Aviation Charter Rules

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.

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\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

ap

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