Schwaben
International, Security Pacific National Trust Company (New York),
Sunbird Vacations, Sunburst Holidays, The Surety Association of
America, Trans Global Tours, Trans National Travel, Trans World
Airlines, Travel Impressions, United States Tour Operator
Association, Worldwide Airline Services d/b/a Leisure Air, and a
number of individuals.
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Discussion of Comments
The issues specifically addressed by commenters agreeing of
disagreeing with proposals in the NPRM or offering alternative
approaches fall primarily into the following categories: (1) Filing
Requirements: (2) Protection of the Charter Participants' Expectations;
(3) Protection of the Charter Participants' Funds; (4) Financial/
Security Rules Applicable to Direct Air Carriers; (5) Direct Air
Carrier Responsibilities; (6) Use of Credit Cards for Payments to
Charter Operators; and (7) Other Matters.
(1) Filing Requirements
The NPRM proposed to substitute an annual registration requirement
for U.S. charter operators in place of the present prospectus filings
for each series of flights. This form would identify the applicant and
its ownership, and would certify the existence of a contract with the
carrier and the existence of a valid security agreement and that both
complied with the requirements of Part 380. The applicant would be
required to notify the Department within 10 days of any change in the
required information. Once the proper registration was filed, the
charter operator could begin sales immediately without filing a flight
program and without waiting the 10 days for approval. The proposed
treatment of foreign charter operators was slightly different in that
they would still be required to seek authority in the U.S. as they do
now.
While commenters generally approved of the proposal to require only
an annual registration by charter operators, three of the industry
associations (Association of Retail Travel Agents, American Society of
Travel Agents and National Air Carriers Association) commented about
several essential requirements of the registration process which permit
the Department to regulate or discipline charter operators. The
commenters referred specifically to the filing of schedules and changes
thereto as well as to the certification that required security
agreements to be in place. One of the associations also stated that if
one believes the existing bond/escrow rules should be retained, then
``specific identifying information for the operator's escrow accounts
should also be provided and kept current.'' The purpose of the proposed
relaxation of prospectus filing rules in the NPRM was to make the
process less burdensome and possibly less expensive for the charter
operator and to reduce the Department's regulatory workload. We are
sympathetic to these comments and our further review of the mechanism
of this proposed change leads us to conclude that the removal of the
current system of prospectuses and amendments would compromise charter
participants' ability to be assured of the legitimacy of charter
programs and our ability to maintain useful records necessary to
monitor Public Charter programs. The Department will not adopt the
change proposed in the NPRM to replace the prospectus filing with an
annual registration.
(2) Protection of Public Charter Participants' Expectations
Current charter rules contain provisions designed to protect the
expectations of members of the public flying on Public Charters (14 CFR
380.30-380.33a). These rules prescribe the essential elements of
contracts between charter operators and charter participants, and
provide that certain major changes (hotels, flight dates, origin and
destination cities, price) would entitle charter participants to cancel
and receive a refund. The rules included precise requirements regarding
the time for notifying charter participants of such changes and
providing refunds where applicable.
In the NPRM, we proposed to eliminate the current provisions in the
Public Charter rules that (1) specify the
[[Page 28227]]
contents of the contract between the charter operator and the charter
participant; (2) regulate certain ``major changes'' in the price or
itinerary that would entitle charter participants to cancel and receive
a refund; and (3) prohibit charter operators from accepting charter
participants' payments without first obtaining a signed operator-
participant contract (Secs. 380.31-380.33 and 380.12). In place of
these provisions, we proposed to require charter operators to provide
prospective participants with notice of, and access to, any conditions
imposed by the operator (proposed Sec. 380.7). The notice was to
include, among other things, the terms under which the operator
reserves the right to change the itinerary or price of the charter, and
the charter participant's rights to cancel and receive funds under
various circumstances. The notice, which would have been provided to
the participant at the time of sale, could have been part of the
charter operator's brochures or other solicitation materials. Just as
with scheduled service (See 14 CFR Part 253), if a participant did not
receive such notice, he or she would not have been bound by any term
restricting refunds, imposing monetary penalties, or allowing the
operator to change the itinerary or raise prices. The proposed rule
also provided that, if a person purchased a charter and requested a
copy of the full operator-participant contract within 5 days of the
purchase, that person's payment would have been fully refundable if she
or she canceled within 5 days after receiving the full contract, or by
the day of the flight, whichever was earlier.
While some commenters supported our proposed elimination of the
government-imposed contract provisions and the requirement that signed
operator-participant contracts be received with or before receipt of
payment for a charter flight, all who commented opposed some part of
the notice of conditions offered as a substitute. The National Air
Carriers Association and several charter operators opposed that portion
of the proposed rule that would allow a customer up to 5 days after
purchasing a charter trip to request a copy of the full contract and an
additional 5 days after receiving the contract to cancel and receive a
full refund. One of the commenters stated that such a provision would
present serious practical difficulties, leaving charter operators with
no viable opportunity to resell a late-canceling participant's seat and
very likely incurring substantial cancellation fees for accommodations
reserved for that charter participant. An adverse side effect of this
situation described by the commenter would be that on heavily booked
flights potential charter participants desiring to travel would be
turned away and denied travel due to someone else's tardiness in
deciding to cancel. It was suggested that a full charter operator-
participant agreement be provided to the charter participant at or
before the time of purchase. Then, when the charter participant had
made the purchase, there should be no right to cancel and receive a
full refund on the basis of dissatisfaction with the terms and
conditions. Referring to the practice in the scheduled air carrier
industry where the passenter is required to purchase a ticket within 24
hours after making a reservation, a commenter proposed that the section
could be revised to provide that, in cases where the full agreement is
furnished to the charter participant at time of purchase, the contract
review period is limited to one day during which the customer may
cancel and receive a full refund. The commenter also noted that the
charter participant always has the right to obtain and study the
contract and take any time necessary to fully consider the terms and
conditions prior to paying.\2\ We believe that the commenters have
raised valid concerns over the details of the proposed notice of
conditions and how it would work in practice.
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\2\ In order to satisfy the requirements of this section, the
notice would have to be in writing and in a form that allows the
participant to review it. Thus, reciting the notice in a radio
commercial or flashing a graphic in a TV commercial would not
suffice.
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We also received comments urging us to retain some or all of the
``major change'' provisions of our current rules, particularly those
dealing with material changes in the origin or destination of the
flights, the departure/return dates, the hotels provided, and the price
of the trip. The current rules require that charter participants be
informed of any such changes and in many situations be given the
opportunity to cancel and be given a full refund if they find the
changes unacceptable.
The existing rule states that beginning 10 days before departure,
operators and carriers may not cancel a charter (unless it is
physically impossible to operate) or raise the price. If at any time
the operator changes a date or city, or raises the price by more than
10 percent, affected participants have the right to cancel and receive
a full refund. Participants must be notified of such ``major changes''
within 10 days. Overbooking on charters is banned.
The NPRM proposed to abolish all of those protections. For example,
the operator would simply be required to provide notice of the
existence of any contract conditions that permit him to make such
changes. Under the proposed rule, operators could wait until the day of
departure to cancel a flight due simply to lagging sales. They could
change the destination of the charter, or move the departure date by a
week, or raise the price by $200 two days before the flight; if anyone
wanted to cancel as a result, the operator could impose a 100 percent
cancellation penalty--and then resell the seat.
The regulatory reform rationale driving the NPRM was an attempt to
redefine a part of the industry that appeared to be heavily restricted
by artificial distinctions among the various kinds of air
transportation available to the public. To accomplish this, the
Department proposed to remove administrative burdens on airlines and
charter operators, simplify financial security requirements, and
liberalize sales of charters by eliminating time constraints, operator-
participant contracts, major change rules, and requirements for non-
public charters. It was noted that current charter rules still impose
limitations on direct air carriers flying charters that are relatively
stringent compared with those relating to the operation of scheduled
air service. Similarly detailed requirements apply to charter operators
who sell charter reservations to the general public. A significant part
of the consumer protection features of the current rule concerns price
changes, cancellations, itinerary changes and the contents of operator-
participant contracts designed to ensure participants' expectations.
The notice requirement proposed in the NPRM was modeled on the
contract disclosure rule for scheduled service, 14 CFR Part 253.
However, charters work differently from scheduled service; all the
market forces that might modify the behavior of a scheduled carrier are
not in play in charter service. By the nature of the scheduled system,
carriers operate flights even where the revenues on a particular
operation don't cover their costs (i.e., the load factor is low).
However, flight cancellations due to lack of participation and other
changes are more likely to occur on charters, and when they do occur
are likely to be at the last possible moment allowable under the rules,
currently 10 days before departure of the outbound flight. Absent the
current rule banning cancellations within the last 10 days before
departure, a charter operator could wait to cancel or make another
major change until two
[[Page 28228]]
or three days before planned departure in hopes of getting sizable
bookings through wholesalers shortly before departure. Allowing charter
operators unfettered discretion to fail to keep their end of the
bargain with consumers would be unfair.
Also, when scheduled-service flights experience irregularities,
passengers have more options than charter passengers because:
Scheduled carriers operate more frequent flights than do
charter operators. For example, if an 8 a.m. scheduled flight to Denver
is canceled, the same carrier can usually rebook a passenger on another
of its, or another airline's, Denver flights no more than a few hours
later.
Many scheduled airlines have agreements with each other so
that one scheduled carrier can put passengers from its canceled or
delayed flight on another airline's flight, at no additional cost to a
passenger.
Scheduled carriers operate many different routes; they may
serve more than one airport in the same city. If they cancel a flight
they might be able to reroute the passengers via another city or to
another airport at the same destination city with limited inconvenience
to the passengers.
We conclude that while the notice regime of Part 253 (Notice of
Terms of Contract and Carriage) has worked well to protect schedule
passengers, our proposal to apply a similar approach in the charter
area would likely result in an unacceptable risk to charter
participants. The American Society of Travel Agents (ASTA) commenting
on the proposed annual registration thought it might be worth trying
but ``charter operators should still be required to file copies of
promotional material containing the proposed flight schedules at least
10 days before a flight.'' ASTA went on to say that the requirement
would be ``to discourage the publication of fictitious flight schedules
which are then changed at the last minute to convenience the tour
operator or the airline.'' This theme was also expressed by the
Association of Retail Travel Agents (ARTA) which said that ``we realize
from experience the need for updated promotional materials containing
proposed flight schedules at least 10 days before flight.'' ARTA
continued this discussion stating that ``Agents need to see the exact
product available to enable them to fully inform their customers so
that prices and scheduling can be compared for customer benefits.''
Comments from the University of Minnesota touched the broader scope of
the issue stating that the present process for regulating Public
Charters, including the filing process, had proved to be beneficial and
necessary. We will retain these provisions along with the other parts
of the customer protection package in the final rule.
(3) Protection of the Charter Participants Funds
We tentatively concluded in the NPRM that the present financial
security requirements applicable to Public Charters should be revised.
Under the current rules, Public Charter operators must obtain either
(1) an acceptable security arrangement in an amount equal to the
charter price for the air transportation if air-only or, if land
arrangements are involved, in an amount equal to one, two, or three
times the price of the air transportation depending on the duration of
the charter trip; or (2) an acceptable security arrangement in the
amount of $10,000 per flight up to a maximum of $200,000 for 20 or more
flights plus a depository (escrow) account at a bank, into which all
payments by or on behalf of charter participants must be deposited and
from which they may not be removed except under specified conditions
(Secs. 380.34, 380.34a, 380.35).
We postulated that existing financial security requirements may be
unduly burdensome on or costly to Public Charter operators, and
proposed to substitute one or more of the various options set forth in
the NPRM for the existing surety/escrow combination. The options
proposed in the NPRM were: (1) A security agreement \3\ in an amount of
at least $30,000 times the number of flights up to a maximum of
$600,000; (2) a security agreement sufficient to cover the cost of air
transportation sold but not yet provided to consumers (i.e., a
``rolling bond'' under which the amount of the security could increase
or decrease over time as the number of charter participants who have
paid but have not completed their travel changes); (3) a requirement
that U.S. or foreign direct air carriers participating in Public
Charter programs bear financial responsibility for charter participant
funds paid for charter air transportation (i.e., by either refunding
moneys paid or providing the transportation for which it was paid) in
the event of insolvency or other failure to perform by the charter
operator; (4) a security agreement in an amount not less than the
charter price for the air transportation (whether or not the charter
flights being sold include land arrangements); or (5) a security
agreement in an amount not less than the cost of the charter trip paid
by the participant, including air transportation and land arrangements,
if applicable.
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\3\ Term security agreement would be defined as it is today to
include either a surety bond, or a surety trust agreement or letter-
of-credit that provides protection equal to or greater than that
provided by a bond (See new Sec. 380.2). The agreement would have to
be for an amount that would cover all one-way or round-trip flights
that the Public Charter operator will actively advertise, sell, or
operate at any one time, including any flights that may be completed
but are within the 60-day period for the filing of claims.
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None on these options included retention of the existing surety/
escrow system of protecting charter participant funds; however, in view
of comments in earlier rulemakings in support of the present escrow
system, we specifically asked for comments on whether we should retain
that system.
Virtually all of the parties and individuals that commented on the
NPRM discussed the financial security options, with a large majority in
favor of retaining the surety/escrow option for charter operators
permitted under the present rules. Those who commented on the specific
alternative financial security measures generally noted that each would
provide a measure of financial protection, but the comments were varied
as to which, if any, should be adopted. Several commenters felt the
escrow requirement should be done away with, but that the amount of any
required security agreement should be less than the $30,000 per flight/
$600,000 maximum amount proposed.
Of those opposed to the current surety/escrow option, several
charter operators cited administrative burdens and large fees imposed
by banks. One charter operator complained in particular of fees of
between $175 and $260 per departure, which it asserts are not offset by
interest earned on an escrow account, and of being assessed other
expenses related to maintaining the account, such as for wire transfer
fees, cancellation fees, and other charges incurred by the bank to pay
hotels, land operators, and air carriers. Others submitted comments
against retention of the current surety/escrow option, primarily on the
basis that such arrangements have not always sufficiently protected
consumers' funds, particularly when operators have filed for protection
under bankruptcy laws.
In support of retaining the present surety/escrow option, many
individual charter operators and an association representing charter
operators asserted that the present system provides a necessary
discipline on the industry and that financially stable and responsible
charter operators are not burdened by the escrow system. One of these
commenters pointed out that the escrow account system has worked well,
when
[[Page 28229]]
properly administered, to provide consumer protection at little or no
cost, and it should continue as an option. It suggested, however, that
there is no need to require a security agreement, such as the $10,000
per flight/$200,000 maximum required under present rules, in addition
to the depository account.
The members of the banking industry that commented on the NPRM, as
well as the private citizens who commented, were unanimously in favor
of retaining some form of protection requiring a depository account.
One bank that handles charter operator escrow accounts stated that the
depository method is the safest and most economical manner in which to
provide protection of consumer funds, in particular because of the high
risk to banks of surety bonds and trusts, the costs of which must be
passed on to charter operators and, ultimately, consumers. Another bank
asserted that the interest earned on escrow accounts more than makes up
for any charges assessed by the banks for maintenance of the accounts.
Many of the direct air carriers and associations filing comments on
behalf of direct air carriers recognized that the present surety/escrow
system carries with it certain costs and burdens. Most, however,
suggested that it be kept in place because it has proven to be an
effective means of protecting charter participant payments. One of
these commenters suggested retention of the present escrow system, at
least until the Department has had an opportunity to examine the
effects on the charter industry of other changes to the Public Charter
rules that may result from this proceeding. Another suggested that if
there is to be a change, we retain the present surety/escrow system,
and, in the interest of allowing the industry to respond to market
requirements, also allow any of the other proposed systems as optional
requirements.
The $30,000-per-flight, $600,000 maximum alternative received some
support from several direct air carriers and from well-established
charter operators. Many other direct air carriers and charter
operators, as well as financial institutions, argued against such a
security agreement requirement as being too expensive for many charter
operators to obtain and maintain. Other commenters noted the
requirement, which would triple currently required security amounts,
would be unnecessarily broad for the many small-aircraft, domestic
charter operations, so that the security required per flight could far
exceed the cost of the air transportation. On the other hand, one
commenter noted that the $30,000-per-flight figure could be
insufficient to cover certain wide-body aircraft operations, while
another felt that the $600,000 maximum would be insufficient to cover
many large charter operator programs.
We see merit in each of the comments.We recognize that the proposed
$30,000-per-flight, $600,000 maximum amount might not fully cover the
operations of all charter operators. However, we are also concerned
that adoption of the proposal could result in a situation where charter
operators, particularly small businesses, would be required to obtain
security in an amount far exceeding the cost of the flight, if it could
be afforded at all. We conclude that we should not adopt this proposed
alternative for protecting participant payments.
Another method of financial security discussed by the NPRM is a
security agreement sufficient to cover the cost of air transportation
sold but not yet provided to consumers. This ``rolling bond''
alternative would allow the amount of the security to increase or
decrease over time as the number of charter participants who have paid
but have not completed their travel changes.\4\ This option was
addressed by one charter operator and two of the banks. The charter
operator was in favor of the option but one of the banks declared it
``unworkably difficult'' to administer since it could involve
maintaining records and accounts involving dozens of charter flights
and thousands of charter participants each day. We have determined not
to adopt this option at this time since, under the rolling bond
concept, the amount of coverage with respect to the protection of funds
is determined solely by the charter operator and we are not convinced
such a program could be administered to afford effective consumer
protection. We will not adopt the rolling bond as an alternative
security measure.
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\4\ As with the air-only security agreement discussed above,
under this option charter operators would be required to retain
records sufficient to enable us to ascertain the separate cost to
the consumer of the air and land portions of a charter package.
