minimum annual guarantee airportminimum annual guarantee airport

Discover how we help clients achieve success. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. 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). 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. The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. In North America, airports tend to look at MAGs as the least amount of acceptable rent. "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 . They will typically lease space for counter and office space and additional space for the vehicle storage. Bond Covenants and Indenture Pledge of Revenues. 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. Regardless, this shifting of risk may not be acceptable to airports. . The fallacy of Minimum Annual Guarantee (MAG). 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 document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. There will still be passengers, and the concession industry needs to be ready to serve them. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. 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. As someone who's sat on all four corners of the airport advertising negotiating table - media owner, airport operator, media agency and client - I have a degree of sympathy with all parties. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. In either case, history has shown that MAGs are not supportable in the event of severe downturns. This is especially true for leases incorporating a Minimum Annual Guarantee (MAG) mechanism or fixed rent clauses. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. 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. These three options do not change the underlying airport-concessionaire relationship. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. The Trinity model can be considered an extension of the joint venture model. 4.1.1 Minimum Annual Guaranteed Concession Fee. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. Terminal Closure and Footprint Reductions. There are numerous ways to frame a contract without a MAG. 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. How does the Airport Authority charge rent? That is no longer possible. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. 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 We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. 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. One such excerpt from this guide (Paragraph 6.81) indicates nonoperating revenues would generally include, among other things, grants that may be used, at the recipients discretion, for either operating purposes or capital outlay. That being said, while there seems to be a compelling argument that most of the CARES Act funding for airports may be operating, each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. Option 5: The Trinity (or Trinity Plus) model. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. 4.1.3 Percentage Fees. Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. 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. Notably, the GASB has deferred the implementation date of GASB Statement No. With the new economic and industry realities, capital access may be an even greater hurdle. 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. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. (a) Annual Reconciliation. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . 84, Fiduciary Activities. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. There are numerous ways to frame a contract without a MAG. To meet aggressive congressional deadlines for request submissions, a new airport industry request is being made with three potential components: $13 billion in additional emergency assistance, a gap financing program for airports, and a touchless journey through security. The FBOs lease space from the airport sponsor to be able to provide those services. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. 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. Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. 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. Examples of Minimum Annual Guaranteed Rent in a sentence. Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). To ensure that firms meet the requirements of DBE qualification. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. 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 . However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . 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. Minimum Annual Guarantees. 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. These three options do not change the underlying airport-concessionaire relationship. 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. 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). An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . 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. 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. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. 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. . 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. 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. If the airport sponsor determines that its in its best interest to defer the MAG, the revenue should still be recorded in the period earned, and the receivable should be considered for treatment as noncurrent depending on the new repayment terms. This financial shock has created a number of legal and financial issues. Airport Operations. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. 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. The actual process is the easiest for the airport sponsor since there are minimal contracts. 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. 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 competitive landscape may beby necessityaltered. October 09, 2020, 11:40 a.m. EDT 4 Min Read. There are a few limitations, however, that make this a less than optimal solution. Airports would also have to establish supply lines for products that they have not procured in the past. The airport operator is always present and has a wealth of knowledge about the airport. . 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. Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . Without this expertise, the concession will almost certainly fail to operate at an optimum level. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. Products and services both fall into the concessions category. Guarantee: $50,000. 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. Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. a minimum annual guarantee or MAG annually, which more or less translates to rent. which guarantees that the tenant will pay the airport a minimum amount annually. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. The city may extend the action for an additional 30-day . 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. Flashcards. percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. Normally, operating classification on the statement of revenues, expenses, and changes in net position will typically follow the classification of operating activities in the statement of cash flows. Some airports have had huge success in meeting ACDBE goals with the developer model. 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. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. 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. . If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. Performance. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. 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. To help develop firms that can compete in the marketplace outside of the DBE program. 2023 Plante & Moran, PLLC. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. That will, in turn, harm the concession program. These cookies will be stored in your browser only with your consent. 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. Concessions covers more than what you think of served at a traditional concession stand. This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . 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 . 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. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. 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). Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . At least for the immediate future, there will be reduced demand for concession services. Airports would also have to hire and manage many additional hourly employees. 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. Primarily, in residual agreements, the rates vary based on airport revenue. Find out how our purpose shapes our culture, people, and mission-driven work. Test. They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. Concessions covers more than what you think of served at a traditional concession stand. The AICPA State and Local Governments audit guide includes certain accounting guidance that has been cleared by GASB as Category B authoritative guidance. Elsewhere, airports do not expect vendors to exceed their MAGs. In the concessions arena, they are referred to as Airport Concessions Disadvantaged Business Enterprise (ACDBE). The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. 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. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. Percentage Rent to the Board as set forth in Article 1 based on Concessionaire's Gross Receipts, subject to a Minimum Annual Guarantee (MAG) as set forth in Article 1, and as further provided below. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). What this option does do is change the distribution of risk. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. With the new economic and industry realities, capital access may be an even greater hurdle. 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.

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