Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. 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. A concessionaire's rent structure in an airport may differ from the traditional model. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. 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. However, this still may not be the most effective solution. 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. Minimum Annual Guarantee. To remove barriers in participation of DBEs. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. In the concessions arena, they are referred to as Airport Concessions Disadvantaged Business Enterprise (ACDBE). The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. 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. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. Minimum Annual Guarantee. The entire concessions space is typically leased out to a single company who is responsible for subletting the spaces. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). 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 would have to offer benefit packages to these employees in line with those provided to other employees of the airport. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. MAG - Minimum Annual Guarantee. leasehold at Washington Dulles International Airport (IAD). 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. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. The price tag is a whopping $440 per square foot. At least for the immediate future, there will be reduced demand for concession services. Below are some considerations for airport sponsors to keep in mind. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. Notably, the GASB has deferred the implementation date of GASB Statement No. 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. Tallahassee International Airport . Concessionaires need to understand this new business reality when they ask for relief. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. 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. Guarantee: 50% of Minimum Annual Guarantee. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. There are numerous ways to frame a contract without a MAG. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. Created by. 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. . 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. The intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. 2023 Plante & Moran, PLLC. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. 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. In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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. For information on the business impacts of COVID-19, please visit ourCOVID-19 Resource Center, which we continue to update as the situation evolves. In times of continued and prolonged growth, airports have learned to depend upon MAGs. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. No one is sure how long recovery will take. softballrizer. Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). It is Minimum Annual Guarantee. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. There are numerous ways to frame a contract without a MAG. That will, in turn, harm the concession program. Airports would also have to establish supply lines for products that they have not procured in the past. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. As someone who's sat on all four corners of the airport advertising negotiating table - media owner, airport operator, media agency and client - I have a degree of sympathy with all parties. It was suspended in June, following the severe decline of passenger traffic over those . 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. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. Learn how your comment data is processed. Please pay it forward. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. BADGES AND SECURITY: . Normally, airport concessionaires pay the city a percentage of sales or a "minimum annual guarantee" based on sales the previous year, whichever is greater. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. October 09, 2020, 11:40 a.m. EDT 4 Min Read. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. 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 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. which guarantees that the tenant will pay the airport a minimum amount annually. There are means of counting passengers who pass a concession location, but few airports have installed such technology. . If youre far enough along in the implementation process, you may want to move forward with adopting these standards. Elsewhere, airports do not expect vendors to exceed their MAGs. 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. 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. 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. Most simply, the airport and vendor could agree to a fixed percentage rent. If you have questions. In other parts of the world, MAGs are the airport's exact expected rental payments. Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . 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. Performance. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . What this option does do is change the distribution of risk. Regardless, this shifting of risk may not be acceptable to airports. 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. 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. 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. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. 4.1.3 Percentage Fees. 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. 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). Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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. Guarantee: $50,000. Flashcards. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. 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. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. With the new economic and industry realities, capital access may be an even greater hurdle. Supplemental Airport Grant-In-Aid Funding This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. (a) Annual Reconciliation. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. Regulatory Updates Extension of Minimum Slot Usage Requirements. In other parts of the world, MAGs are the airports exact expected rental payments. The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . 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, Where do we go from here? 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. Match. Learn. While the bulk of the $10 billion appropriated for airport sponsors can be used, if necessary, to make bond principal and interest payments, airport sponsors may be faced with difficult decisions about how to prioritize needs during the financial stress. Current generally accepted accounting principles suggests that entities should establish a policy that defines operating revenues for enterprise funds and use it consistently. [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. (The catch: Potential renters must submit a formal proposal to the Airport Commission and are subject . Without this expertise, the concession will almost certainly fail to operate at an optimum level. Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. ); 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). Budapest Airport. To help develop firms that can compete in the marketplace outside of the DBE program. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). 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. View bio. 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. 6 . This is only for the passenger traffic, while for . Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. Most experts agree that there will be no quick snapback of passengers, so airports face the issue of having too many concessions locations or even too many operators. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. See how we support our people, protect the planet, and give back to communities. Passengers have needs while at airports. The repayment will occur over time, with 50% of the deferral being due by Dec. 31, 3021, and the remaining due by Dec. 31, 2022. 3300 Capital Circle, S.W. Airport concession fees in the era of COVID-19, Airports should carefully consider how they structure deals and their business models, Do Not Sell or Share My Personal Information, Limit the Use of My Sensitive Personal Information. 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. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. The cost of design and construction for your space is going to be much higher. 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. Bid. Here are some others. 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. Kona International Airport at Keahole is located on the western coast of the Island of Hawaii, approximately 10 miles from the town of Kailua Kona. A third party can absorb some of the liability and risk from the airport operator. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). 49 CFR Part 23 requires airports to have a concessions-based DBE program. There are means of counting passengers who pass a concession location, but few airports have installed such technology. 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. The FAA has published a map showing airports that are receiving the funds and the allocations made to them. 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. 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. Land . What this option does do is change the distribution of risk. February 2, 2021January 28, 2021 | AirportU. Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including GASB Statement No. Some airports have just a single FBO while others have multiple. 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). The actual process is the easiest for the airport sponsor since there are minimal contracts. Project. 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. Save my name, email, and website in this browser for the next time I comment. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. 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. 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. In either case, history has shown that MAGs are not supportable in the event of severe downturns. 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 . New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. 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. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. Primarily, in residual agreements, the rates vary based on airport revenue. 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. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). There will still be passengers, and the concession industry needs to be ready to serve them. If FAA does not receive emergency approval, the economic recovery of the nation's air Concessions covers more than what you think of served at a traditional concession stand. 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 ensure that the program is performed in accordance with law. . Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators.

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