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Another option that we have concluded should not be afforded to
charter operators is to permit a direct carrier to agree to bear
financial responsibility for charter participant funds paid to the
charter operators, either by refunding moneys paid or providing the
transportation paid for by the consumer. Most of the direct air
carriers and their associations commenting on specific alternative
proposals strongly urged the Department not to adopt this option. The
many objections to adopting this financial security measure centered on
a concern that holding a direct air carrier to be the guarantor of a
charter operator's obligations would change the fundamental
relationship of the two entities where direct air carriers have
historically been merely contractors supplying services, without any
effective means to assess or control the financial risks associated
with such responsibility. It was argued that the direct air carrier and
a non-affiliated charter operator have at best an arm's-length
relationship and that the airline has no realistic opportunity or
capability to effectively investigate the charter operator's financial
status, managerial competence, or compliance disposition. It was also
pointed out that the airline is not a party to any agreement between
the charter operator and the participants and should not be placed in
the middle of any disputes arising out of the participants'
dissatisfaction with the arrangements.
Relating to the discussion above, one major direct air carrier and
its affiliated charter operator, in a joint comment, suggested that the
Department should adopt the option, expanded to allow a direct air
carrier to assume financial responsibility for all of the obligations
of an affiliated charter operator, including the affiliate's
obligations for those flights for which it is not the direct air
carrier. Permitting the direct air carrier to stand behind the
obligations of its affiliate would, according to this commenter, afford
a greater incentive to monitor the charter operator's business and
provide a superior level of protection for consumers in those cases in
which he direct air carrier is a scheduled carrier with wide
operations. Several other commenters suggested that no affiliation
should be required between the direct air carrier performing the
flights and the charter operator whose programs would be backed.
Although we are somewhat receptive to this proposal, particularly
where there is a true affiliation between the charter operator and
direct air carrier (e.g., where one controls, is controlled by, or is
under common control with the other), we are concerned that a blanket
approval of this type of arrangement could lead to abuses, either where
the direct air carrier overextends itself and guarantees a large
charter program for which it has insufficient capacity available to
operate in the event it becomes necessary to do so, or where
financially weak direct air carriers ``rent'' their backing to charter
operators seeking to avoid the financial security
[[Page 28230]]
rules. We have decided, therefore, not to expand the rule as requested,
but to review any such proposed arrangements on a case-by-case under
the waiver provisions of Sec. 380.9. Any direct air carrier seeking to
provide such guarantees to operators must be prepared to demonstrate to
our satisfaction that it has the wherewithal to undertake such an
arrangement, particularly if it involves a substantial charter program.
One financial security option proposed in the NPRM is a security
agreement in an amount not less than the charter price for the air
transportation, whether or not the charter flight being sold includes
land arrangements. Some of those that commented on this option were
concerned about the lack of protection it entails for the land portion
of a charter participant's payments and pointed out that it may provide
less protection than is available today. As has been the case for
years, today any consumer can purchase as a ``package'' from a retail
travel agent or other entity a tour that includes travel on scheduled
service and land arrangements that are independent of the air service.
While the air portion of the price of the tour is ``protected'' after
the ticket is issued, in the sense that the direct air carrier is
obligated to honor the ticket for transportation or provide a refund,
there is no Department-mandated protection for the land portion of the
tour price. We reasoned that, to the extent present requirements place
charter operators at a competitive disadvantage in providing services
to consumers at the lowest possible price, it may be in the public
interest to modify those requirements. Under this financial security
option, we could do so without providing any less protection than that
afforded purchasers of tours using scheduled service.\5\
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\5\ Indeed, adoption of this option may enhance competition in
other ways, as is apparent from the comments of one party that
arranges both charter and scheduled service tour packages, and, as
an enhancement to consumers and retail agents, elects to advertise
the fact that it places in escrow the land portion of the scheduled
service tours.
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In the NPRM, we also expressed our concern that the availability of
this option, under which only the air transportation portion would be
protected by a security agreement, could be subject to abuse if a
charter operator would attempt to allocate only a small portion of the
total tour package cost to the air transportation to be provided. We
presented several possibilities for dealing with this problem,
including a requirement that charter operators state separately their
prices for the air and land portions of a package or a requirement that
charter operators retain records sufficient to enable the Department to
ascertain the separate cost to consumers of the air and land portions.
We have concluded however that we should not adopt this proposal.
Charter air tours involving land accommodations are distinguishable
from tour packages using scheduled service. As discussed earlier, in
the event of a flight cancellation or change, passengers using
scheduled service have more options than do charter passengers and they
are more likely to reach their destination in a timely fashion without
serious inconvenience or monetary loss. Passengers using scheduled
service are therefore less likely to forfeit any portion of their land
arrangements as a result of a flight irregularity or other problem. We
thus remain concerned about a system that would fail to protect the
land as well as the air portions of a charter participant's trip. The
present rule in this regard appears reasonable and to have worked well
and, on balance, we see no reason to change it at this time. The
Department has authority to handle potential abuses in this area
through its general authority to investigate and prohibit unfair and
deceptive practices or unfair methods of competition (e.g., 49 U.S.C.
41712).\6\
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\6\ Moreover, as part of their continuing obligation under new
Sec. 380.10 to ensure that any Public Charters they conduct are in
compliance with the rules, we also expect that the direct air
carriers performing the charters will ensure that the security
agreement is at least in an amount sufficient to cover the cost of
the air transportation to be provided as set forth in the direct air
carrier charters operator contract.
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The comments on the alternative of requiring a security agreement
that would cover the cost of both the air and land portion of a charter
trip received little direct support. Those opposed to the proposal
cited the expense, in general, of obtaining such security. The
opposition, however, was based on supposition that the Department would
require such a large security agreement. In recognition of the fact
that the expense of obtaining and maintaining financial security in an
amount sufficient to cover the charter operator's cost of air and land
may be unattractive to, or unattainable for, some charter operators, we
will not adopt this financial security alternative as a requirement.
We continue to believe that there is a need for protection of
charter participants' funds and for their right to receive refunds for
services paid for but not received. As we pointed out in the NPRM,
there is a unique financial risk inherent in the sale of charter
transportation by charter operators that have not been required to meet
our fitness requirements, and we conclude that the public benefits of
retaining financial protections for charter participant funds
significantly outweigh the cost of compliance.
After careful consideration of all of the comments in this
proceeding, we have determined that we should retain the existing
financial security rules as the means by which charter operators
provide financial protection for consumer funds. A number of commenters
stressed the view that significant benefits of the present system
outweigh any administrative burdens and costs of compliance. Such
comments from those intimately involved in the charter industry,
particularly those parties upon whom the costs and burdens of the
escrow requirements most heavily fall, together with the demonstrated
benefits of the existing surety/escrow system, convince us that we
should retain the existing system.
As a final point on the protection of consumer funds, we note
elsewhere in this rule that we are allowing the use of credit cards as
a means by which charter participants may pay for charter flights. If
charter customers follow the trend of scheduled air transportation
passengers, upwards of 70 percent of charter participants will be
paying for their trips by credit card and not by cash or check. Those
paying by credit cards will also be afforded the protections of Federal
credit card laws.
(4) Financial Security Rules Applicable to Direct Air Carriers
Under the current rules, direct air carriers conducting charter
flights are required to establish either (1) a surety bond in an
unlimited amount, or (2) an escrow account into which all charter
payments are to be deposited until after the flight is operated (14 CFR
207.17, 208.40, 212.12). These requirements apply to all U.S.-
originating passenger charters, including Public and ``non-public''
type charters, as well as Overseas Military Personnel Charters
originating outside of the United States. Direct air carriers using
escrow accounts that engage in direct sales of Public Charters (i.e.,
without using an independent Public Charter operator) are also required
to meet the bonding requirements of Part 380 applicable to Public
Charter operators in addition to their flight escrow account.
We indicated in the NPRM that we were tentatively of the view that
the present financial security requirements applicable to direct air
carriers conducting charters, including direct
[[Page 28231]]
sale Public Charters, were unnecessary, and we proposed to eliminate
those requirements.\7\
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\7\ U.S. and Canadian air taxi operators that perform Public
Charters are also subject to the financial security requirements
applicable to direct air carriers. Under the proposed rule, those
requirements, contained in Secs. 298.38 and 294.32, would also have
been eliminated.
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Comments on this proposal were filed by several air carriers,
charter operators, travel agent associations, and banks. Most of the
direct air carriers agreed with the proposal that financial security
arrangements should no longer be imposed on direct air carriers since
airlines conducting charters are subject to the same fitness
requirements as those operating scheduled flights; indeed, many
carriers that operate charters also provide scheduled service.
Moreover, scheduled flights are not subject to any such financial
security requirements. These carriers also stated that the current
security requirements are costly restrictions that produce little, if
any, benefit while placing charter operations at a competitive
disadvantage to scheduled service.
The proposed rule change was opposed by one air carrier, several
charter operations, two travel agent associations, the banks, and most
of the individuals filing comments, citing airline liquidations and
bankruptcies in recent years and the apprehension they assert will be
felt by charter operators who will be hesitant to take a chance on new
entrants in the industry without the financial controls that are now in
place. One commenter stated that more and more charter flights are
being provided by new entrant U.S. and foreign carriers and that, since
these carriers are the leading edge of competition in charter markets,
it would be counterproductive to adopt a charter rule that has the
effect of reducing their access to charter traffic. Another commenter
stated that charter deposits transferred to direct air carriers
represent relatively large sums of money in a single transaction with
transfers made shortly before the flight operates, and it is not
unreasonable, in these circumstances, for the direct air carrier to
continue to provide depository protection for these sums, which have
been afforded such protection while in the hands of the charter
operator. Another commenter cited its concern that participants could
claim against a charter operator's security agreement if they do not
receive the charter trips they have purchased even though the charter
operator had paid the direct air carrier.
We will continue to require direct air carriers to maintain a
surety or escrow account for the protection of customer payments for
charter flights that they operate. Our decision to retain this
requirement is premised, in part, on our view that even though such
carriers have been subjected to a ``fitness'' evaluation by the
Department, the charter participants' funds should continue to be
protected after leaving the security of the charter operator's escrow
account and until the charter participant has received the service that
was promised. Moreover, in the event of a stranding, charter
participants are less likely than scheduled passengers to be carried by
other airlines or to benefit from ticketing procedures common among
scheduled carriers (e.g., where travel on a defaulting airline is via a
ticket issued by another carrier, or vice-versa).
(5) Direct Air Carrier Responsibilities
Under the proposed rules, direct air carriers would be responsible,
as they currently are, for ensuring that any charter they conduct meets
the requirements of the charter rules--that is, they would have to take
reasonable steps to verify that the Public Charter operators with which
they contract meet the registration and financial security requirements
of Part 380, and single entity or affinity charters meet the
definitional requirements for those charter types (proposed
Secs. 212.30(d) and 212.5(f)). Direct air carriers would be free to
establish whatever contractual requirements they deemed necessary in
order to ensure compliance with the rules. Direct air carriers would
also be responsible, as they have been in the past, for providing
return transportation to any charter participant who has purchased
round-trip transportation and whom they transported on an outbound
flight, unless that charter participant's return flight is covered by a
contract with another direct air carrier (proposed Sec. 212.3(e)). We
also proposed to add a provision to Part 380 (proposed Sec. 380.10) to
state that, should the direct air carrier fail to make a ``reasonable
effort'' to verify that the Public Charter operator had met the
Department's financial security requirements, that air carrier would
bear the responsibility to provide the charter transportation or refund
the air transportation portion of the charter participant payments in
the event of the charter operator's failure to do so.
The inclusion of the requirement to provide return transportation
was opposed by several direct air carriers and charter operators,
principally because the NPRM had proposed to eliminate prepayment
requirements that are a part of current regulations (Secs. 207.13(b),
208.32(e), 212.8(a), 380.11) for both the outbound and return leg of
charter round trips. The commenters stated that these prepayment rules
worked as a mechanism to ensure that the direct air carrier would have
the funds to either compensate the charter participants or cover the
cost of transportation and that, without payments from the charter
operator to cover the flights, the direct air carrier would have to
endure a significant financial burden for which it was not responsible.
One commenter proposed that the rule be revised to limit the direct air
carrier's responsibility to the funds it had received from the charter
operator to pay for the return leg. While the air carrier can always
require the charter operator to pay the full price of the flight up
front as a contractual matter, we agree that the rules should retain
the prepayment requirements and the carrier will be responsible for the
return air transportation of all round-trip Public Charter participants
that it carries outbound, as in the current rule. This rule was written
to protect the charter participants by ensuring that the charter
operator had not only engaged the services of an air carrier but had
also paid for the flight. We will retain the prepayment requirements of
Parts 207, 208, 212, and Sec. 380.11.
Comments were also received from a number of direct air carriers
arguing that the refund-or-provision-of-transportation requirement
proposed in new Sec. 380.10 is an unfair and unworkable expansion of
the ``reasonable effort'' concept of the current rules (Sec. 380.40).
One carrier stated that this requirement would make the direct air
carrier both the regulator and the guarantor of a charter operator and
would `'reformulate the nature of charter transportation. Recasting the
carrier as the overseer of the charter operator would fundamentally
change what has been understood to be a supplier-purchaser
relationship.'' Several commenters view the NPRM language as a
wholesale shift of responsibilities away from the charter operator, and
argue that such shifting of the risk for charter operator performance
to the direct air carrier will place greater financial pressure on the
direct air carrier which, in turn, will make charter activities less
attractive. The Department's rational that such a rule would minimize
government oversight of the charter industry and help protect charter
participants is a worthy goal, say the commenters, but the way to
achieve it is not by handing the enforcement role over to the airlines.
Several commenters stated that they should be given an explanation of
what constitutes
[[Page 28232]]
``reasonable effort'' so they will be on notice as to what is expect of
them. Others suggested that charter operators should be required to
give the direct air carriers a certification of compliance with
Department regulations, and that should be sufficient to satisfy this
requirement.
We appreciate the concern of those many commenters who feel that
Sec. 380.10 as proposed might be an expansion of direct carrier
responsibility. Direct air carriers have long been responsible under
present Sec. 380.40 for ensuring that charter operators comply with all
the requirements of our Public Charter rules. Indeed, our Office of
Aviation Enforcement and Proceedings has not hesitated to pursue direct
carriers for violating this provision.\8\ Nevertheless, we recognize
that each situation involving a charter problem presents a different
set for circumstances, and the fact that a problem occurs may not be
causally related to a failure by a direct air carrier to have ensured
compliance with Part 380. It was not our intent in proposing the
language in the NPRM to make direct air carriers the guarantors of
charter operations. Our intent was merely to clarify a significant
obligation of direct air carriers that has for years been impressed
upon them as a part of our charter enforcement policy. Upon reflection,
we recognize that the present language under Sec. 380.40 is understood
and appropriate and we will make no changes. Accordingly, we are
omitting this proposed section 380.10 from the final rule and will
retain the language of Sec. 380.40 in its present form. We emphasize to
direct air carriers, however, that in doing so we are not diluting to
any degree their long-standing obligation to ensure that charter
operators comply with Part 380. Nor are we indicating any lessened
resolve on our part to enforce this requirement to the extent necessary
to ensure that consumers are not harmed.
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\8\ See Order 92-2-1, January 2, 1992 (America West); Order 92-
4-50, April 28, 1992 (Mark Air); Order 92-6-17, June 11, 1992
(Faucett); and Order 94-3-34, March 21, 1994 (Express One).
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Based on the number of comments received on this point, we
recognize that the term ``reasonable effort'' may require further
clarification. At a minimum, we would expect direct air carriers to
verify that the Public Charter operators with whom they contract have
filed with the Department a prospectus (that has been accepted)--they
can accomplish this by contacting the Department's Special Authorities
Division directly--and that they have, in fact, entered into a security
arrangement in an amount sufficient to meet the requirements of our
rules--they can accomplish this by contacting the named securer/escrow
bank.\9\
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\9\ See also n.3, supra.
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(6) Use of Credit Cards for Payments to Charter Operators
The Public Charter (Part 380) was developed to protect the public
by assuring that the individual participant receives the air flight and
accommodations contracted for and that all payments to the charter
operator are securely held and properly used. Among other provisions,
Part 380 requires that each operator provide a security arrangement
based on its total cost of the flights in its charter program or both a
bank depository account (escrow account) and a $10,000 per flight
security arrangement. Most operators choose the escrow account/security
arrangement combination. When the depository/security combination is
used, payments to the charter operator from or on behalf of charter
participants must be in the form of a check or money order made payable
to the bank in which the escrow account is located. In practice, checks
not so payable are endorsed over and deposited into the escrow account.
The bank then disburses the money to the direct air carrier and,
thereafter in some circumstances, to providers of non-air arrangements
that are part of the Public Charter package. This check or money order
payment required was put in place long before credit cards became a
preferred form of payment for charter service. The NPRM pointed out
that the restriction in the rule against credit card payments is
inconsistent with the reality of today's marketplace and denies
consumers additional protections that may be gained when they use
credit cards to pay for goods and services. For example, if services
are not received or there is a problem, the consumer may not be
required to pay a remaining amount and may even get a refund. The NPRM
supported the view that many consumers prefer to use credit cards and
charter operators can also benefit by offering the additional
flexibility to the customer. The NPRM also noted that for years the
Enforcement Office has as a matter of enforcement policy permitted
charter operators to accept payment by credit card so long as certain
consumer protection conditions are met.
Virtually all the commenters supported the rule change to allow
direct credit card sales for Public Charters. Based on the comments and
recent experience, the Department has decided to allow charter
operators with depository accounts \10\ to accept payment by credit
card from charter participants into those accounts. If the credit card
merchant account is separate from the depository account, it must be
used solely as a conduit with all credit card payments toward Public
Charter trips immediately remitted to the depository account in full,
without holdback. If a separate bank is to be used as a conduit for the
receipt of credit card payments, the Department must be satisfied that
there are adequate procedural safeguards. For example, the Department
may require the charter operator to furnish a copy of or certify that
there is in place, an agreement between the charter operator and the
credit card merchant bank sufficient to preclude participant funds from
being held back.
---------------------------------------------------------------------------
\10\ Public Charter operators with bonds equaling their total
flight costs (or multiples thereof for trips exceeding 14 days) have
always been permitted to accept payment in any form.
