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Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). O'Hare and Midway concessionaires to get rent relief - Chicago Sun-Times The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . One-twelfth of the MAG shall be due in advance on the first day of each month Match. Please pay it forward. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. It varies based on the size, capacity, and operations of the airport. The AICPA State and Local Governments audit guide includes certain accounting guidance that has been cleared by GASB as Category B authoritative guidance. The concept is not uncommon. Learn. Phoenix airport restaurants get rent relief during coronavirus Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . A. 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. Without this expertise, the concession will almost certainly fail to operate at an optimum level. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . 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. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. CM Module 1 Questions Flashcards | Quizlet A prepaid monthly "lease" to do business on the property. . Most simply, the airport and vendor could agree to a fixed percentage rent. 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. In North America, airports tend to look at MAGs as the least amount of acceptable rent. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. Why is airport food so expensive? - Policygenius In addition, they typically provide the fueling services for the airport. Notably, the GASB has deferred the implementation date of GASB Statement No. 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. them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). 49 CFR Part 23 requires airports to have a concessions-based DBE program. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. PDF The term will begin on (" ") or upon opening to the public; Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . The entire concessions space is typically leased out to a single company who is responsible for subletting the spaces. Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. 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. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. 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 city may extend the action for an additional 30-day . Paid parking went into effect at . 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. The policies and procedures are available for review here. Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. Elsewhere, airports do not expect vendors to exceed their MAGs. Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . Consulting. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. Necessary cookies are absolutely essential for the website to function properly. 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. 4.1.1 Minimum Annual Guaranteed Concession Fee. 2023 Plante & Moran, PLLC. Current generally accepted accounting principles suggests that entities should establish a policy that defines operating revenues for enterprise funds and use it consistently. From layoffs to business closings, social distancing to shopping only on days that correspond to the first letter of your last name, we have all seen and felt the impact. Find out how our purpose shapes our culture, people, and mission-driven work. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. Minimum Annual Guarantee. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. These three options do not change the underlying airport-concessionaire relationship. These three options do not change the underlying airport-concessionaire relationship. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. 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 . We did not review solicitation or award of concession agreements in this audit. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. Minimum Annual Guarantee. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. Minimum Annual Guarantee (MAG). softballrizer. COVID-19 has sent shockwaves throughout the world. Test. Airport concession fees in the era of COVID-19 | ICF A MAG, as currently developed, is unsustainable in anything but relatively normal times. Hawaii Aviation | Kona International Airport at Keahole Relief for US airport operators deemed insufficient despite US$800m Attention: Finance & Administration Division . Additionally, nonoperating revenues would generally include grants, among other things. Terminal Closure and Footprint Reductions. If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. (a) Annual Reconciliation. Both were selected based on a global tender, and need to pay the Minimum Annual Guarantee of 31 crore each to the Airports Authority of India. Below are some considerations for airport sponsors to keep in mind. 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. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. Strategic agency for engagement and transformation. 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. 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. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. 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. Elsewhere, airports do not expect vendors to exceed their MAGs. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. What this option does do is change the distribution of risk. There are means of counting passengers who pass a concession location, but few airports have installed such technology. 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. 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. 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. 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. . Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. MAC details long-term relief proposal for airport bars, restaurants and 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. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. Concessions FAQs - Raleigh-Durham International Airport Some airports have just a single FBO while others have multiple. which guarantees that the tenant will pay the airport a minimum amount annually. This site uses Akismet to reduce spam. 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. High-profile restaurateurs battle for Orlando International eatery Looking for abbreviations of MAG? Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. 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. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. 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, Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). "We've already . 4.1.3 Percentage Fees. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. PDF Department of Aviation Concessions Management 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. 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. Concessions covers more than what you think of served at a traditional concession stand. For aviation, global recovery to 2019 levels is projected to take several years, into 2023 for markets with significant domestic air . It is mandatory to procure user consent prior to running these cookies on your website. Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. 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. 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 With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. 1, their minimum annual guarantee was superior to anybody . Airports would also have to hire and manage many additional hourly employees. This . Each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. ); 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). A third party company could be contracted to handle the leasing and management of concessions on behalf of the airport. Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. 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 Trinity model can be considered an extension of the joint venture model. All rights reserved. In either case, history has shown that MAGs are not supportable in the event of severe downturns. Minimum Annual Guarantees. 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 The Trinity model can be considered an extension of the joint venture model. The future of airport concessions in a post-COVID-19 world - Duty Free While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. Airport Actions in Response to the COVID-19 Pandemic percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. mwaa.com - RFP-21-26914: Fixed Base Operator, IAD 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. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. Providing a product or service inside the airport environment is one of the key qualifiers for a concessionaire. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. leasehold at Washington Dulles International Airport (IAD). This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. Audit. The recent COVID-19 pandemic has highlighted the need for an alternative outlook on the way that commercial contracts between airports and concessionaires are structured to reflect the current and future uncertainty around passenger profiles and passenger traffic volumes.

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