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Safety Recommendation Details

Safety Recommendation A-09-128
Details
Synopsis: On June 4, 2007, about 1600 central daylight time, a Cessna Citation 550, N550BP, impacted Lake Michigan shortly after departure from General Mitchell International Airport, Milwaukee, Wisconsin (MKE).1 The two pilots and four passengers were killed, and the airplane was destroyed. The airplane was being operated by Marlin Air under the provisions of 14 Code of Federal Regulations (CFR) Part 135 and departed MKE about 1557 with an intended destination of Willow Run Airport (YIP), near Ypsilanti, Michigan. At the time of the accident flight, marginal visual meteorological conditions prevailed at the surface, and instrument meteorological conditions prevailed aloft; the flight operated on an instrument flight rules flight plan.
Recommendation: TO THE FEDERAL AVIATION ADMINISTRATION: Require all 14 Code of Federal Regulations Part 91K and Part 135 operators to notify the assigned principal operations inspectors of specific adverse financial events, such as bankruptcy, court judgments related to nonpayment of recurring expenses, or termination of a credit agreement or contract by a vendor for reasons of late payment or nonpayment. Upon receipt of such information, inspectors should increase their oversight of operators who appear to be in financial distress.
Original recommendation transmittal letter: PDF
Overall Status: Closed - Unacceptable Action
Mode: Aviation
Location: Milwaukee, WI, United States
Is Reiterated: No
Is Hazmat: No
Is NPRM: No
Accident #: CHI07MA160
Accident Reports: Loss of Control and Impact with Water, Marlin Air Cessna Citation 550, N550BP
Report #: AAR-09-06
Accident Date: 6/4/2007
Issue Date: 10/27/2009
Date Closed: 11/2/2015
Addressee(s) and Addressee Status: FAA (Closed - Unacceptable Action)
Keyword(s): Oversight, Part 135

Safety Recommendation History
From: NTSB
To: FAA
Date: 11/2/2015
Response: In our investigation of the accident, we found that Marlin Air had exhibited many signs of financial difficulties before the accident occurred. For example, about 7 months earlier, a court judgment had been entered against Marlin Air for nonpayment of hangar rent. A supplier that had previously provided Marlin Air with fuel on a contract basis terminated its contract with the company 2 to 3 years before the accident because the operator had fallen behind in account payments. Another fuel supplier had terminated its credit arrangement with Marlin Air due to nonpayment but continued to provide fuel, with payment required at the time of purchase. These examples clearly indicated that the operator was experiencing financial difficulties, but the FAA did not detect any of these indicators of financial distress during its routine surveillance of the company’s operations. The POI and local Flight Standards District Office management personnel reported that they were unaware of Marlin Air’s financial situation. We concluded that, had FAA personnel been aware of Marlin Air’s financial situation, they would have had an opportunity to increase surveillance of the company. We issued Safety Recommendation A 09 128 to provide inspectors with the information needed to increase oversight of operators who appear to be in financial distress. The FAA’s initial response to this recommendation 5 years ago stated that your agency was assembling a work group to review the recommended changes. You now state that the FAA did not assemble this workgroup or otherwise act because measures are already in place for reviewing the financial state of Part 135 operators. We do not agree with you that, although you have taken no action, you have effectively addressed the recommendation. We were disappointed to learn that some Part 135 carriers operate under US Department of Transportation (DOT) exemption part 298, “Exemption for Air Taxi and Commuter Air Carrier Operations,” which exempts them from any requirements to report economic hardship. Your surveillance system for these Part 135 operators is unable to determine when these operators are in financial distress, which would allow FAA inspectors to increase the level of oversight needed to ensure the safety of passengers using these carriers. We were also disappointed to learn that, because Part 91K operators are exempt from obtaining economic authority from the DOT, you do not plan to mandate that they provide the information FAA inspectors would need to adjust their oversight when an operator is in financial distress. We reviewed FAA Order 8900.1, “Flight Standards Information Management System,” Volume 6, “Surveillance,” Chapter 2, “Part 121, 135, and 91 subpart K Inspections,” Section 18, “Evaluation of an Operator’s Management of Significant Changes.” Paragraph 562, “Objectives,” states that the FAA oversees Part 91K operators during significant changes in the operating environment that may affect an operator’s ability to balance resources, size, and organizational structure with operational requirements. Among the specific examples of conditions that reflect these imbalances is financial distress. Paragraph 563, “General,” contains an extensive discussion of techniques and tools to use in assessing an operator’s financial condition. Given this guidance regarding FAA assessment of a Part 91K operators’ financial condition, we continue to believe that you should mandate reporting of the recommended information. We note that your inspectors use the Surveillance Priority Index (SPI) tool in developing their work programs for oversight of Part 135 carriers, and that the SPI gives a higher priority for oversight of carriers in financial distress. Therefore, use of the SPI satisfies the second part of Safety Recommendation A-09-128, that inspectors increase their oversight of operators who appear to be in financial distress. However, your letter did not discuss the first part of the recommendation, notification of specific adverse financial events indicating that an operator is in financial distress. We contacted your staff to learn what indicators of financial distress are used by the SPI. These indicators consist of an overall assessment of the carrier’s operation, including aircraft, facilities, and equipment being maintained; the number of personnel or personnel changes; the number of flights the operator is performing; and a review of flight, duty, and rest logs to show how active the flight crews are. None of these are the types of events specified in the recommendation, such as bankruptcy, court judgments related to nonpayment of recurring expenses, or termination of a credit agreement or contract by a vendor for late payment or nonpayment. The indicators of financial distress used by the SPI are the same ones that were in use at the time of the Marlin Air accident. We issued Safety Recommendation A-09-128 because the POI and FAA management, using these inadequate indicators, were not aware of Marlin Air’s financial difficulties. Your lack of action does not satisfy the recommendation. Because you have made it clear that you plan no action in response to Safety Recommendation A-09-128, it is classified CLOSED—UNACCEPTABLE ACTION.