---------------------------------------------------------------------------
In situations involving direct bookings by telephone, the
Department will allow the Public Charter operator to accept credit card
payments for its trips provided that the charter operator advises the
customers: (1) That he or she has the right to receive the operator-
participant contract before making a booking; (2) that the operator-
participant contract will be mailed to the participant within 24 hours
of accepting payment by credit card; and (3) that the operator-
participant contract must be signed, and the signed portion returned to
the operator, before travel. While the operator is free to establish a
deadline for participants who pay by credit card to sign and return the
contract, a full refund must be made of any amounts charged to a credit
card for any participant who cancels before the operator-participant
contract is signed.
(7) Other Matters
Minimum contract size and advance purchase requirements. Many
commenters expressly supported our proposal to eliminate the 20-seat
minimum contract size for less-than-planeload charters, and the 7-day
advance purchase requirement for Public Charters sold directly to the
public by direct air carriers or affiliated charterers. Several,
however, expressed concern that the absence of these provisions could
lead to abuse, especially in some international markets. One stated
that, in cases where the United States has a restrictive scheduled and
a liberal charter relationship with a foreign government, carriers
could, absent the current minimum contract size and advance
[[Page 28233]]
purchase rules, set up basically unrestricted direct sale charters to
circumvent scheduled route or capacity limitations. This commenter and
one other felt that retention of these kinds of restrictions on
charters would help prevent the undermining of bilateral scheduled
service regimes by charter operations. Another commenter expressed
concern that carriers might sell individual seats on charters without
complying with the requirements of our Public Charter rules.
We have decided to eliminate the minimum contract size and advance
purchase rules, as we proposed to do. We recognize the concerns raised
by the commenters over the possible implications of this change in some
international markets, but we find that these concerns do not warrant
our retention of these restrictive provisions. Significantly, as we
noted in the NPRM, the final rule will allow the Department to limit or
prohibit the operation of direct sale Public Charters by a foreign air
carrier if we find that such action is necessary in the public
interest. Thus, we have ample ability to redress problems that might
arise, should such action prove necessary. Furthermore, we believe that
the rule as adopted makes it clear that any sale by a direct air
carrier of an individual charter seat to the public must be done under
the direct sale provisions of Part 380.
Additional information with charter operator registrations. Several
commenters proposed that we require additional information from Public
Charter operators at the time of their registration under the proposed
filing system. Three commenters suggested that operators be required to
file a copy of their promotional material showing flight schedules to
be operated. Another suggested that operators be required to provide a
copy of the contract of carriage they would enter into with their
charter participants. A third suggested that operators be required to
file a certification of any complaints made against them by state or
local consumer agencies.
We will not adopt these suggestions. With respect to the filing of
promotional material with flight schedules, the current prospectus
filing requirement includes flight schedules, and, as is now the case,
we will request copies of advertisements when appropriate. The other
two suggestions, for charter operators to file copies of their
operator-participant contracts, and certifications of complaints, are
not required under our current rules, and we see no public interest
reason to impose these burdens as a part of this proceeding.
We will, however, amend the rule with respect to the information
required to be filed on the ownership of the charter operator (Part
380, Subpart E--Registration of Foreign Charter Operators) to replace
the reference in the proposed rule to ``stockholders'' holding 10
percent or more of the company's stock with ``persons'' owning 10
percent or more of the company, since the proposed rule did not take
into account the fact that many charter operators may be sole
proprietorships or partnerships that do not have stockholders.
Moreover, in order to accurately determine the citizenship of the
charter operator, we will require that, if any such persons are
themselves organizations or corporations, the 10 percent owners of
those companies must also be identified back through the company's
structure to individual persons who own stock in the ultimate
``parent'' company of the charter operator. Requiring such information
is also consistent with our procedures in reviewing the ownership
structure of direct air carriers.
Filing of claims against Public Charter operators and securers, and
payment of claims. Three commenters suggested shortening the provision
in proposed Sec. 380.6(d) that allows Public Charter participants 60
days after the termination of a flight to make a claim against the
Public Charter operator (this requirement is contained in current
Sec. 380.34(d)). The commenters argued that retaining the 60-day claim
period requires operators to maintain expensive security instruments
for this period, and that there is no need for such a long period since
charter participants will know no later than upon returning from their
Public Charter whether their payments were lost in progress to the
providers of services--most commonly airlines and hotel operators--or
that refunds are due under the operator-participant contract, e.g., for
a flight cancellation or other major change requiring a partial or full
refund.
Another commenter urged a requirement that claims against a
security instrument be paid within 45 days of their submission.
We will not adopt these suggestions. With respect to the 60-day
claim period, we note that while in some cases a Public Charter
participant will immediately know of the need to submit a written
claim, there are other instances, such as a delay in obtaining a
promised refund from a charter operator, where the charter participant
may not realize this need until well into the claim period. The 60-day
claim period has been a part of our charter regulations for many years,
and has, we believe, worked well in providing charter participants
sufficient time to seek redress of problems they have encountered on
Public Charters. We find no public interest reason to modify this
provision at this time.
With respect to requiring the payment of claims within 45 days, we
do not believe that such a condition is warranted. The resolution of
claims can, in some cases, be a complex, time-consuming process,
involving negotiations between and among the charter participant, the
charter operator, and the securer, and at times the use of the courts.
Mandating a 45-day period for claim resolution could be disruptive to
this process, to the detriment of all parties. In any event, should a
charter operator unreasonably delay the resolution of a claim, such
that its action represented an unfair or deceptive practice within the
meaning of 49 U.S.C. 41712, it would be subject to enforcement action
by the Department.
Payment of claims under security agreement. One commenter objected
to proposed Sec. 380.6(a)(1), which pertains to payments by a securer
to charter participants with claims against the charter operator's
security agreement, because it would permit the entity providing the
security to make payment to claimants without the charter operator's
agreement or a judgment from an appropriate court of law. The portion
of the rule of concern to the commenter states that the securer shall
pay a claimant where it ``is determined by the person providing the
security or adjudged by a court of competent jurisdiction'' that
payment is due to a claimant. The basis for the objection is the
commenter's concern that the securer will have no incentive to deny
even the most frivolous of claims filed against the security agreement,
since any amounts it pays out to claimants will be recoverable from the
charter operator's collateral that secures the agreement.
The security agreement is intended to compensate consumers for
claims incurred under the operator-participant contract, as a result of
flight cancellations, and/or for major changes not accepted by the
participant, in all cases in which the participant has not received an
appropriate refund. That compensation should be provided as soon as
practicable. To require in all cases the approval of the charter
operator or a court judgment prior to payment could unnecessarily delay
compensation from being made for legitimate claims. We do not share the
commenter's concern that a securer
[[Page 28234]]
could feel free to make payments to claimants without concern for the
actual legitimacy of their claims, since in doing so it would, at a
minimum, risk losing future business and open itself to potential
liability to the charter operator. It is our intent that securers
approach such matters using a ``reasonableness'' standard, and give
consideration to all facts surrounding the flight cancellation or other
problem that gave rise to the claim. So long as the charter operator is
available, we would expect the charter operator to be given a
reasonable opportunity to comment before the securer makes payments. We
will adopt the rule as proposed, since it will benefit consumers who
experience problems for which the charter operator has failed to
provide timely compensation.
Flight delays and substitute air transportation. One commenter
urged that we retain the current requirements in Secs. 208.32a and
208.33 that require charter air carriers to take certain action in the
event of flight delays of specific periods. Under these regulations,
charter air carriers in some instances provide substitute air
transportation for the charter passengers involved, and in some
instances provide payment for incidental expenses including food and
lodging to the passengers affected. The commenter stated that, absent
this requirement, the charter operator would bear the costs involved in
these situations, and those costs would be especially burdensome on
small charter operators. We will not retain this requirement. The
flight delay requirements at issue here currently apply only to U.S.
charter-only direct air carriers; they do not apply to the charter
operations of U.S. scheduled carriers or foreign air carriers. We see
no reason to continue these 30-year old requirements solely for one
class of air carrier, when the majority of carriers are not subject to
the rules. As we stated in the NPRM, both direct air carriers and
charter operators have a commercial interest in providing amenities
and/or alternate transportation for passengers when charter flights are
delayed. To the extent that a charter operator is concerned about the
costs it may incur in dealing with a possible flight delay, its proper
forum for dealing with that concern is in negotiating the terms of its
contract with the direct air carrier.
Subcontracting. One commenter urged the Department to amend its
rules to permit a ``primary'' charter operator to contract with and be
responsible to the direct carrier for payment for a charter flight and
to subcontract seats on the flight to other operators without the need
for the latter operators' having contracts with the direct air carrier.
Under this proposal, both the ``primary'' and subcontracting charter
operators would be registered with the Department. Another commenter
urged that we also allow single entity charterers to subcontract seats
to other single entity charterers, stating that such a provision would
be useful in cases where a direct air carrier preferred to contract
with only one charterer.
The Public Charter operator/sub-operator separate filing
arrangement has existed informally for many years \11\ and we will
codify it here. However, we will not adopt the proposal to allow single
entity charterers to subcontract seats. The operator/sub-operator
concept entails a contract between a Public Charter operator that sells
charter flights in its own right (either directly to the public,
through its agents, or a combination of both) and a second Public
Charter operator that piggy-backs its program onto the program of the
primary operator with the primary operator retaining at least as many
seats for itself as it has subcontracted to one or more sub-
operators.\12\ Once the Department has accepted the prospectus, the
second Public Charter operator--the sub-operator--may advertise in its
own right using its own securer and depository bank. However,
subcontracting of single entity charters has never been permitted.
Under the single entity concept, passengers may not directly or
indirectly pay toward their trips. Although Public Charter operators
are themselves indirect air carriers, single entity charterers are not.
Alternatives for prospective single entity charterers include using
smaller aircraft, special fares of part charters on schedule flights,
and split charters--multiple charters on a single charter flight.
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\11\ Under 14 CFR 380.30(a), solicitation materials for Public
Charters must identify the charter operator and the direct air
carrier. Under 14 CFR 380.32(a), operator-participant contracts must
state the name and complete mailing address of the charter operator.
A sub-operator has its binding commitment for a specific number of
seats on Public Charter flights shown in another Public Charter
prospectus already filed with (and accepted by) the Department, but
also must file its own prospectus and is bound independently by our
charter rules. Unlike an agent, for example, a sub-operator
advertises and sells as a Public Charter operator using its own
escrow bank and security agreement. (Order 87-7-10, July 2, 1987, n.
2 at 3.)
\12\ The sub-operator concept was devised as a way for direct
air carriers to avoid the downsides of split charters and at the
same time to permit multiple Public Charter operators to share a
planeload charter contracted by a Public Charter operator.
Heretofore, there has been a 20-seat minimum contract size. It has
never been intended for use by middlemen brokers selling off most or
all of the aircraft to Public Charter operators. Unless the direct
air carrier is fully bonded, payments should go from the sub-
operator's escrow account to the direct air carrier's escrow account
with the primary Public Charter operator responsible for payment of
the difference between the amount paid by one or more sub-operators
and the amount it has agreed to pay the direct air carrier for the
flight. Without a waiver granted upon a showing that it is in the
public interest, sub-operator contracts may not exceed half of a
planeload charter.
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Small aircraft operations. One commenter asserted that a
clarification is needed in our rules concerning Public Charter
operations by operators of small aircraft. It noted that proposed
Sec. 380.1 states that the Part applies to air transportation furnished
by certificated air carriers or foreign air carriers, but makes no
mention of operations by non-certificated air taxi operators or
commuter air carriers conducting operations under 14 CFR Part 298. It
states that Secs. 380.1 and 380.2 of the current rule provide for such
operations, and that the definition of ``direct air carrier'' in
proposed Sec. 380.2 does include carriers operating under Part 298. The
commenter suggests that we amend proposed Sec. 380.1 to provide that
the Part applies to air transportation furnished by ``direct air
carriers'' which it states will resolve any ambiguity.
We will adopt this suggestion. It was not our intent in issuing the
NPRM to remove the current ability of air taxi operators or commuter
air carriers to conduct Public Charters under Part 380, and we will
make the change in Sec. 380.1 recommended by the commenter.
OMPC's and educational institutions. In the NPRM, we proposed to
retain rules providing for the operation of two specialized charter
types: Overseas Military Personnel Charters (OMPC's), now contained in
14 CFR Part 372, and charters conducted by educational institutions,
now contained in 14 CFR 380.17. However, we specifically requested
comments on whether these rules are still needed. We received one
comment on each question. An OMPC operator supported continuation of
the OMPC rules, stating that Germany, the major market for OMPC's,
grants special relief for OMPC operations, in light of their role of
providing low-cost transportation for U.S. military and civilian
personnel and their families on furlough or authorized leave from an
official station in a foreign country. We will retain Part 372 for air
carriers to continue to provide this necessary and humanitarian
service. A direct air carrier supported continuation of the special
provisions in Part 380 for educational institutions, stating that the
rules have provided a benefit that should remain available. The
occasional use of these special provisions by air carriers assures us
that there is a need and we will adopt the proposed
[[Page 28235]]
language in new Sec. 380.3(d) concerning charters for educational
institutions.
Affinity charter certifications. One commenter expressed concern
with the provision in proposed Sec. 212.5(f) that would require direct
air carriers conducting affinity (pro rata) charters to obtain, and
retain for two years, a certification by the chartering organization
that all passengers are eligible for transportation under the rule. The
commenter argued that the direct air carrier should not bear the
responsibility and burden of obtaining and holding these
certifications, but that the charterer should have this responsibility.
We will, however, adopt the provision as proposed. We continue to
believe that the responsibility for obtaining and retaining the
necessary certification of eligibility for an affinity charter property
rests with the direct air carrier involved. Moreover, our proposal
represents a significant reduction in the burden on direct air carriers
and affinity organizations, since the certification would replace the
detailed ``Statement of Supporting Information'' now required. Finally,
should a problem arise with an affinity charter, having the
certification in the hands of the direct air carrier, rather than with
an organization whose identity and location would likely be unknown to
us, would assure that we can promptly obtain information on the charter
from that carrier.
Long-term wet leases. One commenter recommended that we modify
proposed Secs. 212.2 and 212.8(a), which would continue the current
requirement in Secs. 207.1, 207.10, 208.3, and 208.5, that U.S. air
carriers conducting wet lease operations (that is, charters involving
the lease of aircraft and crew) on behalf of foreign air carriers
obtain prior Department approval, in the form of a statement of
authorization, for all ``long-term'' wet leases of 60 days' duration or
longer. The commenter proposed that the prior approval requirement
apply only to wet leases by U.S. air carriers of 120 days or longer,
stating that the change would relieve a burden and ``better reflect the
realties of the marketplace.''
We will not adopt this suggestion. The purpose of the prior-
approval requirement for U.S. air carrier long-term wet leases to
foreign air carriers is to enable us to assure that these operations,
which, because of their extended duration, may represent a significant
benefit to the foreign carrier lessee, are in the public interest. The
fact that a U.S. carrier is proposing to conduct the wet lease is a
significant consideration, but it is not itself sufficient to meet the
public interest test. Other public interest criteria as listed in the
rule may figure in our decision. We believe that we need to continue
the level of scrutiny of these types of wet lease operations that we
have been exercising, and, in the absence of any compelling argument
for changing the current provision, we will retain the 60-day threshold
in the final rule. We do not believe that retention of this provision
will pose a significant burden on U.S. air carriers, as the application
process for a statement of authorization is uncomplicated, involving
the filing of a minimal amount of information with the Department.
Direct Sales. The NPRM proposed that certificated and foreign air
carriers could offer for sale and operate Public Charter flights under
Part 380 directly to the public and need not comply with registration
requirements or the requirements concerning financial security
arrangements. While no comments were received on the proposed
elimination of filing requirements for direct sales, the overall tenor
of comments submitted was to retain the consumer protection provisions
of the rule. We have responded to these public comments by retaining
other participant protection elements and will do so for direct sale
customers as well. We will, therefore, not adopt the wording of the
NPRM but will take this opportunity to rewrite the section to eliminate
confusing directions in the old rule.
Miscellanous. Several commenters proposed other changes to the
proposed rule, from Federal licensing of Public Charter operators to
the enactment of a single charter type to replace affinity, single
entity, mixed, and Public Charters. Since these matters are well beyond
the scope of this proceeding and have not been adequately justified, we
will not address them here.
Effectiveness of the rule. The provisions of this rule will become
effective 30 days after publication in the Federal Register.
Conclusion
After carefully weighing the comments provided in response to the
NPRM, we have decided to adopt the revisions as discussed above.
Regulatory Impact
Excutive Order 12866 and DOT Regulatory Policies and Procedures
This final rule has been evaluated in accordance with existing
policies and procedures. Because the requirements contained in this
final rule clarify the applicability of the multiple Air Charter
regulations to a specific segment of the industry and reduce selected
portions of the regulatory burden on these operators, the Department
has concluded that this final rule does mot constitute a significant
rule under either Executive Order 12866 or DOT's policies and
procedures.
Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq.
requires a review of rules to assess their impact on small entities.
The Department certifies that this final rule does not have a
significant economic impact on a substantial number of small entities.
The Public Charter industry is composed of approximately 250 charter
operators half of which are small commercial enterprises that file for
a single flight. The only change these operators will notice in filing
a prospectus under the new rule will be the saving of $39 in not having
to request a waiver of the 10-day waiting period. The Department has
concluded that there are no substantial economic impacts for small
units of government, business, or other organizations.
Paperwork Reduction Act
This rule contains information collection requirements that have
been submitted to the Office of Management and Budget for approval
under the Paperwork Reduction Act (44 U.S.C. 2507 et seq.). Collection-
of-information requirements include reporting, recordkeeping,
notification, and other similar requirements. Persons are not required
to respond to a collection of information unless it displays a
currently valid OMB control number. We will publish a notice in the
Federal Register prior to the effective date of this final rule of
OMB's decision to approve, modify, or disapprove the information
collection requirements. The paperwork burden for the filing of Public
Charter prospectuses will not changes as a result of this Final Rule
because the applications and amendments must still be prepared and
submitted to the Department.
Environmental Impact
The Department has evaluated this final rule in accordance with its
procedures for ensuring full consideration of the potential
environmental impacts of its actions as required by the National
Environmental Policy Act (42 U.S.C. 4321 et seq.), other environmental
statutes, Executive Orders, and DOT Order 5610.1c. It has
[[Page 28236]]
been determined that this final rule does not have any effect on the
quality of the environment.
