MAG - Minimum Annual Guarantee. Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. If you have questions about COVID-19s impact on your business, please reach out to your Loeb relationship partner or email us directly atCOVID19@loeb.com. The question that airport managers must ask themselves is which rent strategy is realistic in the current environment. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). 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 Process Up to 3 years Or Up to $100,000 per year Direct negotiation with potential concessionaire Over 3 years and up to 5 Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. . The actual process is the easiest for the airport sponsor since there are minimal contracts. (The catch: Potential renters must submit a formal proposal to the Airport Commission and are subject . 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. Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. 6 . A prepaid monthly "lease" to do business on the property. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. 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. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. 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. That will, in turn, harm the concession program. Rates for each new fiscal year will be posted on this page after Board approval of the rates and fees. Given the focus on bottom line profits, the investment in variable costssuch as employees, training, maintenance, and product developmentrequired to earn additional sales may no longer make economic sense. Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. This is only for the passenger traffic, while for . For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. . 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. 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. 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. The airport environment is complex and has become even more challenging due to COVID-19. 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. Guarantee: 50% of Minimum Annual Guarantee. 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 either case, history has shown that MAGs are not supportable in the event of severe downturns. (1) On-Airport (% of Gross Receipts). Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). 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. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. A by-location per passenger MAG may be too complicated for widespread implementation at this point. 116-94). The competitive landscape may beby necessityaltered. The airport operator is always present and has a wealth of knowledge about the airport. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . It is mandatory to procure user consent prior to running these cookies on your website. 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. With the announcement by the GASB of a delay in the required implementation of these new standards, your organization will need to decide how to respond. Because of the drastic reduction in flights and passenger traffic, airlines have been shrinking their staffing, space requirements and gate usage. If relief drives airline costs to a significantly higher level, thereby reducing airport cost-competitiveness, airlines may choose not to fly to the airport or to operate fewer services. Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. With the new economic and industry realities, capital access may be an even greater hurdle. . 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. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. In North America, airports tend to look at MAGs as the least amount of acceptable rent. One-twelfth of the MAG shall be due in advance on the first day of each month Save my name, email, and website in this browser for the next time I comment. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport 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. (a) Annual Reconciliation. To meet aggressive congressional deadlines for request submissions, a new airport industry request is being made with three potential components: $13 billion in additional emergency assistance, a gap financing program for airports, and a touchless journey through security. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. Please read our Privacy Policy for more information on the cookies we use. Using one unnamed airport as an example, with which 3Sixty is in constant dialogue and has a strong relationship Anson said: "The sum total of the $800 million when converted to one airport and to 3Sixty Duty Free would mean around a third of one month's minimum annual guarantee rent. The key will be ensuring that airline charges remain fair and reasonable. This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. Test. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. Project. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. Strategic agency for engagement and transformation. Bond Covenants and Indenture Pledge of Revenues. The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. Discover the top trends shaping government in 2023. The city of Atlanta suspended the minimum annual guarantee payment obligation for concessionaires and rental car companies at Hartsfield-Jackson Atlanta International Airport (ATL) for a four-month period ending June 20. 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. To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. leasehold at Washington Dulles International Airport (IAD). Some larger airports take a percentage of every sale. A MAG, as currently developed, is unsustainable in anything but relatively normal times. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Regulatory Updates Extension of Minimum Slot Usage Requirements. The Airport has also experienced a reduction in passengers and operations as a result of . The minimum annual guarantee of $3.25 million to the airport for the right to run the restaurant is too high and could result in the partners cutting corners to make the payments or, even worse . Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. 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 . If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). There will still be passengers, and the concession industry needs to be ready to serve them. . Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. We did not review solicitation or award of concession agreements in this audit. Most simply, the airport and vendor could agree to a fixed percentage rent. Airlines, while they may be able to reduce some operating costs associated with vacated premises, must still cover all their fixed and operating costs associated with the vacated space. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. President Donald Trump has already tweeted his support for such an infrastructure bill. If, at the end of any year during the Term, the total amount of monthly installments of MAG and Percentage Fees paid for such year is less than the total amount of annual MAG and Percentage . What this option does do is change the distribution of risk. The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. These cookies do not store any personal information. Learn. Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Please pay it forward. The airport environment is complex and has become even more challenging due to COVID-19. Airports would also have to establish supply lines for products that they have not procured in the past. October 09, 2020, 11:40 a.m. EDT 4 Min Read. 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. 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. