Most simply, the airport and vendor could agree to a fixed percentage rent. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . Minimum Annual Guarantee. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. . Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. In times of continued and prolonged growth, airports have learned to depend upon MAGs. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. 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. 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. 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. Consulting. Airports would also have to hire and manage many additional hourly employees. The intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). A prepaid monthly "lease" to do business on the property. A concessionaire's rent structure in an airport may differ from the traditional model. In this model, the airport takes on two roles: landlord and partner in the operation. Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. 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. The same rules govern the use of CARES Act funds that govern the use of all airport revenues. Concessions covers more than what you think of served at a traditional concession stand. Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. 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. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. In other parts of the world, MAGs are the airport's exact expected rental payments. But opting out of some of these cookies may affect your browsing experience. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. To level the playing field so that DBEs can compete . The FAA will use the Office of Management and Budget (OMB) SF-424, Application for Federal Assistance, and provide a simplified grant agreement shortly after it receives an application. 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. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. Tax. It is Minimum Annual Guarantee. 47114 (as modified by the CARES Act), then the remainder is distributed in the same manner as the $7.4 billionbased on a mixture of enplanements and debt service. 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. Project. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. 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. Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. Passengers have needs while at airports. The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. Audit. 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. Current generally accepted accounting principles suggests that entities should establish a policy that defines operating revenues for enterprise funds and use it consistently. There are numerous ways to frame a contract without a MAG. 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. Each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. 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. 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.. 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. softballrizer. Bond Covenants and Indenture Pledge of Revenues. Considering all the current changes in our business, this model may be a solution to sharing risk and encouraging a strong representation of critical brands in airports. In this model, the airport takes on two roles: landlord and partner in the operation. Match. 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. 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). 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 . The Trinity model can be considered an extension of the joint venture model. 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. . Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. The airport environment is complex and has become even more challenging due to COVID-19. Additionally, nonoperating revenues would generally include grants, among other things. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. 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. Performance. Match. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. Test. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. PFCs have been set at $4.50/passenger since 2000, and increasing the PFC maximum has been a priority of the airport industry for some time. Discover our insights for a sustainable, low-emissions future. There are numerous ways to frame a contract without a MAG. Learn. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. . 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. Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. 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. In a 6-to-3 vote on Monday, June 8, the council approved temporarily revising the Minimum Annual Guarantee, which is a fixed amount restaurants guarantee they will pay the city to do business at . The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. 84, Fiduciary Activities. 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). C. Concession Fee. 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. 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 . Lets consider six potential options. The airport environment is complex and has become even more challenging due to COVID-19. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). Primarily, in residual agreements, the rates vary based on airport revenue. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. See how we help fast-changing industries succeed. . The city may extend the action for an additional 30-day . This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. 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. COVID-19 has sent shockwaves throughout the world. 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. 49 CFR Part 23 requires airports to have a concessions-based DBE program. February 2, 2021January 28, 2021 | AirportU. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. (1) On-Airport (% of Gross Receipts). 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). Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. 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. 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. installments during the first year of the Term. To promote the use of DBEs for federally funded projects. Some airports have had huge success in meeting ACDBE goals with the developer model. 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. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). 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. By using this site you agree to our use of cookies. These three options do not change the underlying airport-concessionaire relationship. 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. 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. 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. 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 . Strategic agency for engagement and transformation. How does the Airport Authority charge rent? 4.1.3 Percentage Fees. Notably, the GASB has deferred the implementation date of GASB Statement No. . This Minimum Annual Guarantee must exceed $100,000. There are several types of concessionaires that lease space to operate at the airport. We also use third-party cookies that help us analyze and understand how you use this website. No one is sure how long recovery will take. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. 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. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement.