minimum annual guarantee airport minimum annual guarantee airport

2023 Plante & Moran, PLLC. 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. 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. 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) Annual Reconciliation. Airports would also have to establish supply lines for products that they have not procured in the past. Airport Boards approve financial relief plans for concessionaires and The FAA has published a map showing airports that are receiving the funds and the allocations made to them. The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. Find out how our purpose shapes our culture, people, and mission-driven work. The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. minimum annual guarantee (MAG) obligations to eligible airport concessions. A by-location per passenger MAG may be too complicated for widespread implementation at this point. This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . 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. This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. 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 . Find more information in a tax alert comparing COVID-19 employer tax incentives, issued by our National Tax Office. Lets consider six potential options. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. Phoenix airport restaurants get rent relief during coronavirus The FAA released guidance for airport administrators, but questions still linger and issues have gone unaddressed. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. 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. . While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. Primarily, in residual agreements, the rates vary based on airport revenue. 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. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). Learn. 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. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Passengers have needs while at airports. 9. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . This is only for the passenger traffic, while for . Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. If you have questions. Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). MAC details long-term relief proposal for airport bars, restaurants and While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. Option 6: The airport as concession operator. Retailers: Minimum annual guarantee 'rules of engagement' have changed 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. CARES Act funding: Ten things airports need to know If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. President Donald Trump has already tweeted his support for such an infrastructure bill. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . Minimum Annual Guarantee (MAG). Weve compiled the top 10 things that you should know about the CARES Act funding for airports. 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. The airport operator is always present and has a wealth of knowledge about the airport. Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. Match. PDF Department of Aviation Concessions Management leasehold at Washington Dulles International Airport (IAD). 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 . How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). 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 . Fuelling Airport Recovery Via Non-Aeronautical Revenue | WSP - WSPglobal Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. 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. Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. However, this still may not be the most effective solution. It varies based on the size, capacity, and operations of the airport. 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. Commission Offers New Financial Relief for Airport Dining and Retail As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. Please pay it forward. This website uses cookies to improve your experience while you navigate through the website. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . 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. 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 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. 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. 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 FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. See how we support our people, protect the planet, and give back to communities. There will still be passengers, and the concession industry needs to be ready to serve them. Tenants at airport get break on debts - Arkansasonline.com 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. 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. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). Lets consider six potential options. Regardless, this shifting of risk may not be acceptable to airports. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). Percentage Rent - In addition to the MAG, Concessionaires shall pay percentage rent but only to the extent that percentage rent exceeds the monthly installment of MAG, The company, which . The question that airport managers must ask themselves is which rent strategy is realistic in the current environment. 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 . Created by. In either case, history has shown that MAGs are not supportable in the event of severe downturns. The airport operator is always present and has a wealth of knowledge about the airport. (1) On-Airport (% of Gross Receipts). There are numerous ways to frame a contract without a MAG. In other parts of the world, MAGs are the airports exact expected rental payments. Airports would also have to establish supply lines for products that they have not procured in the past. Two ground handling service providers selected for Chennai airport's 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. C. Concession Fee. PFCs have been set at $4.50/passenger since 2000, and increasing the PFC maximum has been a priority of the airport industry for some time. A by-location per passenger MAG may be too complicated for widespread implementation at this point. The Trinity model is particularly applicable to duty free concessions, where it is practical to divide a store into departments wherein vendors (e.g., Channel, Rolex, Hrmes) are given the ability to design and operate their mini outlets. Airport Actions in Response to the COVID-19 Pandemic 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. We did not review solicitation or award of concession agreements in this audit. A third party can absorb some of the liability and risk from the airport operator. This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. 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 . Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. The same rules govern the use of CARES Act funds that govern the use of all airport revenues. Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. The future of airport concessions in a post-COVID-19 world SFO gives $21.3 million for airport businesses hurt by coronavirus 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. Opinion: Why MAG flexibility is essential for airport advertising 5-16-C001: Rental Car Concessions, National Airport To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Elsewhere, airports do not expect vendors to exceed their MAGs. These three options do not change the underlying airport-concessionaire relationship. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) Attention: Finance & Administration Division . mwaa.com - RFP-21-26914: Fixed Base Operator, IAD Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. Tax. To ensure that firms meet the requirements of DBE qualification. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? The Trinity model can be considered an extension of the joint venture model. However, MAGs in concession contracts still expect continued growth. How Airports Handle Non-Aeronautical Revenue | Aviation Pros Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. Pandemic Pain For Retail Is Much Higher At Some Airports Than - Forbes This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. It beat four other finalists. 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. Test. Under one version of an infrastructure plan floated by House Democrats (the Moving Forward Framework), airports and airspace improvements would be funded, in part, by an increase in PFCs. 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 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 . In North America, airports tend to look at MAGs as the least amount of acceptable rent. FBO/SASO: NOTE: Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . The airport environment is complex and has become even more challenging due to COVID-19. 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. You also have the option to opt-out of these cookies. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). PDF Federal Aviation Administration The future of airport concessions in a post-COVID-19 world - Duty Free Minimum Annual Guarantees. To help develop firms that can compete in the marketplace outside of the DBE program. However, this still may not be the most effective solution. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. 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. Notably, the GASB has deferred the implementation date of GASB Statement No. In either case, history has shown that MAGs are not supportable in the event of severe downturns. The Airport has also experienced a reduction in passengers and operations as a result of . 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. 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. However, it does reduce the potential benefit to the airport by splitting the proceeds generated. 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. 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. Airports Authority of India to appoint ground handling agencies for 83 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. Concessions and retail often fill that need. Very hands off for the airport sponsor. . Concessionaires need to understand this new business reality when they ask for relief. Additionally, airports required to pay sick leave wages or family leave wages under Section 7001(e)(4) and 7003(e)(4) of the Families First Coronavirus Response Act are relieved of paying the employers 6.2% portion of FICA taxes associated with those wages. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. 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. 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. 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. 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. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. Most simply, the airport and vendor could agree to a fixed percentage rent. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. The 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. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. Where do we go from here? 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. The actual process is the easiest for the airport sponsor since there are minimal contracts. 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. View bio. Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including GASB Statement No. That will, in turn, harm the concession program. Minimum Annual Guarantee. PDF SCHEDULE OF RATES AND CHARGES - Talgov Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. These three options do not change the underlying airport-concessionaire relationship. The intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). . 49 CFR Part 23 requires airports to have a concessions-based DBE program. 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. It is Minimum Annual Guarantee. Guarantee: $50,000. There are a few limitations, however, that make this a less than optimal solution. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. 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). Airport Operations. Consulting. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. 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 may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. Terminal Closure and Footprint Reductions. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG .