The FBOs lease space from the airport sponsor to be able to provide those services. Attention: Finance & Administration Division . While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. Retail/Gift Shop 11% of Gross Receipts or Minimum Annual Guarantee Terminal Advertising 30% -60% of Gross Receipts or Minimum Annual Guarantee . Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. 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). Tallahassee International Airport . If FAA does not receive emergency approval, the economic recovery of the nation's air However, it does reduce the potential benefit to the airport by splitting the proceeds generated. A MAG, as currently developed, is unsustainable in anything but relatively normal times. Car rental companies are concessionaires at the airport. . . See how we help fast-changing industries succeed. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . Option 6: The airport as concession operator. them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). However, MAGs in concession contracts still expect continued growth. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. SFO concession tenants pay the greater of a Minimum Annual Guarantee (MAG) or a percentage of Gross Receipts (Concession Fee), along with other cleaning and infrastructure fees. 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. Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. 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. The AICPA State and Local Governments audit guide includes certain accounting guidance that has been cleared by GASB as Category B authoritative guidance. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. 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. That will, in turn, harm the concession program. 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. With standard concession management programs, the airport operator assumes all of the risk for leasing the property but stands to profit the most by receiving a larger amount of generated revenues. 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. 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. Minimum Annual Guarantee. Without this expertise, the concession will almost certainly fail to operate at an optimum level. There are numerous ways to frame a contract without a MAG. 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. Necessary cookies are absolutely essential for the website to function properly. That will, in turn, harm the concession program. View bio. . There are a few limitations, however, that make this a less than optimal solution. In other parts of the world, MAGs are the airport's exact expected rental payments. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. The price tag is a whopping $440 per square foot. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. In other parts of the world, MAGs are the airports exact expected rental payments. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. which guarantees that the tenant will pay the airport a minimum amount annually. The cost of design and construction for your space is going to be much higher. $100,000, 5%, 100% . How does the Airport Authority charge rent? Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. Some airports have just a single FBO while others have multiple. 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. Passengers have needs while at airports. 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. The competitive landscape may beby necessityaltered. We also use third-party cookies that help us analyze and understand how you use this website. Notably, the GASB has deferred the implementation date of GASB Statement No. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. . 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. minimum annual guarantee (MAG) obligations to eligible airport concessions. It is mandatory to procure user consent prior to running these cookies on your website. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. 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. Below are some considerations for airport sponsors to keep in mind. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. https://www.law.cornell.edu/cfr/text/49/part-23, Airport Concessions Disadvantaged Business Enterprises, Developing An Operating Budget - Airport University, Disadvantaged Business Enterprises - Airport University. The CFC is a charge based on either the contract value, gross receipts, or per car per day. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. The actual process is the easiest for the airport sponsor since there are minimal contracts. 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 . Additionally, airports required to pay sick leave wages or family leave wages under Section 7001(e)(4) and 7003(e)(4) of the Families First Coronavirus Response Act are relieved of paying the employers 6.2% portion of FICA taxes associated with those wages. COVID-19 has sent shockwaves throughout the world. To ensure that firms meet the requirements of DBE qualification. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. At least for the immediate future, there will be reduced demand for concession services. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. 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.. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. The policies and procedures are available for review here. 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. One-twelfth of the MAG shall be due in advance on the first day of each month 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. In the concessions arena, they are referred to as Airport Concessions Disadvantaged Business Enterprise (ACDBE). While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. A third party company could be contracted to handle the leasing and management of concessions on behalf of the airport.