What should Part 135 Charter have done?

[Steve Foley]

The U.S. Department of Transportation hit Sacramento, Calif.-based Sky King Inc. with a $500,000 penalty Friday for its role in stranding passengers, a violation of federal air charter rules. The fine was the fourth and largest penalty assessed against air carriers that made charter flights for defunct Direct Air Inc. of Myrtle Beach, S.C., which flew out of Worcester Regional Airport.

http://www.telegram.com/article/20130209/NEWS/130209674/1116

Direct Air booked the planes but never paid for them. Now the operator is being fined for not flying for free.

I realize lots of people were stranded, but how would the operator know if the people who were to board were outbound or returning? How long should they have provided free transportation to avoid this fine? What if someone's return flight was not for another month?

 

[jonnyjetprop]

Same thing happened to my airline. We flew scheduled charters for a company from the US to Nigeria. This is the time to make jokes, but we really did.

When the company stopped paying us, we flew two round trips and a cargo only flight with extra luggage for free. We still got fined and sued by the stranded passengers.

 

[flyingmoose]

http://www.telegram.com/article/20130209/NEWS/130209674/1116

Direct Air booked the planes but never paid for them. Now the operator is being fined for not flying for free.

I realize lots of people were stranded, but how would the operator know if the people who were to board were outbound or returning? How long should they have provided free transportation to avoid this fine? What if someone's return flight was not for another month?

That is a valid question. I suppose that ther is more to this story than just what is being written. If it true then heck I don't blame them for not flying if they didn't know how they are going to get paid. I bet they knew they shouldn't be doing business with them to begin with.

 

[jonnyjetprop]

http://www.newschief.com/article/20...itle=Federal-Officials-Fine-Sky-King-Airlines

This article gives some more information. The fine is based on the fact that when Direct Air failed to make payments into an escrow account, Sky King continued to fly.

In my airline's case, the fine was based on the premiss that we allowed the line to be blurred between the charter operator and my airline. The Feds said that we failed to stop it and that passengers were booking on the strength of our airline.

This is an unfortunate reality in the supplemental charter world.

 

[Mason]

In the Good Old Daze, the boss left me in charge of a DC-9 charter checking in at O'Hare with the instructions not to let that plane taxi out without payment in full from the tour operator. I guess they had a rep for stiffing the airline(s).

I was rather nervous taking the briefcase full of cash up the concourse to the safe. There was enough there for your average drug dealer to retire.....or at least, take a few months off.

 

[docmirror]

Maybe I'm not understanding the situation right. Here's how I have it:

Mr and Mrs Smith pay GoodAsGold charter company for a trip from Newark to Cayman and back. GoodAsGold says 'that will be $xxx.xx dollars please'. The Smiths write a check to GoodAsGold charter for the trip. They hop on the plane to Cayman, and get back to the airport to go home and GoodAsGold charter says 'no way mon, no plane - go away'.

The Smith's aren't in the charter business, they don't care how, where, why, or from whom GoodAsGold gets a plane, but they paid for a R/T to Cayman and got stranded. It's not the Smith's job to run the charter company, so where is this 'free' transportation?

AFAIK, GoodAsGold can take the money the Smith's gave them and buy them a first class on AA, it doesn't matter to them how they get back, just that it be on a comm part 135 carrier. If GoodAsGold can't/won't/didn't find a plane to take them home, they are in breach.

 

[gprellwitz]

Maybe I'm not understanding the situation right. Here's how I have it:

Mr and Mrs Smith pay GoodAsGold charter company for a trip from Newark to Cayman and back. GoodAsGold says 'that will be $xxx.xx dollars please'. The Smiths write a check to GoodAsGold charter for the trip. They hop on the plane to Cayman, and get back to the airport to go home and GoodAsGold charter says 'no way mon, no plane - go away'.

The Smith's aren't in the charter business, they don't care how, where, why, or from whom GoodAsGold gets a plane, but they paid for a R/T to Cayman and got stranded. It's not the Smith's job to run the charter company, so where is this 'free' transportation?

AFAIK, GoodAsGold can take the money the Smith's gave them and buy them a first class on AA, it doesn't matter to them how they get back, just that it be on a comm part 135 carrier. If GoodAsGold can't/won't/didn't find a plane to take them home, they are in breach.

I think the situation is a little more like:
Mr and Mrs Smith pay FlyByNightTours tour company for a vacation in the Caymans. FlyByNightTours has a contract with GoodAsGold charter company for a round trip from Newark to Cayman and back. The Smiths write a check to FlyByNightTours for the trip plus the rest of the vacation. FlyByNightTours is supposed to put into escrow for GoodAsGold the $xxx.xx for the round trip airfaire, but fail to do so. The Smiths hop on the GoodAsGold plane to the Caymans, and get back to the airport to go home and GoodAsGold charter says 'no way mon, no plane - go away' because they hadn't been actually given the money by FlyByNightTours. They're now in trouble for having flown the Smiths outbound without the money sitting in escrow to cover their return flight.

