Problem with this is...it doesn't change the fact that all you need to do is target the guy with the big bright laser beam of sunlight shining at you. Unless what you do is give it a blinding effect for the entire crew. Think Awesomenauts blinding where the screen darkens on the sides but gets bright in the middle.
Course, this would be insanely annoying to other teams and you can bet it would get used a lot. Unless it worked on a long cooldown. Could also make this as functionality of the flare gun, give it some usefulness besides high stack fires and cloud spotting. Forces people to look away to recover sight.
What I was thinking was a flash from your ship that's only visible to people looking in your direction, then it fades, and for a decent duration AFTER the flash is gone, the target is immune to spotting from anyone on board your ship.
The advantages are that it removes a spot if one was made from the ship the mirror is used on, and that it prevents that entire crew from spotting you again for a limited duration. The disadvantages are that you have to target the ship you're countering the spot on, you can't be manning a gun or repairing while you're blinding them, and you give away your immediate position if anyone is looking in exchange for having your future position somewhat better-concealed.
That said, the decoy balloon sounds like it could also be a good idea.
Seems more like it would work as a weapon or unique equipment type than a piloting tool though.