Lets consider six potential options. They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. . PDF Agreement for Operation of Valet Parking Services Concession San New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. The AICPA State and Local Governments audit guide includes certain accounting guidance that has been cleared by GASB as Category B authoritative guidance. The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. 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. 87, Leases by a full 18 months, resulting in June 30, 2022 year-ends to be the first to implement the significant new leasing standard. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. 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. Concessionaires need to understand this new business reality when they ask for relief. Non-aeronautical revenueairport revenue from sources other than airlinestypically includes retail concessions, 1 car parking, and property and real estate. In times of continued and prolonged growth, airports have learned to depend upon MAGs. 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 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. A by-location per passenger MAG may be too complicated for widespread implementation at this point. Match. It was suspended in June, following the severe decline of passenger traffic over those . It is mandatory to procure user consent prior to running these cookies on your website. 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. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. You also have the option to opt-out of these cookies. Created by. The Struggle and Payoff of Setting Up Shop in an Airport However, this still may not be the most effective solution. Car rental companies are concessionaires at the airport. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. Find out how our purpose shapes our culture, people, and mission-driven work. Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. In other parts of the world, MAGs are the airports exact expected rental payments. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. The policies and procedures are available for review here. Regulatory Updates Extension of Minimum Slot Usage Requirements. County of Muskegon Muskegon County Airport The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. It is Minimum Annual Guarantee. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. How does the Airport Authority charge rent? The intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). . In other parts of the world, MAGs are the airports exact expected rental payments. SFO Launches Emergency Rent Relief Program for Airport Concession If, on the other hand, the airport sponsor decides to enforce the terms of a MAG, then it should carefully review the concession contract to determine the terms of enforcement and whether the concessionaire has any basis to refuse to pay the MAG. 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, Hrmes) are given the ability to design and operate their mini outlets. Minimum Annual Guarantees. See how we support our people, protect the planet, and give back to communities. Audit. a minimum annual guarantee or MAG annually, which more or less translates to rent. Current generally accepted accounting principles suggests that entities should establish a policy that defines operating revenues for enterprise funds and use it consistently. A third party company could be contracted to handle the leasing and management of concessions on behalf of the airport. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. . 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. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. Airports would also have to hire and manage many additional hourly employees. 4.1.1 Minimum Annual Guaranteed Concession Fee. The cost of design and construction for your space is going to be much higher. Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. Examples of Minimum Annual Guaranteed Rent in a sentence. Minimum Annual Guarantee listed as MAG. The Trinity model can be considered an extension of the joint venture model. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. Normally, airport concessionaires pay the city a percentage of sales or a "minimum annual guarantee" based on sales the previous year, whichever is greater. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. The funds are coming directly from the U.S. Treasurys General Fund to prevent, prepare for, and respond to the impacts of the COVID-19 public health emergency. There are numerous ways to frame a contract without a MAG. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). Airlines value an attractive commercial program because it makes a better background for the expression of their brand. The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Relaxing in a $4 Million Lounge Under the Dulles Control Tower Could Additionally, nonoperating revenues would generally include grants, among other things. 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. That will, in turn, harm the concession program. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. - Suite 1 . Receive perspectives on the industries and issues that matter. Majority-In-Interest (MII) clauses. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. This Minimum Annual Guarantee must exceed $100,000. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. A third party can absorb some of the liability and risk from the airport 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. 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. 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. This is especially true for leases incorporating a Minimum Annual Guarantee (MAG) mechanism or fixed rent clauses. But opting out of some of these cookies may affect your browsing experience. 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. 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. SFO gives $21.3 million for airport businesses hurt by coronavirus Minimum Annual Guarantee Definition | Law Insider That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. Most simply, the airport and vendor could agree to a fixed percentage rent. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. There are means of counting passengers who pass a concession location, but few airports have installed such technology. 47114, with minimum apportionments for smaller airports that serve between 8,000 and 10,000 passengers annually. 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. The Airport has also experienced a reduction in passengers and operations as a result of . No one is sure how long recovery will take. PFCs have been set at $4.50/passenger since 2000, and increasing the PFC maximum has been a priority of the airport industry for some time. 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). To promote the use of DBEs for federally funded projects. The airport operator is always present and has a wealth of knowledge about the airport. If FAA does not receive emergency approval, the economic recovery of the nation's air If you have questions. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. The adjustment in Guaranteed Annual Rent may not, in any event, result in a decrease in the current amount of Minimum Annual Guaranteed Rent.. Any increase in Minimum Annual Guaranteed Rent shall be based upon an average increase in the index calculated over a period of 90 days prior to the end of the current five year term. installments during the first year of the Term. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. 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. 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). Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. 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 . 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. These cookies will be stored in your browser only with your consent. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. With the new economic and industry realities, capital access may be an even greater hurdle. A Guide to Transportation Funding Options - Texas A&M University 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. Necessary cookies are absolutely essential for the website to function properly. Retailers: Minimum annual guarantee 'rules of engagement' have changed 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. The FAA released guidance for airport administrators, but questions still linger and issues have gone unaddressed. 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. What this option does do is change the distribution of risk. Notably, the GASB has deferred the implementation date of GASB Statement No. The price tag is a whopping $440 per square foot. 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. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. These cookies do not store any personal information. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . 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. 9. White Paper: Airport Concession Agreements - ACI World Store mwaa.com - RFP-21-26914: Fixed Base Operator, IAD Pandemic Pain For Retail Is Much Higher At Some Airports Than - Forbes 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. softballrizer. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. 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 . While this methodology is feasible, it does not get to the actual number of passengers who see a concession location.