To promote the use of DBEs for federally funded projects. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. This website uses cookies to improve your experience while you navigate through the website. . - Suite 1 . This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. Concessionaires need to understand this new business reality when they ask for relief. Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. 3300 Capital Circle, S.W. Flashcards. However, this still may not be the most effective solution. 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. 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. 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. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. 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. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. ); 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). 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. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. Guarantee: 50% of Minimum Annual Guarantee. 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. a minimum annual guarantee or MAG annually, which more or less translates to rent. 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. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. A MAG, as currently developed, is unsustainable in anything but relatively normal times. Discover the top trends shaping government in 2023. The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. All rights reserved. Products and services both fall into the concessions category. In the concessions arena, they are referred to as Airport Concessions Disadvantaged Business Enterprise (ACDBE). Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. 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. 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. Budapest Airport. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. Learn. However, it does reduce the potential benefit to the airport by splitting the proceeds generated. 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. That will, in turn, harm the concession program. The CFC is a charge based on either the contract value, gross receipts, or per car per day. Passengers have needs while at airports. 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. The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . It is Minimum Annual Guarantee. This . 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. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. 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. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. The fallacy of Minimum Annual Guarantee (MAG). Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. Strategic agency for engagement and transformation. 49 CFR Part 23 requires airports to have a concessions-based DBE program. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. $100,000, 5%, 100% . These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. Some larger airports take a percentage of every sale. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. 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 . Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. These three options do not change the underlying airport-concessionaire relationship. Tallahassee International Airport . 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. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. 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 . Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. Minimum Annual Guarantee (MAG). Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. With the new economic and industry realities, capital access may be an even greater hurdle. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. The future of airport concessions in a post-COVID-19 world, COVID-19's impact on commercial aviation: Customer survey findings, Why sustainable aviation is more than a flight of fancy, Sustainable aviation: A guide for aviation professionals. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Minimum Annual Guarantee listed as MAG. The 10-year contract was awarded on the basis of the minimum annual guarantee payment totaling $352,000 or a percentage of gross receipts, whichever is greater. 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. Examples of Minimum Annual Guaranteed Rent in a sentence. 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. 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. Necessary cookies are absolutely essential for the website to function properly. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. These MAGs are usually based on some percentage of the prior year's revenue and are intended to provide the airport sponsor with a revenue floor from these . 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. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including GASB Statement No. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . To help develop firms that can compete in the marketplace outside of the DBE program. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. In North America, airports tend to look at MAGs as the least amount of acceptable rent. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). While the bulk of the $10 billion appropriated for airport sponsors can be used to make bond principal and interest payments if necessary, airport sponsors may be faced with difficult decisions about how to prioritize needs while under financial stress. 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 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 joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. Non-aeronautical revenueairport revenue from sources other than airlinestypically includes retail concessions, 1 car parking, and property and real estate. 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. 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. 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. Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. For information on the business impacts of COVID-19, please visit ourCOVID-19 Resource Center, which we continue to update as the situation evolves. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . However, MAGs in concession contracts still expect continued growth. Both were selected based on a global tender, and need to pay the Minimum Annual Guarantee of 31 crore each to the Airports Authority of India. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Minimum Annual Guarantee means the minimum amount of money that is due annually and payable monthly to Authority from Concessionaire, as provided in Article 5 of this Agreement. In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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. These cookies will be stored in your browser only with your consent. . Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. Primarily, in residual agreements, the rates vary based on airport revenue. Supplemental Airport Grant-In-Aid Funding Normally, airport concessionaires pay the city a percentage of sales or a "minimum annual guarantee" based on sales the previous year, whichever is greater. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. A prepaid monthly "lease" to do business on the property. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. It was suspended in June, following the severe decline of passenger traffic over those . It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. Alternatively, different percentages could be charged for varying levels of sales or by assigning either fixed or variable rates to different product categories (e.g., one percentage for food and non-alcoholic beverage and a separate percentage for alcoholic drinks only). 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. Meet the Woman Stockpiling Cash to Sue San Francisco Over Housing Deadlock, Loeb Secures Defense Victory for the State of California and the California State Lands Commission, Loeb Lawyers Recognized in 2023 Edition of Best Lawyers in America, American Conference Institutes (ACI) 37th International Conference on the Foreign Corrupt Practices Act, $500 million, which can be used to fund any grant made under the FY20 Appropriations Act (P.L. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. 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. FBO/SASO: NOTE: 2023 Plante & Moran, PLLC. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. 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, Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . The concept is not uncommon. To ensure that firms meet the requirements of DBE qualification. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). 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. Creation of the lounge would require around a $4-million investment from whichever group decides to take over the space, which is 9,100 square feet -- on the small side for most airport lounges. The workforce retention requirement doesnt apply to nonhub or nonprimary airports. There will still be passengers, and the concession industry needs to be ready to serve them. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. Concessions covers more than what you think of served at a traditional concession stand. Please pay it forward. Project. Each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. 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. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. The FAAs Office of Airports will administer these grant funds to airport sponsors. As a result, airports may wish to consider going a step further. The actual process is the easiest for the airport sponsor since there are minimal contracts. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. President Donald Trump has already tweeted his support for such an infrastructure bill. Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. Considering all the current changes in our business, this model may be a solution to sharing risk and encouraging a strong representation of critical brands in airports. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. The key will be ensuring that airline charges remain fair and reasonable. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. Flashcards. "This is to offset rent and minimum annual guarantee requirements of those tenants in the face of a severe decline in their customers (passengers) during the continuing COVID issue." Airport . 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. Minimum Annual Guarantee. C. Concession Fee. Here are some others. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. No one is sure how long recovery will take. Save my name, email, and website in this browser for the next time I comment. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. Option 6: The airport as concession operator. 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. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. They will typically lease space for counter and office space and additional space for the vehicle storage. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. Some airports have just a single FBO while others have multiple. 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. Some airports have had huge success in meeting ACDBE goals with the developer model. In North America, airports tend to look at MAGs as the least amount of acceptable rent. 6 . Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . In times of continued and prolonged growth, airports have learned to depend upon MAGs. Bid. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. Learn how your comment data is processed. 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. The single factor most tied to concession success is the footfall past the concession locations. If FAA does not receive emergency approval, the economic recovery of the nation's air 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 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. The airport operator is always present and has a wealth of knowledge about the airport. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. . By way of comparison, in the past two fiscal years (FY19 and FY20), the federal government has appropriated approximately $3.35 billion in regular Air Improvement Program (AIP) spending and an additional $400$500 million in discretionary AIP grants. The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. Please read our Privacy Policy for more information on the cookies we use. There are a few limitations, however, that make this a less than optimal solution. The policies and procedures are available for review here. 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 the event that the concessionaire is unsuccessful, the airport absorbs the losses. Performance. 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. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. . Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. The Federal Aviation Administration (FAA) . 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. A third party can absorb some of the liability and risk from the airport operator. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. The competitive landscape may beby necessityaltered. Primarily, in residual agreements, the rates vary based on airport revenue. The AICPA State and Local Governments audit guide includes certain accounting guidance that has been cleared by GASB as Category B authoritative guidance.