Match. October 09, 2020, 11:40 a.m. EDT 4 Min Read. President Donald Trump has already tweeted his support for such an infrastructure bill. 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. 1, their minimum annual guarantee was superior to anybody . The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. [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. 3300 Capital Circle, S.W. Supplemental Airport Grant-In-Aid Funding Strategic agency for engagement and transformation. BADGES AND SECURITY: . To remove barriers in participation of DBEs. The FAAs Office of Airports will administer these grant funds to airport sponsors. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . In other parts of the world, MAGs are the airports exact expected rental payments. Very hands off for the airport sponsor. This is only for the passenger traffic, while for . Airport Operations. As a result, airports may wish to consider going a step further. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. 4.1.3 Percentage Fees. 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. 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. It is mandatory to procure user consent prior to running these cookies on your website. 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. 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. Concessions covers more than what you think of served at a traditional concession stand. 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. This website uses cookies to improve your experience while you navigate through the website. 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. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. (1) On-Airport (% of Gross Receipts). 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. The airport environment is complex and has become even more challenging due to COVID-19. Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. This . Non-airport retail leases typically charge rent on a per square foot (PSF) basis. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. Airport concession program in order to maximize non-aviation revenue, increasing sales per enplaned passenger at a rate higher than passenger . Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. A prepaid monthly "lease" to do business on the property. C. Concession Fee. The concept is not uncommon. 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. Learn. It beat four other finalists. Passengers have needs while at airports. a minimum annual guarantee or MAG annually, which more or less translates to rent. Find more information in a tax alert comparing COVID-19 employer tax incentives, issued by our National Tax Office. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. 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. Retail/Gift Shop 11% of Gross Receipts or Minimum Annual Guarantee Terminal Advertising 30% -60% of Gross Receipts or Minimum Annual Guarantee . Learn how your comment data is processed. A master operator, or sometimes referred to as an institutional operator, serves as a master lessee and either provide or sublease concessionaires for the airport. 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. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. 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 workforce retention requirement doesnt apply to nonhub or nonprimary airports. New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. At least for the immediate future, there will be reduced demand for concession services. 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. By clicking Accept, you consent to the use of ALL the cookies. 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. 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. No one is sure how long recovery will take. 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. Current generally accepted accounting principles suggests that entities should establish a policy that defines operating revenues for enterprise funds and use it consistently. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. 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. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . 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. 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. Please pay it forward. which guarantees that the tenant will pay the airport a minimum amount annually. (a) Annual Reconciliation. The question that airport managers must ask themselves is which rent strategy is realistic in the current environment. ); 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). This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. 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. Airport sponsors must certify compliance with the CARES Act employment requirements at the time of grant execution and report employment totals quarterly on June 30, Sept. 30, and Dec. 31, 2020. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. Necessary cookies are absolutely essential for the website to function properly. 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. However, MAGs in concession contracts still expect continued growth. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. Majority-In-Interest (MII) clauses. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. 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. However, this still may not be the most effective solution. . The AICPA State and Local Governments audit guide includes certain accounting guidance that has been cleared by GASB as Category B authoritative guidance. 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. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? The Board of Airport Commissioners at Los Angeles World Airports has recently approved a recommendation by management to permit concessionaire relief measures, including moving all concessionaires with contracts based on Minimum Annual Guarantee fee payments to percentage rent-based agreements 116-94). 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. . Airports would also have to hire and manage many additional hourly employees. The competitive landscape may beby necessityaltered. 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. installments during the first year of the Term. We also use third-party cookies that help us analyze and understand how you use this website. Minimum Annual Guarantee (MAG) waived for concessionaires and rental cars -Targeted Operations & Maintenance reductions Implemented a hiring freeze and 8 furlough days Offered early retirement Focused on essential expenditures However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. 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. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. . Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. 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. Minimum Annual Guarantees. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including GASB Statement No. In times of continued and prolonged growth, airports have learned to depend upon MAGs. 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. Were here to help! There are numerous ways to frame a contract without a MAG. Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). We did not review solicitation or award of concession agreements in this audit. 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. 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. Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. Car rental companies are concessionaires at the airport. In either case, history has shown that MAGs are not supportable in the event of severe downturns. The key will be ensuring that airline charges remain fair and reasonable. $100,000, 5%, 100% . The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. When passenger traffic does come back, airports should rethink how their concession contracts work. Primarily, in residual agreements, the rates vary based on airport revenue. Find out how our purpose shapes our culture, people, and mission-driven work. 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. Primarily, in residual agreements, the rates vary based on airport revenue. 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 . 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.. Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. There are means of counting passengers who pass a concession location, but few airports have installed such technology. 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. Tallahassee International Airport . 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. The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. The airport operator is always present and has a wealth of knowledge about the airport. 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. Learn. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. 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. The CFC is a charge based on either the contract value, gross receipts, or per car per day. Audit. Elsewhere, airports do not expect vendors to exceed their MAGs. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. softballrizer. 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. However, there is no relief of the obligation to withhold and remit the corresponding employee share. 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. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) A by-location per passenger MAG may be too complicated for widespread implementation at this point. The competitive landscape may beby necessityaltered. 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 . To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. 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. However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. COVID-19 has sent shockwaves throughout the world. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. Receive perspectives on the industries and issues that matter. 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. . For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. Below are some considerations for airport sponsors to keep in mind. Minimum Annual Guarantee ("MAG") Lowest amount of rent to be paid To Be Negotiated . Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. 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 intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). Using one unnamed airport as an example, with which 3Sixty is in constant dialogue and has a strong relationship Anson said: "The sum total of the $800 million when converted to one airport and to 3Sixty Duty Free would mean around a third of one month's minimum annual guarantee rent. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. 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, Hermes) are given the ability to design and operate their mini outlets. Test. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. Save my name, email, and website in this browser for the next time I comment. Airports would also have to hire and manage many additional hourly employees. Concessionaires need to understand this new business reality when they ask for relief. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). The key will be ensuring that airline charges remain fair and reasonable. The FAA has published a map showing airports that are receiving the funds and the allocations made to them. Minimum Annual Guarantee listed as MAG. 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. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Discover how we help clients achieve success. 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). These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. That report and certification should include the number of full-time equivalent employees working at the airport as of March 27, 2020, as the baseline comparison. The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. 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 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. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. 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. If FAA does not receive emergency approval, the economic recovery of the nation's air To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. Option 5: The Trinity (or Trinity Plus) model. Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. You also have the option to opt-out of these cookies.