It varies based on the size, capacity, and operations of the airport. The airport operator is always present and has a wealth of knowledge about the airport. At least for the immediate future, there will be reduced demand for concession services. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. The single factor most tied to concession success is the footfall past the concession locations. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. SFO gives $21.3 million for airport businesses hurt by coronavirus Piedmont Triad International Airport in Greensboro gets $10 million in 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. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . . 47114 (as modified by the CARES Act), then the remainder is distributed in the same manner as the $7.4 billionbased on a mixture of enplanements and debt service. Bid. With the new economic and industry realities, capital access may be an even greater hurdle. 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. This is only for the passenger traffic, while for . Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. Notably, the GASB has deferred the implementation date of GASB Statement No. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . A Guide to Transportation Funding Options - Texas A&M University (1) On-Airport (% of Gross Receipts). . 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). The company, which . Learn. 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. Airports provide the passengers, the retailers provide the services. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. PDF Agreement for Operation of Valet Parking Services Concession San 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. Guarantee: 50% of Minimum Annual Guarantee. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. Minimum Annual Guarantee Definition | Law Insider Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. PDF Department of Aviation Concessions Management The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. 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. 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 . The question that airport managers must ask themselves is which rent strategy is realistic in the current environment. 49 CFR Part 23 requires airports to have a concessions-based DBE program. mwaa.com - RFP-21-26914: Fixed Base Operator, IAD Tallahassee International Airport . Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. 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 $82M Google Airport Terminal Set - ABC News Lets consider six potential options. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. Duty Free Americas Receives Recommendation for Miami Airport Deal . These cookies will be stored in your browser only with your consent. 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. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. Tenants at airport get break on debts - Arkansasonline.com It beat four other finalists. . Relaxing in a $4 Million Lounge Under the Dulles Control Tower Could Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. In North America, airports tend to look at MAGs as the least amount of acceptable rent. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. "No. One of the components of the CARES Act provides the opportunity for employers to defer payment of the 6.2% FICA portion of the employers portion of employment taxes, effective immediately through Dec. 31, 2020. The key will be ensuring that airline charges remain fair and reasonable. 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. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Airport Retailer Dufry's Sales Rise By Over 50% In 2021, But - Forbes The FAAs Office of Airports will administer these grant funds to airport sponsors. The future of airport concessions in a post-COVID-19 world - Duty Free PDF Request for Proposals (Rfp) Non-exclusive On-airport Rental Car The cost of design and construction for your space is going to be much higher. Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. Minimum Annual Guarantee. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. In North America, airports tend to look at MAGs as the least amount of acceptable rent. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. 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. Option 4: Airport-concessionaire joint ventures. FY2021 Rates & Fees | Northwest Florida Beaches International Airport Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. We did not review solicitation or award of concession agreements in this audit. Majority-In-Interest (MII) clauses. Primarily, in residual agreements, the rates vary based on airport revenue. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. The FAA will use the Office of Management and Budget (OMB) SF-424, Application for Federal Assistance, and provide a simplified grant agreement shortly after it receives an application. 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. 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. 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 airport environment is complex and has become even more challenging due to COVID-19. 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. 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. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. 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. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. Fuelling Airport Recovery Via Non-Aeronautical Revenue | WSP - WSPglobal 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. There will still be passengers, and the concession industry needs to be ready to serve them. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. 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. 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 . 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. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. Pandemic Pain For Retail Is Much Higher At Some Airports Than - Forbes Terminal Closure and Footprint Reductions. 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. Airlines, while they may be able to reduce some operating costs associated with vacated premises, must still cover all their fixed and operating costs associated with the vacated space. This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . The MAC has already waived minimum annual guarantees three . Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . Some airports have had huge success in meeting ACDBE goals with the developer model. 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). 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. A MAG, as currently developed, is unsustainable in anything but relatively normal times. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Concessions and retail often fill that need. 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. Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. 116-94). The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Examples of Minimum Annual Guaranteed Rent in a sentence. Were here to help! There are several types of concessionaires that lease space to operate at the airport. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. [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. 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). At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. Option 6: The airport as concession operator. Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. Please pay it forward. 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. 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. 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. PDF Federal Aviation Administration As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. All rights reserved. Retailers: Minimum annual guarantee 'rules of engagement' have changed Opinion: Airport concession fee strategies in the coronavirus era Elsewhere, airports do not expect vendors to exceed their MAGs. In either case, history has shown that MAGs are not supportable in the event of severe downturns. The develop pays the amount due to the airport through the lease agreement and pockets the rest. Providing a product or service inside the airport environment is one of the key qualifiers for a concessionaire. Why is airport food so expensive? - Policygenius 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 additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. Receive perspectives on the industries and issues that matter. 3300 Capital Circle, S.W. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. White Paper: Airport Concession Agreements - ACI World Store By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. 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. 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. Audit. These three options do not change the underlying airport-concessionaire relationship. Review Journal | Legal Notices | NOTICE OF INTENTION TO ENTER I Products and services both fall into the concessions category. Denver International Airport refundings to ease debt-service schedule Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. Non-aeronautical revenueairport revenue from sources other than airlinestypically includes retail concessions, 1 car parking, and property and real estate. A. However, MAGs in concession contracts still expect continued growth. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. This Minimum Annual Guarantee must exceed $100,000. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19.