Federalism Implications
The Department has analyzed this rule under the principles and
criteria contained in Executive Order 12612 (``Federalism'') and has
determined that the rule does not have a substantial effect on the
States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. Thus, in accordance with Executive Order
12612, the rule does not have sufficient federalism implications to
warrant the preparation of a federalism assessment.
Unfunded Mandates Reform Act
This rule does not impose any unfunded mandates on State, local, or
tribal governments as defined by the Unfunded Mandates Reform Act of
1995 (2 U.S.C. 1532-1538).
Summary of Cost/Benefits
Our analysis of the impact of changes made in the Public Charter
rule clearly indicates that the changes are beneficial. Elimination of
the 10-day waiting period after filing a prospectus will save the cost
of a waiver request. We are also deleting the requirement to file a
brief (mini) prospectus by direct air carriers conducting foreign-
originating flights for foreign charter operators. And finally, we are
consolidating three largely repetitive rules applicable to direct air
carriers conducting charter flights.
In order to estimate the cost savings to industry from not
requesting a waiver of the 10-day waiting period, we reviewed our 1996
record of filings. We approved nearly 800 prospectus filings during the
year, most of which included a filing fee of $39 and an additional $39
for a waiver request. Of the total fees received, $62,400, nearly half
would be saved under the new rule. In addition, we received between 700
and 800 waiver requests for amendments to Public Charter prospectuses,
changing or eliminating flights. Eliminating filing fees for such
amendments should provide an additional cost saving to charter
operators of approximately $50,000. Cost savings in time and effort for
those filing prospectuses under the new rule will be minimal since the
filings and the amendments must still be provided.
In considering the cost savings to airlines conducting foreign
originating flights for foreign tour operators we note that many
foreign air carriers retain the services of U.S. law firms to provide
these documents. Since most foreign air carriers are exempt from out
filing fees because of reciprocity agreements with the U.S., the cost
savings to the air carriers will be the expense of retaining a law firm
to produce and file information heretofore required by Public Charter
regulations.
Finally, rewrite of the four principal parts of the Code of Federal
Regulations that address passenger air charter operations provides a
more condensed and useable reference for the charter industry and for
those desiring to engage in Public Charters. Consolidating Parts 207
and 208 into a revised Part 212 has eliminated duplicative wording
while retaining these two parts with only an applicability statement to
avoid confusion since a number of Department orders now in effect
require adherence to the requirements. These and other benefits of this
Final Rule which can not be quantified such as eliminating certain
waiver requirements, allowing charter operators to accept credit card
payments and including current practices concerning amendments to
filings, simplifies the process for applications and does so without
compromising consumer protection.
List of Subjects in 14 CFR Parts 207, 208, 212, 380
Air Carriers, Air Transportation, Charter Flights, Reporting and
recordkeeping requirements, Surety bonds.
1. Part 207 is revised to read as follows:
PART 207--CHARTER TRIPS BY U.S. SCHEDULED AIR CARRIERS
Sec.
207.1 Applicability.
207.2 Terms of service.
Authority: 49 U.S.C. 40101, 40102, 40109, 40113, 41101, 41102,
41103, 41301, 41504, 41702, 41708, 41712, 46101.
Sec. 207.1 Applicability.
This part establishes the terms, conditions, and limitations
applicable to charter air transportation conducted by air carriers
holding certificates under 49 U.S.C. 41102 authorizing the operation of
scheduled air transportation services.
Sec. 207.2 Terms of service.
Charter air transportation under this part shall be performed in
accordance with the provisions of part 212 of this chapter.
2. Part 208 revised to read as follows:
PART 208--CHARTER TRIPS BY U.S. CHARTER AIR CARRIERS
Sec.
208.1 Applicability.
208.2 Terms of service.
Authority: 49 U.S.C. 40101, 40102, 40109, 40113, 41101, 41102,
41103, 41301, 41504, 41702, 41708, 41712, 46101.
Sec. 208.1 Applicability.
This part establishes the terms, conditions, and limitations
applicable to charter air transportation conducted by air carriers
holding certificates under 49 U.S.C. 41102 authorizing the operation of
charter air transportation services.
Sec. 208.2 Terms of service.
Charter air transportation under this part shall be performed in
accordance with the provisions of Part 212 of this chapter.
3. Part 212 is revised to read as follows:
PART 212--CHARTER RULES FOR U.S. AND FOREIGN DIRECT AIR CARRIERS
Sec.
212.1 Scope.
212.2 Definitions.
212.3 General provisions.
212.4 Authorized charter types.
212.5 Operation of affinity (pro rata) charters.
212.6 Operation of gambling junket charters.
212.7 Direct sales.
212.8 Protection of customers' payments.
212.9 Prior authorization requirements.
212.10 Application for statement of authorization.
212.11 Issuance of statement of authorization.
212.12 Waiver.
Appendix A--Certificated or Foreign Air Carrier's Surety Bond Under
part 212 of the Regulations of the Department of Transportation (14 CFR
Part 212)
Appendix B--Certification of Compliance
Authority: 49 U.S.C. 40101, 40102, 40109, 40113, 41101, 41103,
41504, 41702, 41708, 41712, 46101.
Sec. 212.1 Scope.
This part applies to all charter flights, and all other flights
carrying charter passengers or cargo, in interstate and/or foreign air
transportation by U.S. certificated air carriers or in foreign air
transportation by foreign air carriers. It does not apply to any
flights performed by a commuter air carrier, air taxi operator, or
certificated air carrier operating ``small aircraft'' under part 298 of
this chapter. Nothing in this part gives authority to operate a type or
level of service not authorized by certificate, foreign air carrier
permit, or exemption, except that a certificated air carrier
[[Page 28237]]
authorized to conduct scheduled operations may conduct charter flights,
in interstate and/or foreign air transportation, without limitation as
to the points served.
Sec. 212.2 Definitions.
For the purposes of this part:
Affinity (pro rata) charter means a charter arranged by an
organization on behalf of its membership, and which meets the
requirements of Sec. 212.5.
Certificated air carrier means a U.S. direct air carrier holding a
certificate issued under 49 U.S.C. 41102.
Charter flight means a flight operated under the terms of a charter
contract between a direct air carrier and its charterer or lessee. It
does not include scheduled interstate air transportation, scheduled
foreign air transportation, or nonscheduled cargo foreign air
transportation, sold on an individually ticketed or individually
waybilled basis.
Charter operator means:
(1) A ``Public Charter operator'' as defined in Sec. 380.2 of this
chapter, or
(2) An ``Overseas Military Personnel Charter operator'' as defined
in Sec. 372.2 of this chapter.
Direct air carrier means a certificated or foreign air carrier that
directly engages in the operation of aircraft under a certificate,
permit, or exemption issued by the Department.
Fifth freedom charter means a charter flight carrying traffic that
originates and terminates in countries other than the carrier's home
country, regardless of whether the flight operates via the home
country.
Foreign air carrier means a direct air carrier which is not a
citizen of the United States as defined in 49 U.S.C. 40102(a) that
holds a foreign air carrier permit issued under 49 U.S.C. 41302 or an
exemption issued under 49 U.S.C. 40109 authorizing direct foreign air
transportation.
Fourth freedom charter means a charter flight carrying traffic that
terminates in the carrier's home country having originated in another
country.
Gambling junket charter means a charter arranged by a casino,
hotel, cruise line, or its agents, the purpose of which is to transport
passengers to the casino, hotel, or cruise ship where gambling
facilities are available, and which meets the requirements of
Sec. 212.6.
Long-term wet lease means a wet lease which either--
(1) Lasts more than 60 days, or
(2) Is part of a series of such leases that amounts to a continuing
arrangement lasting more than 60 days.
Mixed charter means a charter, the cost of which is borne partly by
the charter participants and partly by the charterer, where all the
passengers meet the eligibility requirements for ``affinity (pro
rata)'' charters of Sec. 212.5.
Part charter means flight carrying both charter and scheduled
passenger traffic.
Single entity charter means a charter the cost of which is borne by
the charterer and not by individual passengers, directly or indirectly.
Third freedom charter means a charter flight carrying traffic that
originates in the carrier's home country and terminates in another
country.
Wet lease means a lease between direct air carriers by which the
lessor provides all or part of the capacity of an aircraft, and its
crew, including operations where the lessor is conducting services
under a blocked space or code-sharing arrangement.
Sec. 212.3 General provisions.
(a) Certificated and foreign air carriers may conduct charter
flights as described in this part, and may carry charter passengers on
scheduled flights, or charter cargo on scheduled or nonscheduled
flights (or on the main deck or in the belly of passenger charter
flights), subject to the requirements of this chapter and any orders
of, or specific conditions imposed by, the Department.
(b) Charter flights may be operated on a round-trip or one-way
basis, with no minimum group, shipment, or contract size.
(c) Contracts to perform charter flights must be in writing and
signed by an authorized representative of the certificated or foreign
air carrier and the charterer prior to the operation of the flights
involved. The written agreement shall include:
(i) The name and address of either the surety whose bond secures
advance charter payments received by the carrier, or of the carrier's
depository bank to which checks or money orders for the advance charter
payments are to be made payable as escrow holder pending completion of
the charter trip; and
(2) A statement that unless the charterer files a claim with the
carrier, or, if the carrier is unavailable, with the surety, within 60
days after the cancellation of a charter trip with respect to which the
charterer's advance payments are secured by the bond, the surety shall
be released from all liability under the bond to such charterer for
such trips.
(d) A certificated or foreign air carrier must make a reasonable
effort to verify that any charterer with which it contracts, and any
charter it conducts, meets the applicable requirements of this chapter.
(e) The certificated or foreign air carriers shall require full
payment of the total charter price, including payment for the return
portion of a round trip, or the posting of a satisfactory bond for full
payment, prior to the commencement of any portion of the air
transportation, provided, however, that in the case of a passenger
charter for less than the entire of an aircraft, the carrier shall
require full payment of the total charter price, including payment for
the return portion of a round trip, from the charterers not less than
10 days prior to the commencement of any portion of the transportation,
and such payment shall not be refundable unless the charter is canceled
by the carrier or unless the carrier accepts a substitute charterer for
one which has canceled a charter, in which case the amount paid by the
latter shall be refunded. For the purpose of this section, payment to
the carrier's depository bank, as designated in the charter contract,
shall be deemed payment to the carrier.
(f) A certificated or foreign air carrier operating a U.S.-
originating passenger charter shall be responsible to return to his or
her point of origin any passenger who purchased round trip
transportation on that charter and who was transported by that carrier
on his or her outbound flight; except that this provision shall not
apply in cases where the return transportation is to be provided by
another certificated or foreign air carrier.
(g) A certificated or foreign air carrier may not perform any
charter flight for which a statement of authorization is required under
Sec. 212.9 until one has been granted by the Department. In addition,
if a foreign air carrier is required to obtain a statement of
authorization under paragraph (e) of that section, neither it, not any
charter operator, or any other person shall advertise or sell any
passenger charter services except those that have been specifically
authorized by the Department.
(h) A certificated air carrier may not operate charters where such
operations would result in a substantial change in the scope of its
operations within the meaning of part 204 of this chapter.
(i) A certificated air carrier may not limit its baggage liability
for interstate charter flights except as set forth in part 254 of this
chapter.
(j) A certificated air carrier may not, except as set forth in part
121 of the Federal Aviation Regulations (14 CFR part 121), limit the
availability, upon reasonable request, of air transportation and
related services to a person who
[[Page 28238]]
may require help from another person in expeditiously moving to an
emergency exit for evacuation of an aircraft.
(k) A certificated air carrier holding a certificate to conduct
only cargo operations may not conduct passenger charters.
(l) A certificated air carrier may not perform any charter in
interstate commerce within the State of Alaska.
(m) A foreign air carrier may operate charters in foreign air
transportation only to the extent authorized by its foreign air carrier
permit under 49 U.S.C. 41302 or exemption authority under 49 U.S.C.
40109, and only to the extent to which such operations are consistent
with the provisions of any applicable bilateral aviation undertaking.
Sec. 212.4 Authorized charter types.
Certificated and foreign air carriers may conduct the following
charter types, subject to the provisions of this part:
(a) Affinity (pro rata) charters.
(b) Single entity charters, including:
(1) Wet leases involving the carriage of passengers and/or cargo,
provided, that the wet lessee holds appropriate economic authority from
the Department to conduct the proposed operations; and
(2) Charters pursuant to contracts with the Department of Defense,
provided, that foreign air carriers may conduct charters for the
Department of Defense only to the extent that such operations are
consistent with the provisions of 49 U.S.C. 40118.
(c) Mixed charters.
(d) Gambling junket charters.
(e) Public Charters in accordance with part 380 of this chapter
(including operations by educational institutions as defined in that
part).
(f) Overseas military personnel charters in accordance with part
372 of this chapter.
(g) Cargo charters.
Sec. 212.5 Operation of affinity (pro rata) charters.
An affinity (pro rata) charter operated by a certificated or
foreign air carrier must meet the following criteria:
(a) The aircraft must be chartered by an organization, no part of
whose business is the formation of groups for transportation or
solicitation or sale of transportation services, for the purpose of
providing air transportation to its members and their immediate
families.
(b) The charter must be organized by the organization itself, or by
a person or company who acts not as a principal, but as an agent for
the chartering organization or the certificated or foreign air carrier.
(c) No solicitation, sales, or participation may take place beyond
the bona fide members of an eligible chartering organization, and their
immediate families (spouse, children, and parents). All printed
solicitation materials shall contain the following notice in boldface,
10-point or larger type--
Some of the Federal rules that protect against tour changes and
loss of passengers' money in publicly sold charters do not apply to
this charter flight.
(d) ``Bona fide members'' are members of an organization who: Have
not joined the organization merely to travel on a charter flight; and
who have been members of the chartering organization for a minimum of
six months prior to the date of commencement of the affected flight;
provided, that the ``six month'' rule does not apply to:
(1) Employees of a single commercial establishment, industrial
plant, or government agency, or
(2) Students and employees of a single school.
(e) The charter price due the direct air carrier shall be prorated
equally among all the charter passengers, except that children under 12
may be offered discounted or free transportation.
(f) The certificated or foreign air carrier shall make reasonable
efforts to assure that passengers transported meet the eligibility
requirements of this section. The certificated or foreign air carrier
shall also obtain (no later than the date of departure), and maintain
for two years, a certification by an authorized representative of the
chartering organization that all passengers are eligible for
transportation under this section.
Sec. 212.6 Operation of gambling junket charters.
A gambling junket charter operated by a certificated or foreign air
carrier must meet the following criteria:
(a) The aircraft must be chartered by
(1) A casino, hotel, or cruise line duly licensed by the government
of any state, territory or possession of the United States, or by a
foreign government, or
(2) An agent of such a casino, or cruise line on behalf of that
casino, hotel, or cruise line.
(b) The casino, hotel, or cruise line or its agents, may not
require a passenger to incur any expense in taking the trip, provided,
that this provision shall not preclude the casino, hotel, or cruise
line or its agents, from requiring prospective passengers to pay
nominal reservation fees that are duly refundable by the casino, hotel,
or cruise line before the flight, establish a minimum line-of-credit at
the casino, hotel, or cruise line, bring (but not necessarily spend) a
specified minimum amount of money, or meet other requirements that do
not place them in financial jeopardy; nor does it preclude the casino,
hotel, or cruise line, or its agents, from offering operational land
packages for a fee.
Sec. 212.7 Direct sales.
(a) Certificated and foreign air carriers may sell or offer for
sale, and operate, as principal, Public Charter flights under part 380
of this chapter directly to the public.
(b) Each certificated or foreign air carrier operating a charter
trip under this section shall comply with all the requirements of part
380 of this chapter, except that:
(1) Those provisions of part 380 relating to the existence of a
contract between a charter operator and a direct air carrier do not
apply;
(2) A depository agreement shall comply with Sec. 380.34a (d) and
(f);
(3) A security agreement shall comply with Sec. 380.34 (c) and (d);
and
(i) If no depository agreement is used, protect charter participant
payments (including those for ground accommodations and services) and
assure the certificated or foreign air carrier's contractual and
regulatory responsibilities to charter participants in an unlimited
amount (except that the liability of the securer with respect to any
charter participant may be limited to the charter price paid by or on
behalf of such participant);
(ii) If used in combination with a depository agreement, protect
charter participant payments (including those for ground accommodations
and services) and assure the certificated or foreign air carrier's
contractual and regulatory responsibilities to charter participants in
the amount of at least $10,000 times the number of flights, except that
the amount need not be more than $200,000. The liability of the securer
with respect to any charter participant may be limited to the charter
price paid by or on behalf of such participant.
(c) The Department reserves the right to limit or prohibit the
operation of direct sales Public Charters by a foreign air carrier upon
a finding that such action is necessary in the public interest.
Sec. 212.8 Protection of customers' payments.
(a) Except as provided in paragraph (c) of this section, no
certificated air carrier or foreign air carrier shall perform any
charter trip (other than a cargo charter trip) originating in the
United States or any Overseas Military
[[Page 28239]]
Personnel Charter trip, as defined in part 372 of this chapter, nor
shall such carrier accept any advance payment in connection with any
such charter trip, unless there is on file with the Department a copy
of a currently effective agreement made between said carrier and a
designated bank, by the terms of which all sums payable in advance to
the carrier by charterers, in connection with any such trip to be
performed by said carrier, shall be deposited with and maintained by
the bank, as escrow holder, the agreement to be subject to the
following conditions:
(1) The charterer (or its agent) shall pay the carrier either by
check or money order made payable to the depository bank. Such check or
money order and any cash received by the carrier from a charterer (or
its agent) shall be deposited in, or mailed to, the bank no later than
the close of the business day following the receipt of the check or
money order or the cash, along with a statement showing the name and
address of the charterer (or its agent); provided, however, that where
the charter transportation to be performed by a carrier is sold through
a travel agent, the agent may be authorized by the carrier to deduct
its commission and remit the balance of the advance payment to the
carrier either by check or money order made payable to the designated
bank.
