Primarily, in residual agreements, the rates vary based on airport revenue. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). Performance. "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 . This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. At least for the immediate future, there will be reduced demand for concession services. One-twelfth of the MAG shall be due in advance on the first day of each month 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. In this model, the airport takes on two roles: landlord and partner in the operation. Providing a product or service inside the airport environment is one of the key qualifiers for a concessionaire. 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. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. . Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. This website uses cookies to improve your experience while you navigate through the website. The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. Airports would also have to establish supply lines for products that they have not procured in the past. In addition to the detailed guidance in the Revenue Use Policy, the CARES Act makes clear that the funds may not be used for any purpose unrelated to the airport. The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. As a result, airports may wish to consider going a step further. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. February 2, 2021January 28, 2021 | AirportU. 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. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. 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. This site uses Akismet to reduce spam. 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. 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. View bio. Additionally, nonoperating revenues would generally include grants, among other things. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. 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. 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). Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. 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. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. 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. The funds are coming directly from the U.S. Treasurys General Fund to prevent, prepare for, and respond to the impacts of the COVID-19 public health emergency. By clicking Accept, you consent to the use of ALL the cookies. Match. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. 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. COVID-19 has sent shockwaves throughout the world. Strategic agency for engagement and transformation. The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. Guarantee: $50,000. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . The Federal Aviation Administration (FAA) . The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. Looking for abbreviations of MAG? The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. 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. . Non-aeronautical revenueairport revenue from sources other than airlinestypically includes retail concessions, 1 car parking, and property and real estate. This Minimum Annual Guarantee must exceed $100,000. 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. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. 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. However, MAGs in concession contracts still expect continued growth. which guarantees that the tenant will pay the airport a minimum amount annually. Products and services both fall into the concessions category. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. 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. 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. 1, their minimum annual guarantee was superior to anybody . . This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. If, at the end of any year during the Term, the total amount of monthly installments of MAG and Percentage Fees paid for such year is less than the total amount of annual MAG and Percentage . 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 . Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. 9. 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. 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. See how we support our people, protect the planet, and give back to communities. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. 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. The competitive landscape may beby necessityaltered. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. The Board of Airport Commissioners at Los Angeles World Airports has recently approved a recommendation by management to permit concessionaire relief measures, including moving all concessionaires with contracts based on Minimum Annual Guarantee fee payments to percentage rent-based agreements 84, Fiduciary Activities. It is Minimum Annual Guarantee. Minimum Annual Guarantee listed as MAG. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Minimum Annual Guarantees. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. The FAA has published a map showing airports that are receiving the funds and the allocations made to them. In either case, history has shown that MAGs are not supportable in the event of severe downturns. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. 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.