However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. See how we help fast-changing industries succeed. 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. COVID-19 has sent shockwaves throughout the world. Concessionaires need to understand this new business reality when they ask for relief. They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. In the event that the concessionaire is unsuccessful, the airport absorbs the losses. 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. 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. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . The competitive landscape may beby necessityaltered. New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. 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. Tax. It is mandatory to procure user consent prior to running these cookies on your website. In times of continued and prolonged growth, airports have learned to depend upon MAGs. Airports would also have to hire and manage many additional hourly employees. ); 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). Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. Airports would also have to establish supply lines for products that they have not procured in the past. 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 . Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. 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. . 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. $100,000, 5%, 100% . A concessionaire's rent structure in an airport may differ from the traditional model. 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. Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. The airport operator is always present and has a wealth of knowledge about the airport. 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. Rates for each new fiscal year will be posted on this page after Board approval of the rates and fees. Paid parking went into effect at . Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. 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). them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). The key will be ensuring that airline charges remain fair and reasonable. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . Tallahassee International Airport . North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. A by-location per passenger MAG may be too complicated for widespread implementation at this point. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. To level the playing field so that DBEs can compete . When one partner tries to do too much, it will lessen the benefits of the joint venture. A MAG, as currently developed, is unsustainable in anything but relatively normal times. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. A third party company could be contracted to handle the leasing and management of concessions on behalf of the airport. The single factor most tied to concession success is the footfall past the concession locations. These three options do not change the underlying airport-concessionaire relationship. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). 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. Learn. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. 84, Fiduciary Activities. Passengers have needs while at airports. 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. Minimum Annual Guarantee. It beat four other finalists. . The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. Regardless, this shifting of risk may not be acceptable to airports. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . 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. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. 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. 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. Airport concession program in order to maximize non-aviation revenue, increasing sales per enplaned passenger at a rate higher than passenger . A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. which guarantees that the tenant will pay the airport a minimum amount annually. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. The cost of design and construction for your space is going to be much higher. For more insights from Alan Gluck and ICF, please go to https://www.icf.com/insights/transportation, The future of airport concessions in a post-COVID-19 world, https://www.icf.com/insights/transportation. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. Supplemental Airport Grant-In-Aid Funding 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). Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. All rights reserved. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. However, MAGs in concession contracts still expect continued growth. The concept is not uncommon. 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. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. Here are some others. The Airport has also experienced a reduction in passengers and operations as a result of . 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. To ensure that the program is performed in accordance with law. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). 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. Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. Discover the top trends shaping government in 2023. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. 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. Strategic agency for engagement and transformation. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. Created by. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. Concessions covers more than what you think of served at a traditional concession stand. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . 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. 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. The company, which . This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee (MAG). Examples of Minimum Annual Guaranteed Rent in a sentence. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. 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. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. 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. In times of continued and prolonged growth, airports have learned to depend upon MAGs. It varies based on the size, capacity, and operations of the airport. With the new economic and industry realities, capital access may be an even greater hurdle. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . Some larger airports take a percentage of every sale. Alternatively, different percentages could be charged for varying levels of sales or by assigning either fixed or variable rates to different product categories (e.g., one percentage for food and non-alcoholic beverage and a separate percentage for alcoholic drinks only). The 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 . MAG - Minimum Annual Guarantee. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). This financial shock has created a number of legal and financial issues. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. A prepaid monthly "lease" to do business on the property. The price tag is a whopping $440 per square foot. 116-94). To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. Looking for abbreviations of MAG? Discover our insights for a sustainable, low-emissions future. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. 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. 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 The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. Creation of the lounge would require around a $4-million investment from whichever group decides to take over the space, which is 9,100 square feet -- on the small side for most airport lounges. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. Minimum Annual Guarantee ("MAG") Lowest amount of rent to be paid To Be Negotiated . The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. HMS Host, the food and beverage concessionaire at Clinton National, is required to pay a minimum annual guarantee of $594,000, which works out to $49,500 monthly under the terms of its contract. Airports would also have to hire and manage many additional hourly employees. 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. President Donald Trump has already tweeted his support for such an infrastructure bill. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. 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. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. 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. First, and most important, the recently enacted Coronavirus Aid, Relief, and Economic Security Act (CARES Act) contains a supplemental appropriation of $10 billion to be made through Grants-In-Aid for Airports. That $10 billion is divided into the following categories: Any airport that receives money under the CARES Act must continue to employ, for the remainder of 2020, at least 90% of the number of employees that airport had as of March 27, the date of the enactment of the Act. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. This Minimum Annual Guarantee must exceed $100,000. The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . The FAA released guidance for airport administrators, but questions still linger and issues have gone unaddressed. As a result, airports may wish to consider going a step further. Rent abatement / minimum annual guarantee: A decision to abate rent (including "minimum annual guarantees" and also encompassing fees) is a local . A. The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. In addition, they typically provide the fueling services for the airport. 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. Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. 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. The key will be ensuring that airline charges remain fair and reasonable. The policies and procedures are available for review here. 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. They will typically lease space for counter and office space and additional space for the vehicle storage. Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. 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. We also use third-party cookies that help us analyze and understand how you use this website. Regulatory Updates Extension of Minimum Slot Usage Requirements. In North America, airports tend to look at MAGs as the least amount of acceptable rent. These cookies will be stored in your browser only with your consent. 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 Receive perspectives on the industries and issues that matter. Attention: Finance & Administration Division . For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. There are numerous ways to frame a contract without a MAG. 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. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport.
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