(2) The bank shall pay over to the carrier escrowed funds with
respect to a specific charter only after the carrier has certified in
writing to the bank that such charter has been completed; provided,
however, that the bank may be required by the terms of the agreement to
pay over to the carrier a specified portion of such escrowed funds, as
payment for the performance of the outbound segment of a round-trip
charter upon the carrier's written certification that such segment has
been so completed.
(3) Refunds to a charterer from sums in the escrow account shall be
paid directly to such charterer its assigns. Upon written certification
from the carrier that a charter has been canceled, the bank shall turn
over directly to the charterer or its assigns all escrowed sums (less
any cancellation penalties as provided in the charter contract) which
the bank holds with respect to such canceled charter, provided however,
that in the case of a split charter escrowed funds shall be turned over
to a charterer or its assigns only if the carrier's written
certification of cancellation of such charter includes a specific
representation that either the charter has been canceled by the carrier
or, if the charter has been canceled by the charterer, that the carrier
has accepted a substitute charterer.
(4) The bank shall maintain a separate accounting for each charter
flight.
(5) As used in this section the term ``bank'' means a bank insured
by the Federal Deposit Insurance Corporation.
(b) The escrow agreement required under paragraph (a) of this
section shall not be effective until approved by the Department. Claims
against the escrow may be made only with respect to the non-performance
of air transportation.
(c) The carrier may elect, in lieu of furnishing an escrow
agreement pursuant to paragraph (a) of this section, to furnish and
file with the Department a surety bond with guarantees to the United
States Government the performance of all charter trips (other than
cargo charter trips) originating in the United States and of all
overseas military personnel charter trips, as defined in part 372 of
this chapter, to be performed, in whole or in part, by such carrier
pursuant to any contracts entered into by such carrier. The amount of
such bond shall be unlimited.\1\ Claims under the bond may be made only
with respect to the non-performance of air transportation.
---------------------------------------------------------------------------
\1\ While the face amount of the bond is unlimited, claims are
limited to amounts that are paid to carrier for U.S.-originating
passenger charter flights that carrier fails to perform or to
refund.
---------------------------------------------------------------------------
(d) The bond permitted by this section shall be in the form set
forth as the appendix to this part. Such bond shall be issued by a
bonding or surety company--
(1) Which is listed in Best's Insurance Reports (Fire and Casualty)
with a general policyholders' rating of ``A'' or better or
(2) Which is listed in the U.S. Department of Treasury's notice
listing companies holding Certificates of Authority as acceptable
sureties on Federal bonds and as acceptable reinsuring companies,
published in the Federal Register on or about July 1. The bonding or
surety company shall be one legally authorized to issue bonds of that
type in the State in which there is located the office or usual
residence of the agency designated by the carrier under 49 U.S.C. 46103
to receive service of notices, process and other documents issued by or
filed with the Department of Transportation. For the purposes of this
section the term ``State'' includes any territory or possession of the
United States, or the District of Columbia. If the bond does not comply
with the requirements of this section, or for any reason fails to
provide satisfactory or adequate protection for the public, the
Department will notify the certificated or foreign air carrier by
registered or certified mail, stating the deficiencies of the bond.
Unless such deficiencies are corrected within the time limit set forth
in the notification, no amounts payable in advance by customers for the
subject charter trips shall be accepted by the carrier.
(e) The bond required by this section shall provide that unless the
charterer files a claim with the carrier, or, if the carrier is
unavailable, with the surety, within 60 days after cancellation of a
charter trip with respect to which the charterer's advance payments are
secured by the bond, the surety shall be released from all liability
under the bond to such charterer for such charter trip. The contract
between the carrier and the charterer shall contain notice of this
provision.
Sec. 212.9 Prior authorization requirements.
(a) Certificated air carriers shall obtain a statement of
authorization for each long-term wet lease to a foreign air carrier.
(b) Foreign air carriers shall obtain a statement of authorization
for each:
(1) Fifth freedom charter flight to or from the United States;
(2) Long-term wet lease;
(3) Charter flight for which the Department specifically requires
prior authorization under paragraph (e) or (f) of this section; or
(4) Part charter.
(c) The Department may issue blanket statements of authorization to
foreign air carriers to conduct fifth freedom charters. The standards
for issuing such blanket authorizations shall be those stated in
Sec. 212.11. The Department may revoke any authority granted under this
paragraph at any time without hearing.
(d) The Department may at any time, with or without hearing, but
with at least 30 days' notice, require a foreign air carrier to obtain
a statement of authorization before operating any charter flight. In
deciding whether to impose such a requirement, the Department will
consider (but not be limited to considering) whether the country of the
carrier's nationality:
(1) Requires prior approval for third or fourth freedom charter
flights by U.S. air carriers;
(2) Has, over the objection of the U.S. Government, denied rights
of a U.S. air carrier guaranteed by a bilateral agreement; or
(3) Has otherwise impaired, limited, or denied the operating rights
of U.S. air carriers, or engaged in unfair, discriminatory, or
restrictive practices with respect to air transportation services to,
from, through, or over its territory.
[[Page 28240]]
(e) The Department, in the interest of national security, may
require a foreign air carrier to provide prior notification or to
obtain a statement of authorization before operating any charter flight
over U.S. territory.
Sec. 212.10 Application for statement of authorization.
(a) Application for a statement of authorization shall be submitted
on OST Form 4540 except that for part charters or long-term wet leases
the application may be in letter form. An application for a long-term
wet lease shall describe the purpose and terms of the wet lease
agreement. An original and two copies of an application shall be
submitted to the Department of Transportation, Office of International
Aviation, U.S. Air Carrier Licensing Division, X-44 (for an application
by a certificated air carrier), or Foreign Air Carrier Licensing
Division, X-45 (for an application by a foreign air carrier), 400
Seventh Street, SW., Washington, DC 20590. Upon a showing of good
cause, the application may be transmitted by facsimile (fax) or
telegram, or may be made by telephone, provided, that in the case of a
fax or telephone application, the applicant must confirm its request
(by filing an original and two copies of its application as described
above) within three business days.
(b) A copy of each application for a long-term wet lease shall also
be served on the Director of Flight Standards Service (AFS-1), Federal
Aviation Administration, 800 Independence Avenue, SW., Washington, DC
20591, and on each certificated air carrier that is authorized to serve
the general area in which the proposed transportation is to be
performed.
(c)(1) Applicants for statements of authorization filed by foreign
air carriers shall include documentation to establish the extent to
which the country of the applicant's nationality deals with U.S. air
carriers on the basis of reciprocity for similar flights, if such
flights are not subject to a bilateral agreement, and
(i) The Department has not established that the country accords
reciprocity;
(ii) The Department has found reciprocity defective in the most
recent prior approval application involving the country; or
(iii) Changes in reciprocity have occurred since the most recent
Department finding for the country in question.
(2) Applications filed by certificated or foreign air carriers to
conduct long-term wet leases shall include, for the country of the
lessee's nationality, the documentation specified in paragraph (c)(1)
of this section.
(d)(1) Applications shall be filed at least 5 business days before
commencement of the proposed flight or flights, except as specified in
paragraphs (d)(2), (d)(3), and (d)(4) of this section. Late
applications may be considered upon a showing of good cause for the
lateness.
(2) Applications for a part charter or for a long-term wet lease
shall be filed at least 45 calendar days before the date of the first
proposed flight.
(3) Applications specifically required under Sec. 212.9(d) shall be
filed at least 30 calendar days before the proposed flight or flights
(10 calendar days for cargo charters), unless otherwise specified by
the Department.
(4) Applications required by a Department order under Sec. 212.9(e)
shall be filed at least 14 calendar days before the proposed flight or
flights, unless otherwise specified by the Department.
(5) Where an application is required by more than one provision of
this part and/or order of the Department, only one application need be
filed, but it must conform to the earliest applicable filing deadline.
(6) The Department may require service of applications as it deems
necessary.
(e)(1) Any part in interest may file a memorandum supporting or
opposing an application. Three copies of each memorandum shall be filed
within 7 business days after service of the application or before the
date of the proposed flight or flights, whichever is earlier.
Memorandums will be considered to the extent practicable; the
Department may act on an application without waiting for supporting or
opposing memorandums to be filed.
(2) Each memorandum shall set forth the reasons why the application
should be granted or denied, accompanied by whatever data, including
affidavits, the Department is requested to consider.
(3) A copy of each memorandum shall be served on the certified or
foreign air carrier applying for approval.
(f)(1) Unless otherwise ordered by the Department, each application
and memorandum filed in response will be available for public
inspection at the Office of International Aviation immediately upon
filing. Notice of the filing of all applications shall be published in
the Department's Weekly List of Applications Filed.
(2) Any person objecting to public disclosure of any information in
an application or memorandum must state the grounds for the objection
in writing. If the Department finds that disclosure of all or part of
the information would adversely affect the objecting person, and that
the public interest does not require disclosure, it will order that the
injurious information be withheld.
Sec. 212.11 Issuance of statement of authorization.
(a) The Department will issue a statement of authorization if it
finds that the proposed charter flight, part charter, or wet lease
meets the requirements of this part and that it is in the public
interest. Statements of authorization may be conditioned or limited.
(b) In determining the public interest the Department will consider
(but not be limited to) the following factors:
(1) The extent to which the authority sought to covered by and
consistent with bilateral agreements to which the United States is a
party.
(2) The extent to which an applicant foreign air carrier's home
country (and, in the case of a long-term wet lease, the lessee's home
country) deals with U.S. air carriers on the basis of substantial
reciprocity.
(3) Whether the applicant or its agent has previously violated the
provisions of this part.
(4) Where the application concerns a long-term wet lease:
(i) Whether the lessor (applicant) or its agent or the lessee
(charterer) or its agent has previously violated the provisions of the
Department's charter regulations.
(ii) Whether, because of the nature of the arrangement and the
benefits involved, the authority sought should be the subject of a
bilateral agreement.
(iii) To what extent the lessor owns and/or controls the lessee, or
is owned and/or controlled by the lessee.
(c) The Department will submit any denial of an authorization
specifically required of a foreign air carrier under Sec. 212.9(d) to
the President of the United States at least 10 days before the proposed
departure. The denial will be subject to stay or disapproval by the
President within 10 days after it is submitted. A shorter period for
Presidential review may be specified by the Department where the
application for authorization is not timely or properly filed. Denial
of a late-filed application need not be submitted to the President. For
the purposes of this paragraph, an application filed by a foreign air
carrier under Sec. 212.9(d) to conduct a cargo charter will be
considered as timely filed only if it is filed at least 30 calendar
days before the proposed flight, notwithstanding the 10-day filing
requirement for cargo charters in Sec. 212.10(d)(3).
(d) The Department will publish notice of its actions on
applications for
[[Page 28241]]
statements of authorization in its Weekly List of Applications Filed.
Interested persons may upon request obtain copies of letters of
endorsed forms advising applicants of action taken on their
applications.
Sec. 212.12 Waiver.
The Department may grant a waiver of any of the provisions of this
part upon a finding that such waiver is in the public interest. A
certificated or foreign air carrier may request a waiver by filing a
written application with the Department, citing the specific provision
to be waived and providing justification for such waiver.
Appendix A--Certificated or Foreign Air Carrier's Surety Bond Under
Part 212 of the Regulations of the Department of Transportation (14
CFR Part 212)
Know all persons by these presents, that we ____________________
(Name of certificated or foreign air carrier) of
____________________, (City) ____________________ (State or Country)
as Principal (hereinafter called Principal), and
____________________ (name of Surety) a corporation created and
existing under the laws of the State of ________________ (State) as
Surety (hereinafter called Surety) are held and firmly bound unto
the United States of America in an unlimited amount, as required by
14 CFR 212.8, for which payment, well and truly to be made, we bind
ourselves and our heirs, executors, administrators, successors, and
assigns, jointly and severally, firmly by these presents.
Whereas the principal, a certificated air carrier holding a
certificate of public convenience and necessity issued under 49
U.S.C. 41102, or a foreign air carrier holding a foreign air carrier
permit issued under 49 U.S.C. 41302 or an exemption issued under 49
U.S.C. 40109 authorizing that foreign air carrier to engage in
charter trips in foreign air transportation, is subject to rules and
regulations of the Department of Transportation relating to security
for the protection of charterers of civil aircraft and has elected
to file with the Department of Transportation such a bond as will
guarantee to the United States Government the performance of all
charter trips (other than cargo charter trips) originating in the
United States and of all Overseas Military Personnel Charters, as
defined in 14 CFR part 372, to be performed, in whole or in part, by
such certificated or foreign air carrier pursuant to contracts
entered into by such carrier after the execution date of this bond,
and
Whereas this bond is written to assure compliance by the
Principal with rules and regulations of the Department of
Transportation relating to security for the protection of charterer
of civil aircraft for charter trips (other than cargo charters)
originating in the United States or of Overseas Military Personnel
Charter trips and shall inure to the benefit of any and all such
charterers to whom the Principal may be held legally liable for any
of the damages herein described.
Now, therefore, the condition of this obligation is such that if
the Principal shall pay or cause to be paid to such charterer any
sum or sums for which the Principal may be held legally liable by
reason of the Principal's failure faithfully to perform, fulfill,
and carry out all contracts made by the Principal while this bond is
in effect for the performance of charter trips (other than cargo
charter trips) originating in the United States and of Overseas
Military Personnel Charter trips, then this obligation shall be
void, otherwise to remain in full force and effect.
The liability of the Surety shall not be discharged by any
payment or succession of payments hereunder in any specified amount.
The surety agrees to furnish written notice to the Department of
Transportation forthwith of all suits filed, judgments rendered, and
payments made by said Surety under this bond.
This bond is effective the ______ day of ________________,
________, 12:01 a.m., standard time at the address of the Principal
as stated herein and shall continue in force until terminated as
hereinafter provided. The Principal or the Surety may at any time
terminate this bond by written notice to the Department of
Transportation at its office in Washington, D.C., such termination
to become effective thirty (30) days after actual receipt of said
notice by the Department. The Surety shall not be liable hereunder
for the payment of the damages hereinbefore described which arise as
the result of any contracts for the performance of air
transportation services made by the Principal after the termination
of this bond becomes effective, as herein provided, but such
termination shall not affect the liability of the Surety hereunder
for the payment of any such damages arising as the result of
contracts for the performance of air transportation services made by
the Principal after the termination of this bond becomes effective.
Liability of the Surety under this bond shall in all events be
limited only to a charterer who shall within sixty (60) days after
the cancellation of a charter trip with respect to which the
charterer's advance payments are secured by this bond give written
notice of claim to the certificated or foreign air carrier, or, if
it is unavailable, to the Surety, and all liability on this bond for
such charter trip shall automatically terminate sixty (60) days
after the termination date thereof except for claims filed within
the time provided herein.
In witness whereof, the said Principal and Surety have executed
this instrument on the ______ day of ________________, ________.
Principal
Name-------------------------------------------------------------------
By: Signature and title------------------------------------------------
Witness----------------------------------------------------------------
Surety
Name-------------------------------------------------------------------
By: Signature and title------------------------------------------------
Witness----------------------------------------------------------------
Bonding or surety company must be listed in Best's Insurance Reports
(Fire and Casualty) with a general policyholders' rating of ``A'' or
better or in the Department of the Treasury listing of companies
holding certificates of authority as acceptable sureties on Federal
bonds. In addition, the bonding or surety company shall be one
legally authorized to issue bonds of that type in the State(s) in
which the charter flight(s) originate. Agents must provide
satisfactory proof that they have the requisite authority to issue
this bond.
Appendix B--Certification of Compliance
Organization Charterworthiness for Affinity Charter Air
Transportation and Eligibility of All Prospective Passengers for
Such Flights Under Part 212 of the Regulations of the Department of
Transportation (14 CFR Part 212)
I declare under penalty of perjury under the laws of the United
States of America that the foregoing is true and correct.
4. Part 380 is revised to read as follows:
PART 380--PUBLIC CHARTERS
Subpart A--General Provisions
Sec.
380.1 Applicability.
380.2 Definitions.
380.3 General provisions.
380.4 Enforcement.
Subpart B--Conditions and Limitations
380.10 Public Charter requirements.
380.11 Payment to direct air carrier(s).
380.12 Cancellation by charter operator and notice to participants.
380.13 Prohibition on sale of round trips with open returns.
380.14 Unused space.
380.15 Substitution for charter participants.
380.17 Charters conducted by educational institutions.
Subpart C--Requirements Applicable to Charter Operators
380.20 Relief from the Statute.
380.21 380.23 [Reserved]
380.24 Suspension of exemption authority.
380.25 Prospectus filing and related requirements.
380.26 Discrimination.
380.27 Methods of competition.
380.28 Charter prospectus.
380.29 Charter contract.
380.30 Solicitation materials.
380.31 General requirements for operator-participant contracts.
380.32 Specific requirements for operator-participant contracts.
380.33 Major changes in itinerary or price; refunds.
380.33a Operator's option plan.
380.34 Security and depository agreements.
380.34a Substitution of direct air carrier's security or depository
agreement.
380.35 Disbursements from depository account.
380.36 Record retention.
Subpart D--Requirements Applicable to Direct Air Carriers
380.40 Charter not to be performed unless in compliance with this
part 380.
380.41 380.42 [Reserved]
380.43 Cancellations by direct air carriers.
[[Page 28242]]
380.45 Suspension of exemption authority.
380.46 Charter trip reporting.
Subpart E--Registration of Foreign Charter Operators
380.60 Purpose.
380.61 Operations by foreign charter operators.
380.62 Registration applications.
380.63 Objections to registration applications.
380.64 Department action on a registration application.
380.65 Notification of change of operations or ownership.
380.66 Cancellation or conditioning of the registration.
380.67 Waiver of sovereign immunity.
Appendix A--Public Charter Operator's Surety Bond Under Part 380 of
the Special Regulations of the Department of Transportation (14 CFR
Part 380)
Appendix B Public Charter Surety Trust Agreement
Authority: 49 U.S.C. 40101, 40102, 40109, 40113, 41101, 41103,
41301, 41504, 41702, 41708, 41712, 46101.
Subpart A--General Provisions
Sec. 380.1 Applicability.
