Bid. It was suspended in June, following the severe decline of passenger traffic over those . How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. 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. FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. These three options do not change the underlying airport-concessionaire relationship. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. which guarantees that the tenant will pay the airport a minimum amount annually. . This category only includes cookies that ensures basic functionalities and security features of the website. Airport Operations. The Trinity model can be considered an extension of the joint venture model. The key will be ensuring that airline charges remain fair and reasonable. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. 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. 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). 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. 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. The airport environment is complex and has become even more challenging due to COVID-19. Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. From layoffs to business closings, social distancing to shopping only on days that correspond to the first letter of your last name, we have all seen and felt the impact. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. ); 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). 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. 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. Below are some considerations for airport sponsors to keep in mind. 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 MAC has already waived minimum annual guarantees three . The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. Match. If FAA does not receive emergency approval, the economic recovery of the nation's air In times of continued and prolonged growth, airports have learned to depend upon MAGs. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). When passenger traffic does come back, airports should rethink how their concession contracts work. See how we support our people, protect the planet, and give back to communities. The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. Rent abatement / minimum annual guarantee: A decision to abate rent (including "minimum annual guarantees" and also encompassing fees) is a local . To level the playing field so that DBEs can compete . The Trinity model can be considered an extension of the joint venture model. 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. 3300 Capital Circle, S.W. Discover how we help clients achieve success. . 9. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). However, there is no relief of the obligation to withhold and remit the corresponding employee share. This is especially true for leases incorporating a Minimum Annual Guarantee (MAG) mechanism or fixed rent clauses. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. 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. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. To ensure that firms meet the requirements of DBE qualification. In this model, the airport takes on two roles: landlord and partner in the operation. 2023 Plante & Moran, PLLC. 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 charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. By using this site you agree to our use of cookies. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). A by-location per passenger MAG may be too complicated for widespread implementation at this point. The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. 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. Option 6: The airport as concession operator. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. It beat four other finalists. 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. . Discover the top trends shaping government in 2023. Airports provide the passengers, the retailers provide the services. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. "We've already . This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. 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). An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. These MAGs are usually based on some percentage of the prior year's revenue and are intended to provide the airport sponsor with a revenue floor from these . If an airport operator closes a concourse or a terminal, it would need to eliminate some concession spaces from its contracts, which may render some deals no longer viable. 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. As a result, the collectability of this revenue may need to be reviewed and an allowance for estimated uncollectable amounts may need to be recorded. Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. 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. Budapest Airport. . At least for the immediate future, there will be reduced demand for concession services. 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. The key will be ensuring that airline charges remain fair and reasonable. Car rental companies are concessionaires at the airport. Retail/Gift Shop 11% of Gross Receipts or Minimum Annual Guarantee Terminal Advertising 30% -60% of Gross Receipts or Minimum Annual Guarantee . The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. 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 . The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Minimum Annual Guarantee ("MAG") Lowest amount of rent to be paid To Be Negotiated . If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. 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 adjustment in Guaranteed Annual Rent may not, in any event, result in a decrease in the current amount of Minimum Annual Guaranteed Rent.. Any increase in Minimum Annual Guaranteed Rent shall be based upon an average increase in the index calculated over a period of 90 days prior to the end of the current five year term. 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 an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. 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 collective of travel retailers have agreed that operational contracts hinging on minimum annual guarantees (MAGs) are no longer workable in a Covid-ravaged air transport climate and must be reformed. The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. Airports would also have to establish supply lines for products that they have not procured in the past. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. Paid parking went into effect at . The competitive landscape may beby necessityaltered. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. 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. One-twelfth of the MAG shall be due in advance on the first day of each month However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. 6 . 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. Minimum Annual Guarantees. 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. Were here to help! That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. Minimum Annual Guarantee: Each Proposer shall submit its proposal as a minimum annual guarantee (MAG) for each of the first two (2) years of the Concession Agreement. Minimum Annual Guarantee listed as MAG. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. Providing a product or service inside the airport environment is one of the key qualifiers for a concessionaire. 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).
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