The European AOC (Air Operator’s Certificate), overseen by EASA, is understood to reduce operational costs for operators and increase competitiveness in the European market.

As a worldwide operator, Luxaviation Group currently manages 235 aircraft and 35 helicopters under the most stringent safety standards and under the regulatory umbrella of 15 AOCs, of which nine are provided through European regulators. The EU Basic Regulation 2018/1139, which was introduced in 2018 provides operators in the Luxaviation Group with the opportunity to report to a single competent authority, responsible for safety oversight and certification.

Patrick Hansen, CEO of Luxaviation Group said: “We have been working closely with EASA in order to achieve a single AOC similar to the American FAA. Today we are particularly proud to take a part in this historical moment for European aviation. Our Portuguese AOC is just the beginning – others will follow.”

Patrick Ky, executive director, EASA, said: “EASA is pleased to have issued the first single AOC to Luxaviation and we are happy to continue working to help them streamline their operations.”

Luxaviation’s Portuguese fleet started operating under the European AOC as of October 13. The group also currently holds AOCs in other EASA member states, including Belgium, Germany, Switzerland, France, Luxembourg, and San Marino. Luxaviation recently sold its stake in the LBAS maintenance facility in Berlin to Bombardier Aviation.

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Private jets allow passengers to walk from car to aircraft with a minimal amount of steps. Photo: NetJets.

First can I start by objecting to the phrase ‘grey charters.’ Flights are either legal, or illegal; we should not confuse the matter by suggesting there may be something in between.

I have worked for 20 years as an aviation regulator, with the UK CAA, in many overseas territories, and as director of civil aviation for the Isle of Man. In each of the jurisdictions we received allegations of illegal operations and we investigated every one of them. In most areas there are a small number of suspected illegal operators and they should be constantly targeted and if proved, hopefully prosecuted out of our industry.

In no jurisdiction have I experienced the number of complaints reach the percentage of double figures recently quoted in relation to the size of the industry. One question we need to address is how are the figures quoted in the media calculated? We must not publicise inaccurate or exaggerated figures which will destroy the credibility of our concerns. Regulators should help the industry and its passengers, by regularly publishing statistics showing how many illegal flights they have investigated and how many were prosecuted.

The UK CAA has a dedicated enforcement branch with an ex-police officer inspecting staff. Even with all their years of experience and investigating skills it is difficult for them to successfully prosecute when passengers who have paid for an illegal flight, will not provide evidence to help prosecute the operator. Unless there is evidence, it is almost impossible to devote expensive resources and costs to investigate allegations that cannot be proved.

Following are some examples of investigations which identify a few of the issues:

While I was director of civil aviation at the Isle of Man, one report came from a handling agent (often a very good source of information), who thought passengers were travelling illegally on an aircraft. We investigated and the owner admitted to carrying a passenger who had paid part of the cost. The owner did not understand the legal situation and we informed him that his aircraft would be de-registered if it happened again. The investigation failed to meet the requirements for prosecution but to my knowledge no further illegal flights were made.

In another case, we received a report from an Aircraft Operator’s Certificate (AOC) holder claiming that a corporate aircraft was carrying many different passengers, which they claimed were therefore illegal charters. We investigated and were given the names and company positions of all the passengers. They informed us that whilst not all their employees flew on the aircraft, they did employ 60,000 people! So there would always be many different passengers travelling and all of them were employees.

One AOC holder told us he had lost a charter to another AOC holder who he claimed had used an Isle of Man registered private aircraft for the charter from London to New York. We checked the New York airport records and the aircraft tech logs, and although a time consuming and expensive investigation, we proved the owner was actually with his aircraft in Moscow at the time of the alleged charter.

In one overseas territory we caught an operator loading his aircraft with Government cargo; apparently the government did not know we had removed his Charter Permit (AOC) for illegal operations six months previously!

In the UK, we targeted horse racing jockeys who we believed had been paying illegal operators in cash to fly them to races in light aircraft. When our inspector explained how dangerous it was to fly with unlicensed and uninsured operators, a top jockey replied: “Have you any idea how dangerous it is hanging onto a horse doing 40 mph and jumping over five foot fences?” His perspective on safety was somewhat different to ours. There was insufficient evidence to prosecute.

