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 varies based on the size, capacity, and operations of the airport. leasehold at Washington Dulles International Airport (IAD). Learn. 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. The actual process is the easiest for the airport sponsor since there are minimal contracts. 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. To ensure that firms meet the requirements of DBE qualification. . Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . Without this expertise, the concession will almost certainly fail to operate at an optimum level. 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. Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. . First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. The future of airport concessions in a post-COVID-19 world, COVID-19's impact on commercial aviation: Customer survey findings, Why sustainable aviation is more than a flight of fancy, Sustainable aviation: A guide for aviation professionals. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? Retail/Gift Shop 11% of Gross Receipts or Minimum Annual Guarantee Terminal Advertising 30% -60% of Gross Receipts or Minimum Annual Guarantee . A third party company could be contracted to handle the leasing and management of concessions on behalf of the airport. 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. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. Minimum Annual Guarantee Process Up to 3 years Or Up to $100,000 per year Direct negotiation with potential concessionaire Over 3 years and up to 5 Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. There will still be passengers, and the concession industry needs to be ready to serve them. The single factor most tied to concession success is the footfall past the concession locations. Bond Covenants and Indenture Pledge of Revenues. Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including GASB Statement No. 84, Fiduciary Activities. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. 1, their minimum annual guarantee was superior to anybody . The CFC is a charge based on either the contract value, gross receipts, or per car per day. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. . At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. 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 . Land . 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. 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). Minimum Annual Guarantee (MAG) waived for concessionaires and rental cars -Targeted Operations & Maintenance reductions Implemented a hiring freeze and 8 furlough days Offered early retirement Focused on essential expenditures (1) On-Airport (% of Gross Receipts). Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. Will this have an impact on airline and concession agreements? President Donald Trump has already tweeted his support for such an infrastructure bill. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. 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. 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. The city may extend the action for an additional 30-day . Airports would also have to hire and manage many additional hourly employees. 2023 Plante & Moran, PLLC. Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. 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. No one is sure how long recovery will take. 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 fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. When one partner tries to do too much, it will lessen the benefits of the joint venture. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. These cookies will be stored in your browser only with your consent. COVID-19 has sent shockwaves throughout the world. 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. 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. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. Strategic agency for engagement and transformation. Meanwhile, Aena is forecasting that in the period to 2023, the minimum annual guaranteed rents and fixed rents, corresponding to contracts in force at 30 June 2020, will decrease. The question that airport managers must ask themselves is which rent strategy is realistic in the current environment. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . We did not review solicitation or award of concession agreements in this audit. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). One-twelfth of the MAG shall be due in advance on the first day of each month 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. "We've already . In airports with residual airline agreements, the airlines will be required to make up the difference between revenue to the airport and required revenue to pay for airport development and other expenses. It is Minimum Annual Guarantee. Discover how we help clients achieve success. These three options do not change the underlying airport-concessionaire relationship. Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. Option 5: The Trinity (or Trinity Plus) model. which guarantees that the tenant will pay the airport a minimum amount annually. This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. As a result, airports may wish to consider going a step further. Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. MAG - Minimum Annual Guarantee. It beat four other finalists. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. 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. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. 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 . Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. The airport operator is always present and has a wealth of knowledge about the airport. Find out how our purpose shapes our culture, people, and mission-driven work. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. Elsewhere, airports do not expect vendors to exceed their MAGs. The competitive landscape may beby necessityaltered. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Option 6: The airport as concession operator. . To remove barriers in participation of DBEs. 49 CFR Part 23 requires airports to have a concessions-based DBE program. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. Without this expertise, the concession will almost certainly fail to operate at an optimum level. 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. The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. 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. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. . Guarantee: 50% of Minimum Annual Guarantee. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. Tallahassee International Airport . 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. The FAA released guidance for airport administrators, but questions still linger and issues have gone unaddressed. 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 . A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) Percentage Rent - In addition to the MAG, Concessionaires shall pay percentage rent but only to the extent that percentage rent exceeds the monthly installment of MAG, While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. 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. However, this still may not be the most effective solution. At least for the immediate future, there will be reduced demand for concession services. At least for the immediate future, there will be reduced demand for concession services. Rates for each new fiscal year will be posted on this page after Board approval of the rates and fees. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. Concessions covers more than what you think of served at a traditional concession stand. Airport Operations. 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. Bid. Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. Attention: Finance & Administration Division . Discover the top trends shaping government in 2023. "No. Minimum Annual Guarantee. When passenger traffic does come back, airports should rethink how their concession contracts work. 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. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. The competitive landscape may beby necessityaltered. Tax. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. 116-94). Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. Minimum Annual Guarantees. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. The recent COVID-19 pandemic has highlighted the need for an alternative outlook on the way that commercial contracts between airports and concessionaires are structured to reflect the current and future uncertainty around passenger profiles and passenger traffic volumes. Additionally, nonoperating revenues would generally include grants, among other things. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. FBO/SASO: NOTE: 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. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. No one is sure how long recovery will take. 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. In this model, the airport takes on two roles: landlord and partner in the operation. We also use third-party cookies that help us analyze and understand how you use this website. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. 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. 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. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. 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 MAC has already waived minimum annual guarantees three . 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. Where do we go from here? When one partner tries to do too much, it will lessen the benefits of the joint venture. February 2, 2021January 28, 2021 | AirportU. They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. 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. Passengers have needs while at airports. 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 . However, MAGs in concession contracts still expect continued growth. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . This is especially true for leases incorporating a Minimum Annual Guarantee (MAG) mechanism or fixed rent clauses. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. Airports would also have to hire and manage many additional hourly employees. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). It is mandatory to procure user consent prior to running these cookies on your website. The FAAs Office of Airports will administer these grant funds to airport sponsors. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. 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 . As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). [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. 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 current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. In airports with residual airline agreements, the airlines will be required to make up the difference between revenue to the airport and required revenue to pay for airport development and other expenses. 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). The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations.