One-twelfth of the MAG shall be due in advance on the first day of each month 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. 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. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? 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 FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. 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. A third party company could be contracted to handle the leasing and management of concessions on behalf of the airport. Project. When one partner tries to do too much, it will lessen the benefits of the joint venture. (a) Annual Reconciliation. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. These cookies will be stored in your browser only with your consent. In other parts of the world, MAGs are the airports exact expected rental payments. 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. The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. 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. The city may extend the action for an additional 30-day . Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. In other parts of the world, MAGs are the airport's exact expected rental payments. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. The cost of design and construction for your space is going to be much higher. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. Airports would also have to hire and manage many additional hourly employees. 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. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. 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. a minimum annual guarantee or MAG annually, which more or less translates to rent. There are several types of concessionaires that lease space to operate at the airport. Normally, airport concessionaires pay the city a percentage of sales or a "minimum annual guarantee" based on sales the previous year, whichever is greater. The airport operator is always present and has a wealth of knowledge about the airport. 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, leasehold at Washington Dulles International Airport (IAD). There will still be passengers, and the concession industry needs to be ready to serve them. In either case, history has shown that MAGs are not supportable in the event of severe downturns. This site uses Akismet to reduce spam. Terms in this set (15) What is MAG and what does it stand for? While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. Concessionaires need to understand this new business reality when they ask for relief. A MAG, as currently developed, is unsustainable in anything but relatively normal times. This simplified agreement includes the requirements under the CARES Act and makes funds immediately available for expenses, other than airport development, including payroll, debt service, utility expenses, service contracts, and supplies. Minimum Annual Guarantee. 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. 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. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). 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. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. 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. 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. 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 Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. Car rental companies are concessionaires at the airport. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. Terminal Closure and Footprint Reductions. 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. 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. Rent abatement / minimum annual guarantee: A decision to abate rent (including "minimum annual guarantees" and also encompassing fees) is a local . The workforce retention requirement doesnt apply to nonhub or nonprimary airports. These supplier relationships are unlikely to have the same economies of scale as those of national concessionaires, which means the costs of operation may be higher. Most simply, the airport and vendor could agree to a fixed percentage rent. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. 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. Strategic agency for engagement and transformation. 116-94). Rates for each new fiscal year will be posted on this page after Board approval of the rates and fees. The Trinity model can be considered an extension of the joint venture model. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. The single factor most tied to concession success is the footfall past the concession locations. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. The CFC is a charge based on either the contract value, gross receipts, or per car per day. which guarantees that the tenant will pay the airport a minimum amount annually. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . Senior Living Development Consulting (Living Forward), Reimagining the future of healthcare systems, National Plan of Integrated Airports System, tax alert comparing COVID-19 employer tax incentives. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). October 09, 2020, 11:40 a.m. EDT 4 Min Read. Wealth Management. Lets consider six potential options. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. If you have questions. 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 . The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. A third party can absorb some of the liability and risk from the airport operator. 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 . The MAC has already waived minimum annual guarantees three . 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. Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. They often charge more than 10% for water and alcohol, Waguespack said. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. 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. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. 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. 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. A by-location per passenger MAG may be too complicated for widespread implementation at this point. Find out how our purpose shapes our culture, people, and mission-driven work. . 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. Notably, the GASB has deferred the implementation date of GASB Statement No. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. "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 . These supplier relationships are unlikely to have the same economies of scale as those of national concessionaires, which means the costs of operation may be higher. Paid parking went into effect at . 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. Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. 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. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. 9. No one is sure how long recovery will take. The fallacy of Minimum Annual Guarantee (MAG). If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. 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 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. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. 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. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. 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). Elsewhere, airports do not expect vendors to exceed their MAGs. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. You also have the option to opt-out of these 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. 49 CFR Part 23 requires airports to have a concessions-based DBE program. Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. 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. The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. Some larger airports take a percentage of every sale. However, it does reduce the potential benefit to the airport by splitting the proceeds generated. 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. In addition, they typically provide the fueling services for the airport. 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. This Minimum Annual Guarantee must exceed $100,000. A concessionaire's rent structure in an airport may differ from the traditional model. 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. In either case, history has shown that MAGs are not supportable in the event of severe downturns. In other parts of the world, MAGs are the airport's exact expected rental payments. The FBOs lease space from the airport sponsor to be able to provide those services. 4.1.3 Percentage Fees. In other parts of the world, MAGs are the airports exact expected rental payments. To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. . softballrizer. 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.. 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. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. 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. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. . Learn. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. No one is sure how long recovery will take. 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. Test. $100,000, 5%, 100% . . (1) On-Airport (% of Gross Receipts). Concessions covers more than what you think of served at a traditional concession stand. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . The FAAs Office of Airports will administer these grant funds to airport sponsors. 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. 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. Flashcards. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. Majority-In-Interest (MII) clauses. "No. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. 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). A collective of travel retailers have agreed that operational contracts hinging on minimum annual guarantees (MAGs) are no longer workable in a Covid-ravaged air transport climate and must be reformed. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. If the airport sponsor determines that it is in its best interest to waive the MAG, then these clauses can be replaced with an alternative fee structure, such as a simple percentage of sales or some other agreed-upon metric of performance. Lets consider six potential options. Consulting. Airports would also have to establish supply lines for products that they have not procured in the past. 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 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. To meet aggressive congressional deadlines for request submissions, a new airport industry request is being made with three potential components: $13 billion in additional emergency assistance, a gap financing program for airports, and a touchless journey through security. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. Through Dec. 31, 2020, the airport sponsor must continue to employ at least 90% of the number of individuals employed (after adjusting for retirements or voluntary employee separations) as of March 27, 2020.

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