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. 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. 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. 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. 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, NOTICE OF INTENTION TO ENTER INTO FOUR SEPARATE CONCESSION LEASE AGREEMENTS WITH THE DAY ONE GROUP LLC NOTICE IS HEREBY GIVEN, to all interested parties, that the Clark County Board of Commissioners intends to enter into four separate Concession Lease Agreements (Agreements) for the operation of 5 specialty retail concessions with The Day One Group LLC (Company) serving Harry Reid . 2023 Plante & Moran, PLLC. Learn. 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. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. There are numerous ways to frame a contract without a MAG. There are a few limitations, however, that make this a less than optimal solution. "No. Tallahassee International Airport . 3300 Capital Circle, S.W. Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including GASB Statement No. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. The price tag is a whopping $440 per square foot. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. To ensure that the program is performed in accordance with law. 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. If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. No one is sure how long recovery will take. In this model, the airport takes on two roles: landlord and partner in the operation. The intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. Airports should carefully consider how they structure deals and their business models to ensure more flexibility to respond to potential future shocks. The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. Concessions covers more than what you think of served at a traditional concession stand. Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. Very hands off for the airport sponsor. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. Airport Operations. 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. There are several types of concessionaires that lease space to operate at the airport. The cost of design and construction for your space is going to be much higher. At least for the immediate future, there will be reduced demand for concession services. Concessions and retail often fill that need. That will, in turn, harm the concession program. 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. This website uses cookies to improve your experience while you navigate through the website. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. If you have questions. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. In other parts of the world, MAGs are the airport's exact expected rental payments. Airport sponsors should carefully review the maintenance and operation (M&O) expense allocation methodology in their terminal leases to confirm the method for allocating costs for vacated space. June 9: Extending the leases of current airport, dining, and retail (ADR) tenants by up to three years, including a temporary suspension of the Minimum Annual Guarantee (MAG) for ADR tenants through the end of 2020, and possibly extending this policy into 2021. See how we support our people, protect the planet, and give back to communities. 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 Trinity model can be considered an extension of the joint venture model. The fallacy of Minimum Annual Guarantee (MAG). In other parts of the world, MAGs are the airports exact expected rental payments. Looking for abbreviations of MAG? While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. Concessionaires need to understand this new business reality when they ask for relief. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. With standard concession management programs, the airport operator assumes all of the risk for leasing the property but stands to profit the most by receiving a larger amount of generated revenues. COVID-19 has sent shockwaves throughout the world. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. Some airports have had huge success in meeting ACDBE goals with the developer model. Elsewhere, airports do not expect vendors to exceed their MAGs. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. 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. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. Attention: Finance & Administration Division . 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. A MAG, as currently developed, is unsustainable in anything but relatively normal times. I certify that Airport Concessions Inc. has not received a second draw or assistance for a covered loan under section 7(a)(37) of the Small Business Act (15 U.S.C. The FAA has published a map showing airports that are receiving the funds and the allocations made to them. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. The FAA will use the Office of Management and Budget (OMB) SF-424, Application for Federal Assistance, and provide a simplified grant agreement shortly after it receives an application. Concessions covers more than what you think of served at a traditional concession stand. 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. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. 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. The CFC is a charge based on either the contract value, gross receipts, or per car per day. Flashcards. The Trinity model can be considered an extension of the joint venture model. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. $100,000, 5%, 100% . If you are a sponsor who controls multiple airports the FAA has stated in its CARES Act FAQ, an airport sponsor may use funds at any airport under its control. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. Providing a product or service inside the airport environment is one of the key qualifiers for a concessionaire. For more insights from Alan Gluck and ICF, please go to https://www.icf.com/insights/transportation, The future of airport concessions in a post-COVID-19 world, https://www.icf.com/insights/transportation. Minimum Annual Guarantee listed as MAG. Normally, operating classification on the statement of revenues, expenses, and changes in net position will typically follow the classification of operating activities in the statement of cash flows. Paid parking went into effect at . How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). [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. C. Concession Fee. At least for the immediate future, there will be reduced demand for concession services. Products and services both fall into the concessions category. An amount of $7.4 billion, which can be distributed to airport sponsors for any purpose for which airport revenues may lawfully be used. The purpose for which airport revenues may lawfully be used is widely viewed as a reference to the FAAs Policy on Permitted and Prohibited Uses of Airport Revenue (Revenue Diversion Policy). Rent abatement / minimum annual guarantee: A decision to abate rent (including "minimum annual guarantees" and also encompassing fees) is a local . These cookies will be stored in your browser only with your consent. 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. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. To level the playing field so that DBEs can compete . The competitive landscape may beby necessityaltered. Airlines value an attractive commercial program because it makes a better background for the expression of their brand.
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