From: FAA
To: NTSB
Date: 7/27/2015
Response: -From Michael P. Huerta, Administrator: In its letter dated April 28, 2010, the Federal Aviation Administration (FAA) stated that a work group would be assembled to review the safety, legal and financial aspects of the recommended changes. FAA's Office of the Chief Counsel advised us not to initiate a work group since there are measures in place for reviewing the financial state of part 135 operators. The financial burden for part 135 operators is reviewed by principal operations inspectors using the Safety Performance Analysis System Surveillance Priority Index tool in developing their work programs as required by FAA Order 8900.1, Flight Standards Information Management System, Volume 6, Chapter 2, Section 1. Part 135 operators often operate under a U.S. Depat1ment of Transportation (DOT) exemption part 298, "Exemption for Air Taxi and Commuter Air Carrier Operations: ' This is an exemption from the statute that requires air carriers to hold a cet1ificate of public convenience and necessity. Therefore, these operators are not required to report economic hardship. Because DOT has delegated the responsibility of determining economic authority to the FAA, exempt pat1 135 operators are required to submit OST Form 4507, "Air Taxi Operator Registration and Amendments under Part 298 of the Regulations of the Department of Transportation," to the FAA. This fom1 satisfies part 135 operator economic authority by verifying proof of insurance for the carrier. Part 91 K operators are exempt from obtaining economic authority from DOT, because they do not involve common carriage. Economic authority requirements only apply to those who want to provide "air transportation services," which is de tined under Title 49 of the United States Code, Part A, Section 40 I 02(a)(5), Definitions. Therefore, we do not plan to mandate part 91 K operators to notify the FAA on financial distress. I believe that the FAA has effectively addressed this safety recommendation and consider our actions complete.

From: NTSB
To: FAA
Date: 11/17/2010
Response: The formation of a work group to review the recommended revisions is a first step in responding to these recommendations. Pending completion of the recommended actions, Safety Recommendations A-09-127 and -128 are classified OPEN – ACCEPTABLE RESPONSE.

From: FAA
To: NTSB
Date: 4/28/2010
Response: Letter Mail Controlled 5/5/2010 12:17:19 PM MC# 2100167 - From J. Randolph Babbitt, Administrator: To address Safety Recommendations A-09- 127 and - 128, we are assembling a work group to review the safety, legal, and financial aspects of the recommended changes. Following this review, we will develop a plan to address these recommendations.