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Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. 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. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. The fallacy of Minimum Annual Guarantee (MAG). The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. But opting out of some of these cookies may affect your browsing experience. ); 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). 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 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. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. 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. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. With the new economic and industry realities, capital access may be an even greater hurdle. 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. There are means of counting passengers who pass a concession location, but few airports have installed such technology. As a result, airports may wish to consider going a step further. Examples of Minimum Annual Guaranteed Rent in a sentence. 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. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . 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. CARES Act grant recipients should follow the FAAs Policy and Procedures Concerning the Use of Airport Revenues (Revenue Use Policy), 64 Federal Register 7696 (64 FR 7696), as amended by 78 Federal Register 55330 (78 FR 55330). The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. Car rental companies are concessionaires at the airport. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). Airlines value an attractive commercial program because it makes a better background for the expression of their brand. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. 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. Because of the drastic reduction in flights and passenger traffic, airlines have been shrinking their staffing, space requirements and gate usage. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. 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. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. This financial shock has created a number of legal and financial issues. However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. 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. 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 current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. 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. Bid. The Trinity model can be considered an extension of the joint venture model. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. Created by. NOTICE OF INTENTION TO ENTER INTO FOUR SEPARATE CONCESSION LEASE AGREEMENTS WITH THE DAY ONE GROUP LLC NOTICE IS HEREBY GIVEN, to all interested parties, that the Clark County Board of Commissioners intends to enter into four separate Concession Lease Agreements (Agreements) for the operation of 5 specialty retail concessions with The Day One Group LLC (Company) serving Harry Reid . The develop pays the amount due to the airport through the lease agreement and pockets the rest. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). 49 CFR Part 23 requires airports to have a concessions-based DBE program. When one partner tries to do too much, it will lessen the benefits of the joint venture. 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. The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. 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.. (The catch: Potential renters must submit a formal proposal to the Airport Commission and are subject . That will, in turn, harm the concession program. Performance. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. In times of continued and prolonged growth, airports have learned to depend upon MAGs. 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. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. The Trinity model can be considered an extension of the joint venture model. Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. What this option does do is change the distribution of risk. 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. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . 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. 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. Please pay it forward. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. Concessions covers more than what you think of served at a traditional concession stand. Most simply, the airport and vendor could agree to a fixed percentage rent. The repayment will occur over time, with 50% of the deferral being due by Dec. 31, 3021, and the remaining due by Dec. 31, 2022. A concessionaire's rent structure in an airport may differ from the traditional model. 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. Minimum Annual Guarantee ("MAG") Lowest amount of rent to be paid To Be Negotiated . A prepaid monthly "lease" to do business on the property. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. Very hands off for the airport sponsor. Airports should carefully consider how they structure deals and their business models to ensure more flexibility to respond to potential future shocks. 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. . The FAA has published a map showing airports that are receiving the funds and the allocations made to them. 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 . Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. 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. "We've already . North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. We also use third-party cookies that help us analyze and understand how you use this website. 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. Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. At least for the immediate future, there will be reduced demand for concession services. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. 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. This site uses Akismet to reduce spam. 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 In the event that the concessionaire is unsuccessful, the airport absorbs the losses. Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including 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. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. In this model, the airport takes on two roles: landlord and partner in the operation. The MAC has already waived minimum annual guarantees three . Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. When passenger traffic does come back, airports should rethink how their concession contracts work. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. Concessionaires need to understand this new business reality when they ask for relief. 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). 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 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. 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 . We did not review solicitation or award of concession agreements in this audit. Learn how your comment data is processed. 3300 Capital Circle, S.W. When one partner tries to do too much, it will lessen the benefits of the joint venture. However, MAGs in concession contracts still expect continued growth. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. Minimum Annual Guarantee. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. 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. The competitive landscape may beby necessityaltered. 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. COVID-19 has sent shockwaves throughout the world. 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 Federal Aviation Administration (FAA) . Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. Minimum Annual Guarantee listed as MAG. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. Elsewhere, airports do not expect vendors to exceed their MAGs. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . Discover how we help clients achieve success. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. Terms in this set (15) What is MAG and what does it stand for? 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. However, this still may not be the most effective solution. Option 5: The Trinity (or Trinity Plus) model. Concessionaires need to understand this new business reality when they ask for relief. To level the playing field so that DBEs can compete . The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. Land . I certify that Airport Concessions Inc. has not received a second draw or assistance for a covered loan under section 7(a)(37) of the Small Business Act (15 U.S.C. A by-location per passenger MAG may be too complicated for widespread implementation at this point. Receive perspectives on the industries and issues that matter. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. They will typically lease space for counter and office space and additional space for the vehicle storage. 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. 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. Find out how our purpose shapes our culture, people, and mission-driven work. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) This website uses cookies to improve your experience while you navigate through the website. 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. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. 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 . softballrizer. 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. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. Majority-In-Interest (MII) clauses. 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. 6 . 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. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . 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. A by-location per passenger MAG may be too complicated for widespread implementation at this point. How does the Airport Authority charge rent? 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. However, there is no relief of the obligation to withhold and remit the corresponding employee share. 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. It is Minimum Annual Guarantee. Each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. Airports would also have to establish supply lines for products that they have not procured in the past. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger.