The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . It is Minimum Annual Guarantee. There will still be passengers, and the concession industry needs to be ready to serve them. The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. This is especially true for leases incorporating a Minimum Annual Guarantee (MAG) mechanism or fixed rent clauses. 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 . 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 . Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? 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. At least for the immediate future, there will be reduced demand for concession services. Strategic agency for engagement and transformation. 49 CFR Part 23 requires airports to have a concessions-based DBE program. Rates for each new fiscal year will be posted on this page after Board approval of the rates and fees. Please pay it forward. A concessionaire's rent structure in an airport may differ from the traditional model. 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. 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. 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. But opting out of some of these cookies may affect your browsing experience. 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. The key will be ensuring that airline charges remain fair and reasonable. Save my name, email, and website in this browser for the next time I comment. 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. Audit. 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. 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. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. A MAG, as currently developed, is unsustainable in anything but relatively normal times. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. The actual process is the easiest for the airport sponsor since there are minimal contracts. [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. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. 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. No one is sure how long recovery will take. Under the current process, minimum annual guarantee for the first year is the financial bid parameter for selection of bidder and the period of concession is 10 years from the commercial operations date. In other parts of the world, MAGs are the airport's exact expected rental payments. ); that is, airport sponsors meeting statutory and policy requirements under this section, as well as those identified in the FAAs current National Plan of Integrated Airports System (NPIAS). New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. 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 . Kona International Airport at Keahole is located on the western coast of the Island of Hawaii, approximately 10 miles from the town of Kailua Kona. This . The April 4th FAA guidance permits this: In coordination with airport sponsors, airlines, the Transportation Security Administration (TSA), and other entities, closing gates or sections of terminals is likely to be acceptable if the closure is executed in response to reduced passenger volumes and operations, is not discriminatory, and does not provide an unfair competitive advantage to one operator. Airport concession fees in the era of COVID-19, Airports should carefully consider how they structure deals and their business models, Do Not Sell or Share My Personal Information, Limit the Use of My Sensitive Personal Information. 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. Primarily, in residual agreements, the rates vary based on airport revenue. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. Concessionaires need to understand this new business reality when they ask for relief. By clicking Accept, you consent to the use of ALL the cookies. One-twelfth of the MAG shall be due in advance on the first day of each month Very hands off for the airport sponsor. This Minimum Annual Guarantee must exceed $100,000. In North America, airports tend to look at MAGs as the least amount of acceptable rent. To remove barriers in participation of DBEs. As someone who's sat on all four corners of the airport advertising negotiating table - media owner, airport operator, media agency and client - I have a degree of sympathy with all parties. Majority-In-Interest (MII) clauses. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. The airport operator is always present and has a wealth of knowledge about the airport. All rights reserved. Budapest Airport. 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 of the drastic reduction in flights and passenger traffic, airlines have been shrinking their staffing, space requirements and gate usage. (The catch: Potential renters must submit a formal proposal to the Airport Commission and are subject . While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. This site uses Akismet to reduce spam. Elsewhere, airports do not expect vendors to exceed their MAGs. 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. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. The company, which . This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. 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 Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). As a result, airports may wish to consider going a step further. 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. There are means of counting passengers who pass a concession location, but few airports have installed such technology. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. Airport concession program in order to maximize non-aviation revenue, increasing sales per enplaned passenger at a rate higher than passenger . Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. 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. 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. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. 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. With the new economic and industry realities, capital access may be an even greater hurdle. To ensure that firms meet the requirements of DBE qualification. Supplemental Airport Grant-In-Aid Funding 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. The big change at Los Angeles International Airport allows concessionaire partners, which include DFS Group, Hudson and HMSHost, among others, to pay percentage rent rather than a minimum annual guarantee (MAG) from April 1 through June 30 as a result of passenger traffic declines due to the coronavirus pandemic. See how we help fast-changing industries succeed. which guarantees that the tenant will pay the airport a minimum amount annually. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. Find out how our purpose shapes our culture, people, and mission-driven work. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . Each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. 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. Match. By using this site you agree to our use of cookies. . As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. 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. 47114, with minimum apportionments for smaller airports that serve between 8,000 and 10,000 passengers annually. If you have questions. softballrizer. In this model, the airport takes on two roles: landlord and partner in the operation. When passenger traffic does come back, airports should rethink how their concession contracts work. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. Discover how we help clients achieve success. (a) Annual Reconciliation. . The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. 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. In times of continued and prolonged growth, airports have learned to depend upon MAGs. Project. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. The concept is not uncommon. 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. Necessary cookies are absolutely essential for the website to function properly. Minimum Annual Guarantee (MAG). Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . A MAG, as currently developed, is unsustainable in anything but relatively normal times. 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 level the playing field so that DBEs can compete . 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. When one partner tries to do too much, it will lessen the benefits of the joint venture. A. Some larger airports take a percentage of every sale. October 09, 2020, 11:40 a.m. EDT 4 Min Read. 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 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. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. There are a few limitations, however, that make this a less than optimal solution. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. Jacksonville International Airport's split is 70 percent nonaeronautical revenue, which brought in $52 million in 2015, driven by parking, rental car and concessions, he said. 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. 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. Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . Flashcards. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. The competitive landscape may beby necessityaltered. 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. President Donald Trump has already tweeted his support for such an infrastructure bill. Regardless, this shifting of risk may not be acceptable to airports. 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 Federal Aviation Administration (FAA) . 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. The develop pays the amount due to the airport through the lease agreement and pockets the rest. 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 youre far enough along in the implementation process, you may want to move forward with adopting these standards. Bond Covenants and Indenture Pledge of Revenues. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. However, MAGs in concession contracts still expect continued growth. 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. The single factor most tied to concession success is the footfall past the concession locations. A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. Minimum Annual Guarantee. 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. Without this expertise, the concession will almost certainly fail to operate at an optimum level. Without this expertise, the concession will almost certainly fail to operate at an optimum level. New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. No one is sure how long recovery will take. View bio. (1) On-Airport (% of Gross Receipts). North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. a minimum annual guarantee or MAG annually, which more or less translates to rent. We did not review solicitation or award of concession agreements in this audit. A prepaid monthly "lease" to do business on the property. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail.