What this option does do is change the distribution of risk. Airports would also have to hire and manage many additional hourly employees. President Donald Trump has already tweeted his support for such an infrastructure bill. Budapest Airport. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. 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. Here are some others. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. 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. Consulting. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. In other parts of the world, MAGs are the airport's exact expected rental payments. In this model, the airport takes on two roles: landlord and partner in the operation. BADGES AND SECURITY: . The Trinity model can be considered an extension of the joint venture model. Audit. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). Project. Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . Flashcards. To help develop firms that can compete in the marketplace outside of the DBE program. Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. If the airport sponsor determines that its in its best interest to defer the MAG, the revenue should still be recorded in the period earned, and the receivable should be considered for treatment as noncurrent depending on the new repayment terms. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. A by-location per passenger MAG may be too complicated for widespread implementation at this point. 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. There are means of counting passengers who pass a concession location, but few airports have installed such technology. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. Bid. To remove barriers in participation of DBEs. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . 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. This site uses Akismet to reduce spam. 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. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. 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 an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. Match. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. Find out how our purpose shapes our culture, people, and mission-driven work. Where do we go from here? Below are some considerations for airport sponsors to keep in mind. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. 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. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. Very hands off for the airport sponsor. Concessionaires need to understand this new business reality when they ask for relief. 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. When one partner tries to do too much, it will lessen the benefits of the joint venture. 47114, with minimum apportionments for smaller airports that serve between 8,000 and 10,000 passengers annually. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. 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. The develop pays the amount due to the airport through the lease agreement and pockets the rest. This is especially true for leases incorporating a Minimum Annual Guarantee (MAG) mechanism or fixed rent clauses. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. Guarantee: $50,000. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. There are means of counting passengers who pass a concession location, but few airports have installed such technology. The workforce retention requirement doesnt apply to nonhub or nonprimary airports. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). The airport operator is always present and has a wealth of knowledge about the airport. However, this still may not be the most effective solution. Where abatement results in shifting costs between various classes of airport tenants and users, the airport sponsor is encouraged to consult with all affected parties. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee (MAG). We did not review solicitation or award of concession agreements in this audit. A third party company could be contracted to handle the leasing and management of concessions on behalf of the airport. Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. Examples of Minimum Annual Guaranteed Rent in a sentence. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. Given the current state of the economy, Congress has turned to working on the next comprehensive economic relief package, which is being referred to as CARES 2.0. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . The funds are coming directly from the U.S. Treasurys General Fund to prevent, prepare for, and respond to the impacts of the COVID-19 public health emergency. Summary: The Metropolitan Washington Airports Authority is seeking competitive bids from all responsible and qualified companies desiring to manage and operate rental car concessions from on-Airport facilities at Ronald Reagan Washington National Airport. a minimum annual guarantee or MAG annually, which more or less translates to rent. In either case, history has shown that MAGs are not supportable in the event of severe downturns. 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. 4.1.1 Minimum Annual Guaranteed Concession Fee. 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. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. 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 . It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . Bond Covenants and Indenture Pledge of Revenues. 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. These three options do not change the underlying airport-concessionaire relationship. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. 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 . 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. When passenger traffic does come back, airports should rethink how their concession contracts work. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. 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. softballrizer. The MAC has already waived minimum annual guarantees three . A prepaid monthly "lease" to do business on the property. Learn how your comment data is processed. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. 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. 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. However, there is no relief of the obligation to withhold and remit the corresponding employee share. At least for the immediate future, there will be reduced demand for concession services. Concessions covers more than what you think of served at a traditional concession stand. No one is sure how long recovery will take. 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. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? Performance. Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. 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. By clicking Accept, you consent to the use of ALL the cookies. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. Each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. 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. 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 . The CFC is a charge based on either the contract value, gross receipts, or per car per day. Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). Option 6: The airport as concession operator. 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 . It is Minimum Annual Guarantee. Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. 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. 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. 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. 9. Please pay it forward. If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. 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. 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. 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). Concessions covers more than what you think of served at a traditional concession stand. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). [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. It varies based on the size, capacity, and operations of the airport. Minimum Annual Guarantee ("MAG") Lowest amount of rent to be paid To Be Negotiated . An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. However, MAGs in concession contracts still expect continued growth. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. If FAA does not receive emergency approval, the economic recovery of the nation's air 116-94). 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 Revenue Use Policy document defines permitted and prohibited uses of airport revenue. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. MAG - Minimum Annual Guarantee. 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. In the event that the concessionaire is unsuccessful, the airport absorbs the losses. Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. But opting out of some of these cookies may affect your browsing experience. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. Most simply, the airport and vendor could agree to a fixed percentage rent. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. 47114 (as modified by the CARES Act), then the remainder is distributed in the same manner as the $7.4 billionbased on a mixture of enplanements and debt service. 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. No one is sure how long recovery will take. In the concessions arena, they are referred to as Airport Concessions Disadvantaged Business Enterprise (ACDBE). FBO/SASO: NOTE: The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. Option 5: The Trinity (or Trinity Plus) model. How does the Airport Authority charge rent? The FAA released guidance for airport administrators, but questions still linger and issues have gone unaddressed. For aviation, global recovery to 2019 levels is projected to take several years, into 2023 for markets with significant domestic air . 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 competitive landscape may beby necessityaltered. To promote the use of DBEs for federally funded projects. The FAA has published a map showing airports that are receiving the funds and the allocations made to them. Wealth Management. 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. 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. They will typically lease space for counter and office space and additional space for the vehicle storage. minimum annual guarantee (MAG) obligations to eligible airport concessions. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. October 09, 2020, 11:40 a.m. EDT 4 Min Read. . In other parts of the world, MAGs are the airports exact expected rental payments. A by-location per passenger MAG may be too complicated for widespread implementation at this point. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. 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.