Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . 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 AICPA State and Local Governments audit guide includes certain accounting guidance that has been cleared by GASB as Category B authoritative guidance. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. 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. Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. By clicking Accept, you consent to the use of ALL the cookies. Match. 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. CARES Act grant recipients should follow the FAAs Policy and Procedures Concerning the Use of Airport Revenues (Revenue Use Policy), 64 Federal Register 7696 (64 FR 7696), as amended by 78 Federal Register 55330 (78 FR 55330). 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 . See how we help fast-changing industries succeed. 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. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). If youre far enough along in the implementation process, you may want to move forward with adopting these standards. Regardless, this shifting of risk may not be acceptable to airports. 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. 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. 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. There are a few limitations, however, that make this a less than optimal solution. In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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. The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. Here are some others. 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. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. The concept is not uncommon. Bond Covenants and Indenture Pledge of Revenues. 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. Necessary cookies are absolutely essential for the website to function properly. 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 . Because this rate base is not related to passenger numbers, it is equally as inflexible as a MAG set by any other means in the event of significant changes in enplanements. These MAG clauses in concession contracts should be carefully reviewed. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. The FAAs Office of Airports will administer these grant funds to airport sponsors. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. 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. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). To ensure that firms meet the requirements of DBE qualification. Find out how our purpose shapes our culture, people, and mission-driven work. The actual process is the easiest for the airport sponsor since there are minimal contracts. Performance. 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. Test. 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. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. . 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. Passengers have needs while at airports. There are several types of concessionaires that lease space to operate at the airport. Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. minimum annual guarantee (MAG) obligations to eligible airport concessions. 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 additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. There are numerous ways to frame a contract without a MAG. In other parts of the world, MAGs are the airport's exact expected rental payments. 3300 Capital Circle, S.W. Most simply, the airport and vendor could agree to a fixed percentage rent. These cookies do not store any personal information. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. Normally, airport concessionaires pay the city a percentage of sales or a "minimum annual guarantee" based on sales the previous year, whichever is greater. Notably, the GASB has deferred the implementation date of GASB Statement No. Minimum Annual Guarantee. View bio. By using this site you agree to our use of cookies. 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. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. softballrizer. The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. 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. 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. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). (1) On-Airport (% of Gross Receipts). The CFC is a charge based on either the contract value, gross receipts, or per car per day. 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, In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. The airport operator is always present and has a wealth of knowledge about the airport. The FAA has published a map showing airports that are receiving the funds and the allocations made to them. Option 4: Airport-concessionaire joint ventures. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. Looking for abbreviations of MAG? It varies based on the size, capacity, and operations of the airport. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. The city may extend the action for an additional 30-day . Project. - Suite 1 . Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. When passenger traffic does come back, airports should rethink how their concession contracts work. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. . Please read our Privacy Policy for more information on the cookies we use. This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . Concessions covers more than what you think of served at a traditional concession stand. 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. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. These three options do not change the underlying airport-concessionaire relationship. A collective of travel retailers have agreed that operational contracts hinging on minimum annual guarantees (MAGs) are no longer workable in a Covid-ravaged air transport climate and must be reformed.
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