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What Happens?

by Greg Reigel 1. April 2005 00:00
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What Happens to Your Certificate Following Suspension Or Revocation?

Is a certificate suspension or revocation the end of the story for a certificate holder? Not usually. A certificate holder has some additional responsibilities, as well as liability exposure if he or she fails to fulfill those obligations. However, before we talk about the aftermath of certificate suspension or revocation, we should briefly discuss how a certificate holder can find him or herself in that position.

A certificate issued by the FAA can be suspended or revoked in one of several manners. At the beginning of an FAA enforcement action, the FAA issues a Notice of Proposed Certificate Action ("NPCA") to the certificate holder seeking to suspend or revoke a certificate for alleged violation of the FAR's. The NPCA provides a recitation of the facts supporting the FAA's allegations and also includes a list of options from which a certificate holder may choose how he or she wants to respond to the NPCA. Under the first option, the certificate holder can elect to simply admit or concede the allegations and surrender the certificate to the FAA.

Suspension or revocation of a certificate can also be imposed by an NTSB administrative law judge following a hearing on the merits of the allegations contained in an NPCA. In the case of suspension or revocation following a hearing, the law judge will also order that the certificate holder surrender the suspended or revoked certificate to the FAA. The FAA also follows up with a letter to the certificate holder demanding surrender of the certificate. But, does the certificate holder have to surrender the certificate? The answer is yes.

If a certificate holder fails to surrender the certificate, the FAA can and will seek a civil penalty against the certificate holder for failure to surrender the certificate as required by the order of suspension or revocation. Under 14 CFR 383.2, depending upon the type of operator (e.g. individual, small business, air carrier etc.), the penalties can range from $1,100 for an individual (and in some cases a small business) to $2,500, $5,000, $10,000 and up to $25,000 per day.

A recent NTSB case illustrates the consequences of failing to surrender a certificate following suspension or revocation. In Administrator v. David Michael Reid, the FAA issued an NPCA proposing to suspend Mr. Reid's pilot certificate for 120 days and revoke his medical certificate based upon Mr. Reid's failure to report an alcohol-related motor vehicle action and his falsification of a medical application by failing to report a prior conviction for driving while intoxicated (DUI) and a related driver's license suspension. The FAA subsequently issued an order suspending Mr. Reid's pilot certificate and revoking his medical certificate. Mr. Reid did not appeal the order.

The FAA then sent, and Mr. Reid received, two letters directing him to surrender the suspended and revoked certificates. The letters also advised that if he did not surrender the certificates he would be subject to a civil penalty of up to $1,100 for each day he did not surrender them. When Mr. Reid failed to surrender the certificates, the FAA issued an order of assessment of civil penalty alleging violations of 14 CFR 61.19(f)("Surrender, suspension, or revocation. Any certificate issued under this part ceases to be effective if it is surrendered, suspended, or revoked.") and 14 CFR 67.415("Return of medical certificate after suspension or revocation. The holder of any medical certificate issued under this part that is suspended or revoked shall, upon the Administrator's request, return it to the Administrator."). The FAA sought a civil penalty of $5,000.00 against Mr. Reid.

Mr. Reid then appealed the order assessing civil penalty and requested a hearing. The apparent basis for Mr. Reid's appeal was that he claimed his certificates should not have been suspended or revoked in the underlying enforcement action because he did not violate the FAR's in question. However, the administrative law judge ("ALJ") rejected Mr. Reid's arguments and entered summary judgment in favor of the FAA, finding that: "(1) respondent had constructive service of the March 31, 2000, order suspending/revoking his certificates; (2) because he failed to file a timely appeal from that order, it was final and not now open to attack; (3) respondent ignored repeated warnings that if he did not surrender his certificates a civil penalty action could be filed against him; and (4) the $5,000 civil penalty was de-minimus compared to the amount the Administrator could have ordered in light of the extended length of time for which respondent had refused to surrender his certificates."

On appeal to the full NTSB Board, the Board upheld the ALJ's grant of summary judgment holding that Mr. Reid had his opportunity to dispute the underlying suspension and revocation and failed to take advantage of it. The Board also noted that even if Mr. Reid's arguments were properly before the court, Mr. Reid failed to produce any evidence to rebut the violations as alleged in the underlying action.

We can learn several things from this case. One, if you receive a NPCA you need to take action immediately and, if you dispute the FAA allegations, you need to properly and timely appeal the order and request an evidentiary hearing. Second, if your appeal is unsuccessful and your certificate is suspended or revoked, you are required to surrender your certificate to the FAA. If you fail to do so, you risk being assessed a civil penalty that may or may not be the "de-minimus" amount assessed in Mr. Reid's case. Hopefully you will never find yourself in this situation.

Unfortunately it does happen whether it's to you, someone you know, or a friend of a friend. When it does, the NPCA is not something to be taken lightly. In some cases it can turn very nasty and in other cases, when common sense does not prevail (which happens every so often), the situation can be almost comical. Please feel free to share your past experiences and tell others of any situations you have experienced. We can all learn from the experiences of others and, at a minimum, they make for some interesting reading!

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Greg Reigel

Return on Investment

by David Wyndham 1. April 2005 00:00
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It's not just for bankers.

When working with our clients on an aircraft requirements analysis, we almost always look at several forms of ownership and in the case of full-ownership, look at several ways to pay for the aircraft. Often, we compare a lease or loan with cash purchase. On the surface, the loan should cost more, right? After all, you pay interest on the amount borrowed. That's not quite the full story.

Whether you are an individual, a sole-proprietorship or a WalMart, there is always a limited amount of money. Successful companies keep a close control on their cash and look at something called "return on investment" or ROI. Depending on the context used, this term can also be called the "hurdle rate" or even "cost of capital." Individuals can also manage their money in much the same way.

One way is to use cash to invest in items that generate income. Unless the aircraft is used for hire it does not directly generate income any more than the computer I am using to write this article generates income for our company. If a company buys an aircraft for cash, it is cash that they cannot put into something that directly generates income. If money is tied up in an aircraft, that money cannot be out there "working" for you.

Large companies typically try to generate fifteen cents or more (on average) for each dollar spent. That amount is their ROI. When evaluating a large purchase, a company applies ROI to the purchase to see if that is the best use of their capital. High net worth individuals also make the same comparison, "where can I put my money so that it has the most return for me?"

For example, let's assume that Company A has a 15% ROI and the bank is willing to loan money to buy and aircraft at 8%. Company A can use their cash to generate income at fifteen cents for each dollar and it will "cost" them only 8 cents on each dollar loaned. In an over-simplification, Company A will make 15 cents and spend eight cents in interest for a net of seven cents. If our fictitious Company A were acquiring an aircraft, they most likely would not pay cash, but instead take out a loan and "invest" the cash somewhere within the company where it could earn returns greater than the cost of the loan.

Of course, the calculations are a bit more complex, but for many companies and individuals, it does not "pay" to buy for cash. The IRS even encourages loans by allowing companies to write off the interest as an expense.

As part of the calculation, risk must be considered. A loan is either for a fixed rate, or variable. The fixed rate has a guaranteed cost, so there is essentially no financial risk. A variable rate of interest involves some risk in that the cost of capital may increase. Similarly, investing in something that generates income also involves the risk of that investment not making its return.

As you can see the lease/loan/purchase decision isn't as simple as whether you can afford to pay outright. It involves a decision on whether you do more with your money and still have an aircraft.

Please take a moment and tell us what has worked best from your flight departments' perspective. Your participation could be invaluable to the other readers of this article, not only in monetary practices but also in determining which methods are better than others.


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