84, Fiduciary Activities. Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. Discover our insights for a sustainable, low-emissions future. 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. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. In addition, they typically provide the fueling services for the airport. Strategic agency for engagement and transformation. FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. Project. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. 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. Concessionaires need to understand this new business reality when they ask for relief. 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. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. Additionally, nonoperating revenues would generally include grants, among other things. . Nichols wrote to the County Board of Supervisors that $12.1 million of the money will be used to finalize airport agreements that waive contractual minimum annual guarantee rents for airport . It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . (By comparison, the competing House of Representatives version of the bill contained no such restriction.) The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. Land . The single factor most tied to concession success is the footfall past the concession locations. See how we support our people, protect the planet, and give back to communities. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. Find out how our purpose shapes our culture, people, and mission-driven work. What this option does do is change the distribution of risk. They often charge more than 10% for water and alcohol, Waguespack said. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. 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. 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 joint venture lease must be similar to those given to other concessionaires, and enforcement of the airports rules and performance requirements must be uniform. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . COVID-19 has sent shockwaves throughout the world. Option 5: The Trinity (or Trinity Plus) model. Tax. The fallacy of Minimum Annual Guarantee (MAG). New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. 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. softballrizer. 49 CFR Part 23 requires airports to have a concessions-based DBE program. However, MAGs in concession contracts still expect continued growth. Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. Airports would also have to hire and manage many additional hourly employees. There will still be passengers, and the concession industry needs to be ready to serve them. When one partner tries to do too much, it will lessen the benefits of the joint venture. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. Were here to help! Airport concession fees in the era of COVID-19, Airports should carefully consider how they structure deals and their business models, Do Not Sell or Share My Personal Information, Limit the Use of My Sensitive Personal Information. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. 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. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. FBO/SASO: NOTE: Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. 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. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. For information on the business impacts of COVID-19, please visit ourCOVID-19 Resource Center, which we continue to update as the situation evolves. . This category only includes cookies that ensures basic functionalities and security features of the website. Primarily, in residual agreements, the rates vary based on airport revenue. In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. Primarily, in residual agreements, the rates vary based on airport revenue. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. To ensure that the program is performed in accordance with law. Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. 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. 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. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee (MAG). The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. In North America, airports tend to look at MAGs as the least amount of acceptable rent. The airport environment is complex and has become even more challenging due to COVID-19. Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. In the event that the concessionaire is unsuccessful, the airport absorbs the losses. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. A by-location per passenger MAG may be too complicated for widespread implementation at this point. 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. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. 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. The cost of design and construction for your space is going to be much higher. Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. 4.1.1 Minimum Annual Guaranteed Concession Fee. 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. 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 FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. These three options do not change the underlying airport-concessionaire relationship. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. 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. Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). No one is sure how long recovery will take. Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. They will typically lease space for counter and office space and additional space for the vehicle storage. 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. There are means of counting passengers who pass a concession location, but few airports have installed such technology. 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. Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. [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. 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. Minimum Annual Guarantee. 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). Without this expertise, the concession will almost certainly fail to operate at an optimum level. 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. minimum annual guarantee (MAG) obligations to eligible airport concessions. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. The workforce retention requirement doesnt apply to nonhub or nonprimary airports. "No. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? As a result, airports may wish to consider going a step further. October 09, 2020, 11:40 a.m. EDT 4 Min Read. In times of continued and prolonged growth, airports have learned to depend upon MAGs. 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. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. 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. 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. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. In either case, history has shown that MAGs are not supportable in the event of severe downturns. Match. When one partner tries to do too much, it will lessen the benefits of the joint venture. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. The key will be ensuring that airline charges remain fair and reasonable. These three options do not change the underlying airport-concessionaire relationship. Bid. Option 6: The airport as concession operator. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. Examples of Minimum Annual Guaranteed Rent in a sentence. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. 2023 Plante & Moran, PLLC. View bio. To level the playing field so that DBEs can compete . In other parts of the world, MAGs are the airports exact expected rental payments. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . Car rental companies are concessionaires at the airport. Providing a product or service inside the airport environment is one of the key qualifiers for a concessionaire. 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. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. . Normally, airport concessionaires pay the city a percentage of sales or a "minimum annual guarantee" based on sales the previous year, whichever is greater. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. 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). Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. 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 Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. NOTICE OF INTENTION TO ENTER INTO FOUR SEPARATE CONCESSION LEASE AGREEMENTS WITH THE DAY ONE GROUP LLC NOTICE IS HEREBY GIVEN, to all interested parties, that the Clark County Board of Commissioners intends to enter into four separate Concession Lease Agreements (Agreements) for the operation of 5 specialty retail concessions with The Day One Group LLC (Company) serving Harry Reid . . 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. Some larger airports take a percentage of every sale. Without this expertise, the concession will almost certainly fail to operate at an optimum level. 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. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. At least for the immediate future, there will be reduced demand for concession services. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. When passenger traffic does come back, airports should rethink how their concession contracts work. 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. A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. 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. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. As a result, airports may wish to consider going a step further. But opting out of some of these cookies may affect your browsing experience. 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. The develop pays the amount due to the airport through the lease agreement and pockets the rest. Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. 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. However, there is no relief of the obligation to withhold and remit the corresponding employee share. Test. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. 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. The competitive landscape may beby necessityaltered. Airports provide the passengers, the retailers provide the services. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. There are numerous ways to frame a contract without a MAG. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . 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.. 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. Receive perspectives on the industries and issues that matter. However, MAGs in concession contracts still expect continued growth. 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 . Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). This is only for the passenger traffic, while for . With the new economic and industry realities, capital access may be an even greater hurdle. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. Option 4: Airport-concessionaire joint ventures. The price tag is a whopping $440 per square foot. 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. While the bulk of the $10 billion appropriated for airport sponsors can be used, if necessary, to make bond principal and interest payments, airport sponsors may be faced with difficult decisions about how to prioritize needs during the financial stress. To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. Budapest Airport. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. How does the Airport Authority charge 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. The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. Will this have an impact on airline and concession agreements? 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. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. 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. (The catch: Potential renters must submit a formal proposal to the Airport Commission and are subject . The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. 9. Majority-In-Interest (MII) clauses. 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. An amount of $7.4 billion, which can be distributed to airport sponsors for any purpose for which airport revenues may lawfully be used. The purpose for which airport revenues may lawfully be used is widely viewed as a reference to the FAAs Policy on Permitted and Prohibited Uses of Airport Revenue (Revenue Diversion Policy). Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. We also use third-party cookies that help us analyze and understand how you use this website. Created by. If you have questions about COVID-19s impact on your business, please reach out to your Loeb relationship partner or email us directly atCOVID19@loeb.com. . Flashcards. 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. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. No one is sure how long recovery will take. 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. Some airports have just a single FBO while others have multiple. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. It is mandatory to procure user consent prior to running these cookies on your website. 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 . SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. PFCs have been set at $4.50/passenger since 2000, and increasing the PFC maximum has been a priority of the airport industry for some time.
