In this model, the airport takes on two roles: landlord and partner in the operation. That is no longer possible. When one partner tries to do too much, it will lessen the benefits of the joint venture. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. The airport environment is complex and has become even more challenging due to COVID-19. . The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. In other parts of the world, MAGs are the airports exact expected rental payments. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . Supplemental Airport Grant-In-Aid Funding Budapest Airport. We did not review solicitation or award of concession agreements in this audit. Without this expertise, the concession will almost certainly fail to operate at an optimum level. 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. However, this still may not be the most effective solution. . 9. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. 116-94). The city may extend the action for an additional 30-day . COVID-19 has sent shockwaves throughout the world. "No. 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. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . Performance. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee (MAG). Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. installments during the first year of the Term. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. In this model, the airport takes on two roles: landlord and partner in the operation. Airports would also have to hire and manage many additional hourly employees. Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. Will this have an impact on airline and concession agreements? Without this expertise, the concession will almost certainly fail to operate at an optimum level. To promote the use of DBEs for federally funded projects. 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. 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 . 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. Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. Minimum Annual Guarantee. A MAG, as currently developed, is unsustainable in anything but relatively normal times. It is Minimum Annual Guarantee. If you are a sponsor who controls multiple airports the FAA has stated in its CARES Act FAQ, an airport sponsor may use funds at any airport under its control. This site uses Akismet to reduce spam. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. 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. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. 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 As a result, airports may wish to consider going a step further. Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. 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). Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . In either case, history has shown that MAGs are not supportable in the event of severe downturns. Land . 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 . Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. The cost of design and construction for your space is going to be much higher. FBO/SASO: NOTE: Strategic agency for engagement and transformation. 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 . 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 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. Project. 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. These cookies do not store any personal information. Discover how we help clients achieve success. Airports would also have to establish supply lines for products that they have not procured in the past. With the new economic and industry realities, capital access may be an even greater hurdle. Guarantee: 50% of Minimum Annual Guarantee. See how we help fast-changing industries succeed. These MAG clauses in concession contracts should be carefully reviewed. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). The single factor most tied to concession success is the footfall past the concession locations. [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. While the bulk of the $10 billion appropriated for airport sponsors can be used, if necessary, to make bond principal and interest payments, airport sponsors may be faced with difficult decisions about how to prioritize needs during the financial stress. Find more information in a tax alert comparing COVID-19 employer tax incentives, issued by our National Tax Office. It beat four other finalists. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . Non-airport retail leases typically charge rent on a per square foot (PSF) basis. The intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). . This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. minimum annual guarantee (MAG) obligations to eligible airport concessions. 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. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. which guarantees that the tenant will pay the airport a minimum amount annually. A by-location per passenger MAG may be too complicated for widespread implementation at this point. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. MAG - Minimum Annual Guarantee. The develop pays the amount due to the airport through the lease agreement and pockets the rest. The FAAs Office of Airports will administer these grant funds to airport sponsors. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. The airport operator is always present and has a wealth of knowledge about the airport. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. 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. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. The airport operator is always present and has a wealth of knowledge about the airport. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. The competitive landscape may beby necessityaltered. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. If the basis for a MAG is what the airport thought it should be earning, the amount may never be supportable even if a concessionaire signed the contract. softballrizer. 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. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . There are numerous ways to frame a contract without a MAG. Please pay it forward. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. The AICPA State and Local Governments audit guide includes certain accounting guidance that has been cleared by GASB as Category B authoritative guidance. But opting out of some of these cookies may affect your browsing experience. There are means of counting passengers who pass a concession location, but few airports have installed such technology. Minimum Annual Guarantee listed as MAG. The Trinity model can be considered an extension of the joint venture model. 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. 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 need to understand this new business reality when they ask for relief. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. 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. Discover the top trends shaping government in 2023. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). Some larger airports take a percentage of every sale. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Discover our insights for a sustainable, low-emissions future. Airport concession fees in the era of COVID-19, Airports should carefully consider how they structure deals and their business models, Do Not Sell or Share My Personal Information, Limit the Use of My Sensitive Personal Information. 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. 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. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. There are a few limitations, however, that make this a less than optimal solution. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. 47114, with minimum apportionments for smaller airports that serve between 8,000 and 10,000 passengers annually. 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 FBOs lease space from the airport sponsor to be able to provide those services. By using this site you agree to our use of cookies. 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. 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. In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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. 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. In the concessions arena, they are referred to as Airport Concessions Disadvantaged Business Enterprise (ACDBE). 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. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. Below are some considerations for airport sponsors to keep in mind. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. 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. 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, Terms in this set (15) What is MAG and what does it stand for? Regardless, this shifting of risk may not be acceptable to airports. No one is sure how long recovery will take. 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. Most simply, the airport and vendor could agree to a fixed percentage rent. 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. They will typically lease space for counter and office space and additional space for the vehicle storage. Very hands off for the airport sponsor. 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). Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). Looking for abbreviations of MAG? A master operator, or sometimes referred to as an institutional operator, serves as a master lessee and either provide or sublease concessionaires for the airport. February 2, 2021January 28, 2021 | AirportU. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. Some airports have had huge success in meeting ACDBE goals with the developer model. Passengers have needs while at airports. 84, Fiduciary Activities. It was suspended in June, following the severe decline of passenger traffic over those . While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. Minimum Annual Guarantee Process Up to 3 years Or Up to $100,000 per year Direct negotiation with potential concessionaire Over 3 years and up to 5 Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Both were selected based on a global tender, and need to pay the Minimum Annual Guarantee of 31 crore each to the Airports Authority of India. Concessions covers more than what you think of served at a traditional concession stand. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. Flashcards. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. You also have the option to opt-out of these cookies. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. This is only for the passenger traffic, while for . Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. Here are some others. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. Elsewhere, airports do not expect vendors to exceed their MAGs. Concessions are typically leased with a percentage type lease so that a specific percentage of gross sales are given to the airport as part of their lease agreement. 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. In North America, airports tend to look at MAGs as the least amount of acceptable rent. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. Receive perspectives on the industries and issues that matter. However, there is no relief of the obligation to withhold and remit the corresponding employee share. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. 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. Match. In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. Airport Operations. . Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. 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. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) To ensure that the program is performed in accordance with law. Regardless, this shifting of risk may not be acceptable to airports. This is especially true for leases incorporating a Minimum Annual Guarantee (MAG) mechanism or fixed rent clauses.