We also use third-party cookies that help us analyze and understand how you use this website. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. 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. $100,000, 5%, 100% . That will, in turn, harm the concession program. Flashcards. 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). In North America, airports tend to look at MAGs as the least amount of acceptable rent. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. There will still be passengers, and the concession industry needs to be ready to serve them. Option 6: The airport as concession operator. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . Land . Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. 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. 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 . Non-aeronautical revenueairport revenue from sources other than airlinestypically includes retail concessions, 1 car parking, and property and real estate. There are a few limitations, however, that make this a less than optimal solution. There are numerous ways to frame a contract without a MAG. Additionally, nonoperating revenues would generally include grants, among other things. Airports provide the passengers, the retailers provide the services. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . The cost of design and construction for your space is going to be much higher. The actual process is the easiest for the airport sponsor since there are minimal contracts. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. This Minimum Annual Guarantee must exceed $100,000. COVID-19 has sent shockwaves throughout the world. New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. Retail/Gift Shop 11% of Gross Receipts or Minimum Annual Guarantee Terminal Advertising 30% -60% of Gross Receipts or Minimum Annual Guarantee . FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. Attention: Finance & Administration Division . FBO/SASO: NOTE: 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. They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. Supplemental Airport Grant-In-Aid Funding 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 fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. 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. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. Concessions and retail often fill that need. Discover our insights for a sustainable, low-emissions future. Test. The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. 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 FAAs Office of Airports will administer these grant funds to airport sponsors. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. February 2, 2021January 28, 2021 | AirportU. 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 . 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. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). 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. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. Discover how we help clients achieve success. . The airport operator is always present and has a wealth of knowledge about the airport. Minimum Annual Guarantee. The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. Percentage Rent to the Board as set forth in Article 1 based on Concessionaire's Gross Receipts, subject to a Minimum Annual Guarantee (MAG) as set forth in Article 1, and as further provided below. The 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 . 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 workforce retention requirement doesnt apply to nonhub or nonprimary airports. 49 CFR Part 23 requires airports to have a concessions-based DBE program. 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. Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including GASB Statement No. The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. 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 . Airports would also have to hire and manage many additional hourly employees. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. 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. All rights reserved. The airport operator is always present and has a wealth of knowledge about the airport. If FAA does not receive emergency approval, the economic recovery of the nation's air 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. The entire concessions space is typically leased out to a single company who is responsible for subletting the spaces. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. However, MAGs in concession contracts still expect continued growth. 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. No one is sure how long recovery will take. The concept is not uncommon. Where do we go from here? When one partner tries to do too much, it will lessen the benefits of the joint venture. See how we help fast-changing industries succeed. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. which guarantees that the tenant will pay the airport a minimum amount annually. C. Concession Fee. Please pay it forward. 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. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. 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. 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. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. Match. . Created by. The develop pays the amount due to the airport through the lease agreement and pockets the rest. 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. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). ); 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). them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). 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. As a result, airports may wish to consider going a step further. In addition, they typically provide the fueling services for 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. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. A concessionaire's rent structure in an airport may differ from the traditional model. Current generally accepted accounting principles suggests that entities should establish a policy that defines operating revenues for enterprise funds and use it consistently. Concessionaires need to understand this new business reality when they ask for relief. It is Minimum Annual Guarantee. Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. You also have the option to opt-out of these cookies. However, MAGs in concession contracts still expect continued growth. . In North America, airports tend to look at MAGs as the least amount of acceptable rent. . Will this have an impact on airline and concession agreements? 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. Notably, the GASB has deferred the implementation date of GASB Statement No. President Donald Trump has already tweeted his support for such an infrastructure bill. 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. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. 6 . Discover the top trends shaping government in 2023. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. 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. 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. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. Concessions covers more than what you think of served at a traditional concession stand. 4.1.1 Minimum Annual Guaranteed Concession Fee. 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. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. In North America, airports tend to look at MAGs as the least amount of acceptable rent. See how we support our people, protect the planet, and give back to communities. 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. These cookies do not store any personal information. 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. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). However, this still may not be the most effective solution. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Lets consider six potential options. There are several types of concessionaires that lease space to operate at the airport. These MAG clauses in concession contracts should be carefully reviewed. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. Minimum Annual Guarantees. 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. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. 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. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. Some larger airports take a percentage of every sale. 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. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . In other parts of the world, MAGs are the airports exact expected rental payments. 84, Fiduciary Activities. Each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. The CFC is a charge based on either the contract value, gross receipts, or per car per day. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. 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. 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 . 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. Minimum Annual Guarantee ("MAG") Lowest amount of rent to be paid To Be Negotiated . The FAA has published a map showing airports that are receiving the funds and the allocations made to them. The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. This category only includes cookies that ensures basic functionalities and security features of the website. Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. A third party can absorb some of the liability and risk from the airport operator. 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). Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. The Airport has also experienced a reduction in passengers and operations as a result of . We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. Performance. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Car rental companies are concessionaires at the airport. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. The airport environment is complex and has become even more challenging due to COVID-19. No one is sure how long recovery will take. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. If an airport operator closes a concourse or a terminal, it would need to eliminate some concession spaces from its contracts, which may render some deals no longer viable. The $10 billion in funding is divided into four main categories: For airport grants, after the Secretary of Transportation announces awards under the CARES Act, each airport sponsor must submit a grant application to access those funds. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. 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. Wealth Management. Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. 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. "We've already . Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience.
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