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. 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. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . 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. A collective of travel retailers have agreed that operational contracts hinging on minimum annual guarantees (MAGs) are no longer workable in a Covid-ravaged air transport climate and must be reformed. 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. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. The fallacy of Minimum Annual Guarantee (MAG). Discover the top trends shaping government in 2023. (1) On-Airport (% of Gross Receipts). CM Module 1 Questions Flashcards | Quizlet The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. O'Hare and Midway concessionaires to get rent relief - Chicago Sun-Times . The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. leasehold at Washington Dulles International Airport (IAD). 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. That is no longer possible. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. $100,000, 5%, 100% . Will this have an impact on airline and concession agreements? 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. FBO/SASO: NOTE: There are several types of concessionaires that lease space to operate at the airport. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. No one is sure how long recovery will take. Airports Authority of India to appoint ground handling agencies for 83 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. However, there is no relief of the obligation to withhold and remit the corresponding employee share. 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. As a result, airports may wish to consider going a step further. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. a minimum annual guarantee or MAG annually, which more or less translates to rent. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. Primarily, in residual agreements, the rates vary based on airport revenue. Passengers have needs while at airports. The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . . . This . Creation of the lounge would require around a $4-million investment from whichever group decides to take over the space, which is 9,100 square feet -- on the small side for most airport lounges. There are means of counting passengers who pass a concession location, but few airports have installed such technology. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Option 5: The Trinity (or Trinity Plus) model. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. 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 . A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. The workforce retention requirement doesnt apply to nonhub or nonprimary airports. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. Non-Aeronautical Revenues and New Business Models: Topic - ACI Insights In either case, history has shown that MAGs are not supportable in the event of severe downturns. 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. Airport concession contracts, including rental cars, parking, and retail, usually contain a 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. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. Some airports have just a single FBO while others have multiple. With the new economic and industry realities, capital access may be an even greater hurdle. . First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. COVID-19 has sent shockwaves throughout the world. In other parts of the world, MAGs are the airports exact expected rental payments. 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. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). Airport Operations. In North America, airports tend to look at MAGs as the least amount of acceptable rent. In other parts of the world, MAGs are the airport's exact expected rental payments. This is especially true for leases incorporating a Minimum Annual Guarantee (MAG) mechanism or fixed rent clauses. 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. When one partner tries to do too much, it will lessen the benefits of the joint venture. The big change at Los Angeles International Airport allows concessionaire partners, which include DFS Group, Hudson and HMSHost, among others, to pay percentage rent rather than a minimum annual guarantee (MAG) from April 1 through June 30 as a result of passenger traffic declines due to the coronavirus pandemic. 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. However, this still may not be the most effective solution. Save my name, email, and website in this browser for the next time I comment. These cookies will be stored in your browser only with your consent. Consulting. It is mandatory to procure user consent prior to running these cookies on your website. Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. 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 Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. Bond Covenants and Indenture Pledge of Revenues. The key will be ensuring that airline charges remain fair and reasonable. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. A MAG, as currently developed, is unsustainable in anything but relatively normal times. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. Using one unnamed airport as an example, with which 3Sixty is in constant dialogue and has a strong relationship Anson said: "The sum total of the $800 million when converted to one airport and to 3Sixty Duty Free would mean around a third of one month's minimum annual guarantee rent. Looking for abbreviations of MAG? How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). October 09, 2020, 11:40 a.m. EDT 4 Min Read. Examples of Minimum Annual Guaranteed Rent in a sentence. MAG - Minimum Annual Guarantee. In times of continued and prolonged growth, airports have learned to depend upon MAGs. The same rules govern the use of CARES Act funds that govern the use of all airport revenues. Airport concession fees in the era of COVID-19 | ICF Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. . The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. The single factor most tied to concession success is the footfall past the concession locations. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. The city of Atlanta suspended the minimum annual guarantee payment obligation for concessionaires and rental car companies at Hartsfield-Jackson Atlanta International Airport (ATL) for a four-month period ending June 20. With the new economic and industry realities, capital access may be an even greater hurdle. A by-location per passenger MAG may be too complicated for widespread implementation at this point. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. A concessionaire's rent structure in an airport may differ from the traditional model. In this model, the airport takes on two roles: landlord and partner in the operation. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . To meet aggressive congressional deadlines for request submissions, a new airport industry request is being made with three potential components: $13 billion in additional emergency assistance, a gap financing program for airports, and a touchless journey through security. Fuelling Airport Recovery Via Non-Aeronautical Revenue | WSP - WSPglobal 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. Minimum Annual Guarantees. 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. Elsewhere, airports do not expect vendors to exceed their MAGs. To ensure that firms meet the requirements of DBE qualification. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. 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. As a result, airports may wish to consider going a step further. To level the playing field so that DBEs can compete . Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. Proposed laws would allow Uber, Lyft pickups at Seattle airport and With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. Concessions and retail often fill that need. Attention: Finance & Administration Division . There are a few limitations, however, that make this a less than optimal solution. City of Philadelphia Procurement Department - Bid Solicitation Here are some others. These three options do not change the underlying airport-concessionaire relationship. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. Additionally, nonoperating revenues would generally include grants, among other things. Fitch Assigns 'BBB' Rating to JFK IAT (NY) Special Facility Revenue 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. 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