Additionally, nonoperating revenues would generally include grants, among other things. 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. PDF Appropriations Act, 2021 and the American Rescue Plan Act, 2021 Minimum Annual Guarantee listed as MAG. It varies based on the size, capacity, and operations of the airport. Discover how we help clients achieve success. Proposed laws would allow Uber, Lyft pickups at Seattle airport and Lets consider six potential options. 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 . Receive perspectives on the industries and issues that matter. Airports would also have to establish supply lines for products that they have not procured in the past. "We've already . It is Minimum Annual Guarantee. Minimum Annual Guarantee (MAG). Supplemental Airport Grant-In-Aid Funding To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. That $7.4 billion is divided in half and distributed in two ways: 50% is allocated among all commercial service airports based on each sponsors calendar year 2018 enplanements as a percentage of total 2018 enplanements for all commercial service airports., 50% is allocated among all commercial service airports based on an equal combination of each sponsors fiscal year 2018 debt service as a percentage of the combined debt service for all commercial service airports and each sponsors ratio of unrestricted reserves to their respective debt service.. Terminal Closure and Footprint Reductions. What this option does do is change the distribution of risk. 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. . In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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. In other parts of the world, MAGs are the airport's exact expected rental payments. The intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. Minimum Annual Guarantee Process Up to 3 years Or Up to $100,000 per year Direct negotiation with potential concessionaire Over 3 years and up to 5 . Airlines value an attractive commercial program because it makes a better background for the expression of their brand. CARES Act grant recipients should follow the FAAs Policy and Procedures Concerning the Use of Airport Revenues (Revenue Use Policy), 64 Federal Register 7696 (64 FR 7696), as amended by 78 Federal Register 55330 (78 FR 55330). The cost of design and construction for your space is going to be much higher. It beat four other finalists. 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. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. In either case, history has shown that MAGs are not supportable in the event of severe downturns. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. Airport Operations. 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. CREDIT UPDATE Prior to the pandemic, Terminal 4 was observing strength in its operational performance with enplanements reaching 10.8 million in 2019, the leader across all terminals at JFK. However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). PDF SCHEDULE OF RATES AND CHARGES - Talgov Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. When one partner tries to do too much, it will lessen the benefits of the joint venture. Test. We also use third-party cookies that help us analyze and understand how you use this website. 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. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. Performance. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. 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. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. 84, Fiduciary Activities. An amount of $7.4 billion, which can be distributed to airport sponsors for any purpose for which airport revenues may lawfully be used. The purpose for which airport revenues may lawfully be used is widely viewed as a reference to the FAAs Policy on Permitted and Prohibited Uses of Airport Revenue (Revenue Diversion Policy). View bio. 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. (a) Annual Reconciliation. 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. 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. Were here to help! Car rental companies are concessionaires at the airport. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. 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. Non-Aeronautical Revenues and New Business Models: Topic - ACI Insights Option 4: Airport-concessionaire joint ventures. The single factor most tied to concession success is the footfall past the concession locations. The FAA issued an extension of limited waiver (PDF) through October 29, 2022 of the minimum-slot-usage requirement for international operations at John F. Kennedy International Airport (JFK), LaGuardia Airport (LGA), and Ronald Reagan Washington National Airport (DCA).Additionally, the FAA extended through October 29, 2022, our . FBO/SASO: NOTE: 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. Milwaukee, Wisconsin General Mitchell International Airport Car Rental For information on the business impacts of COVID-19, please visit ourCOVID-19 Resource Center, which we continue to update as the situation evolves. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. Primarily, in residual agreements, the rates vary based on airport revenue. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. 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. Regardless, this shifting of risk may not be acceptable to airports. - Suite 1 . 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 Guarantees. $100,000, 5%, 100% . This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. The CFC is a charge based on either the contract value, gross receipts, or per car per day. Notably, the GASB has deferred the implementation date of GASB Statement No. PDF Federal Aviation Administration Meanwhile, Aena is forecasting that in the period to 2023, the minimum annual guaranteed rents and fixed rents, corresponding to contracts in force at 30 June 2020, will decrease. Opinion: Airport concession fee strategies in the coronavirus era Concessions covers more than what you think of served at a traditional concession stand. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. 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. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. With the announcement by the GASB of a delay in the required implementation of these new standards, your organization will need to decide how to respond. 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). While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. 6 . While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. 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. It was suspended in June, following the severe decline of passenger traffic over those . However, this still may not be the most effective solution. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). Minimum Annual Guarantee Definition | Law Insider A by-location per passenger MAG may be too complicated for widespread implementation at this point. 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. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. 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. Concessionaires need to understand this new business reality when they ask for relief. Airport Operations Flashcards | Quizlet Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. 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. The city may extend the action for an additional 30-day . The actual process is the easiest for the airport sponsor since there are minimal contracts. 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. 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. 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). Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. The company, which . Two ground handling service providers selected for Chennai airport's Below are some considerations for airport sponsors to keep in mind. Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. a minimum annual guarantee or MAG annually, which more or less translates to rent. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. Bid. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. "No. In times of continued and prolonged growth, airports have learned to depend upon MAGs. . Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. For years 2, 3, 4, and 5 of the Term of the Agreement, the Minimum Annual Guarantee shall be 85% of the Concessionaire's previous year's concession fees paid to County or the Minimum Annual Guarantee bid for the first 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. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. 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. Regulatory Updates due to Coronavirus - Federal Aviation Administration 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. CARES Act funding: Ten things airports need to know However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. Save my name, email, and website in this browser for the next time I comment. The concept is not uncommon. These three options do not change the underlying airport-concessionaire relationship. 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. There are means of counting passengers who pass a concession location, but few airports have installed such technology. A MAG, as currently developed, is unsustainable in anything but relatively normal times. 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. Match. 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. The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. Consulting. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. . 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, These cookies will be stored in your browser only with your consent. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. 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. In other parts of the world, MAGs are the airport's exact expected rental payments. A concessionaire's rent structure in an airport may differ from the traditional model. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. Airports would also have to hire and manage many additional hourly employees. 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. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. Without this expertise, the concession will almost certainly fail to operate at an optimum level. In addition, they typically provide the fueling services for the airport. The AICPA State and Local Governments audit guide includes certain accounting guidance that has been cleared by GASB as Category B authoritative guidance. 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. Regardless, this shifting of risk may not be acceptable to airports. 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. . It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . February 2, 2021January 28, 2021 | AirportU. However, MAGs in concession contracts still expect continued growth. 1, their minimum annual guarantee was superior to anybody . If you are a sponsor who controls multiple airports the FAA has stated in its CARES Act FAQ, an airport sponsor may use funds at any airport under its control. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. Where do we go from here? Jacksonville International Airport's split is 70 percent nonaeronautical revenue, which brought in $52 million in 2015, driven by parking, rental car and concessions, he said. 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 . 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 additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. 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. Airlines, while they may be able to reduce some operating costs associated with vacated premises, must still cover all their fixed and operating costs associated with the vacated space. The future of airport concessions in a post-COVID-19 world Find more information in a tax alert comparing COVID-19 employer tax incentives, issued by our National Tax Office. The competitive landscape may beby necessityaltered. Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. The Struggle and Payoff of Setting Up Shop in an Airport 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 . Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. Guarantee: $50,000. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. Commission Offers New Financial Relief for Airport Dining and Retail 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. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. How Airports Handle Non-Aeronautical Revenue | Aviation Pros PDF The term will begin on (" ") or upon opening to the public; First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. When one partner tries to do too much, it will lessen the benefits of the joint venture. PDF Department of Aviation Concessions Management 2023 Plante & Moran, PLLC. Learn. leasehold at Washington Dulles International Airport (IAD). Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. Concessions Dev - San Diego International Airport Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. You also have the option to opt-out of these cookies. Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator.
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