 

[docmirror]

I think the situation is a little more like:
Mr and Mrs Smith pay FlyByNightTours tour company for a vacation in the Caymans. FlyByNightTours has a contract with GoodAsGold charter company for a round trip from Newark to Cayman and back. The Smiths write a check to FlyByNightTours for the trip plus the rest of the vacation. FlyByNightTours is supposed to put into escrow for GoodAsGold the $xxx.xx for the round trip airfaire, but fail to do so. The Smiths hop on the GoodAsGold plane to the Caymans, and get back to the airport to go home and GoodAsGold charter says 'no way mon, no plane - go away' because they hadn't been actually given the money by FlyByNightTours. They're now in trouble for having flown the Smiths outbound without the money sitting in escrow to cover their return flight.

Ok, but which company got fined? If FlyByNight, I still don't have a problem with it. If GoodAsGold is the one that got fined, then that's a problem.

<edit: I reread post #4 and that makes it more clear. So, in this case, Direct Air kept the customer money, but didn't pay the operator(charter operator) for passage. The operator refused carriage, and was fined.

I'm guessing that once the operator took the pax the first time, it has an obligation to get them back where they started. So, the operator(in my case GoodAsGold) took them on the outbound, but not back on the inbound, even though they weren't paid for either part of the trip.

I can now see why they were fined. If you accept a pax for carriage one way, and then leave them due to non-payment, you should have refused carriage to begin with. Otherwise, we run into a situation where pax could be held hostage financially in the middle of their trip. So, the operator(GoodAsGold) should have refused carriage from the very beginning for any pax charter that was not paid for. But, once travel on the charter has begun, it must be completed. >

 

[gprellwitz]

Ok, but which company got fined? If FlyByNight, I still don't have a problem with it. If GoodAsGold is the one that got fined, then that's a problem.

<edit: I reread post #4 and that makes it more clear. So, in this case, Direct Air kept the customer money, but didn't pay the operator(charter operator) for passage. The operator refused carriage, and was fined.

I'm guessing that once the operator took the pax the first time, it has an obligation to get them back where they started. So, the operator(in my case GoodAsGold) took them on the outbound, but not back on the inbound, even though they weren't paid for either part of the trip.

I can now see why they were fined. If you accept a pax for carriage one way, and then leave them due to non-payment, you should have refused carriage to begin with. Otherwise, we run into a situation where pax could be held hostage financially in the middle of their trip. So, the operator(GoodAsGold) should have refused carriage from the very beginning for any pax charter that was not paid for. But, once travel on the charter has begun, it must be completed. >

As I understand it, using my names, Sky King = GoodAsGold, Direct Air = FlyByNight. Direct Air declared Chapter 7 (liquidation) bankruptcy. Customers had booked with FlyByNight (Direct Air). Sky King was fined because they flew customers outbound but didn't secure the finds from Direct Air before Direct Air declared bankruptcy. Sky King subsequently declared Chapter 11 (reorganization) bankruptcy.

 

[jonnyjetprop]

As I understand it, using my names, Sky King = GoodAsGold, Direct Air = FlyByNight. Direct Air declared Chapter 7 (liquidation) bankruptcy. Customers had booked with FlyByNight (Direct Air). Sky King was fined because they flew customers outbound but didn't secure the finds from Direct Air before Direct Air declared bankruptcy. Sky King subsequently declared Chapter 11 (reorganization) bankruptcy.

You got it

 

[Ted]

We always invoiced our clients, I think the terms were 30 days from receiving the invoice. The biggest issue was our chief pilot, who was particularly bad at sending out invoices.

 

[N747JB]

As I understand it, using my names, Sky King = GoodAsGold, Direct Air = FlyByNight. Direct Air declared Chapter 7 (liquidation) bankruptcy. Customers had booked with FlyByNight (Direct Air). Sky King was fined because they flew customers outbound but didn't secure the finds from Direct Air before Direct Air declared bankruptcy. Sky King subsequently declared Chapter 11 (reorganization) bankruptcy.

Yes. The customers acted in good faith, paying the travel agency for the trip, the customers are considered as innocent parties for lack of a better term. That's why the charter company is obligated to get them home. It's not the customers fault that the charter company isn't getting paid, they paid their money. We've had this happen in the car business, a dealer buys a car from another dealer, sells car to consumer, never pays dealer #1 for car. Dealer #1 gives title to customer. I've been dealer #1 and it's very frustrating!

 

[AdamZ]

As I understand it, using my names, Sky King = GoodAsGold, Direct Air = FlyByNight. Direct Air declared Chapter 7 (liquidation) bankruptcy. Customers had booked with FlyByNight (Direct Air). Sky King was fined because they flew customers outbound but didn't secure the finds from Direct Air before Direct Air declared bankruptcy. Sky King subsequently declared Chapter 11 (reorganization) bankruptcy.