This part applies to Public Charter air transportation of
passengers in interstate or foreign air transportation, whether
furnished by direct air carriers or Public Charter operators. This part
also relieves such charter operators from various provisions of
subtitle VII of Title 49 of the United States Code (statute), formerly
Title IV of the Federal Aviation Act of 1958, as amended, for the
purpose of enabling them to provide Public Charters utilizing aircraft
chartered from such direct air carriers. It also declines jurisdiction
over foreign Public Charter operators operating foreign-originating
Public Charters.
Sec. 380.2 Definitions.
For the purposes of this part:
Certificated air carrier means a U.S. direct air carrier holding a
certificate issued under the statute.
Charter flight means a flight operated under the terms of a charter
contract between a direct air carrier and its customer. It does not
include scheduled air transportation, scheduled foreign air
transportation, or nonscheduled cargo air transportation, sold on an
individually ticketed or individually waybilled basis.
Direct air carrier means a certificated or foreign air carrier, or
an air taxi operator or commuter air carrier registered under part 298
of this chapter, or a Canadian charter air taxi operator registered
under part 294 of this chapter, that directly engages in the operation
of aircraft under a certificate, permit or exemption issued by the
Department.
Educational institution means a school that is operated as such on
a year-round basis and is empowered to grant academic degrees or
secondary school diplomas by any government in the United States or by
a foreign government.
Foreign air carrier means a direct air carrier that holds a foreign
air carrier permit issued under the statute or an exemption issued
under the statute authorizing direct foreign air transportation.
Foreign Public Charter opertor means an indirect air carrier which
is not a citizen of the United States as defined in the statute, that
is authorized to engage in the formation of groups for transportation
on Public Charters in accordance with this part.
Indirect air carrier means any person who undertakes to engage
indirectly in air transportation operations and who uses for such
transportation the services of a direct air carrier.
Public Charter means a one-way or round-trip charter flight to be
performed by one or more direct air carriers that is arranged and
sponsored by a charter operator.
Public Charter operator means a U.S. or foreign Public Charter
operator.
Security agreement means:
(1) A surety bond issued by a company--
(i) That is listed in the Best's Insurance Reports (Fire and
Casualty) with a general policyholders' rating of ``A'' or better, or
(ii) That is listed in the U.S. Department of Treasury's notice
listing companies holding Certificates of Authority as acceptable
sureties on Federal bonds and as acceptable reinsuring companies,
published in the Federal Register in the first week in July; or
(2) A Surety trust agreement or a letter-of-credit, issued by a
Federal Deposit Insurance Corporation-insured financial institution,
which provides substantially equivalent protection.
Statute means Subtitle VII of Title 49 of the United States Code
(Transportation).
Sub-operator means a Public Charter operator that has contracted
for its charter seats from a Public Charter operator that has
contracted from one or more direct air carriers. A sub-operator is
itself an indirect air carrier, not an agent of the Public Charter
operator from which it has obtained its seat.
U.S. Public Charter operator means an indirect air carrier that is
a citizen of the United States as defined in 49 U.S.C. 40102(a) and
that is authorized to engage in the formation of groups for
transportation on Public Charters in accordance with this part.
Sec. 380.3 General provisions.
(a) Public Charters may be operated on a one-way or round-trip
basis, with no minimum group or contract size. Public Charters may be
sold on an air-only basis, or with mandatory or optional land
arrangements.
(b) A U.S. Public Charter operator operating a Public Charter which
originates in a foreign country shall not be subject to the
requirements of Secs. 380.25, 380.28, 380.30 and 380.35.
(c) The Department declines to exercise jurisdiction over a foreign
Public Charter operator which operates a Public Charter originating in
a foreign country, but reserves the right to exercise its jurisdiction
over any foreign Public Charter operator at any time its finds that
such action is in the public interest.
(d)(1) An educational institution operating a Public Charter need
not comply with the financial security requirements of Sec. 380.34 if
each student participant in the charter is enrolled in a formal
academic course of study outside the United States, sponsored by or in
conjunction with that institution, that is of at least four weeks'
duration.
(2) The spouse, children, and parents of a student participant may
accompany the participant on a charter operated under this section.
(e) The Department, upon application or on its own initiative, may
waive any of the provision of this part if it finds such action to be
in the public interest.
Sec. 380.4 Enforcement.
In the case of any violation of the provision of the Statute or of
this part, or any other rule, regulations, or order issued under the
Statute, the violator may be subject to a proceeding pursuant to the
Statute before the Department or a U.S district court, as the case may
be, to compel compliance therewith; to civil penalties pursuant to the
provisions of the Statute, or to criminal penalties pursuant to the
provisions of the Statute, or other lawful sanctions.
Subpart B--Conditions and Limitations
Sec. 380.10 Public Charter requirements.
Public Charters under this part shall meet the following
requirements:
(a)-(b) [Reserved]
(c) If the charter is on a round-trip basis, the departing flight
and returning need not be performed by the same direct air carrier.
(d) The air transportation portion of the charter must be performed
by direct air carriers that hold authority under
[[Page 28243]]
Chapter 411 and 413 of the Statute, or are operating under 14 CFR part
298, except that only U.S. citizen direct air carriers may provide air
transportation for operations in interstate air transportation.
Sec. 380.11 Payment to direct air carrier(s).
Except for air taxi operators and commuter air carriers (which are
governed by 14 CFR 298.38) and Canadian charter air taxi operators
(which are governed by 14 CFR 294.32), the direct air carrier(s) shall
be paid in full for the cost of the charter transportation (for both
legs, if a round-trip charter) prior to the scheduled date of flight
departure, as provided for in the basic charter regulations applicable
to the direct air carrier(s) under part 212 of this chapter.
Sec. 380.12 Cancellation by charter operator and notice to
participants.
(a) The charter operator may not cancel a charter for any reason
(including insufficient participation), except for circumstances that
make it physically impossible to perform the charter trip, less than 10
days before the scheduled date of departure of the outbound trip.
(b) If the charter operator cancels 10 or more days before the
scheduled date of departure, the operator must so notify each
participant in writing within 7 days after the cancellation but in any
event not less than 10 days before the scheduled departure date of the
outbound trip. If a charter is canceled less than 10 days before
scheduled departure (i.e., for circumstances that make it physically
impossible to perform the charter trip), the operator must get the
message to each participant as soon as possible.
Sec. 380.13 Prohibition on sale of round trips with open returns.
The charter operator shall not accept any participant's payment for
return transportation unless the participant has specified a particular
return flight.
Sec. 380.14 Unused space.
Noting contained in this part shall preclude a charter operator
from utilizing any unused space on an aircraft by it for a Public
Charter for the transportation, on a free or reduced basis, of such
charter operator's employees, directors, and officers, and parents and
immediate families of such persons.
Sec. 380.15 Substitution for charter participants.
Subsititues may be arranged for charter participants at any time
preceding departure. Participants who provide the charter operator or
its sales agent with a substitute participant, or who are substituted
for by a participant found by the operator, shall receive a refund of
all moneys paid to the operator, except that the operator may reserve
the right to retain an administrative fee not to exceed $25 for
effecting the substitution.
Sec. 380.17 Charters conducted by educational institutions.
(a) This section shall apply only to charters conducted by
educational institutions for charter groups comprised of bona fide
participants in a formal academic course of study abroad which is of at
least 4 weeks duration. The charter group may also include a student
participant's immediate family (spouse, children, and parents). Except
as modified in this section, all terms and conditions of this part
applicable to the operation of Public Charters shall apply to charters
conducted by educational institutions.
(b) An educational institution conducting such a charter shall
submit to the Office of Aviation Analysis, Special Authorities
Division, a statement, signed by its president, certifying that it
meets the definition of ``educational institution'' set forth in
Sec. 380.2.
(c) An educational institution conducting such a charter need not
comply with the requirements of Secs. 380.25, 380.28, 380.34, and
380.35.
Subpart C--Requirements Applicable to Charter Operators
Sec. 380.20 Relief from the Statute.
(a) To the extent necessary to permit them to organize and arrange
public charters, charter operators and foreign charter operators are
hereby relieved from the following provisions of Subtitle VII of Title
49 of the U.S. Code, only if and so long as they comply with the
provisions and the conditions imposed by this part:
(1) Chapter 411.
(2) Chapter 413.
(3) Chapter 415.
(4) Chapter 419.
(5) If foreign charter operators receive interstate air
transportation rights, any other provision of the statute that would
otherwise prohibit them from organizing and arranging Public Charters
in interstate air transportation.
(b) A charter operator who is a citizen of the United States shall
not be subject to the following requirements with respect to Public
Charters that originate in a foreign country: Secs. 380.25, 380.28, and
380.30 through 380.35.
Secs. 380.21-380.23 [Reserved]
Sec. 380.24 Suspension of exemption authority.
The Department reserves the power to deny the exemption authority
of any charter operator, without hearing, if it finds that such action
is necessary in the public interest or is otherwise necessary in order
to protect the rights of the traveling public.
Sec. 380.25 Prospectus filing and related requirements.
A charter operator may organize and operate a Public Charter only
in accordance with this part, and subject to the following conditions:
(a) No charter operator shall operate, sell, receive money from any
prospective participant for, or offer to sell or otherwise advertise a
charter or series of charters until the Office of Aviation Analysis,
Special Authorities Division, has accepted a Public Charter prospectus
as described in Sec. 380.28.
(b) If within 10 days after the filing the Department notifies the
charter operator that it has rejected the prospectus for noncompliance
with this part, the prohibitions set forth in paragraph (a) of this
section shall continue until the Department advises that it has
accepted the prospectus.
(c) The following amendments to a filed prospectus may be made:
(1) The addition or cancellation of any flight;
(2) A change in any flight, date, origin city or destination city;
and
(3) A change in or addition of any direct air carrier, securer, or
depository bank.
(d) The charter operator shall amend the prospectus to reflect any
change described in paragraph (c) of this section. The amendment shall
be filed in the manner and form used for the original prospectus. It
shall become effective upon filing unless the operator is otherwise
notified.
(e) The charter operator shall notify the depository bank (if any)
and the securer of any change described in paragraph (c) of this
section not later than when filing a prospectus amendment to reflect
the change. If the securer is unable to adjust the security agreement
as required by the change, the Office of Aviation Analysis, Special
Authorities Division shall be advised of this fact within 2 business
days.
(Approved by the Office of Management and Budget under Control
Number 2106-0005).
Sec. 380.26 Discrimination.
No charter operator shall make, give, or cause any undue or
unreasonable preference or advantage to any
[[Page 28244]]
particular person, port, locality, or description of traffic in air
transportation in any respect whatsoever, or subject any particular
person, port, locality, or description of traffic in air transportation
to any unjust discrimination or any undue or unreasonable prejudice or
disadvantage in any respect whatsoever.
Sec. 380.27 Methods of competition.
No charter operator shall engage in unfair or deceptive practices
or unfair methods of competition in air transportation or the sale
thereof.
Sec. 380.28 Charter prospectus.
(a) The charter prospectus shall include an original and two copies
of the following:
(1) From the charter operator and the direct air carrier:
(i) The proposed flight schedule, listing the origin and
destination cities, dates, type of aircraft, number of seats, and
charter price for each flight;
(ii) The tour itinerary (if any) including hotels (name and length
of stay at each), and other ground accommodations and services; and
(iii) A statement that they have entered into a charter contract
that covers the proposed flight schedule, that the contract complies
with all applicable Department regulations, and that a copy of the
schedule has been sent to the depository bank (if any) and the
operator's securer. The schedule shall be identified with a number
assigned by the charter operator that does not duplicate any schedule
numbers assigned by the operator to other proposed flight schedules.
The proposed flight schedule, tour itinerary (if any), and statement
shall be filed on OST Form 4532.
(2)(i) From the charter operator and the securer, a statement:
(A) That they have entered into a security agreement covering the
proposed flight schedule that complies with Sec. 380.34, including the
amount of the coverage, the number assigned to it by the securer, and
the amount of any outstanding claims against it, and
(B) That the securer has received a copy of the proposed flight
schedule. The statement shall identify the proposed flight schedule by
the schedule number assigned by the charter operator in accordance with
paragraph (a) of this section. If there are any outstanding claims
against the agreement, the charter operator and securer shall also
state that they have executed a rider or amendment increasing the
coverage by the amount of the claims, or that the securer will
separately pay any claims for which it may be liable without impairing
the agreement or reducing the amount of its coverage.
(ii) These statements shall be filed an OST Form 4533.
(3) If a depository agreement is used, a statement from the charter
operator, the direct air carrier, and the depository bank:
(i) That they have entered into a depository agreement covering the
proposed flight schedule that complies with Sec. 380.34, and
(ii) That the bank has received a copy of the proposed flight
schedule by the schedule number assigned by the charter operator in
accordance with paragraph (a)(1) of this section. This statement shall
be filed on OST Form 4534.
(b) Each of the statements described in paragraph (a) of this
section shall also include the names and addresses of the parties to
it, and the originals shall be signed by those parties.
(c) The prospectus may cover a series of charters performed by one
charter operator if the departure of the last charter is not more than
one year after the departure of the first.
(d) If the prospectus covers a series of charters and the air
transportation will be performed by more than one direct air carrier,
the prospectus shall include separate statements in accordance with
paragraphs (a)(1) and (a)(3) of this section to cover the flights that
will be performed by each direct carrier.
(Approved by the Office of Management and Budget under Control
Number 2106-0005).
Sec. 380.29 Charter contract.
The charter contract between the charter operator or foreign
charter operator and the direct air carrier shall evidence a binding
commitment on the part of the carrier to furnish the air transportation
required for the trip or trips covered by the contract.
Sec. 380.30 Solicitation materials.
(a) All solicitation materials for a Public Charter shall include
the name of the charter operator and the name of the direct air
carrier.
(b) Any solicitation material that states a price per passenger
shall also include one of the following:
(1) A statement referring to the operator-participant contract for
further information about conditions applicable to the charter; or
(2) The full text of the operator-participant contract.
(c) Except as set forth in Sec. 380.33a for operator's option plan
contracts, if the charter prospectus names alternative dates or cities,
any solicitation material that states a price per passenger shall also
state that the actual dates or cities have not yet been selected, if
that is the case.
(d) Any solicitation material that names a hotel but does not name
every hotel named in the operator-participant contract shall also state
that substitutions may be made.
(e) In any solicitation material from a direct air carrier,
indirect air carrier, or an agent of either, for a charter, charter
tour (i.e., a combination of air transportation and ground
accommodations), or a charter tour component (e.g., a hotel stay), any
price stated for such charter, tour, or component shall be the entire
price to be paid by the participants to the air carrier, or agent, for
such charter, tour, or component.
Sec. 380.31 General requirements for operator-participant contracts.
(a) Except for telephone sales for which payment is made by credit
card as described in paragraph (b) of this section, the charter
operator shall not accept payment from or on behalf of a prospective
participant unless the participant has agreed to the conditions of the
charter by signing an operator-participant contract as described in
Sec. 380.32. If a member of a group that will travel together pays for
the group, that member may sign the contract on behalf of the group.
(b) For telephone sales only, the charter operator may accept
payment by credit card without the participant having first signed an
operator-participant contract provided that the charter operator first
advises the customer:
(1) That he or she has the right to receive the operator-
participant contract before making a booking;
(2) That the operator-participant contract will be mailed to the
participant within 24 hours of accepting payment by credit card; and
(3) That the operator-participant contract must be signed, and the
signed portion returned to the operator, before travel.
(4) A full refund must be made of any amounts charged to a credit
card for any participant who cancels before the operator-participant
contract is signed.
(c) The contract form may include a space that participants may
check to authorize the charter operator to retain their money while
attempting to make other arrangements for them if there is no space
available on the flight or on specific alternative flights they have
requested.
(d) If there is no space available on the flight or specific
alternative flights requested by the participant the
[[Page 28245]]
operator shall return all the participant's money within 7 days after
receiving it unless the participant, in accordance with paragraph (c)
of this section, has authorized the operator to retain the payments
while the operator attempts to make other arrangements for the
participant. If the operator retains the payments while attempting to
make other arrangements for the participant, it shall notify the
participant of the fact within 7 days after receiving the payments, but
in no event later than the departure. For the purpose of the time
periods in this paragraph, receipt of money by a travel agent on behalf
of a charter operator will not be considered as receipt by the
operator.
(e) Except as set forth in Sec. 380.33a for operator's option plan
contracts, the operator-participant contract shall not specify
alternative dates for the outbound or return flights, or alternative
origin or destination cities for any flight leg.
(f) The contract form shall be printed in 7-point or larger type.
The statements required by paragraph (a), (f), (h), (l), (r), (s), and
(x) of Sec. 380.32 shall be printed so as to contrast with the rest of
the contract by the use of bold-faced type, capital letters, or a type
size that is at least 50 percent larger than that used for the rest of
the contract.
(g) The contract form shall include a space that participants may
check to indicate that they wish to be furnished details of trip
cancellation, health, and accident insurance.
(h) The contract form shall be designed so as to enable
participants to retain a copy of the general terms and conditions after
signing it. The specific information supplied by participants (such as
choices of dates, cities, or other options) need not be retainable.
Sec. 380.32 Specific requirements for operator-participant contracts.
Contracts between charter operators and charter participants shall
state:
(a) The name and complete mailing address of the charter operator;
(b) The name of the direct air carrier, the dollar amounts of that
carrier's liability limitations for participant's baggage, the type and
capacity of the aircraft to be used for the flight, and the conditions
governing aircraft-equipment substitutions;
(c) The dates of the outbound and return flights;
(d) The origin and destination cities of each flight leg;
(e) The amount and schedule of payments;
(f) If a depository agreement as provided in Sec. 380.34(b) is
used: That all checks, money orders, and credit card drafts must be
made payable to the escrow account at the depository bank (identifying
bank) \1\ or, when the charter is sold to the participant by a retail
travel agent, checks and money orders may be made payable to the agent,
who must in turn make his check payable to the escrow account at the
depository bank;
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\1\ If the credit card merchant account is separate from the
depository account, it must be used solely as a conduit, i.e., all
credit card payments toward Public Charter trips must be immediately
remitted to the depository account in full, without holdback, or
retention of any portion of the participant's payment. If the
depository bank is not the credit card merchant bank, the Department
must be satisfied that there are adequate procedural safeguards for
the protection of participants' payments.
