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MEBAA (Middle East & North Africa Business Aviation Association)
MEBAA (Middle East & North Africa Business Aviation Association)
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Editorial comment: Protecting charter customers' cash can be good for business
The idea of using an escrow bank account, in which money is held by an independent third party while business is transacted, is common in aircraft sales and for many other major capital purchases.

The idea of using an escrow bank account, in which money is held by an independent third party while business is transacted, is common in aircraft sales and for many other major capital purchases.

The option to use an escrow account to receive pre-payment for air charter services, so giving the customer peace of mind that their money is safe, has sometimes been used by operators and brokers in the past. It provides a good level of protection for buyers and sellers, but can be expensive and time-consuming to set up. It therefore remains very far from standard practice, and indeed may not even be achievable for lower value or last minute bookings.

Unless a long-standing business relationship exists, most charter operators will always expect full payment before flying, and this may not be popular with clients when bookings are large or made a long time in advance.

So any scheme which makes the use of escrow services more straightforward, and less expensive, is surely to be welcomed by buyers of air charter services.

For a non-refundable fee of between £100 and £350 (e110 to e388) per charter agreement the Baltic Air Charter Association has introduced a new escrow facility for its members. Once set up this involves completing a simple document for each contract.

But how welcome is this service for the charter operators themselves? BACA expects that some operators will be happy to use the escrow payment service, in order to have the reassurance that deposits made on their behalf are secure, even in the event of cancellation prior to flight date – but that others may not.

The association expects to publish a list of operators who are prepared to use the escrow service, and this may prove to be a competitive advantage for those on the list. It is keen to reassure that it is not implying that air charter companies are a bad risk, and neither does it expect that the operators will foot the bill for the escrow account charges. These, it is confident, will be gladly met by the clients.

The charter agreement itself between client and operator remains entirely unaffected, and the actual process of moving funds in and out of the relevant accounts is administered by an independent accountant, so there is no risk to confidentiality.

And unlike insolvency insurance, which is an alternative approach for some charter buyers, the cost and availability of the escrow service remains the same, irrespective of the operator used or the level of risk.

The service launched as EBAN went to press, on July 1, and it will be very interesting to see what level of market acceptance it attracts.

David Wright Managing editor

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