minimum annual guarantee airport

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. "We've already . 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. 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. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. First, and potentially most important, the FAAs position on rent abatements has gone from NO to: A decision to abate rent (including minimum annual guarantees and encompassing fees) is a local decision. Guarantee: $50,000. 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 actual process is the easiest for the airport sponsor since there are minimal contracts. The same rules govern the use of CARES Act funds that govern the use of all airport revenues. Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. To help develop firms that can compete in the marketplace outside of the DBE program. 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. Bond Covenants and Indenture Pledge of Revenues. Concessions covers more than what you think of served at a traditional concession stand. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. Airports would also have to hire and manage many additional hourly employees. In either case, history has shown that MAGs are not supportable in the event of severe downturns. 49 CFR Part 23 requires airports to have a concessions-based DBE program. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. The adjustment in Guaranteed Annual Rent may not, in any event, result in a decrease in the current amount of Minimum Annual Guaranteed Rent.. Any increase in Minimum Annual Guaranteed Rent shall be based upon an average increase in the index calculated over a period of 90 days prior to the end of the current five year term. 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. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. Test. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. 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. 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. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. As a result, airports may wish to consider going a step further. It was suspended in June, following the severe decline of passenger traffic over those . For more insights from Alan Gluck and ICF, please go to https://www.icf.com/insights/transportation, The future of airport concessions in a post-COVID-19 world, https://www.icf.com/insights/transportation. The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. (1) On-Airport (% of Gross Receipts). 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. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. It is Minimum Annual Guarantee. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. Products and services both fall into the concessions category. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. These MAG clauses in concession contracts should be carefully reviewed. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . The Trinity model can be considered an extension of the joint venture model. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. FBO/SASO: NOTE: As a result, airports may wish to consider going a step further. Supplemental Airport Grant-In-Aid Funding The minimum annual guarantee of $3.25 million to the airport for the right to run the restaurant is too high and could result in the partners cutting corners to make the payments or, even worse . First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Passengers have needs while at airports. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. 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 However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. Retail/Gift Shop 11% of Gross Receipts or Minimum Annual Guarantee Terminal Advertising 30% -60% of Gross Receipts or Minimum Annual Guarantee . To ensure that the program is performed in accordance with law. Lets consider six potential options. Without this expertise, the concession will almost certainly fail to operate at an optimum level. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. 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. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. 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. 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. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Airports would also have to establish supply lines for products that they have not procured in the past. The CFC is a charge based on either the contract value, gross receipts, or per car per day. them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). Consulting. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. 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. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. See how we support our people, protect the planet, and give back to communities. Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. In April, the San Jose City Council voted to grant delegated authority to the airport staff to finalize negotiations and execute a 50-year lease to Signature Flight Support. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. MAG - Minimum Annual Guarantee. First, and potentially most important, the FAAs position on rent abatements has gone from NO to: A decision to abate rent (including minimum annual guarantees and encompassing fees) is a local decision. 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. 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. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. In this model, the airport takes on two roles: landlord and partner in the operation. 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. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. 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. leasehold at Washington Dulles International Airport (IAD). 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 is sure how long recovery will take. 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. 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. Receive perspectives on the industries and issues that matter. 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. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. The competitive landscape may beby necessityaltered. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. Minimum Annual Guarantee. 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. 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. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. The city may extend the action for an additional 30-day . Primarily, in residual agreements, the rates vary based on airport revenue. In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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. Learn. In other parts of the world, MAGs are the airports exact expected rental payments. Lets consider six potential options. 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. If the metric for rent resumption is comparing the current period to the same period in the previous year, by the time the world reaches year two of recoveryeven if the improvement is only slight and slowthe contract may reinstate the original MAG. Elsewhere, airports do not expect vendors to exceed their MAGs. 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. Because of the drastic reduction in flights and passenger traffic, airlines have been shrinking their staffing, space requirements and gate usage. 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. Additionally, nonoperating revenues would generally include grants, among other things. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. It beat four other finalists. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Non-aeronautical revenueairport revenue from sources other than airlinestypically includes retail concessions, 1 car parking, and property and real estate. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. It varies based on the size, capacity, and operations of the airport. The key will be ensuring that airline charges remain fair and reasonable. 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. BADGES AND SECURITY: . Some airports have had huge success in meeting ACDBE goals with the developer model. By way of comparison, in the past two fiscal years (FY19 and FY20), the federal government has appropriated approximately $3.35 billion in regular Air Improvement Program (AIP) spending and an additional $400$500 million in discretionary AIP grants. 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. 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. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . 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. At least for the immediate future, there will be reduced demand for concession services. 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, To level the playing field so that DBEs can compete . 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, Hermes) are given the ability to design and operate their mini outlets. A MAG, as currently developed, is unsustainable in anything but relatively normal times. If you have questions. The competitive landscape may beby necessityaltered. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. See how we help fast-changing industries succeed. The FAAs Office of Airports will administer these grant funds to airport sponsors. Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. If, on the other hand, the airport sponsor decides to enforce the terms of a MAG, then it should carefully review the concession contract to determine the terms of enforcement and whether the concessionaire has any basis to refuse to pay the MAG. Notably, the GASB has deferred the implementation date of GASB Statement No. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. View bio. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . 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. 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. How does the Airport Authority charge rent? 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. Each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . One-twelfth of the MAG shall be due in advance on the first day of each month The Airport has also experienced a reduction in passengers and operations as a result of . Minimum Annual Guarantee Process Up to 3 years Or Up to $100,000 per year Direct negotiation with potential concessionaire Over 3 years and up to 5 There are means of counting passengers who pass a concession location, but few airports have installed such technology. Elsewhere, airports do not expect vendors to exceed their MAGs. Here are some others. That is no longer possible. Without this expertise, the concession will almost certainly fail to operate at an optimum level.

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