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(g) The tour itinerary, if any, including the name and location of
the hotels, length of stay at each, and other ground accommodations and
services that are part of the tour;
(h) That the charter operator may not cancel the charter less than
10 days before the scheduled departure date, except for circumstances
that make it physically impossible to perform the charter tip;
(i) That if a charter is canceled 10 or more days before the
scheduled departure date, the operator will notify the participant in
writing within 7 days after the cancellation, but in any event at least
10 days before the scheduled departure;
(j) That is a charter is canceled less than 10 days before
departure (i.e., for circumstances that make it physically impossible
to perform the charter trip), the operator will get the message to the
participant as soon as possible;
(k) That if the charter is canceled, a refund will be made to the
participant within 14 days after the cancellation;
(l) The right to refunds if the participant changes plans is
limited;
(m) The right to refunds if the participant changes plans,
including
(1) The right to a full refund, for sales made by credit card,
until an operator-participant contract is signed; and
(2) That any participant who wishes to cancel will receive a full
refund (less any applicable administrative fee, not to exceed $25) upon
providing a substitute participant to the charter operator or its sales
agent, or upon being substituted for by a participant found by the
charter operator;
(n) The procedure for obtaining the refunds described in paragraph
(m) of this section, including that they will be made within 14 days
after the cancellation or substitution;
(o) The meaning of ``major change'', as set forth in
Sec. 380.33(a);
(p) That if the charter operator knows of a major change 10 or more
days before scheduled departure, the operator will notify the
participant of the change within 7 days after first knowing of it, but
in any event at least 10 days before scheduled departure;
(q) That is the operator first knows of a major change less than 10
days before scheduled departure, the operator will get the message to
the participant as soon as possible;
(r) That within 7 days after receiving a pre-departure notification
of a major change but in no event later than departure, the participant
may cancel, and that a full refund will be made to the participant
within 14 days after canceling;
(s) That upon a post-departure notification of a major change, the
participant may reject the substituted hotel or the changed date,
origin, or destination of a flight leg and be sent, within 14 days
after the return date named in the contract, a refund of the portion of
his payment allocable to the hotel accommodations or air transportation
not provided;
(t) That the participants rights and remedies set forth in the
contract, including the procedures for major changes, shall be in
addition to any other rights or remedies available under applicable
law, although the operator may condition a refund on the participant's
waiver of additional remedies;
(u) That trip cancellation, health, and accident insurance is
available and that the operator will furnish details of the insurance
to participants who check the space provided for this purpose on the
contract form;
(v) The name and address of the surety company or bank issuing the
security agreement; and that unless the charter participant files a
claim with the charter operator or, if he is unavailable, with the
securer, within 60 days after termination of the charter, the securer
shall be released from all liability under the security agreement to
that participant. Termination means the date of arrival (or in the case
of a canceled charter, the intended date or arrival) of the return
flight. If there is no return flight in a participant's itinerary,
termination means the date or intended date of departure of the last
flight in the participant's itinerary;
(w) For international flights only: That additional restrictions
may be imposed on the flight by the foreign government involved, and
that if landing rights are denied by a foreign government the flight
will be canceled with a full refund to the participant.
[[Page 28246]]
This statement need not be included in the contract if--
(1) The prospectus includes a certification by the charter operator
and the direct air carrier that landing rights have been obtained from
all the foreign governments involved, and
(2) All the foreign governments involved have adopted country-of-
origin rules for charterworthiness;
(x) That the charter operator is the principal and is responsible
to the participants for all services and accommodations offered in
connection with the charter. However, the contract may expressly
provide that the charter operator, unless negligent, is not responsible
for personal injury or property damage caused by any direct air
carrier, hotel or other supplier of services in connection with the
charter.
Sec. 380.33 Major changes in itinerary or price; refunds.
(a) For the purposes of this section, ``major change'' means any of
the following:
(1) A change in the departure or return date shown in the operator-
participant contract, (or, if the contract states alternative dates,
the date designated to the participant by the charter operator in
accordance with Sec. 380.33a(b)), unless the change results from a
flight delay. In any event, however, a date change that the operator
knows of more than 2 days before the scheduled flight date, and any
delay of more than 48 hours, will be considered a major change.
(2) A change in the origin or destination city shown in the
operator-participant contract for any flight leg (or, if the contract
states alternative cities, the city designated to the participant by
the operator in accordance with Sec. 380.33a(b)), unless the change
affects only the order in which cities named in a tour package are
visited.
(3) A substitution of any hotel that is not named in the operator-
participant contract; and
(4) A price increase to the participant that occurs 10 or more days
before departure and results in an aggregate price increase of more
than 10 percent.
(b) The charter operator shall not increase the price to any
participant less than 10 days before departure.
(c) The charter operator shall notify all participants of major
changes, as required by the operator-participant contracts. This
notification shall include the participants' rights to refunds required
to be described in the operator-participant contract. The operator
shall, if applicable, also notify the participants that the acceptance
of a refund constitutes a waiver of their legal rights.
(d) Except as otherwise specified, notifications and refunds
required by this part are considered made at the time they are mailed
or sent by an equivalent method.
(e) The charter operator shall make all refunds required to be
described in the operator-participant contract within the time limits
set forth in paragraphs (k), (n), (r), and (s) of Sec. 380.32, as
applicable.
Sec. 380.33a Operator's option plan.
(a) For the purposes of this part, an operator's option plan
contract that states alternative dates for the outbound or return
flights, or alternative origin or destination cities for any flight
leg.
(b) Operator's option plan contracts shall state, in addition to
the information required by Sec. 380.32, that the selection of the
actual dates or cities, as applicable, is at the charter operator's
option and will not entitle the participant to a refund, and that the
operator will notify the participant of the actual dates or cities at
least 10 days before the earliest of any alternative dates for the
outbound flight.
(c) Contract forms for all operator's option plan contracts shall
be labeled ``OPERATOR'S OPTION PLAN'' in bold-faced capital letters at
least \1/4\ inch high. The statement required by paragraph (b) of this
section and the statement of alternative dates (Sec. 380.32(c)) or
alternative cities (Sec. 380.32(d)), as applicable, shall be printed so
as to contrast with the rest of the contract, as set forth in
Sec. 380.31(f).
(d) Any solicitation material that states a price per passenger for
an operator's option plan contract shall clearly and conspicuously--
(1) Identify that price as being for the operator's option plan,
(2) Name all the possible dates or cities, as applicable, and
(3) State that the selection of the actual dates or cities is at
the charter operator's option.
(e) Charter operators and their agents shall not misrepresent to
prospective participants, orally, in solicitation materials, or
otherwise, the probability that any particular city or date will be
selected from among the alternatives named in an operator's option plan
contract.
(f) The charter operator shall notify all participants with
operator's option plan contracts of the actual dates or cities, as
applicable, as required by contracts.
Sec. 380.34 Security and depository agreements.
(a) Except as provided in paragraph (b) of this section, the
charter operator or foreign charter operator shall furnish a security
agreement in an amount for not less than the charter price for the air
transportation, if only air transportation is involved, or, if the
charter involves land accommodations in addition to air transportation,
a security agreement in one of the following amounts dependent upon the
length of the charter or series of charters:
(1) For a charter or series of charters of 14 days or less,
security in an amount of not less than the charter price for the air
transportation to be furnished in connection with such charter or
series of charters;
(2) For a charter or series of charters of more than 14 days but
less than 28 days security in an amount of not less than twice the
charter price; and
(3) For a charter or series of charters of 28 days or more,
security in an amount of not less than three times the charter price:
Provided, however, That the liability of the securer to any charter
participant shall not exceed amounts paid by that participant to the
charter operator with respect to the charter.
(b) The direct air carrier and the charter operator or foreign
charter operator may elect, in lieu of furnishing a security agreement
as provided under paragraph (a) of this section, to comply with the
requirements of paragraphs (b)(1) and (b)(2) of this section, as
follows:
(1) The charter operator shall furnish a security agreement in an
amount of at least $10,000 times the number of flights, except that the
amount need not be more than $200,000. The liability of the securer to
any charter participant shall not exceed the amount paid by the
participant to the charter operator for that charter.
(2) The direct air carrier and charter operator or foreign charter
operator shall enter into an agreement with a designated bank, the
terms of which shall provide that all payments by charter participants
paid to charter operators or foreign charter operators and their retail
travel agents shall be deposited with and maintained by the bank
subject to the following conditions:
(i) On sales made to charter participants by charter operators or
foreign charter operators the participant shall pay by check, money
order, or credit card draft payable to the bank; \2\ on sales made to
charter participants by retail travel agents, the retail travel agent
may deduct his commission and remit the balance to the designated bank
by check, money order, or electronic transfer: Provided, That the
travel agent
[[Page 28247]]
agrees in writing with the charter operator or foreign charter operator
that if the charter is canceled the travel agent shall remit to the
bank the full amount of the commission previously deducted or received
within 10 days after receipt of notification of cancellation of the
charter; except for the credit card company's usual commission (not to
exceed 3 percent), the charter operator shall not permit any portion of
a charter participant's payments by credit cared to be ``held back'' by
the credit card merchant bank; \3\
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\2\ See also n.1, supra.
\3\ ``Holdback'' is an amount in excess of usual commissions
that a credit card merchant bank sometimes retains to cover
potential charge-backs or other charges.
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(ii) The bank shall pay the direct air carrier the charter price
for the transportation not earlier than 60 days (including day of
departure) prior to the scheduled day of departure of the originating
or returning flight, upon certification of the departure date by the
air carrier: Provided, That, in the case of a round trip charter
contract to be performed by one carrier, the total round trip charter
price shall be paid to the carrier not earlier than 60 days prior to
the scheduled day of departure of the originating flight;
(iii) The bank shall reimburse the charter operator or foreign
charter operator for refunds made by the latter to the charter
participant upon written notification from the charter operator or
foreign charter operator;
(iv) If the charter operator, foreign charter operator or the
direct air carrier notifies the bank that a charter has been canceled,
the bank shall make applicable refunds directly to the charter
participants;
(v) After the charter price has been paid in full to the direct air
carrier, the bank shall pay funds from the account directly to the
hotels, sightseeing enterprises, or other persons or companies
furnishing ground accommodations and services, if any, in connection
with the charter or series of charters upon presentation to the bank of
vendors' bills and upon certification by the charter operator or
foreign charter operator of the amounts payable for such ground
accommodations and services and the person or companies to whom payment
is to be made: Provided, however, That the total amounts paid by the
bank pursuant to paragraphs (b)(2) (ii) and (v) of this section shall
not exceed either the total cost of the air transportation, or 80
percent of the total deposits received by the bank less any refunds
made to charter participants pursuant to paragraphs (b)(2) (ii) and
(iv) of this section, whichever is greater;
(vi) As used in this section, the term ``bank'' means a bank
insured by the Federal Deposit Insurance Corporation;
(vii) The bank shall maintain a separate accounting for each
charter group;
(viii) Notwithstanding any other provisions of this section, the
amount of total cash deposits required to be maintained in the
depository account of the bank may be reduced by one or both of the
following: The amount of the security agreement in the form prescribed
in this section in excess of the minimum coverage required by paragraph
(b)(1) of this section; an escrow with the designated bank of Federal,
State, or municipal bonds or other securities, consisting of
certificates of deposit issued by banks having a stated policy of
redeeming such certificates before maturity at the request of the
holder (subject only to such interest penalties or other conditions as
may be required by law), or negotiable securities which are publicly
traded on a securities exchange, all such securities to be made payable
to the escrow account: Provided, That such other securities shall be
substituted in an amount no greater than 80 percent of the total market
value of the escrow account at the time of such substitution: And
provided, further, That should the market value of such other
securities subsequently decrease, from time to time, then additional
cash or securities qualified for investment hereunder shall promptly be
added to the escrow account, in an amount equal to the amount of such
decreased value; and
(ix) Except as provided in paragraph (b)(2)(i), (iii), (iv), (v),
and (viii) of this section, the bank shall not pay out any funds from
the account prior to 2 banking days after completion of each charter,
when the balance in the account shall be paid the charter operator or
foreign charter operator, upon certification of the completion date by
the direct air carrier: Provided, however, That if the Charter involves
air transportation only and the bank has paid the direct air carrier(s)
the charter price for the originating flight, and the returning flight
if any, and has paid all refunds due to participants, as provided in
paragraph (b)(2)(ii) and (iii), respectively, of this section, then the
bank may pay the balance in the account to the charter operator upon
certification by the direct air carrier performing the originating
flight that such flight has in fact departed.
(c)(1) The security agreement required under paragraphs (a) and (b)
of this section shall insure the financial responsibility of the
charter operator or foreign charter operator and the supplying of the
transportation and all other accommodations, services, and facilities
in accordance with the contract between the charter operator or foreign
charter operator and the charter participants.
(2) The security agreement may be either:
(i) A surety bond in the form set forth as appendix A to this part;
(ii) A surety trust agreement in the form set forth as appendix B
to this part; or
(iii) An arrangement with a bank (for instance, a standby letter of
credit) that provides protection of charter participants' funds
equivalent to or greater than that provided by the Bond in appendix A.
An arrangement that furnishes a lesser degree of protection than would
be provided under the bond shall be invalid to that extent, and instead
the bank, the charter operator or foreign charter operator, and the
charter participants shall have the same rights and liabilities as
provided under a bond in the form of appendix A. If the arrangement
does not give as much protection as a bond against the risk of the
charter operator's bankruptcy, the bank shall be liable in the event of
bankruptcy to the same extent as if it had entered into a bond.
(3) Any agreement under paragraph (c)(2)(iii) of this section shall
include a statement that, in the event that the other provisions of the
agreement do not provide protection to charter participants comparable
to that provided under a bond in the form of appendix A, the bank shall
assume, for the benefit of the charter participants, all the
liabilities it would have if it entered into the bond.
(4) The security agreement shall be effective on or before the date
the charter prospectus is filed with the Department.
(5) The security agreement shall be specifically identified by the
issuing securer with a numbering system so that the Department can
identify the security agreement with the specific charter or charters
to which it relates. These data may be set forth in an addendum
attached to the security agreement, which addendum must be signed by
the charter operator or foreign charter operator and the securer.
(6) When security is provided by a surety bond, such bond shall be
issued by a bonding or surety company that is listed in Best's
Insurance Reports (Fire and Casualty) with a general policyholders'
rating of ``A'' or better. The bonding or surety company shall be one
legally authorized to issue bonds of that type in the State in which
the
[[Page 28248]]
charter originates. For purposes of this section the term ``State''
includes any territory or possession of the United States, or the
District of Columbia.
(7) When security is provided by a security agreement other than a
bond, the agreement shall be issued by a national bank complying with
the provisions of 12 CFR 7.7010(a), or by a State bank complying with
applicable State laws that give authority to issue such agreements, and
all such banks must be insured by the Federal Deposit Insurance
Corporation.
(d) The security agreement required by this section shall provide
that unless the charter participant files a claim with the charter
operator or foreign charter operator, or, if it is unavailable, with
the securer, within 60 days after termination of the charter, the
securer shall be released from all liability under the security
agreement to such charter participant. Terminations means the date of
arrival (or in the case of a canceled charter, the intended date of
arrival) of the return flight. If there is no return flight in a
participant's itinerary, termination means the date or intended date of
departure of the last flight in the participant's itinerary.
Sec. 380.34a Substitution of direct air carrier's security or
depository agreement.
(a) A direct air carrier may substitute its own security agreement
and/or depository arrangements, as specified in this section, for those
required of the charter operator under Sec. 380.34, but only for
charter trips in which all the air transportation is provided by one
direct air carrier. Charter operators are relieved from Sec. 380.34 to
the extent that the direct carrier substitutes its own arrangements.
(b) The direct air carrier may substitute its security agreement
for all of the arrangements required of the charter operator under
Sec. 380.34 (a) or (b). Alternatively, it may substitute its depository
agreement for the depository agreement required of the charter operator
under Sec. 380.34(b)(2). If the direct carrier substitutes its
depository agreement, it may also obtain and substitute a security
agreement for the one otherwise required of the charter operator under
Sec. 380.34(b)(1). If the direct carrier substitutes its depository
agreement only, the charter operator must supply the security agreement
required under Sec. 380.34(b)(1).
(c) If the direct carrier substitutes a security agreement for all
the charter operator's requirements under Sec. 380.34, the charter
operator shall include in the charter prospectus, in place of the
information in Sec. 380.28(a)(2) regarding the charter operator's
security agreement:
(1) A statement by the direct air carrier on OST Form 4535 that it
will take responsibility for all charter participant payments
(including those for ground accommodations and services) and for the
fulfillment of all the charter operator's contractual and regulatory
obligations to the charter participants.
(2) A statement from the direct air carrier and its securer (under
Sec. 212.12 of this chapter), OST Form 4533, that they have entered
into a security agreement assuring the direct air carrier's
responsibilities to charter participants under this section in an
unlimited amount (except that the liability of the securer with respect
to any charter participant may be limited to the charter price paid by
or on behalf of such participant), and that the securer has received a
copy of the proposed flight schedule identified by the schedule number
assigned by the charter operator under this part.
(d) A substitute depository agreement under this section shall be
signed by the direct air carrier, the charter operator, and the
depository bank, and shall provide, in addition to existing
requirements under Sec. 212.8 of this chapter, that:
(1) Payments by or on behalf of charter participants shall be
allocated to the flight accounts matching the participant's itinerary
in the following way: Each account shall have allocated to it the
charter cost of the participant's air transportation on that flight.
The portion of each payment not intended for air transportation
services shall be allocated to the account for the return flight in the
participant's itinerary. If there is only one flight in the itinerary,
the entire payment shall be allocated to that account.
(2) The bank shall pay funds from a flight account directly to the
hotels, sightseeing enterprises, or other persons or companies
furnishing ground accommodations and services, if any, in connection
with the charter flight, upon presentation to the bank of vendor's
bills and upon certification by the person who contracted for the
ground accommodations or services of the amounts payable and the
persons or companies to whom payment is to be made, except that no
disbursement shall be made that would reduce the balance in the account
below the charter cost of the flight.
