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As a result, airports may wish to consider going a step further. Strategic agency for engagement and transformation. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. [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. 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. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. 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 . Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. 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. This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. installments during the first year of the Term. Airport concession contracts, including rental cars, parking, and retail, usually contain a 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. 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. This website uses cookies to improve your experience while you navigate through the website. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). 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 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. 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. In the concessions arena, they are referred to as Airport Concessions Disadvantaged Business Enterprise (ACDBE). 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. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. February 2, 2021January 28, 2021 | AirportU. Wealth Management. The key will be ensuring that airline charges remain fair and reasonable. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. With the new economic and industry realities, capital access may be an even greater hurdle. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. "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 . 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. 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. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. A third party company could be contracted to handle the leasing and management of concessions on behalf of the airport. 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). Tax. They often charge more than 10% for water and alcohol, Waguespack said. Airports would also have to hire and manage many additional hourly employees. To promote the use of DBEs for federally funded projects. 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). Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. The AICPA State and Local Governments audit guide includes certain accounting guidance that has been cleared by GASB as Category B authoritative guidance. 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. Budapest Airport. 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. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. Primarily, in residual agreements, the rates vary based on airport revenue. Discover the top trends shaping government in 2023. Minimum Annual Guarantee (MAG). Test. Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. 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. In North America, airports tend to look at MAGs as the least amount of acceptable rent. This category only includes cookies that ensures basic functionalities and security features of the website. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . 4.1.1 Minimum Annual Guaranteed Concession Fee. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. Receive perspectives on the industries and issues that matter. New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. The competitive landscape may beby necessityaltered. A by-location per passenger MAG may be too complicated for widespread implementation at this point. The single factor most tied to concession success is the footfall past the concession locations. See how we help fast-changing industries succeed. The cost of design and construction for your space is going to be much higher. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . Concessionaires need to understand this new business reality when they ask for relief. 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. The concept is not uncommon. Flashcards. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. The competitive landscape may beby necessityaltered. 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. NOTICE OF INTENTION TO ENTER INTO FOUR SEPARATE CONCESSION LEASE AGREEMENTS WITH THE DAY ONE GROUP LLC NOTICE IS HEREBY GIVEN, to all interested parties, that the Clark County Board of Commissioners intends to enter into four separate Concession Lease Agreements (Agreements) for the operation of 5 specialty retail concessions with The Day One Group LLC (Company) serving Harry Reid . 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%. They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. 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. Option 5: The Trinity (or Trinity Plus) model. Minimum Annual Guarantee means the minimum amount of money that is due annually and payable monthly to Authority from Concessionaire, as provided in Article 5 of this Agreement. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. 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. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. 49 CFR Part 23 requires airports to have a concessions-based DBE program. Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. When passenger traffic does come back, airports should rethink how their concession contracts work. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Necessary cookies are absolutely essential for the website to function properly. Terminal Closure and Footprint Reductions. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. There are a few limitations, however, that make this a less than optimal solution. Guarantee: $50,000. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. 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. However, this still may not be the most effective solution. The Trinity model can be considered an extension of the joint venture model. The intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. Minimum Annual Guarantee. 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. The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. Retail/Gift Shop 11% of Gross Receipts or Minimum Annual Guarantee Terminal Advertising 30% -60% of Gross Receipts or Minimum Annual Guarantee . Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? softballrizer. Here are some others. 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. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. SFO concession tenants pay the greater of a Minimum Annual Guarantee (MAG) or a percentage of Gross Receipts (Concession Fee), along with other cleaning and infrastructure fees. For information on the business impacts of COVID-19, please visit ourCOVID-19 Resource Center, which we continue to update as the situation evolves. The company, which . With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. A by-location per passenger MAG may be too complicated for widespread implementation at this point. 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. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. The workforce retention requirement doesnt apply to nonhub or nonprimary airports. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. There are a few limitations, however, that make this a less than optimal solution. Given the focus on bottom line profits, the investment in variable costssuch as employees, training, maintenance, and product developmentrequired to earn additional sales may no longer make economic sense. 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. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. In addition, they typically provide the fueling services for the airport. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. leasehold at Washington Dulles International Airport (IAD). Airports should carefully consider how they structure deals and their business models to ensure more flexibility to respond to potential future shocks. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Additionally, nonoperating revenues would generally include grants, among other things. There will still be passengers, and the concession industry needs to be ready to serve them. Regulatory Updates Extension of Minimum Slot Usage Requirements. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. Learn. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. 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. . 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 . Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. Looking for abbreviations of MAG? 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. 84, Fiduciary Activities. Terms in this set (15) What is MAG and what does it stand for? . Flashcards. Without this expertise, the concession will almost certainly fail to operate at an optimum level. 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. This site uses Akismet to reduce spam. Find out how our purpose shapes our culture, people, and mission-driven work. Concessions covers more than what you think of served at a traditional concession stand. 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). The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . Learn. The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including GASB Statement No. The CFC is a charge based on either the contract value, gross receipts, or per car per day. . If you have questions about COVID-19s impact on your business, please reach out to your Loeb relationship partner or email us directly atCOVID19@loeb.com. 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. 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. Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. In either case, history has shown that MAGs are not supportable in the event of severe downturns. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. 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 . Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . 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. 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. Meet the Woman Stockpiling Cash to Sue San Francisco Over Housing Deadlock, Loeb Secures Defense Victory for the State of California and the California State Lands Commission, Loeb Lawyers Recognized in 2023 Edition of Best Lawyers in America, American Conference Institutes (ACI) 37th International Conference on the Foreign Corrupt Practices Act, $500 million, which can be used to fund any grant made under the FY20 Appropriations Act (P.L. 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. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. What this option does do is change the distribution of risk. However, there is no relief of the obligation to withhold and remit the corresponding employee share. To help develop firms that can compete in the marketplace outside of the DBE program. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. To ensure that the program is performed in accordance with law. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger.

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