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). "No. 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 . Discover the top trends shaping government in 2023. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . Project. 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. This . Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. The Board of Airport Commissioners at Los Angeles World Airports has recently approved a recommendation by management to permit concessionaire relief measures, including moving all concessionaires with contracts based on Minimum Annual Guarantee fee payments to percentage rent-based agreements The develop pays the amount due to the airport through the lease agreement and pockets the rest. mwaa.com - RFP-21-26914: Fixed Base Operator, IAD As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. COVID-19 has sent shockwaves throughout the world. 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. 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. These cookies do not store any personal information. Test. See how we support our people, protect the planet, and give back to communities. 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. 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. Lets consider six potential options. (1) On-Airport (% of Gross Receipts). Opinion: Why MAG flexibility is essential for airport advertising However, MAGs in concession contracts still expect continued growth. The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. Rent abatement / minimum annual guarantee: A decision to abate rent (including "minimum annual guarantees" and also encompassing fees) is a local . 4.1.1 Minimum Annual Guaranteed Concession Fee. This financial shock has created a number of legal and financial issues. 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. Why is airport food so expensive? - Policygenius Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. 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. Proposed laws would allow Uber, Lyft pickups at Seattle airport and In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. . Performance. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. COVID-19 has sent shockwaves throughout the world. Where do we go from here? The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. In North America, airports tend to look at MAGs as the least amount of acceptable 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. There are numerous ways to frame a contract without a MAG. 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. Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. . While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. 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. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. Minimum Annual Guarantee Definition | Law Insider In this model, the airport takes on two roles: landlord and partner in the operation. It was suspended in June, following the severe decline of passenger traffic over those . It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. 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. Regulatory Updates due to Coronavirus - Federal Aviation Administration These three options do not change the underlying airport-concessionaire relationship. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. 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. There are a few limitations, however, that make this a less than optimal solution. them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). 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. 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. 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. These cookies will be stored in your browser only with your consent. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. The key will be ensuring that airline charges remain fair and reasonable. 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. Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. SFO to launch rent relief programme for airport concession tenants Please read our Privacy Policy for more information on the cookies we use. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. The fallacy of Minimum Annual Guarantee (MAG). In other parts of the world, MAGs are the airports exact expected rental payments. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. 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). 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. However, it does reduce the potential benefit to the airport by splitting the proceeds generated. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee (MAG). 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. Airport prices are very high and there's little travelers can do about As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. 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. 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. 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. 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. Discover how we help clients achieve success. What this option does do is change the distribution of risk. Airport concession fees in the era of COVID-19 | ICF The future of airport concessions in a post-COVID-19 world With the new economic and industry realities, capital access may be an even greater hurdle. Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. County of Muskegon Muskegon County Airport High-profile restaurateurs battle for Orlando International eatery As a result, airports may wish to consider going a step further. 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. The Federal Aviation Administration (FAA) . Hawaii Aviation | Kona International Airport at Keahole . The airport operator is always present and has a wealth of knowledge about the airport. This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. C. Concession Fee. That will, in turn, harm the concession program. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. 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. FY2021 Rates & Fees | Northwest Florida Beaches International Airport While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. Regulatory Updates Extension of Minimum Slot Usage Requirements. The single factor most tied to concession success is the footfall past the concession locations. Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. 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. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. However, MAGs in concession contracts still expect continued growth. 2023 Plante & Moran, PLLC. O'Hare and Midway concessionaires to get rent relief - Chicago Sun-Times Elsewhere, airports do not expect vendors to exceed their MAGs. A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. 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. In times of continued and prolonged growth, airports have learned to depend upon MAGs. 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. 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. The FAAs Office of Airports will administer these grant funds to airport sponsors.
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