Budapest Airport. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. 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. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. 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. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. Notably, the GASB has deferred the implementation date of GASB Statement No. The single factor most tied to concession success is the footfall past the concession locations. SFO Launches Emergency Rent Relief Program for Airport Concession CARES Act funding: Ten things airports need to know The CFC is a charge based on either the contract value, gross receipts, or per car per day. Test. Current generally accepted accounting principles suggests that entities should establish a policy that defines operating revenues for enterprise funds and use it consistently. One of the components of the CARES Act provides the opportunity for employers to defer payment of the 6.2% FICA portion of the employers portion of employment taxes, effective immediately through Dec. 31, 2020. MAC details long-term relief proposal for airport bars, restaurants and Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. In either case, history has shown that MAGs are not supportable in the event of severe downturns. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. County of Muskegon Muskegon County Airport Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. 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 fallacy of Minimum Annual Guarantee (MAG). The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. 49 CFR Part 23 requires airports to have a concessions-based DBE program. 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. Without this expertise, the concession will almost certainly fail to operate at an optimum level. 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. One-twelfth of the MAG shall be due in advance on the first day of each month The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. The Trinity model is particularly applicable to duty-free concessions, where it is practical to divide a store into departments wherein vendors (e.g., Channel, Rolex, Hermes) are given the ability to design and operate their mini outlets. The airport environment is complex and has become even more challenging due to COVID-19. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. PDF Federal Aviation Administration 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. How does the Airport Authority charge rent? Were here to help! The company, which . 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. Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . Below are some considerations for airport sponsors to keep in mind. To remove barriers in participation of DBEs. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. February 2, 2021January 28, 2021 | AirportU. Rates for each new fiscal year will be posted on this page after Board approval of the rates and fees. These three options do not change the underlying airport-concessionaire relationship. 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. Proposed laws would allow Uber, Lyft pickups at Seattle airport and Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. High-profile restaurateurs battle for Orlando International eatery New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. This site uses Akismet to reduce spam. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. 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. Consulting. In North America, airports tend to look at MAGs as the least amount of acceptable rent. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Wealth Management. See how we support our people, protect the planet, and give back to communities. 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. SFO to launch rent relief programme for airport concession tenants Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. October 09, 2020, 11:40 a.m. EDT 4 Min Read. 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. Relaxing in a $4 Million Lounge Under the Dulles Control Tower Could When one partner tries to do too much, it will lessen the benefits of the joint venture. Lets consider six potential options. Some airports have just a single FBO while others have multiple. 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. A MAG, as currently developed, is unsustainable in anything but relatively normal times. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. A MAG, as currently developed, is unsustainable in anything but relatively normal times. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . Paid parking went into effect at . The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. 4.1.3 Percentage Fees. - Suite 1 . 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. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. $100,000, 5%, 100% . Airports provide the passengers, the retailers provide the services. Bid. CM Module 1 Questions Flashcards | Quizlet Airports Authority of India to appoint ground handling agencies for 83 Discover the top trends shaping government in 2023. 84, Fiduciary Activities. This . 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. 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. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. It is mandatory to procure user consent prior to running these cookies on your website. Performance. 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. 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. In this model, the airport takes on two roles: landlord and partner in the operation. To ensure that firms meet the requirements of DBE qualification. Minimum Annual Guarantee. Minimum Annual Guaranteed Rent Definition | Law Insider Bond Covenants and Indenture Pledge of Revenues. The city may extend the action for an additional 30-day . 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. However, it does reduce the potential benefit to the airport by splitting the proceeds generated. Pandemic Pain For Retail Is Much Higher At Some Airports Than - Forbes Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. Necessary cookies are absolutely essential for the website to function properly. A by-location per passenger MAG may be too complicated for widespread implementation at this point. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. Without this expertise, the concession will almost certainly fail to operate at an optimum level. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. Where do we go from here? As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. 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. 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. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. This Minimum Annual Guarantee must exceed $100,000. The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . This is especially true for leases incorporating a Minimum Annual Guarantee (MAG) mechanism or fixed rent clauses. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Concessionaires need to understand this new business reality when they ask for relief. 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. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. Commission Offers New Financial Relief for Airport Dining and Retail At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. There are a few limitations, however, that make this a less than optimal solution. 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. A third party company could be contracted to handle the leasing and management of concessions on behalf of the airport. The Trinity model can be considered an extension of the joint venture model. The key will be ensuring that airline charges remain fair and reasonable. Please pay it forward. Examples of Minimum Annual Guaranteed Rent in a sentence. 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. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . ); 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). softballrizer. [1]https://www.law.cornell.edu/cfr/text/49/part-23 jQuery('#footnote_plugin_tooltip_333_1_1').tooltip({ tip: '#footnote_plugin_tooltip_text_333_1_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top center', relative: true, offset: [-7, 0], }); The entire premise of the DBE program is based on: The writers of AirportU do so not for recognition, rather for learning, sharing, and empowering others. There are means of counting passengers who pass a concession location, but few airports have installed such technology. Audit. Piedmont Triad International Airport in Greensboro gets $10 million in Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. The FAAs Office of Airports will administer these grant funds to airport sponsors. 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). Under one version of an infrastructure plan floated by House Democrats (the Moving Forward Framework), airports and airspace improvements would be funded, in part, by an increase in PFCs. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. PDF Department of Aviation Concessions Management Concessions Development - Airport University 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 current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Concessions Dev - San Diego International Airport 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. 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 . COVID-19 has sent shockwaves throughout the world. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. Concessions covers more than what you think of served at a traditional concession stand. 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 . Each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. 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. 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. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. This financial shock has created a number of legal and financial issues. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). 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. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. COVID-19 has sent shockwaves throughout the world. $82M Google Airport Terminal Set - ABC News 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. Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. Some airports have had huge success in meeting ACDBE goals with the developer model. 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. 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. 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. For more insights from Alan Gluck and ICF, please go to https://www.icf.com/insights/transportation, The future of airport concessions in a post-COVID-19 world, https://www.icf.com/insights/transportation. Denver International Airport refundings to ease debt-service schedule Primarily, in residual agreements, the rates vary based on airport revenue. 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. FBO/SASO: NOTE: This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. 4.1.1 Minimum Annual Guaranteed Concession Fee. It was suspended in June, following the severe decline of passenger traffic over those . It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. 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. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. 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. However, this still may not be the most effective solution. If FAA does not receive emergency approval, the economic recovery of the nation's air Summary: The Metropolitan Washington Airports Authority is seeking competitive bids from all responsible and qualified companies desiring to manage and operate rental car concessions from on-Airport facilities at Ronald Reagan Washington National Airport. The competitive landscape may beby necessityaltered. It is Minimum Annual Guarantee. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. As a result, airports may wish to consider going a step further. 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. 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. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. The Board of Airport Commissioners at Los Angeles World Airports has recently approved a recommendation by management to permit concessionaire relief measures, including moving all concessionaires with contracts based on Minimum Annual Guarantee fee payments to percentage rent-based agreements The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. 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. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. 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. PDF Request for Proposal - Dallas/Fort Worth International Airport Duty Free Americas Miami offered a minimum annual guarantee to the airport of $20 million -- topping the $18.5 million offered by Dufry Miami Retail Partnership and about $9 million more than two .