O'Hare and Midway concessionaires to get rent relief - Chicago Sun-Times This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. 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. 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 . Some larger airports take a percentage of every sale. This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. It varies based on the size, capacity, and operations of the airport. At least for the immediate future, there will be reduced demand for concession services. 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. Kansas City names company to run concessions at new KCI Airport - KMBC Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. White Paper: Airport Concession Agreements - ACI World Store See how we help fast-changing industries succeed. percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. Tenants at airport get break on debts - Arkansasonline.com That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. 9. . By clicking Accept, you consent to the use of ALL the cookies. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. (1) On-Airport (% of Gross Receipts). Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. 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. 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 . Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. . minimum annual guarantee (MAG) obligations to eligible airport concessions. The competitive landscape may beby necessityaltered. COVID-19 has sent shockwaves throughout the world. 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. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. If you have questions. 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. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. But opting out of some of these cookies may affect your browsing experience. 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. Relief for US airport operators deemed insufficient despite US$800m The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. Match. PDF Request for Proposals (Rfp) Non-exclusive On-airport Rental Car 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 . Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. In North America, airports tend to look at MAGs as the least amount of acceptable rent. A prepaid monthly "lease" to do business on the property. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. You also have the option to opt-out of these cookies. The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. 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. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. To level the playing field so that DBEs can compete . Concessions FAQs - Raleigh-Durham International Airport PDF Agreement for Operation of Valet Parking Services Concession San 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. Minimum Annual Guarantee ("MAG") Lowest amount of rent to be paid To Be Negotiated . The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. 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 . 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. 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 concept is not uncommon. AAAE CM Exam Module 1 Own Verison Flashcards | Quizlet There are numerous ways to frame a contract without a MAG. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. There are a few limitations, however, that make this a less than optimal solution. 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. Paid parking went into effect at . Airports would also have to hire and manage many additional hourly employees. Minimum Annual Guarantee Definition | Law Insider MAC details long-term relief proposal for airport bars, restaurants and A third party company could be contracted to handle the leasing and management of concessions on behalf of the airport. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. All rights reserved. A concessionaire's rent structure in an airport may differ from the traditional model. 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. The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. However, it does reduce the potential benefit to the airport by splitting the proceeds generated. Airports would also have to establish supply lines for products that they have not procured in the past. FBO/SASO: NOTE: 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 . Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. Flashcards. Minimum Annual Guarantee. This simplified agreement includes the requirements under the CARES Act and makes funds immediately available for expenses, other than airport development, including payroll, debt service, utility expenses, service contracts, and supplies. 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 . However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. County of Muskegon Muskegon County Airport The FAAs Office of Airports will administer these grant funds to airport sponsors. The city may extend the action for an additional 30-day . Option 4: Airport-concessionaire joint ventures. There are several types of concessionaires that lease space to operate at the airport. Majority-In-Interest (MII) clauses. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). 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. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. This financial shock has created a number of legal and financial issues. How does the Airport Authority charge rent? 3300 Capital Circle, S.W. No one is sure how long recovery will take. 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 Minimum Annual Guarantee: Each Proposer shall submit its proposal as a minimum annual guarantee (MAG) for each of the first two (2) years of the Concession Agreement. As a result, airports may wish to consider going a step further. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. Match. . Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. Audit. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. 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. There will still be passengers, and the concession industry needs to be ready to serve them. San Francisco, CA Mayor London N. Breed has signed an ordinance authorizing the San Francisco International Airport (SFO) to launch a rent relief program for airport concession tenants, in which lease agreements will be modified to waive certain rent and fees.The value of the relief available to be granted under the COVID-19 Emergency Rent Relief Program is estimated at $21.3 million and . "This is to offset rent and minimum annual guarantee requirements of those tenants in the face of a severe decline in their customers (passengers) during the continuing COVID issue." Airport . This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. 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. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . - Suite 1 . The single factor most tied to concession success is the footfall past the concession locations. 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. What this option does do is change the distribution of risk. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. 4.1.1 Minimum Annual Guaranteed Concession Fee. Discover the top trends shaping government in 2023. Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. 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. In either case, history has shown that MAGs are not supportable in the event of severe downturns. As MSP airport develops long-term relief plan for shops and restaurants Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. To promote the use of DBEs for federally funded projects. This is especially true for leases incorporating a Minimum Annual Guarantee (MAG) mechanism or fixed rent clauses. In the event that the concessionaire is unsuccessful, the airport absorbs the losses. When passenger traffic does come back, airports should rethink how their concession contracts work. View bio. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. a minimum annual guarantee or MAG annually, which more or less translates to rent. Relaxing in a $4 Million Lounge Under the Dulles Control Tower Could CARES Act funding: Ten things airports need to know Opinion: Airport concession fee strategies in the coronavirus era 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. There are a few limitations, however, that make this a less than optimal solution. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. Below are some considerations for airport sponsors to keep in mind. The same rules govern the use of CARES Act funds that govern the use of all airport revenues. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. 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. COVID-19 has sent shockwaves throughout the world. 1, their minimum annual guarantee was superior to anybody . Concessions covers more than what you think of served at a traditional concession stand. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. An amount of $7.4 billion, which can be distributed to airport sponsors for any purpose for which airport revenues may lawfully be used. The purpose for which airport revenues may lawfully be used is widely viewed as a reference to the FAAs Policy on Permitted and Prohibited Uses of Airport Revenue (Revenue Diversion Policy). 2023 Plante & Moran, PLLC. 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. mwaa.com - RFP-21-26914: Fixed Base Operator, IAD Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. 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. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. 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. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. 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. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Consulting. In April, the San Jose City Council voted to grant delegated authority to the airport staff to finalize negotiations and execute a 50-year lease to Signature Flight Support. Airport Operations Flashcards | Quizlet Review Journal | Legal Notices | NOTICE OF INTENTION TO ENTER I Attention: Finance & Administration Division . While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. A MAG, as currently developed, is unsustainable in anything but relatively normal times. 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. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. Terminal Closure and Footprint Reductions. Examples of Minimum Annual Guaranteed Rent in a sentence. 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, Hrmes) are given the ability to design and operate their mini outlets. 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. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. Proposed laws would allow Uber, Lyft pickups at Seattle airport and In North America, airports tend to look at MAGs as the least amount of acceptable rent. PDF Concession Policy 1. Overview 1 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. 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. Primarily, in residual agreements, the rates vary based on airport revenue. 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. Were here to help! This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. 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. This category only includes cookies that ensures basic functionalities and security features of the website. If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. . 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. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. Concessionaires need to understand this new business reality when they ask for relief. C. Concession Fee. The airport operator is always present and has a wealth of knowledge about the airport. Concessionaires need to understand this new business reality when they ask for relief. However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. In either case, history has shown that MAGs are not supportable in the event of severe downturns. 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. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. 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. The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. Tallahassee International Airport . The key will be ensuring that airline charges remain fair and reasonable. The single factor most tied to concession success is the footfall past the concession locations. Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. What this option does do is change the distribution of risk. Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. 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, The entire concessions space is typically leased out to a single company who is responsible for subletting the spaces. 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). "We've already . Here are some others. Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. 5-16-C001: Rental Car Concessions, National Airport 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. Concessions covers more than what you think of served at a traditional concession stand. The Airport has also experienced a reduction in passengers and operations as a result of . PDF Department of Aviation Concessions Management PDF Appropriations Act, 2021 and the American Rescue Plan Act, 2021 Normally, airport concessionaires pay the city a percentage of sales or a "minimum annual guarantee" based on sales the previous year, whichever is greater. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. $100,000, 5%, 100% . First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations.