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. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. February 2, 2021January 28, 2021 | AirportU. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. 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 . 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. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. The airport operator is always present and has a wealth of knowledge about the airport. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. Elsewhere, airports do not expect vendors to exceed their MAGs. Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. Concessions covers more than what you think of served at a traditional concession stand. 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. For aviation, global recovery to 2019 levels is projected to take several years, into 2023 for markets with significant domestic air . The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. 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). 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. In North America, airports tend to look at MAGs as the least amount of acceptable rent. "This is to offset rent and minimum annual guarantee requirements of those tenants in the face of a severe decline in their customers (passengers) during the continuing COVID issue." Airport . Manchester Airport Group in the U.K. had started to operate a restaurant in their home airport before the pandemic, so there is precedent for this strategy. 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, Rates for each new fiscal year will be posted on this page after Board approval of the rates and fees. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. 3300 Capital Circle, S.W. Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. Consulting. 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. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . The MAC has already waived minimum annual guarantees three . Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . The cost of design and construction for your space is going to be much higher. C. Concession Fee. 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. Examples of Minimum Annual Guaranteed Rent in a sentence. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. . These MAG clauses in concession contracts should be carefully reviewed. 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. them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). 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. 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. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . The city of Atlanta suspended the minimum annual guarantee payment obligation for concessionaires and rental car companies at Hartsfield-Jackson Atlanta International Airport (ATL) for a four-month period ending June 20. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. 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. The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. Concessions and retail often fill that need. The airport environment is complex and has become even more challenging due to COVID-19. 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. The develop pays the amount due to the airport through the lease agreement and pockets the rest. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. The minimum annual guarantee of $3.25 million to the airport for the right to run the restaurant is too high and could result in the partners cutting corners to make the payments or, even worse . 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. If FAA does not receive emergency approval, the economic recovery of the nation's air Receive perspectives on the industries and issues that matter. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. 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. Here are some others. Some airports have had huge success in meeting ACDBE goals with the developer model. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. Very hands off for the airport sponsor. 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. With the new economic and industry realities, capital access may be an even greater hurdle. 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. . They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. which guarantees that the tenant will pay the airport a minimum amount annually. The airport operator is always present and has a wealth of knowledge about the airport. 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. This financial shock has created a number of legal and financial issues. A. In this model, the airport takes on two roles: landlord and partner in the operation. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. 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 . Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. 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. 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 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 . . If relief drives airline costs to a significantly higher level, thereby reducing airport cost-competitiveness, airlines may choose not to fly to the airport or to operate fewer services. View bio. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . 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 will, in turn, harm the concession program. Percentage Rent to the Board as set forth in Article 1 based on Concessionaire's Gross Receipts, subject to a Minimum Annual Guarantee (MAG) as set forth in Article 1, and as further provided below. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. Were here to help! Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. 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. When passenger traffic does come back, airports should rethink how their concession contracts work. Concessions covers more than what you think of served at a traditional concession stand. Tax. Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. Terms in this set (15) What is MAG and what does it stand for? A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. Land . 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 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. Considering all the current changes in our business, this model may be a solution to sharing risk and encouraging a strong representation of critical brands in airports. 4.1.1 Minimum Annual Guaranteed Concession Fee. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee (MAG). Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. Learn. 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. Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. The key will be ensuring that airline charges remain fair and reasonable. A by-location per passenger MAG may be too complicated for widespread implementation at this point. Additionally, nonoperating revenues would generally include grants, among other things. By clicking Accept, you consent to the use of ALL the cookies. 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. 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.

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