There will still be passengers, and the concession industry needs to be ready to serve them. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. CM Module 1 Questions Flashcards | Quizlet A concessionaire's rent structure in an airport may differ from the traditional model. 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. We also use third-party cookies that help us analyze and understand how you use this website. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. It was suspended in June, following the severe decline of passenger traffic over those . Bond Covenants and Indenture Pledge of Revenues. Denver International Airport refundings to ease debt-service schedule The workforce retention requirement doesnt apply to nonhub or nonprimary airports. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. SFO Launches Emergency Rent Relief Program for Airport Concession Lets consider six potential options. Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). There are numerous ways to frame a contract without a MAG. That report and certification should include the number of full-time equivalent employees working at the airport as of March 27, 2020, as the baseline comparison. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. 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. 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. Where do we go from here? Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. Concessionaires need to understand this new business reality when they ask for relief. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. 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. In other parts of the world, MAGs are the airports exact expected rental payments. Receive perspectives on the industries and issues that matter. 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. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. The develop pays the amount due to the airport through the lease agreement and pockets the rest. From layoffs to business closings, social distancing to shopping only on days that correspond to the first letter of your last name, we have all seen and felt the impact. It varies based on the size, capacity, and operations of the airport. Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). As MSP airport develops long-term relief plan for shops and restaurants Commission Offers New Financial Relief for Airport Dining and Retail The Trinity model can be considered an extension of the joint venture model. Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. Find out how our purpose shapes our culture, people, and mission-driven work. Necessary cookies are absolutely essential for the website to function properly. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. Notably, the GASB has deferred the implementation date of GASB Statement No. If the airport sponsor determines that it is in its best interest to waive the MAG, then these clauses can be replaced with an alternative fee structure, such as a simple percentage of sales or some other agreed-upon metric of performance. Airports would also have to hire and manage many additional hourly employees. Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? The company, which . The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . In addition, they typically provide the fueling services for the airport. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. County of Muskegon Muskegon County Airport 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. If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. $100,000, 5%, 100% . MAC details long-term relief proposal for airport bars, restaurants and By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. 3300 Capital Circle, S.W. To promote the use of DBEs for federally funded projects. Because this rate base is not related to passenger numbers, it is equally as inflexible as a MAG set by any other means in the event of significant changes in enplanements. Save my name, email, and website in this browser for the next time I comment. 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. The CFC is a charge based on either the contract value, gross receipts, or per car per day. 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. Tenants at airport get break on debts - Arkansasonline.com Fuelling Airport Recovery Via Non-Aeronautical Revenue | WSP - WSPglobal The adjustment in Guaranteed Annual Rent may not, in any event, result in a decrease in the current amount of Minimum Annual Guaranteed Rent.. Any increase in Minimum Annual Guaranteed Rent shall be based upon an average increase in the index calculated over a period of 90 days prior to the end of the current five year term. Will this have an impact on airline and concession agreements? You also have the option to opt-out of these cookies. 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. Airport Retailer Dufry's Sales Rise By Over 50% In 2021, But - Forbes However, this still may not be the most effective solution. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. These MAGs are usually based on some percentage of the prior years revenue and are intended to provide the airport sponsor with a revenue floor from these concession contracts. PDF Department of Aviation Concessions Management 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. We did not review solicitation or award of concession agreements in this audit. 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. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. Minimum Annual Guaranteed Rent Definition | Law Insider Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. A by-location per passenger MAG may be too complicated for widespread implementation at this point. These three options do not change the underlying airport-concessionaire relationship. 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. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. In this model, the airport takes on two roles: landlord and partner in the operation. When one partner tries to do too much, it will lessen the benefits of the joint venture. In other parts of the world, MAGs are the airports exact expected rental payments. By clicking Accept, you consent to the use of ALL the cookies. 4.1.1 Minimum Annual Guaranteed Concession Fee. CARES Act grant recipients should follow the FAAs Policy and Procedures Concerning the Use of Airport Revenues (Revenue Use Policy), 64 Federal Register 7696 (64 FR 7696), as amended by 78 Federal Register 55330 (78 FR 55330). Primarily, in residual agreements, the rates vary based on airport revenue. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. Created by. Airports should carefully consider how they structure deals and their business models to ensure more flexibility to respond to potential future shocks. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. These MAG clauses in concession contracts should be carefully reviewed. Food worker shortage at Sacramento airport prompts closures | The If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. Current generally accepted accounting principles suggests that entities should establish a policy that defines operating revenues for enterprise funds and use it consistently. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. COVID-19: For airport enterprise recovery, it's time to act now A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. Without this expertise, the concession will almost certainly fail to operate at an optimum level. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. Some airports have just a single FBO while others have multiple. Discover the top trends shaping government in 2023. The MAC has already waived minimum annual guarantees three . There will still be passengers, and the concession industry needs to be ready to serve them. The competitive landscape may beby necessityaltered. If, on the other hand, an airport sponsor decides to enforce the M&O expense allocation in its terminal leases, then the terminal leases should be carefully reviewed to determine the terms of enforcement and what rights the airlines have under those leases. Concessions are typically leased with a percentage type lease so that a specific percentage of gross sales are given to the airport as part of their lease agreement. 84, Fiduciary Activities. They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. A MAG, as currently developed, is unsustainable in anything but relatively normal times. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? This site uses Akismet to reduce spam. Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. O'Hare and Midway concessionaires to get rent relief - Chicago Sun-Times With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. The key will be ensuring that airline charges remain fair and reasonable. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. This financial shock has created a number of legal and financial issues. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. 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. In April, the San Jose City Council voted to grant delegated authority to the airport staff to finalize negotiations and execute a 50-year lease to Signature Flight Support. Airport Operations. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. The airport environment is complex and has become even more challenging due to COVID-19. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. The Trinity model can be considered an extension of the joint venture model. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. PDF The term will begin on (" ") or upon opening to the public; 87, Leases by a full 18 months, resulting in June 30, 2022 year-ends to be the first to implement the significant new leasing standard. One-twelfth of the MAG shall be due in advance on the first day of each month It is Minimum Annual Guarantee. 5-16-C001: Rental Car Concessions, National Airport To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). BADGES AND SECURITY: . Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. Relief for US airport operators deemed insufficient despite US$800m The price tag is a whopping $440 per square foot. 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. In other parts of the world, MAGs are the airport's exact expected rental payments. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. 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. The city may extend the action for an additional 30-day . 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. They will typically lease space for counter and office space and additional space for the vehicle storage. ); 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). While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. Learn how your comment data is processed. Tax. Learn. Rent abatement should be tied to the changed circumstances caused by the public health emergency and done in accordance with Grant Assurances 22 and 24, as well as related statutes. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. The question that airport managers must ask themselves is which rent strategy is realistic in the current environment. leasehold at Washington Dulles International Airport (IAD). When passenger traffic does come back, airports should rethink how their concession contracts work. Airport prices are very high and there's little travelers can do about Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. While many contracts include a "force majeure" clause, this does not necessarily cover pandemic scenarios and in many instances, there is no formal agreement in place to review commercial terms in the event of such a . CARES Act funding: Ten things airports need to know Option 4: Airport-concessionaire joint ventures. Airport Boards approve financial relief plans for concessionaires and The FBOs lease space from the airport sponsor to be able to provide those services. A MAG, as currently developed, is unsustainable in anything but relatively normal times. Phoenix airport restaurants get rent relief during coronavirus 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. These cookies will be stored in your browser only with your consent. Terminal Closure and Footprint Reductions. . In either case, history has shown that MAGs are not supportable in the event of severe downturns. 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. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. At SAN, rent is calculated as a percentage of the gross revenues supported by a minimum annual guarantee, or MAG, that is a part of the leasing requirements. However, there is no relief of the obligation to withhold and remit the corresponding employee share. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. Guarantee: $50,000. 6 . For construction contracts over _____ federal regulations require the airport to obtain a bid guarantee to equal at least _____ of the bid price, as well as performance and payment bonds equaling _____ percent of the contract. 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. Below are some considerations for airport sponsors to keep in mind. PDF SCHEDULE OF RATES AND CHARGES - Talgov With the new economic and industry realities, capital access may be an even greater hurdle. 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. Flashcards. The FAA regional office must approve if the airport receives federal funding and is a primary airport with commercial service and the revenue generated by concessions exceeds $200,000. Minimum Annual Guarantee. COVID-19 has sent shockwaves throughout the world. 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.. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. The future of airport concessions in a post-COVID-19 world - Duty Free There are a few limitations, however, that make this a less than optimal solution. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including GASB Statement No. Very hands off for the airport sponsor. Duty Free Americas Receives Recommendation for Miami Airport Deal There are means of counting passengers who pass a concession location, but few airports have installed such technology. Proposed laws would allow Uber, Lyft pickups at Seattle airport and Products and services both fall into the concessions category. Retail/Gift Shop 11% of Gross Receipts or Minimum Annual Guarantee Terminal Advertising 30% -60% of Gross Receipts or Minimum Annual Guarantee . If FAA does not receive emergency approval, the economic recovery of the nation's air Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. 4.1.3 Percentage Fees. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. a minimum annual guarantee or MAG annually, which more or less translates to rent. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. Opinion: Why MAG flexibility is essential for airport advertising As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. The policies and procedures are available for review here. A third party can absorb some of the liability and risk from the airport operator. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . President Donald Trump has already tweeted his support for such an infrastructure bill. 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 . Flashcards. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee (MAG). 2023 Plante & Moran, PLLC. The recent COVID-19 pandemic has highlighted the need for an alternative outlook on the way that commercial contracts between airports and concessionaires are structured to reflect the current and future uncertainty around passenger profiles and passenger traffic volumes. Minimum Annual Guarantee. them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG).