If you’re planning to start an airline, then the process of applying for an air operators’ certificate (AOC) and operating licence (AOL) can take many months. Is it possible to buy the AOC and AOL of an existing operator?
The short answer is no. An AOC and AOL are granted to a ‘legal or natural person’ and cannot be transferred to another person. If the AOC holder is a natural person (e.g. Andrew McKechnie) then only that person can ever exercise the privileges. If the AOC holder is a ‘legal person’, e.g. a company, then the situation is different because a company can be sold.
Operators Certificate (AOC)
An AOC is granted to a company that satisfies the technical requirements for the commercial operation of aircraft. The AOC specifies the type of aircraft that can be operated, the permitted routes or regions and the type of operation (e.g. cargo, passenger, charter, scheduled etc.).
Management of change
Any change to conditions of the AOC, or any other significant change to the organisation must be approved, in advance, by the issuing authority. Such changes include the name of the company, the management structure, the identities of senior management personnel and operating locations.
When notified of a change the Authority will conduct inspections and audits to verify that the company is in compliance with the regulations and has an adequate management system including procedures for management of change. The scope of these inspections and audits will depend on the changes proposed. If there are a number of changes at the same time, e.g. new management personnel, new aircraft and new routes then the Authority may apply the same process that it would use for a new application.
If an AOC holder stops operating temporarily then the AOC might be suspended. Most authorities allow a certain amount of time before the AOC is permanently revoked (typically six months). When the AOC holder is ready to start operating again the Authority will decide what inspections and audits are required before the AOC can be reinstated. The Authority might also decide to revoke the AOC if too much time has elapsed or if there is no evidence that the AOC holder will be able to re-start operations.
Findings of non-compliance
All AOC holders are subject to inspections and audits by the competent authority. Very often non-compliances with regulations are found during these audits and inspections. When a non-compliance is found an AOC holder will be given a fixed time period to make corrective actions and address the problem. Unless the finding is very serious and has a direct effect on safety the AOC holder will be allowed to continue operating while the problem is addressed. Any findings made during these inspections are confidential and might not be disclosed to a potential buyer.
Operating Licence (AOL)
The AOL permits an AOC holder to operate commercial services. The AOL Is granted subject to certain conditions and is only valid if those conditions are satisfied.
Within the European Union it is a condition that at least 50% of a company holding the licence is owned by European nationals and that they have effective control of the company. If a company holding a European AOL is sold to non-Europeans, then the operating licence is no longer valid. In most non-European countries, there is a similar requirement that an operating licence is only granted to companies that are majority owned by nationals of that country. This is not currently the case in the UK. Non-UK nationals may own an airline that holds a UK AOL, but this could restrict the ability of that airline to operate international flights if the bilateral agreement with the other country specifies that traffic rights are only available to UK airlines.
A new airline starting operations with large aircraft has to demonstrate that it has a viable business plan and sufficient capital to cover all expenses for three months without any income and for two years under ‘realistic assumptions’ for revenue. An airline then has to notify the Authority about any change in ownership, merger, acquisition or plans to operate services to new regions or with additional or different aircraft. In the event of any of these changes the Authority can ask the airline to submit a new business plan and to satisfy the same capital requirements as a new operation.
If you buy a company in order to get the AOC and AOL then you buy the whole company, not just the AOC and AOL. It is easy to strip out assets so that a company can be sold without aircraft, premises or machinery but it is more problematic to separate out liabilities. The company may owe money in which case the debt stays with the company as it passes to a new owner. A company may also be subject to legal claims in relation to its past activities which could result in unpleasant surprises for a new owner.
Buying a company holding an AOC will rarely be a cost-effective short-cut. Unless there is a very close match between the aircraft operated, type of operation and operating locations then the process to apply for changes to the AOC may be just as onerous as a new AOC application. If the new owner intends to change the management team then this will also need to be approved by the Authority.
A change of ownership will also prompt the Authority to re-examine the conditions for the operating licence so the new owner will need to satisfy the same conditions as a start-up airline.
There are significant risks to acquiring a company. The new owner will take over debts and liabilities and may find that there are outstanding findings of non-compliance that have to be addressed within a tight timescale. If an AOC is in ‘suspension’ when the company is acquired, then there is no guarantee that it can be re-instated without going through a complete AOC application process.
A better solution?
The best short-cut to starting an airline is to lease-in capacity to start operations while going through the AOC application process.