Personally, I do not believe most international companies would allow an illegal flight to take place on their corporate aircraft and most professional pilots would not risk their career, or prosecution, by conducting illegal flights. As much as it may disappoint some accusers, the majority of flights are probably legal, but as in all walks of life there will always be someone who does not follow the law and they must be identified and prosecuted. If you are an AOC holder, with all its accompanying costs, and have aircraft parked due to the current economic climate, seeing corporate aircraft still busy flying must be frustrating, but it does not mean they are flying illegally and taking your customers.

However, if anyone has evidence or reasonable suspicion, of an illegal flight, do not hesitate; report it to your regulator and request to be kept informed of the progress of their investigations. As a regulator I always appreciated receiving industry concerns and always responded with our findings. We need to solve the problem of illegal flights and we all need to solve it together.

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Much like easyJet and other low-cost carriers, Blink launched promising to revolutionise the industry and immediately turned existing operators and brokers or travel agents against it.

Low-cost carriers were lucky. The internet took-off allowing customers to book online (this was luck, it is worth remembering that airlines originally had telephone numbers written on aircraft) and demand grew along with Europe’s economies.

Blink and air taxi companies, however, launched into a perfect storm.

Very light jets are well suited to bankers and lawyers travelling around Europe for deals and roadshows. Unfortunately, the credit crunch and criticism of business jet usage stopped this happening. We do not need to discuss Europe’s economy.

Blink and GlobeAir have fought hard against terrible markets and they deserve credit for this. Others like JetBird failed to launch. They have learnt a lot and stimulated demand (even if it was not as much as they wanted).

In fact, if you view air taxi companies as airlines they are doing pretty well. Breakeven, in tough markets, is actually an achievement in the low-margin airline industry. Several carriers – most notably – KLM looked at launching air taxi firms.  It would be no surprise to see them acquiring existing operators.

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Getting asset strategies right is crucial for businesses at all stages of their maturity.  The impact on cash-flow of the differing strategies can be significant, as can the legal protection issues surrounding assets.  Changing these can become both expensive, and time consuming.

At first glance, there doesn’t seem to be a lot of choice. The aim of most business is to use assets to maximize revenue, and in turn make a profit which can be returned to shareholders in some shape or form.  If the assets are to be aircraft for example, these can either be bought with cash (equity) or loans (debt) or perhaps a mixture of both; or borrowed via a traditional lease or management contract.   Buying something requires an investor to believe in what you want to achieve, in order for them to provide you equity. Venture capitalists may provide equity or your friendly (?) bank manager, or most probably today, the highly sceptical credit committee, debt.  Borrowing the asset requires working capital, which hopefully is largely the surplus cash you make from using the asset, but may well be equity initially until the business turns cash-flow positive.

These financing decisions will drive the amount of cash required to start the business. Generally the less cash you can get away with initially, the better, so you will probably want to start off down the “borrow” route.

Therefore, when you start your business be ruthless and make sure that you understand what assets you want in your business, and how you wish to hold them.  For example, if you are an operator looking to run an Air Taxi business you might not want to own your first few aircraft outright.  The likelihood of getting asset finance at reasonable rates for a start-up company is pretty low. You might be better off looking at “managed models” in the first instance, where you manage a private owner’s aircraft perhaps?

Another issue is the owning entity of the asset. You may want to optimize use of the legal protection afforded to limited companies, and have a holding company own the assets whilst the operating company leases those assets from the holding company.  In the event that your operating company (heaven forbid) struggles and is forced into bankruptcy, the assets are at least protected from the operating company.  This structure may also make it easier to attract investors who like the idea of asset finance, but perhaps not the risk of your operational business plan?

Once your business is mature, and is generating positive cash flow, you will want to revisit your asset strategies to ensure that you are maximizing shareholder value.  One of the key ratios investors use to assess the health of companies is the return on capital employed.  This has lead many a company to follow a positive strategy of asset divestment in order to ensure that the balance sheet is asset light, thus showing an excellent return on capital employed.

Your accountant will want a significant say in your asset strategy, as she or he will want to help you to maximize your tax advantages.  For example, if your assets are in a holding entity, what would the taxable implications of your transfer charging decisions be?

There is no simple answer or formulae to follow when deciding your asset strategy. The only common factor being the need to think through all the permutations and ensure that you take professional advice, balanced with commercial common sense.  In closing, don’t forget to ensure that you have effective and sufficient insurance coverage, a topic for a future discussion perhaps.

Edwin Brenninkmeyer
edwin.brenninkmeyer@oriensadvisors.com
+44 7884 066 761

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