While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. The MAC has already waived minimum annual guarantees three . 116-94). If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. 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. This is only for the passenger traffic, while for . 2023 Plante & Moran, PLLC. 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 . There will still be passengers, and the concession industry needs to be ready to serve them. However, MAGs in concession contracts still expect continued growth. Notably, the GASB has deferred the implementation date of GASB Statement No. 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. Learn. 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. Concessions Dev - San Diego International Airport No one is sure how long recovery will take. A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. 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, 84, Fiduciary Activities. PDF Request for Proposals (Rfp) Non-exclusive On-airport Rental Car The price tag is a whopping $440 per square foot. 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. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. While many contracts include a "force majeure" clause, this does not necessarily cover pandemic scenarios and in many instances, there is no formal agreement in place to review commercial terms in the event of such a . 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. Will this have an impact on airline and concession agreements? Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. In other parts of the world, MAGs are the airport's exact expected rental payments. 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. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). Wealth Management. SFO gives $21.3 million for airport businesses hurt by coronavirus What this option does do is change the distribution of risk. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. Created by. This . These three options do not change the underlying airport-concessionaire relationship. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. One-twelfth of the MAG shall be due in advance on the first day of each month Minimum Annual Guarantee listed as MAG. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. How Airports Handle Non-Aeronautical Revenue | Aviation Pros In the event that the concessionaire is unsuccessful, the airport absorbs the losses. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. 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 models to ensure more flexibility to respond to potential future shocks. We also use third-party cookies that help us analyze and understand how you use this website. Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. 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. BADGES AND SECURITY: . 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. This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. 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. When one partner tries to do too much, it will lessen the benefits of the joint venture. In North America, airports tend to look at MAGs as the least amount of acceptable rent. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. 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. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. Airport Actions in Response to the COVID-19 Pandemic In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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. Test. Why is airport food so expensive? - Policygenius The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. 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. This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. This Minimum Annual Guarantee must exceed $100,000. Airport sponsors must certify compliance with the CARES Act employment requirements at the time of grant execution and report employment totals quarterly on June 30, Sept. 30, and Dec. 31, 2020. Discover how we help clients achieve success. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. Attention: Finance & Administration Division . 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. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . Performance. The same rules govern the use of CARES Act funds that govern the use of all airport revenues. We did not review solicitation or award of concession agreements in this audit. Concessions and retail often fill that need. Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. Regulatory Updates due to Coronavirus - Federal Aviation Administration At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. There are a few limitations, however, that make this a less than optimal solution. 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. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. . As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. 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. . These MAG clauses in concession contracts should be carefully reviewed. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. 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). Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? 3300 Capital Circle, S.W. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. 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. . PDF Agreement for Operation of Valet Parking Services Concession San Concessionaires need to understand this new business reality when they ask for relief. FY2021 Rates & Fees | Northwest Florida Beaches International Airport However, this still may not be the most effective solution. Match. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . $100,000, 5%, 100% . Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. Terms in this set (15) What is MAG and what does it stand for? The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. Normally, airport concessionaires pay the city a percentage of sales or a "minimum annual guarantee" based on sales the previous year, whichever is greater. All rights reserved. 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. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. Find out how our purpose shapes our culture, people, and mission-driven work. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. 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. 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 FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. Audit. 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 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. 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. COVID-19 Considerations for Airports and Airport Sponsors PDF Department of Aviation Concessions Management Match. DOCX Airport Rescue Grants Airport Concession Certification for XYZ Airport Project. When passenger traffic does come back, airports should rethink how their concession contracts work. "No. The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter.
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