The funds are coming directly from the U.S. Treasurys General Fund to prevent, prepare for, and respond to the impacts of the COVID-19 public health emergency. Minimum Annual Guarantees. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. If an airport operator closes a concourse or a terminal, it would need to eliminate some concession spaces from its contracts, which may render some deals no longer viable. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). If, on the other hand, the airport sponsor decides to enforce the terms of a MAG, then it should carefully review the concession contract to determine the terms of enforcement and whether the concessionaire has any basis to refuse to pay the MAG. See how we support our people, protect the planet, and give back to communities. What this option does do is change the distribution of risk. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. These cookies do not store any personal information. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. The single factor most tied to concession success is the footfall past the concession locations. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). Discover how we help clients achieve success. At least $500 million is available to increase the federal share to 100% for grants awarded under the fiscal year 2020 appropriations cycle for FY20 Airport Improvement Program (AIP) and FY20 Supplemental Discretionary grants. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. (a) Annual Reconciliation. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. . The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. Notably, the GASB has deferred the implementation date of GASB Statement No. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. Under the current process, minimum annual guarantee for the first year is the financial bid parameter for selection of bidder and the period of concession is 10 years from the commercial operations date. Additionally, nonoperating revenues would generally include grants, among other things. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. Attention: Finance & Administration Division . If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Non-aeronautical revenueairport revenue from sources other than airlinestypically includes retail concessions, 1 car parking, and property and real estate. The Secretary of Transportation may waive this workforce retention requirement if they determine that the sponsor is experiencing economic hardship as a direct result of the requirement, or that the requirement reduces aviation safety or security. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. COVID-19 has sent shockwaves throughout the world. Where abatement results in shifting costs between various classes of airport tenants and users, the airport sponsor is encouraged to consult with all affected parties. They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. installments during the first year of the Term. One of the components of the CARES Act provides the opportunity for employers to defer payment of the 6.2% FICA portion of the employers portion of employment taxes, effective immediately through Dec. 31, 2020. Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. The FBOs lease space from the airport sponsor to be able to provide those services. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. What this option does do is change the distribution of risk. If an airport operator closes a concourse or a terminal, it would need to eliminate some concession spaces from its contracts, which may render some deals no longer viable. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. It is mandatory to procure user consent prior to running these cookies on your website. Without this expertise, the concession will almost certainly fail to operate at an optimum level. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. Here are some others. If FAA does not receive emergency approval, the economic recovery of the nation's air https://www.law.cornell.edu/cfr/text/49/part-23, Airport Concessions Disadvantaged Business Enterprises, Developing An Operating Budget - Airport University, Disadvantaged Business Enterprises - Airport University. There will still be passengers, and the concession industry needs to be ready to serve them. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . Guarantee: $50,000. The key will be ensuring that airline charges remain fair and reasonable. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. . You also have the option to opt-out of these cookies. Minimum Annual Guarantee (MAG) of at least Eleven Million Dollars ($11,000,000) for each Contract Year and an annual escalation of at least three percent (3%) for the Contract Term. Save my name, email, and website in this browser for the next time I comment. This simplified agreement includes the requirements under the CARES Act and makes funds immediately available for expenses, other than airport development, including payroll, debt service, utility expenses, service contracts, and supplies. Examples of Minimum Annual Guaranteed Rent in a sentence. Airlines are likely to oppose any PFC increase, and in the absence of any increase, infrastructure spending would likely be funded through additional appropriations to the Airport and Airway Trust Fund. Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. The big change at Los Angeles International Airport allows concessionaire partners, which include DFS Group, Hudson and HMSHost, among others, to pay percentage rent rather than a minimum annual guarantee (MAG) from April 1 through June 30 as a result of passenger traffic declines due to the coronavirus pandemic. This . North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. The key will be ensuring that airline charges remain fair and reasonable. As a result, the collectability of this revenue may need to be reviewed and an allowance for estimated uncollectable amounts may need to be recorded. Where do we go from here? A different methodology is required to ensure that vendors are allowed to earn a fair return on their investments, are able and willing to reinvest to improve and grow, and still provide a reasonable return to the airports. To ensure that firms meet the requirements of DBE qualification. 9. C. Concession Fee. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. The FAAs Office of Airports will administer these grant funds to airport sponsors. These supplier relationships are unlikely to have the same economies of scale as those of national concessionaires, which means the costs of operation may be higher. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. The fallacy of Minimum Annual Guarantee (MAG). Under one version of an infrastructure plan floated by House Democrats (the Moving Forward Framework), airports and airspace improvements would be funded, in part, by an increase in PFCs. Please read our Privacy Policy for more information on the cookies we use. The same rules govern the use of CARES Act funds that govern the use of all airport revenues. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . Concessionaires need to understand this new business reality when they ask for relief. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. [1]https://www.law.cornell.edu/cfr/text/49/part-23 jQuery('#footnote_plugin_tooltip_333_1_1').tooltip({ tip: '#footnote_plugin_tooltip_text_333_1_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top center', relative: true, offset: [-7, 0], }); The entire premise of the DBE program is based on: The writers of AirportU do so not for recognition, rather for learning, sharing, and empowering others. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. First, and potentially most important, the FAAs position on rent abatements has gone from NO to: A decision to abate rent (including minimum annual guarantees and encompassing fees) is a local decision. The joint venture lease must be similar to those given to other concessionaires, and enforcement of the airports rules and performance requirements must be uniform. Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. The airport operator also brings knowledge of how to do business in an airport environment while allowing the concessionaire to concentrate on what they do best: operate a highly successful restaurant or shop. Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. Airports would also have to establish supply lines for products that they have not procured in the past. First, and most important, the recently enacted Coronavirus Aid, Relief, and Economic Security Act (CARES Act) contains a supplemental appropriation of $10 billion to be made through Grants-In-Aid for Airports. That $10 billion is divided into the following categories: Any airport that receives money under the CARES Act must continue to employ, for the remainder of 2020, at least 90% of the number of employees that airport had as of March 27, the date of the enactment of the Act. If the basis for a MAG is what the airport thought it should be earning, the amount may never be supportable even if a concessionaire signed the contract. Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. This is only for the passenger traffic, while for . We also use third-party cookies that help us analyze and understand how you use this website. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. Paid parking went into effect at . It beat four other finalists. Elsewhere, airports do not expect vendors to exceed their MAGs. 47114 (as modified by the CARES Act), then the remainder is distributed in the same manner as the $7.4 billionbased on a mixture of enplanements and debt service. Concessionaires pay the Airport Authority a percentage of their gross sales each month, which is one-twelfth of a pre-determined minimum annual guarantee (MAG). If the airport sponsor determines that its in its best interest to defer the MAG, the revenue should still be recorded in the period earned, and the receivable should be considered for treatment as noncurrent depending on the new repayment terms. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. Regardless, this shifting of risk may not be acceptable to airports. Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. If the metric for rent resumption is comparing the current period to the same period in the previous year, by the time the world reaches year two of recoveryeven if the improvement is only slight and slowthe contract may reinstate the original MAG. Minimum Annual Guarantee: Each Proposer shall submit its proposal as a minimum annual guarantee (MAG) for each of the first two (2) years of the Concession Agreement. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. Regardless, this shifting of risk may not be acceptable to airports. At least for the immediate future, there will be reduced demand for concession services. The FAA released guidance for airport administrators, but questions still linger and issues have gone unaddressed. Summary: The Metropolitan Washington Airports Authority is seeking competitive bids from all responsible and qualified companies desiring to manage and operate rental car concessions from on-Airport facilities at Ronald Reagan Washington National Airport. The April 4th FAA guidance permits this: In coordination with airport sponsors, airlines, the Transportation Security Administration (TSA), and other entities, closing gates or sections of terminals is likely to be acceptable if the closure is executed in response to reduced passenger volumes and operations, is not discriminatory, and does not provide an unfair competitive advantage to one operator. A concessionaire's rent structure in an airport may differ from the traditional model. In addition to the detailed guidance in the Revenue Use Policy, the CARES Act makes clear that the funds may not be used for any purpose unrelated to the airport. minimum annual guarantee (MAG) obligations to eligible airport concessions. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. This Minimum Annual Guarantee must exceed $100,000. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. Guarantee: 50% of Minimum Annual Guarantee. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Land . Additionally, airports required to pay sick leave wages or family leave wages under Section 7001(e)(4) and 7003(e)(4) of the Families First Coronavirus Response Act are relieved of paying the employers 6.2% portion of FICA taxes associated with those wages. The airport operator also brings knowledge of how to do business in an airport environment while allowing the concessionaire to concentrate on what they do best: operate a highly successful restaurant or shop. Without this expertise, the concession will almost certainly fail to operate at an optimum level. 47114, with minimum apportionments for smaller airports that serve between 8,000 and 10,000 passengers annually. The CFC is a charge based on either the contract value, gross receipts, or per car per day. The airport operator is always present and has a wealth of knowledge about the airport. As a result, airports may wish to consider going a step further. ); that is, airport sponsors meeting statutory and policy requirements under this section, as well as those identified in the FAAs current National Plan of Integrated Airports System (NPIAS). These three options do not change the underlying airport-concessionaire relationship. Senior Living Development Consulting (Living Forward), Reimagining the future of healthcare systems, National Plan of Integrated Airports System, tax alert comparing COVID-19 employer tax incentives. Rent abatement / minimum annual guarantee: A decision to abate rent (including "minimum annual guarantees" and also encompassing fees) is a local . Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. The MAC has already waived minimum annual guarantees three . How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). A different methodology is required to ensure that vendors are allowed to earn a fair return on their investments, are able and willing to reinvest to improve and grow, and still provide a reasonable return to the airports. There are numerous ways to frame a contract without a MAG. The develop pays the amount due to the airport through the lease agreement and pockets the rest. which guarantees that the tenant will pay the airport a minimum amount annually. San Francisco, CA Mayor London N. Breed has signed an ordinance authorizing the San Francisco International Airport (SFO) to launch a rent relief program for airport concession tenants, in which lease agreements will be modified to waive certain rent and fees.The value of the relief available to be granted under the COVID-19 Emergency Rent Relief Program is estimated at $21.3 million and . Test. Find out how our purpose shapes our culture, people, and mission-driven work. Percentage Rent to the Board as set forth in Article 1 based on Concessionaire's Gross Receipts, subject to a Minimum Annual Guarantee (MAG) as set forth in Article 1, and as further provided below. That will, in turn, harm the concession program. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. HMS Host, the food and beverage concessionaire at Clinton National, is required to pay a minimum annual guarantee of $594,000, which works out to $49,500 monthly under the terms of its contract. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. 3300 Capital Circle, S.W. Nichols wrote to the County Board of Supervisors that $12.1 million of the money will be used to finalize airport agreements that waive contractual minimum annual guarantee rents for airport . A collective of travel retailers have agreed that operational contracts hinging on minimum annual guarantees (MAGs) are no longer workable in a Covid-ravaged air transport climate and must be reformed. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. This website uses cookies to improve your experience while you navigate through the website. Percentage Rent - In addition to the MAG, Concessionaires shall pay percentage rent but only to the extent that percentage rent exceeds the monthly installment of MAG, The cost of design and construction for your space is going to be much higher. The Trinity model is particularly applicable to duty free concessions, where it is practical to divide a store into departments wherein vendors (e.g., Channel, Rolex, Hrmes) are given the ability to design and operate their mini outlets. A by-location per passenger MAG may be too complicated for widespread implementation at this point. A. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. Receive perspectives on the industries and issues that matter. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. The April 4th FAA guidance permits this: In coordination with airport sponsors, airlines, the Transportation Security Administration (TSA), and other entities, closing gates or sections of terminals is likely to be acceptable if the closure is executed in response to reduced passenger volumes and operations, is not discriminatory, and does not provide an unfair competitive advantage to one operator. them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). In airports with residual airline agreements, the airlines will be required to make up the difference between revenue to the airport and required revenue to pay for airport development and other expenses. In addition, they typically provide the fueling services for the airport. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. To ensure that the program is performed in accordance with law. Wealth Management. This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. One such excerpt from this guide (Paragraph 6.81) indicates nonoperating revenues would generally include, among other things, grants that may be used, at the recipients discretion, for either operating purposes or capital outlay. That being said, while there seems to be a compelling argument that most of the CARES Act funding for airports may be operating, each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. 84, Fiduciary Activities. Meanwhile, Aena is forecasting that in the period to 2023, the minimum annual guaranteed rents and fixed rents, corresponding to contracts in force at 30 June 2020, will decrease. In addition to the detailed guidance in the Revenue Use Policy, the CARES Act makes clear that the funds may not be used for any purpose unrelated to the airport. BADGES AND SECURITY: . The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. The workforce retention requirement doesnt apply to nonhub or nonprimary airports. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. Through Dec. 31, 2020, the airport sponsor must continue to employ at least 90% of the number of individuals employed (after adjusting for retirements or voluntary employee separations) as of March 27, 2020. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. In times of continued and prolonged growth, airports have learned to depend upon MAGs. This suggests that the best way to ensure an outstanding customer experience would be for this Trinity (or Trinity Plus, including the supplier) to work together. Majority-In-Interest (MII) clauses. Learn how your comment data is processed. That $7.4 billion is divided in half and distributed in two ways: 50% is allocated among all commercial service airports based on each sponsors calendar year 2018 enplanements as a percentage of total 2018 enplanements for all commercial service airports., 50% is allocated among all commercial service airports based on an equal combination of each sponsors fiscal year 2018 debt service as a percentage of the combined debt service for all commercial service airports and each sponsors ratio of unrestricted reserves to their respective debt service.. This strategy is particularly applicable for a hub airport where the hub airlines brand expression is likely already an important part of the airports perceived brand. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) Rates for each new fiscal year will be posted on this page after Board approval of the rates and fees. The airport environment is complex and has become even more challenging due to COVID-19. Were here to help! Lets consider six potential options. Airports should carefully consider how they structure deals and their business models to ensure more flexibility to respond to potential future shocks. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. If the metric for rent resumption is comparing the current period to the same period in the previous year, by the time the world reaches year two of recoveryeven if the improvement is only slight and slowthe contract may reinstate the original MAG. Most airports already calculate a PSF rent amount in their airline rates and charges (e.g., office space with passenger access) that applies to concession-type spaces. This site uses Akismet to reduce spam. Tallahassee International Airport . SFO concession tenants pay the greater of a Minimum Annual Guarantee (MAG) or a percentage of Gross Receipts (Concession Fee), along with other cleaning and infrastructure fees. Manchester Airport Group in the U.K. had started to operate a restaurant in their home airport before the pandemic, so there is precedent for this strategy. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. A prepaid monthly "lease" to do business on the property. It was suspended in June, following the severe decline of passenger traffic over those . Duty Free Americas Miami offered a minimum annual guarantee to the airport of $20 million -- topping the $18.5 million offered by Dufry Miami Retail Partnership and about $9 million more than two . Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including GASB Statement No. Airport sponsors must certify compliance with the CARES Act employment requirements at the time of grant execution and report employment totals quarterly on June 30, Sept. 30, and Dec. 31, 2020. Very hands off for the airport sponsor.
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