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 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 AICPA State and Local Governments audit guide includes certain accounting guidance that has been cleared by GASB as Category B authoritative guidance. The actual process is the easiest for the airport sponsor since there are minimal contracts. Concessions covers more than what you think of served at a traditional concession stand. FBO/SASO: NOTE: With the new economic and industry realities, capital access may be an even greater hurdle. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. In other parts of the world, MAGs are the airport's exact expected rental payments. CM Module 1 Questions Flashcards | Quizlet To help develop firms that can compete in the marketplace outside of the DBE program. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). . As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. There are means of counting passengers who pass a concession location, but few airports have installed such technology. Performance. Minimum Annual Guarantee (MAG). 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. SFO to launch rent relief programme for airport concession tenants For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. Milwaukee, Wisconsin General Mitchell International Airport Car Rental The Airport has also experienced a reduction in passengers and operations as a result of . 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 develop pays the amount due to the airport through the lease agreement and pockets the rest. 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 may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. As a result, airports may wish to consider going a step further. In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. 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 workforce retention requirement doesnt apply to nonhub or nonprimary airports. Project. Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. Learn how your comment data is processed. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. In either case, history has shown that MAGs are not supportable in the event of severe downturns. 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. SFO Launches Emergency Rent Relief Program for Airport Concession To ensure that firms meet the requirements of DBE qualification. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. 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. Please read our Privacy Policy for more information on the cookies we use. Airports would also have to hire and manage many additional hourly employees. PDF Request for Proposals (Rfp) Non-exclusive On-airport Rental Car 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. MAC details long-term relief proposal for airport bars, restaurants and How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). Relaxing in a $4 Million Lounge Under the Dulles Control Tower Could The FAA has published a map showing airports that are receiving the funds and the allocations made to them. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? PDF Request for Proposal - Dallas/Fort Worth International Airport 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. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. In other parts of the world, MAGs are the airports exact expected rental payments. SFO concession tenants pay the greater of a Minimum Annual Guarantee (MAG) or a percentage of Gross Receipts (Concession Fee), along with other cleaning and infrastructure fees. The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. Bond Covenants and Indenture Pledge of Revenues. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . Looking for abbreviations of MAG? Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. 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. 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. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. Concessions covers more than what you think of served at a traditional concession stand. 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. See how we help fast-changing industries succeed. Airports would also have to establish supply lines for products that they have not procured in the past. 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. Elsewhere, airports do not expect vendors to exceed their MAGs. Below are some considerations for airport sponsors to keep in mind. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. 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). These three options do not change the underlying airport-concessionaire relationship. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. 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 site uses Akismet to reduce spam. The key will be ensuring that airline charges remain fair and reasonable. At least for the immediate future, there will be reduced demand for concession services. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Airport Retailer Dufry's Sales Rise By Over 50% In 2021, But - Forbes Tallahassee International Airport . The Trinity model can be considered an extension of the joint venture model. The Trinity model can be considered an extension of the joint venture model. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). 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. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). 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. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. 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 By way of comparison, in the past two fiscal years (FY19 and FY20), the federal government has appropriated approximately $3.35 billion in regular Air Improvement Program (AIP) spending and an additional $400$500 million in discretionary AIP grants. The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. PDF Appropriations Act, 2021 and the American Rescue Plan Act, 2021 The fallacy of Minimum Annual Guarantee (MAG). Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. In the event that the concessionaire is unsuccessful, the airport absorbs the losses. 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. There are several types of concessionaires that lease space to operate at the airport. 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. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. High-profile restaurateurs battle for Orlando International eatery Airports should carefully consider how they structure deals and their business models to ensure more flexibility to respond to potential future shocks. We did not review solicitation or award of concession agreements in this audit. softballrizer. Save my name, email, and website in this browser for the next time I comment. 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. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. The airport environment is complex and has become even more challenging due to COVID-19. 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. PDF SCHEDULE OF RATES AND CHARGES - Talgov Discover the top trends shaping government in 2023. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. There are means of counting passengers who pass a concession location, but few airports have installed such technology. Cookie Notice: This site uses cookies to provide you with a more responsive and personalized 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. 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. 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. 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. 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. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. In North America, airports tend to look at MAGs as the least amount of acceptable rent. No one is sure how long recovery will take. In this model, the airport takes on two roles: landlord and partner in the operation. The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. Minimum Annual Guaranteed Rent Definition | Law Insider 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. County of Muskegon Muskegon County Airport minimum annual guarantee (MAG) obligations to eligible airport concessions. Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. Bid. 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 typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. The CFC is a charge based on either the contract value, gross receipts, or per car per day. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. 87, Leases by a full 18 months, resulting in June 30, 2022 year-ends to be the first to implement the significant new leasing standard. Because of the drastic reduction in flights and passenger traffic, airlines have been shrinking their staffing, space requirements and gate usage. Review Journal | Legal Notices | NOTICE OF INTENTION TO ENTER I The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. Airport Operations Flashcards | Quizlet 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. 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. O'Hare and Midway concessionaires to get rent relief - Chicago Sun-Times While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. 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. . For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. 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. Lets consider six potential options. A MAG, as currently developed, is unsustainable in anything but relatively normal times. Supplemental Airport Grant-In-Aid Funding As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. There will still be passengers, and the concession industry needs to be ready to serve them.