These cookies do not store any personal information. 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. Guarantee: $50,000. 9. A. There are numerous ways to frame a contract without a MAG. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. 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. "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 . When passenger traffic does come back, airports should rethink how their concession contracts work. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. 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. . The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. 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. 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). The future of airport concessions in a post-COVID-19 world, COVID-19's impact on commercial aviation: Customer survey findings, Why sustainable aviation is more than a flight of fancy, Sustainable aviation: A guide for aviation professionals. Wealth Management. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. 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. 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. The FAA released guidance for airport administrators, but questions still linger and issues have gone unaddressed. 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 . Additionally, nonoperating revenues would generally include grants, among other things. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. 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. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. 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, While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. Airports should carefully consider how they structure deals and their business models to ensure more flexibility to respond to potential future shocks. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? 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. COVID-19 has sent shockwaves throughout the world. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. Minimum Annual Guarantee listed as MAG. View bio. Minimum Annual Guarantee (MAG) waived for concessionaires and rental cars -Targeted Operations & Maintenance reductions Implemented a hiring freeze and 8 furlough days Offered early retirement Focused on essential expenditures Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. There are a few limitations, however, that make this a less than optimal solution. 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. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Airports would also have to establish supply lines for products that they have not procured in the past. 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, MAGs in concession contracts still expect continued growth. 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. Primarily, in residual agreements, the rates vary based on airport revenue. 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. 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. 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. Normally, airport concessionaires pay the city a percentage of sales or a "minimum annual guarantee" based on sales the previous year, whichever is greater. minimum annual guarantee (MAG) obligations to eligible airport concessions. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. In either case, history has shown that MAGs are not supportable in the event of severe downturns. That is no longer possible. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. These cookies will be stored in your browser only with your consent. 1, their minimum annual guarantee was superior to anybody . With the new economic and industry realities, capital access may be an even greater hurdle. Airports provide the passengers, the retailers provide the services. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. 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. As a result, airports may wish to consider going a step further. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Consulting. The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. 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. . Save my name, email, and website in this browser for the next time I comment. These three options do not change the underlying airport-concessionaire relationship. Rent abatement / minimum annual guarantee: A decision to abate rent (including "minimum annual guarantees" and also encompassing fees) is a local . 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 . Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. In North America, airports tend to look at MAGs as the least amount of acceptable rent. softballrizer. A concessionaire's rent structure in an airport may differ from the traditional model. A by-location per passenger MAG may be too complicated for widespread implementation at this point. which guarantees that the tenant will pay the airport a minimum amount annually. By using this site you agree to our use of cookies. 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. The Airport has also experienced a reduction in passengers and operations as a result of . However, this still may not be the most effective solution. The actual process is the easiest for the airport sponsor since there are minimal contracts. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. Meanwhile, Aena is forecasting that in the period to 2023, the minimum annual guaranteed rents and fixed rents, corresponding to contracts in force at 30 June 2020, will decrease. To ensure that the program is performed in accordance with law. Minimum Annual Guarantee ("MAG") Lowest amount of rent to be paid To Be Negotiated . The key will be ensuring that airline charges remain fair and reasonable. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. Were here to help! Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. With the announcement by the GASB of a delay in the required implementation of these new standards, your organization will need to decide how to respond. Some airports have had huge success in meeting ACDBE goals with the developer model. The Trinity model can be considered an extension of the joint venture model. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. 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. They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. 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 . Regulatory Updates Extension of Minimum Slot Usage Requirements. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. Where do we go from here? October 09, 2020, 11:40 a.m. EDT 4 Min Read. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. . However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. COVID-19 has sent shockwaves throughout the world. Tallahassee, FL 32310 . These MAGs are usually based on some percentage of the prior year's revenue and are intended to provide the airport sponsor with a revenue floor from these . Under the current process, minimum annual guarantee for the first year is the financial bid parameter for selection of bidder and the period of concession is 10 years from the commercial operations date. No one is sure how long recovery will take. The competitive landscape may beby necessityaltered. For information on the business impacts of COVID-19, please visit ourCOVID-19 Resource Center, which we continue to update as the situation evolves. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem.
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