Attention: Finance & Administration Division . mwaa.com - RFP-21-26914: Fixed Base Operator, IAD 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. In either case, history has shown that MAGs are not supportable in the event of severe downturns. In either case, history has shown that MAGs are not supportable in the event of severe downturns. Minimum Annual Guarantee listed as MAG. Without this expertise, the concession will almost certainly fail to operate at an optimum level. Tax. There will still be passengers, and the concession industry needs to be ready to serve them. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. Proposed laws would allow Uber, Lyft pickups at Seattle airport and The FAA has published a map showing airports that are receiving the funds and the allocations made to them. 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. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. Regulatory Updates due to Coronavirus - Federal Aviation Administration 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. Airports would also have to hire and manage many additional hourly employees. Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. C. Concession Fee. FY2021 Rates & Fees | Northwest Florida Beaches International Airport Primarily, in residual agreements, the rates vary based on airport revenue. A Guide to Transportation Funding Options - Texas A&M University percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. The concept is not uncommon. (The catch: Potential renters must submit a formal proposal to the Airport Commission and are subject . Concessionaires need to understand this new business reality when they ask for relief. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. Flashcards. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. 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. The Trinity model can be considered an extension of the joint venture model. Why is airport food so expensive? - Policygenius Audit. 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 What this option does do is change the distribution of risk. 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. Consulting. When one partner tries to do too much, it will lessen the benefits of the joint venture. This site uses Akismet to reduce spam. O'Hare and Midway concessionaires to get rent relief - Chicago Sun-Times In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. Airports Authority of India to appoint ground handling agencies for 83 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. "We've already . 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. 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. The FAA released guidance for airport administrators, but questions still linger and issues have gone unaddressed. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. Creation of the lounge would require around a $4-million investment from whichever group decides to take over the space, which is 9,100 square feet -- on the small side for most airport lounges. 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. However, this still may not be the most effective solution. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. In other parts of the world, MAGs are the airports exact expected rental payments. Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. While the bulk of the $10 billion appropriated for airport sponsors can be used to make bond principal and interest payments if necessary, airport sponsors may be faced with difficult decisions about how to prioritize needs while under financial stress. DOCX Airport Rescue Grants Airport Concession Certification for XYZ Airport If youre far enough along in the implementation process, you may want to move forward with adopting these standards. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. 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. Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. 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. 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 . Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. 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. PDF The term will begin on (" ") or upon opening to the public; Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. The key will be ensuring that airline charges remain fair and reasonable. 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. At least for the immediate future, there will be reduced demand for concession services. Learn. Providing a product or service inside the airport environment is one of the key qualifiers for a concessionaire. Both were selected based on a global tender, and need to pay the Minimum Annual Guarantee of 31 crore each to the Airports Authority of India. AAAE CM Exam Module 1 Own Verison Flashcards | Quizlet This website uses cookies to improve your experience while you navigate through the website. That will, in turn, harm the concession program. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. softballrizer. A MAG, as currently developed, is unsustainable in anything but relatively normal times. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. Examples of Minimum Annual Guaranteed Rent in a sentence. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee (MAG). However, MAGs in concession contracts still expect continued growth. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Please read our Privacy Policy for more information on the cookies we use. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. In a 6-to-3 vote on Monday, June 8, the council approved temporarily revising the Minimum Annual Guarantee, which is a fixed amount restaurants guarantee they will pay the city to do business at . Looking for abbreviations of MAG? The airport environment is complex and has become even more challenging due to COVID-19. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. PDF Department of Aviation Concessions Management A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. 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. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. By using this site you agree to our use of cookies. 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. At least $500 million is available to increase the federal share to 100% for grants awarded under the fiscal year 2020 appropriations cycle for FY20 Airport Improvement Program (AIP) and FY20 Supplemental Discretionary grants. However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. 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 future of airport concessions in a post-COVID-19 world A by-location per passenger MAG may be too complicated for widespread implementation at this point. Food worker shortage at Sacramento airport prompts closures | The To remove barriers in participation of DBEs. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. The develop pays the amount due to the airport through the lease agreement and pockets the rest. Notably, the GASB has deferred the implementation date of GASB Statement No. 4.1.3 Percentage Fees. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. 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. 9. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. Because of the drastic reduction in flights and passenger traffic, airlines have been shrinking their staffing, space requirements and gate usage. 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. In other parts of the world, MAGs are the airport's exact expected rental payments. leasehold at Washington Dulles International Airport (IAD). Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. It is Minimum Annual Guarantee. All rights reserved. There are numerous ways to frame a contract without a MAG. 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. City of Philadelphia Procurement Department - Bid Solicitation 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. Concessions covers more than what you think of served at a traditional concession stand. 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. 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. Guarantee: $50,000. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. Please pay it forward. Airport concession program in order to maximize non-aviation revenue, increasing sales per enplaned passenger at a rate higher than passenger . . . While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. There will still be passengers, and the concession industry needs to be ready to serve them. Necessary cookies are absolutely essential for the website to function properly. 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. Minimum Annual Guarantees. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). Minimum Annual Guaranteed Rent Definition | Law Insider This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. Hawaii Aviation | Kona International Airport at Keahole If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. Land . 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. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. Rent abatement / minimum annual guarantee: A decision to abate rent (including "minimum annual guarantees" and also encompassing fees) is a local . Airport Actions in Response to the COVID-19 Pandemic Elsewhere, airports do not expect vendors to exceed their MAGs. The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. We did not review solicitation or award of concession agreements in this audit. 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. . Test. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . Airport prices are very high and there's little travelers can do about 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 . 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. As MSP airport develops long-term relief plan for shops and restaurants 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. 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.. Normally, airport concessionaires pay the city a percentage of sales or a "minimum annual guarantee" based on sales the previous year, whichever is greater. In this model, the airport takes on two roles: landlord and partner in the operation. If you have questions. 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 competitive landscape may beby necessityaltered. Tallahassee, FL 32310 . Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. 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. Airport Boards approve financial relief plans for concessionaires and Regulatory Updates Extension of Minimum Slot Usage Requirements. The MAC has already waived minimum annual guarantees three . 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. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. Where do we go from here? In times of continued and prolonged growth, airports have learned to depend upon MAGs. When one partner tries to do too much, it will lessen the benefits of the joint venture. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. SFO gives $21.3 million for airport businesses hurt by coronavirus . Option 4: Airport-concessionaire joint ventures. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) 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. 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. Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). The price tag is a whopping $440 per square foot. This Minimum Annual Guarantee must exceed $100,000. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . 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. 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. What this option does do is change the distribution of risk. In other parts of the world, MAGs are the airports exact expected rental payments. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. However, it does reduce the potential benefit to the airport by splitting the proceeds generated. Car rental companies are concessionaires at the airport.