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. Paid parking went into effect at . A. New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. A by-location per passenger MAG may be too complicated for widespread implementation at this point. 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 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. There are means of counting passengers who pass a concession location, but few airports have installed such technology. 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. 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, if necessary, to make bond principal and interest payments, airport sponsors may be faced with difficult decisions about how to prioritize needs during the financial stress. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. There are a few limitations, however, that make this a less than optimal solution. Without this expertise, the concession will almost certainly fail to operate at an optimum level. 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. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. Concessions are typically leased with a percentage type lease so that a specific percentage of gross sales are given to the airport as part of their lease agreement. For information on the business impacts of COVID-19, please visit ourCOVID-19 Resource Center, which we continue to update as the situation evolves. In North America, airports tend to look at MAGs as the least amount of acceptable rent. COVID-19 has sent shockwaves throughout the world. Some airports have just a single FBO while others have multiple. If relief drives airline costs to a significantly higher level, thereby reducing airport cost-competitiveness, airlines may choose not to fly to the airport or to operate fewer services. Necessary cookies are absolutely essential for the website to function properly. 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 softballrizer. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. The price tag is a whopping $440 per square foot. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . . Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. The competitive landscape may beby necessityaltered. 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). By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. . (a) Annual Reconciliation. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. However, there is no relief of the obligation to withhold and remit the corresponding employee share. Products and services both fall into the concessions category. 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. 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. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. You also have the option to opt-out of these cookies. 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 . This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. The Trinity model is particularly applicable to duty free concessions, where it is practical to divide a store into departments wherein vendors (e.g., Channel, Rolex, Hrmes) are given the ability to design and operate their mini outlets. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Minimum Annual Guarantee (MAG). 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. If relief drives airline costs to a significantly higher level, thereby reducing airport cost-competitiveness, airlines may choose not to fly to the airport or to operate fewer services. 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. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. If FAA does not receive emergency approval, the economic recovery of the nation's air 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. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. However, MAGs in concession contracts still expect continued growth. There are several types of concessionaires that lease space to operate at the 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. The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. As a result, airports may wish to consider going a step further. 4.1.3 Percentage Fees. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. No one is sure how long recovery will take. 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 . 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. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. What this option does do is change the distribution of risk. 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). If, on the other hand, an airport sponsor decides to enforce the M&O expense allocation in its terminal leases, then the terminal leases should be carefully reviewed to determine the terms of enforcement and what rights the airlines have under those leases. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. (1) On-Airport (% of Gross Receipts). Match. The airport environment is complex and has become even more challenging due to COVID-19. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. The FAA issued an extension of limited waiver (PDF) through October 29, 2022 of the minimum-slot-usage requirement for international operations at John F. Kennedy International Airport (JFK), LaGuardia Airport (LGA), and Ronald Reagan Washington National Airport (DCA).Additionally, the FAA extended through October 29, 2022, our . How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. By using this site you agree to our use of cookies. One-twelfth of the MAG shall be due in advance on the first day of each month As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. 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. A concessionaire's rent structure in an airport may differ from the traditional model. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. 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. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Budapest Airport. The CFC is a charge based on either the contract value, gross receipts, or per car per day. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. Minimum Annual Guarantee. There are numerous ways to frame a contract without a MAG. Bond Covenants and Indenture Pledge of Revenues. See how we help fast-changing industries succeed. 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. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). This . Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including GASB Statement No. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. Tallahassee International Airport . Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . Find more information in a tax alert comparing COVID-19 employer tax incentives, issued by our National Tax Office. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. 4.1.1 Minimum Annual Guaranteed Concession Fee. 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. If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. Without this expertise, the concession will almost certainly fail to operate at an optimum level. It is mandatory to procure user consent prior to running these cookies on your website. Airport Operations. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. 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. We also use third-party cookies that help us analyze and understand how you use this website. Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. 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. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. 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. Non-aeronautical revenueairport revenue from sources other than airlinestypically includes retail concessions, 1 car parking, and property and real estate. Kona International Airport at Keahole is located on the western coast of the Island of Hawaii, approximately 10 miles from the town of Kailua Kona. Discover the top trends shaping government in 2023. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. 1, their minimum annual guarantee was superior to anybody . 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. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. Concessions covers more than what you think of served at a traditional concession stand. Primarily, in residual agreements, the rates vary based on airport revenue. minimum annual guarantee (MAG) obligations to eligible airport concessions. Elsewhere, airports do not expect vendors to exceed their MAGs. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. 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. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. 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. The AICPA State and Local Governments audit guide includes certain accounting guidance that has been cleared by GASB as Category B authoritative guidance. 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. To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. To ensure that the program is performed in accordance with law. Consulting. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). Concessionaires need to understand this new business reality when they ask for relief. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. There are numerous ways to frame a contract without a MAG. A master operator, or sometimes referred to as an institutional operator, serves as a master lessee and either provide or sublease concessionaires for the airport. Some airports have had huge success in meeting ACDBE goals with the developer model. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. The MAC has already waived minimum annual guarantees three . BADGES AND SECURITY: . The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. Minimum Annual Guarantee listed as MAG. That will, in turn, harm the concession program. In either case, history has shown that MAGs are not supportable in the event of severe downturns. 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, If youre far enough along in the implementation process, you may want to move forward with adopting these standards. Concessionaires need to understand this new business reality when they ask for relief. Minimum Annual Guarantees. 84, Fiduciary Activities. 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. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. 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. 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. The actual process is the easiest for the airport sponsor since there are minimal contracts. 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. All rights reserved. If the airport sponsor determines that it is in its best interest to waive the MAG, then these clauses can be replaced with an alternative fee structure, such as a simple percentage of sales or some other agreed-upon metric of performance. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). 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 FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. At least for the immediate future, there will be reduced demand for concession services. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. HMS Host, the food and beverage concessionaire at Clinton National, is required to pay a minimum annual guarantee of $594,000, which works out to $49,500 monthly under the terms of its contract. Car rental companies are concessionaires at the airport. Please pay it forward. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. Airports would also have to establish supply lines for products that they have not procured in the past. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. There will still be passengers, and the concession industry needs to be ready to serve them. 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. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . Tallahassee, FL 32310 . 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). This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. [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. To level the playing field so that DBEs can compete . A by-location per passenger MAG may be too complicated for widespread implementation at this point. Performance. 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.
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