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Majority-In-Interest (MII) clauses. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. If you have questions about COVID-19s impact on your business, please reach out to your Loeb relationship partner or email us directly atCOVID19@loeb.com. PDF Request for Proposal - Dallas/Fort Worth International Airport Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. Audit. 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. That report and certification should include the number of full-time equivalent employees working at the airport as of March 27, 2020, as the baseline comparison. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. Concessionaires pay the Airport Authority a percentage of their gross sales each month, which is one-twelfth of a pre-determined minimum annual guarantee (MAG). Without this expertise, the concession will almost certainly fail to operate at an optimum level. 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). Food worker shortage at Sacramento airport prompts closures | The 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. 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. How Airports Handle Non-Aeronautical Revenue | Aviation Pros Examples of Minimum Annual Guaranteed Rent in a sentence. Airports provide the passengers, the retailers provide the services. Bond Covenants and Indenture Pledge of Revenues. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. No one is sure how long recovery will take. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. Without this expertise, the concession will almost certainly fail to operate at an optimum level. Option 6: The airport as concession operator. Airport Actions in Response to the COVID-19 Pandemic They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. The policies and procedures are available for review here. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. minimum annual guarantee (MAG) obligations to eligible airport concessions. 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. 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. Tax. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Percentage Rent to the Board as set forth in Article 1 based on Concessionaire's Gross Receipts, subject to a Minimum Annual Guarantee (MAG) as set forth in Article 1, and as further provided below. Wealth Management. This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. We also use third-party cookies that help us analyze and understand how you use this website. 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. 9. 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. Additionally, nonoperating revenues would generally include grants, among other things. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. Regardless, this shifting of risk may not be acceptable to airports. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. 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. In addition to the detailed guidance in the Revenue Use Policy, the CARES Act makes clear that the funds may not be used for any purpose unrelated to the airport. Opinion: Why MAG flexibility is essential for airport advertising CM Module 1 Questions Flashcards | Quizlet While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. A prepaid monthly "lease" to do business on the property. FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. Regardless, this shifting of risk may not be acceptable to airports. For aviation, global recovery to 2019 levels is projected to take several years, into 2023 for markets with significant domestic air . However, it does reduce the potential benefit to the airport by splitting the proceeds generated. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). Looking for abbreviations of MAG? . Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). Airport concession fees in the era of COVID-19 | ICF The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. 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. There are a few limitations, however, that make this a less than optimal solution. C. Concession Fee. The future of airport concessions in a post-COVID-19 world - Duty Free This financial shock has created a number of legal and financial issues. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. It is mandatory to procure user consent prior to running these cookies on your website. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. 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. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. A MAG, as currently developed, is unsustainable in anything but relatively normal times. Guarantee: $50,000. That will, in turn, harm the concession program. installments during the first year of the Term. 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. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. At least for the immediate future, there will be reduced demand for concession services. 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. The Airport has also experienced a reduction in passengers and operations as a result of . 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. For years 2, 3, 4, and 5 of the Term of the Agreement, the Minimum Annual Guarantee shall be 85% of the Concessionaire's previous year's concession fees paid to County or the Minimum Annual Guarantee bid for the first Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. It beat four other finalists. Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. Airports would also have to establish supply lines for products that they have not procured in the past. Elsewhere, airports do not expect vendors to exceed their MAGs. 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. 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. The airport environment is complex and has become even more challenging due to COVID-19. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. ); 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). 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. 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. 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. 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. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. 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. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. Please pay it forward. Minimum Annual Guarantees. 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 While the bulk of the $10 billion appropriated for airport sponsors can be used to make bond principal and interest payments if necessary, airport sponsors may be faced with difficult decisions about how to prioritize needs while under financial stress. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. The price tag is a whopping $440 per square foot. There will still be passengers, and the concession industry needs to be ready to serve them. Minimum Annual Guarantee. Minimum Annual Guarantee. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . There are means of counting passengers who pass a concession location, but few airports have installed such technology. 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. As a result, airports may wish to consider going a step further. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. Terminal Closure and Footprint Reductions. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). When passenger traffic does come back, airports should rethink how their concession contracts work. Airport Retailer Dufry's Sales Rise By Over 50% In 2021, But - Forbes Providing a product or service inside the airport environment is one of the key qualifiers for a concessionaire. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. As MSP airport develops long-term relief plan for shops and restaurants For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. Were here to help! Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. 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. 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. 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. If you have questions. MAG - Minimum Annual Guarantee. 4.1.3 Percentage Fees. Fuelling Airport Recovery Via Non-Aeronautical Revenue | WSP - WSPglobal Very hands off for the airport sponsor. 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. Most simply, the airport and vendor could agree to a fixed percentage rent. Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. Rates for each new fiscal year will be posted on this page after Board approval of the rates and fees. The develop pays the amount due to the airport through the lease agreement and pockets the rest. 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 . Option 5: The Trinity (or Trinity Plus) model. They often charge more than 10% for water and alcohol, Waguespack said. Flashcards. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. Commission Offers New Financial Relief for Airport Dining and Retail A by-location per passenger MAG may be too complicated for widespread implementation at this point. 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. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. 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. Primarily, in residual agreements, the rates vary based on airport revenue. PDF Request for Proposals (Rfp) Non-exclusive On-airport Rental Car As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. Below are some considerations for airport sponsors to keep in mind. In the event that the concessionaire is unsuccessful, the airport absorbs the losses. These cookies will be stored in your browser only with your consent. 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. 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. Discover how we help clients achieve success. However, this still may not be the most effective solution. There are several types of concessionaires that lease space to operate at the airport. 1, their minimum annual guarantee was superior to anybody . 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. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. If FAA does not receive emergency approval, the economic recovery of the nation's air Minimum Annual Guarantee listed as MAG. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. Given the current state of the economy, Congress has turned to working on the next comprehensive economic relief package, which is being referred to as CARES 2.0. Where do we go from here? While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. (a) Annual Reconciliation. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. 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. The Trinity model can be considered an extension of the joint venture model. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). 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 . 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. The FAA has published a map showing airports that are receiving the funds and the allocations made to them. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. Kansas City names company to run concessions at new KCI Airport - KMBC Tenants at airport get break on debts - Arkansasonline.com The cost of design and construction for your space is going to be much higher. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. A concessionaire's rent structure in an airport may differ from the traditional model. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. 6 . The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. 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. 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. The airport environment is complex and has become even more challenging due to COVID-19. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. Find more information in a tax alert comparing COVID-19 employer tax incentives, issued by our National Tax Office. Airport Operations Flashcards | Quizlet Airport Boards approve financial relief plans for concessionaires and The competitive landscape may beby necessityaltered. . The same rules govern the use of CARES Act funds that govern the use of all airport revenues. To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. A by-location per passenger MAG may be too complicated for widespread implementation at this point. Car rental companies are concessionaires at the airport. - Suite 1 . When one partner tries to do too much, it will lessen the benefits of the joint venture. At least $500 million is available to increase the federal share to 100% for grants awarded under the fiscal year 2020 appropriations cycle for FY20 Airport Improvement Program (AIP) and FY20 Supplemental Discretionary grants. Notably, the GASB has deferred the implementation date of GASB Statement No. "No. Products and services both fall into the concessions category. Find out how our purpose shapes our culture, people, and mission-driven work. $82M Google Airport Terminal Set - ABC News Please read our Privacy Policy for more information on the cookies we use. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. They will typically lease space for counter and office space and additional space for the vehicle storage. 116-94). Airports Authority of India to appoint ground handling agencies for 83 Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. SFO gives $21.3 million for airport businesses hurt by coronavirus