Problem is even with the money in escrow once direct Air declares Ch 7 Sky King can't take that money. There should be some sort of priority in Bankruptcy court for organizations that are forced to fulfill obligations of bankrupt parties.

 

[jhausch]

This presents a very interesting situation for the 135 operators working "wholesale" with the glut of "charter brokers" (unlicensed, unregulated) who've popped up in recent years. The lesson there is cash up front....

 

[N747JB]

This presents a very interesting situation for the 135 operators working "wholesale" with the glut of "charter brokers" (unlicensed, unregulated) who've popped up in recent years. The lesson there is cash up front....

And know who you are doing business with!! I guess it could work both ways, the charter company takes the money and can't or won't fly the people home!

 

[gismo]

This presents a very interesting situation for the 135 operators working "wholesale" with the glut of "charter brokers" (unlicensed, unregulated) who've popped up in recent years. The lesson there is cash up front....

And if there's another charter outfit willing to take the risk of not requiring cash up front, you lose the flight and any revenue you might have gotten if the broker actually does pay. So the choice may come down to going broke for lack of business or going broke for lack of payment and getting fined for your efforts.

 

[Ted]

John, when that happens in the car business then what? I'm assuming you get the lawyers out.

 

[Everskyward]

This presents a very interesting situation for the 135 operators working "wholesale" with the glut of "charter brokers" (unlicensed, unregulated) who've popped up in recent years. The lesson there is cash up front....

Absolutely, especially with brokers and unknown customers. I've sat waiting in ops for someone's credit card to be pre-approved before starting the engines.

 

[N747JB]

John, when that happens in the car business then what? I'm assuming you get the lawyers out.

It's only happened to us on a couple cars, $1-2000 each, the used car dealer was broke and or skipped town. We ended up supplying the retail customers with the title, it wasn't worth spending money to pursue the used dealer. The way it was explained to me is, the consumer purchased the car in good faith and they are due a title. The fact that the used car dealer didn't pay me was immaterial. It was considered a civil matter between the uc dealer and me, and we had no right to repossess the cars, so we didn't!

 

[Ted]

It's only happened to us on a couple cars, $1-2000 each, the used car dealer was broke and or skipped town. We ended up supplying the retail customers with the title, it wasn't worth spending money to pursue the used dealer. The way it was explained to me is, the consumer purchased the car in good faith and they are due a title. The fact that the used car dealer didn't pay me was immaterial. It was considered a civil matter between the uc dealer and me, and we had no right to repossess the cars, so we didn't!

I can see where those laws make sense, similar to this. For that low of a cost I'd also agree it doesn't make sense to go after a bankrupt dealer.

 

[Ateaist]

Problem is even with the money in escrow once direct Air declares Ch 7 Sky King can't take that money. There should be some sort of priority in Bankruptcy court for organizations that are forced to fulfill obligations of bankrupt parties.

I think you're wrong. To the best of my recollection the funds deposited into an escrow account for the benefit of a third party is not part of the debtor's bankruptcy estate (only debtor's contingent interest in the funds, if the third party fails to perform). Then again I could be wrong, as, I haven't worked on a bankruptcy case since my first year out of law school.

 

[AdamZ]

I think you're wrong. To the best of my recollection the funds deposited into an escrow account for the benefit of a third party is not part of the debtor's bankruptcy estate (only debtor's contingent interest in the funds, if the third party fails to perform). Then again I could be wrong, as, I haven't worked on a bankruptcy case since my first year out of law school.

You are correct the problem is how much do you want to spend to prove you are right. A lot depends on whether there is a written escrow agreement. Plus I've been told of trustees including the "escrowed" funds in the bankruptcy estate. ( in other types of cases not air charter)
The other problem is the funds can be tied up for a very long time before they are released. I'm not familiar with how these escrows work and who holds the funds. If its a third party holding it for a third party there is a better chance of release but remember no escrow agent is going to release squat without a court order lest the receiving party be required to disgorge the funds paid.

 

[Ateaist]

You are correct the problem is how much do you want to spend to prove you are right. A lot depends on whether there is a written escrow agreement. Plus I've been told of trustees including the "escrowed" funds in the bankruptcy estate. ( in other types of cases not air charter)
The other problem is the funds can be tied up for a very long time before they are released. I'm not familiar with how these escrows work and who holds the funds. If its a third party holding it for a third party there is a better chance of release but remember no escrow agent is going to release squat without a court order lest the receiving party be required to disgorge the funds paid.

Given the amounts involved, I think it's safe to assume there was a written escrow agreement and the funds were deposited with a third party escrow agent. The escrow agent must release the funds to the beneficiary when the conditions precedent are met, because at that point the debtor no longer has any rights to them. If the trustee wants to recover the funds in a preference action, that action would be against the beneficiary, not the escrow agent.