(3) On sales made to participants by a person other than a retail
travel agent, the participant shall pay by check, money order, or
credit card draft payable to the bank. On sales made to participants by
a retail travel agent, payments shall be made in the same manner unless
the agent deducts its commission and remits the balance to the bank by
check, money order, or electronic transfer. The agent may deduct its
commission only if it agrees in writing with its principal (the charter
operator or direct air carrier, as applicable) that, if the charter is
canceled, the agent shall remit to the bank the full amount of the
commission previously deducted or received within 10 days after receipt
of notification of the cancellation. The depository bank shall pay
refunds directly to participants according to the terms of the
operator-participant contract and the terms of this part.
(e) If the direct carrier substitutes a security agreement in
addition to substituting a depository agreement, the charter prospectus
information must include all the information required by paragraphs (c)
and (d) of this section, except for the amount of the security
agreement. That agreement shall be in an amount of at least $10,000
times the number of flights, except that the amount need not be more
than $200,000.
(f) A copy of the depository agreement under paragraph (d) of this
section shall be filed with the Department, and it shall not be
effective until approved by the Department.
(g) A copy of the security agreement under paragraph (c) or
paragraph (e) of this section shall be filed with the Department. It
shall insure the financial responsibility of the direct air carrier for
supplying the transportation and all other accommodations, services,
and facilities in accordance with the contracts between the charter
operator and the charter participants. Such security agreement shall
meet all the other requirements of Sec. 380.34 (c) and (d).
Sec. 380.35 Disbursements from depository account.
No charter operator or direct air carrier shall cause its agents or
the depository bank to make disbursements or payments from deposits
except in accordance with the provisions of this part.
Sec. 380.36 Record retention.
Every charter operator conducting a charter pursuant to this part
shall comply with the applicable record-retention provisions of part
249 of this chapter.
[[Page 28249]]
Subpart D--Requirements Applicable to Direct Air Carriers
Sec. 380.40 Charter not to be performed unless in compliance with this
part 380.
(a) For all Public Charters other than foreign-originating charters
organized by foreign charter operators: A direct air carrier shall not
perform air transportation in connection with such a charter unless it
has made a reasonable effort to verify that all provisions of this part
have been complied with and that the charter operator's authority under
this part has not been suspended by the Department.
(b) For foreign-originating Public Charters organized by foreign
charter operators: A direct air carrier shall not perform air
transportation in connection with such a charter unless--
(1) The charter is conducted in accordance with subpart B of this
part and
(2) The charter operator conforms to all requirements of this part
that are applicable to charter operators within the Department's
jurisdiction, other than Secs. 380.25, 380.28, 380.30 through 380.36,
and 380.50.
Secs. 380.41-380.42 [Reserved]
Sec. 380.43 Cancellations by direct air carriers.
The direct air carrier shall not cancel any charter under this part
less than 10 days before the scheduled departure date, except for
circumstances that make it physically impossible to perform the charter
trip.
Sec. 380.45 Suspension of exemption authority.
The Department reserves the power to suspend the exemption
authority of any air carrier, without hearing, if it finds that such
action is necessary in order to protect the rights of the traveling
public.
Sec. 380.46 Charter trip reporting.
The direct air carrier shall promptly notify the Office of Aviation
Analysis, Special Authorities Division, regarding any charters covered
by a prospectus filed under Sec. 380.28 that are later canceled.
Subpart E--Registration of Foreign Charter Operators
Sec. 380.60 Purpose.
This subpart establishes registration procedures for foreign
charter operators intending to engage in the formation of groups for
transportation on Public Charters that originate in the United States.
Sec. 380.61 Operation by foreign charter operators.
(a) Each foreign charter operator shall be registered under this
subpart and file a prospectus under Sec. 380.25 before organizing
groups for transportation on Public Charters that originate in the
United States.
(b) Each foreign charter registered under this subpart shall comply
with the other provisions of this part directed to charter operators.
Sec. 380.62 Registration applications.
(a) To be registered under this subpart, a foreign charter operator
shall file two copies of an application for registration with the
Office of Aviation Analysis, Special Authorities Division. The
Department will list the names and nationalities of all persons
applying for registration in its Weekly Summary of Filings.
(b) The application shall be made on OST Form 4530, which can be
obtained from the Office of Aviation Analysis, Special Authorities
Division.
(c) The applicant shall clearly indicate in its application for
registration whether it requests authority to engage in foreign and/or
interstate air transportation.
Sec. 380.63 Objections to registration applications.
Any person objecting to the registration application of a foreign
charter operator or to a proposed change in the name or ownership of
that operator shall file an objection with the Office of Aviation
Analysis, Special Authorities Division, within 28 days after the
Department receives the properly completed registration application.
Sec. 380.64 Department action on a registration application.
(a) After a registration is received, one of the following actions
will be taken.
(1) The application will be approved by the stamping of the
effective date of registration on OST Form 4530 and returning the
duplicate copy of the form to the operator;
(2) Additional information will be requested for the applicant;
(3) The applicant will be notified that its application will
require further analysis or procedures, or is being referred to the
Department for formal action;
(4)The registration application will be rejected if it does not
comply with the filing requirements of this subpart;
(5) The application will be approved subject to such terms,
conditions, or limitations as may be required by the public interest;
or
(6) The registration application will be rejected for reasons
relating to the failure of effective reciprocity or if the Department
finds that it would be in the public interest to do so.
(b) One of the actions described in paragraph (a) of this section
will normally be taken within 60 days after the registration
application is received. The Department will also consider requests for
faster action that include a full explanation of the need for expedited
action.
Sec. 308.65 Notification of change of operations or ownership.
(a) Not later than 30 days before any change in its name or address
or before a temporary or permanent cessation of operations, each
foreign charter operator registered under this subpart shall notify the
Office of Aviation Analysis, Special Authorities Division, of the
change by resubmitting OST Form 4530.
(b) A foreign charter operator registered under this subpart shall
apply for an amendment to that registration not later than 30 days
after either of the following events:
(1) A person listed on its existing registration as owning or
holding beneficial interest in at least 10 percent of the operator or
of the operator's stock reduces its holding to below 10 percent;
(2) A person not listed on the existing registration as owning or
holding beneficial interest in at least 10 percent of the operator or
of the operator's stock becomes an owner or holder of 10 percent or
more of the company or of its stock.
(c) An application for an amendment shall be made by resubmitting
OST Form 4530. The existing registration shall remain valid pending
Department action on the amendment.
Sec. 380.66 Cancellation or conditioning of the registration.
The registration of a foreign charter operator may be canceled or
subjected to additional terms, conditions, or limitations if any of the
following occur:
(a) The operator files a written notice with the Department that it
is discontinuing its charter operations;
(b) A substantial ownership interest is acquired by persons who are
not citizens of the same country as the registrant; or
(c) The Department finds, after notice and an opportunity for
responses, that it is in the public interest to do so. In making this
finding, the Department will consider whether effective reciprocity
exists between the United States and the government of the foreign
charter operator.
[[Page 28250]]
Sec. 380.67 Waiver of sovereign immunity.
By accepting an approved registration form under this subpart, an
operator waives any right it may have to assert any defense of
sovereign immunity from suit in any proceeding against it, in any court
or other tribunal of the United States, that is based upon a claim
arising out of operations by the operator under this part.
Appendix A--Public Charter Operator's Surety Bond Under Part 380 of
the Special Regulations of the Department of Transportation (14 CFR
Part 380)
Know all men by these presents, that we ____________________
(name of charter operator) of ____________________, (city)
____________________ (state or country) as Principal (hereinafter
called Principal), and____________________ (name of surety) a
corporation created and existing under the laws of the State of
____________________ (State) as Surety (hereinafter called Surety)
are held and firmly bound unto the United States of America in the
sum of $____________________ (see Sec. 380.34(f) of Part 380) for
which payment, well and truly to be made, we bind ourselves and our
heirs, executors, administrators, successors, and assigns, jointly
and severally, firmly by these presents.
Whereas Principal intends to become a Public Charter operator
pursuant to the provisions of part 380 of the Department's Special
Regulations and other rules and regulations of the Department
relating to insurance or other security for the protection of
charter participants, and has elected to file with the Department of
Transportation such a bond as will insure financial responsibility
with respect to all moneys received from charter participants for
services in connection with a Public Charter to be operated subject
to Part 380 of the Department's Special Regulations in accordance
with contracts, agreements, or arrangements therefor, and
Whereas this bond is written to assure compliance by Principal
as an authorized charter operator with Part 380 of the Department's
Special Regulations, and other rules and regulations of the
Department relating to insurance and other security for the
protection of charter participants, and shall inure to the benefit
of any and all charter participants to whom Principal may be held
legally liable for any damages herein described.
Now, therefor, the condition of this obligation is such that if
Principal shall pay or cause to be paid to charter participants any
sum or sums for which Principal may be held legally liable by reason
of Principal's failure faithfully to perform, fulfill and carry out
all contracts, agreements, and arrangements made by Principal while
this bond is in effect with respect to the receipt of moneys from
charter participants, and proper disbursement thereof pursuant to
and in accordance with the provisions of Part 380 of the
Department's Special Regulations, then this obligation shall be
void, otherwise to remain in full force and effect.
The liability of Surety with respect to any charter participant
shall not exceed the charter price paid by or on behalf of such
participant.
The liability of Surety shall not be discharged by any payment
or succession of payments hereunder, unless and until such payment
or payments shall amount in the aggregate to the penalty of the
bond, but in no event shall Surety's obligation hereunder exceed the
amount of said penalty.
Surety agrees to furnish written notice to the Office of
Aviation Analysis, Department of Transportation, forthwith of all
suits or claims filed and judgments rendered, and payments made by
Surety under this bond.
The bond shall cover the following charters:\1\
\1\ These data may be supplied in addendum attached to the bond.
---------------------------------------------------------------------------
Surety company's bond No.----------------------------------------------
Date of flight departure-----------------------------------------------
Place of flight departure----------------------------------------------
This bond is effective on the ______ day of ________, 12:01
a.m., standard time at the address of Principal as stated herein and
as hereinafter provided. Principal or Surety may at any time
terminate this bond by written notice to: ``Special Authorities
Division (P-57), Office of Aviation Analysis, U.S. Department of
Transportation, Washington, DC 20590,'' such termination to become
effective thirty (30) days after the actual receipt of said notice
by the Department. Surety shall not be liable hereunder for the
payment of any damages hereinbefore described which arise as a
result of any contracts, agreements, undertakings, or arrangements
for the supplying of transportation and other services made by
Principal after the termination of this bond as herein provided, but
such termination shall not affect the liability of the bond
hereunder for the payment of any damages arising as a result of
contracts, agreements, or arrangements for the supplying of
transportation and other services made by Principal prior to the
date that such termination becomes effective. Liability of Surety
under this bond shall in all events be limited only to a charter
participant or charter participants who shall within sixty (60) days
after the termination of the particular charter described herein
give written notice of claim to the charter operator or, if it is
unavailable, to Surety, and all liability on this bond shall
automatically terminate sixty (60) days after the termination date
of each particular charter covered by this bond except for claims
made in the time provided herein.
In witness whereof, the said Principal and Surety have executed
this instrument on the ______ day of ________________, ________.
Principal
Name-------------------------------------------------------------------
By: Signature and title
Surety
Name-------------------------------------------------------------------
By: Signature and title------------------------------------------------
Only corporations may qualify to act as surety and they must
meet the requirements set forth in Sec. 380.34(c)(6) of Part 380.
Appendix B--Public Charter Surety Trust Agreement
This Trust Agreement is entered into between
____________________ (charter operator) incorporated under the law
of ____________________ with the principal place of business being
____________________ (hereinafter referred to as the Operator), and
____________________ (Bank) with its principal place of business
being ____________________ (hereinafter referred to as the
``Trustee''), for the purpose of creating a trust to become
effective as of the ______ day of ________________, ________, which
trust shall continue until terminated as hereinafter provided.
The Operator intends to become a Public Charter operator
pursuant to the provisions of Part 380 of the Department's Special
Regulations and other rules and regulations of the Department
relating to insurance or other security for the protection of
charter participants, and has elected to file with the Department of
Transportation such a Surety Trust Agreements as will insure
financial responsibility with respect to all moneys received from
charter participants for services in connection with a Public
Charter to be operated subject to Part 380 of the Department's
Special Regulations in accordance with contracts, agreements, or
arrangements therefor.
This Surety Trust Agreement is written to assure compliance by
the Operator with the provisions of Part 380 of the Department's
Special Regulations and other rules and regulations of the
Department relating to insurance or other security for the
protection of charter participants.
It shall inure to the benefit of any and all charter
participants to whom the Operator may be held legally liable for any
of the damages herein described.
It is mutually agreed by and between the operator and Trustee
that the Trustee shall manage the corpus of the trust and carry out
the purposes of the trust as hereinafter set forth during the term
of the trust for the benefit of charter participants (who are
hereinafter referred to as ``Beneficiaries.'')
Beneficiaries of the trust created by this Agreement shall be
limited to those charter participants who meet the following
requirements:
1. Those for whom Operator or Operator's agent has received
payment toward participation in one or more charters operated by or
proposed to be operated by Operator.
2. Who have legal claim or claims for money damages against the
Operator by reason of the Operators' failure faithfully to perform,
fulfill, and carry out all contracts, agreements, and arrangements
made by the Operator while this trust is in respect to the receipt
of moneys and proper disbursement thereof pursuant to Part 380 of
the Department's Special Regulations; and
3. Who have given notice of such claim or claims in accordance
with this Trust Agreement, but who have not been paid by the
Operator.
The Operator shall convey to the Trustee legal title to the
trust corpus, which has a value of $________________ by the time of
the execution of this Agreement.
[[Page 28251]]
Trustee shall assume the responsibilities of the Trustee over
the said trust corpus and shall distribute from the trust corpus to
any and all Beneficiaries to whom the Operator, in its capacity as a
Public Charter operator, may be held legally liable by reason of the
Operator's failure faithfully to perform, fulfill, and carry out all
contracts, agreements, and arrangements made by the Operator, while
this trust is in effect with respect to the receipt of moneys and
proper disbursement thereof pursuant to Part 380 of the Department's
Special Regulations in connection with said charters, such damages
as will discharge such liability while this trust is in effect;
Provided, however, That the liability of the trust to any
Beneficiary shall not exceed the charter price (as defined in Part
380 of the Department's Special Regulations) paid by or on behalf on
any such Beneficiary; Provided, further, That there shall be on
obligation of the trust to any Beneficiary if the Operator shall pay
or cause to be paid to any Beneficiary any sum or sums for which the
Operator may be held legally liable by reasons of its failure
faithfully to perform, fulfill, and carry out all contracts,
agreements, and arrangements made by the Operator in its capacity as
charter operator while this trust is in effect with respect to the
receipt of moneys and proper disbursement thereof pursuant to Part
380 of the Department's Special Regulations; And provided still
further, That the liability of the trust as administered by the
Trustee shall not be discharged by any payment or succession of
payments hereunder, unless and until such payment or payments, shall
amount in the aggregate to $________________. Notwithstanding
anything herein to the contrary, in no event shall the obligation of
the trust or the Trustee hereunder exceed the aggregate amount of
$________________.
The Trustee agrees to furnish written notice to the Office of
Aviation Analysis, Department of Transportation, forthwith of all
suits of claims filed and judgments rendered (of which it has
knowledge), and of payments made by the Trustee under the terms of
this trust.
The Trust shall not be liable hereunder for the payment of any
damages hereinbefore described which arise as a result of any
contracts, agreements, undertakings, or arrangements for the
supplying of transportation and other services made by the Operator
after the termination of this trust as herein provided, but such
termination shall not affect the liability of the trust hereunder
for the payment of any damages arising as a result of contracts,
agreements, or arrangements for the supplying of transportation and
other services made by the Operator prior to the date that such
termination becomes effective.
Liability of the trust shall in all events be limited only to a
Beneficiary or Beneficiaries who shall within sixty days after the
termination of the particular charter give written notice of claim
to the Operator or, if it is unavailable, to the Trustee, and all
liability of the trust with respect to participants in a charter
shall automatically terminate sixty days after the termination date
of each particular charter covered by this trust except for claims
filed in the time provided herein. Sixty-one days after the
completion of the last charter covered by this Trust Agreement, the
trust shall automatically terminate except for claims of any
Beneficiary or Beneficiaries previously made in accordance with this
Agreement still pending on and after said sixty-first day. To the
extent of such claims, the trust shall continue until those claims
are discharged, dismissed, dropped, or otherwise terminated; the
remainder of the trust corpus shall be conveyed forthwith to the
Operator. After all remaining claims which are covered by this Trust
Agreement pending on and after the said sixty-first day have been
discharged, dismissed, dropped, or otherwise terminated, the Trustee
shall convey forthwith the remainder of the trust corpus, if any, to
the Operator.
Either the Operator or Trustee may at any time terminate this
trust by written notice to: ``Special Authorities Division (P-57),
Office of Aviation Analysis, U.S. Department of Transportation,
Washington, DC 20590,'' such termination to become effective thirty
days after the actual receipt of said notice by the Department.
In the event of any controversy or claim arising hereunder, the
Trustee shall not be required to determine same or take any other
action with respect thereto, but may await the settlement of such
controversy or claim by final appropriate legal proceedings, and in
such event shall not be liable for interest or damages of any kind.
Any Successor to the Trustee by merger, consolidation, or
otherwise, shall succeed to this trusteeship and shall have the
powers and obligations set forth in this Agreement.
The trust created under this Agreement shall be operated and
administered under the laws of the State of ________________.
IN WITNESS WHEREOF, the Operator and Trustee have executed this
instrument on the ______ day of ________________, ________.
Trustee
Name-------------------------------------------------------------------
By: Signature and title
Charter Operator
Name-------------------------------------------------------------------
By: Signature and title
Issued in Washington, DC, on May 8, 1998.
Charles A. Hunnicutt,
Assistant Secretary For Aviation and International Affairs.
[FR Doc. 98-12980 Filed 5-21-98; 8:45 am]
BILLING CODE 4910-62-M
