The key will be ensuring that airline charges remain fair and reasonable. Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. 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, SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. Match. Airports Authority of India to appoint ground handling agencies for 83 For construction contracts over _____ federal regulations require the airport to obtain a bid guarantee to equal at least _____ of the bid price, as well as performance and payment bonds equaling _____ percent of the contract. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . . Bid. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. 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. The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. Airport Operations. In either case, history has shown that MAGs are not supportable in the event of severe downturns. A by-location per passenger MAG may be too complicated for widespread implementation at this point. These three options do not change the underlying airport-concessionaire relationship. Current generally accepted accounting principles suggests that entities should establish a policy that defines operating revenues for enterprise funds and use it consistently. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. The Airport has also experienced a reduction in passengers and operations as a result of . To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. It was suspended in June, following the severe decline of passenger traffic over those . Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. Minimum Annual Guaranteed Rent Definition | Law Insider Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. PDF DENVER INTERNATIONAL AIRPORT (DEN) - Denvergov.org Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. When passenger traffic does come back, airports should rethink how their concession contracts work. In times of continued and prolonged growth, airports have learned to depend upon MAGs. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including GASB Statement No. President Donald Trump has already tweeted his support for such an infrastructure bill. Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. For aviation, global recovery to 2019 levels is projected to take several years, into 2023 for markets with significant domestic air . Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. 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. However, MAGs in concession contracts still expect continued growth. Minimum Annual Guarantees. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? BADGES AND SECURITY: . When one partner tries to do too much, it will lessen the benefits of the joint venture. Concessions Development - Airport University Non-airport retail leases typically charge rent on a per square foot (PSF) basis. 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. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. Providing a product or service inside the airport environment is one of the key qualifiers for a concessionaire. The same rules govern the use of CARES Act funds that govern the use of all airport revenues. Regardless, this shifting of risk may not be acceptable to airports. To level the playing field so that DBEs can compete . mwaa.com - RFP-21-26914: Fixed Base Operator, IAD Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. 6 . 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. Strategic agency for engagement and transformation. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. Save my name, email, and website in this browser for the next time I comment. Learn how your comment data is processed. . Duty Free Americas Miami offered a minimum annual guarantee to the airport of $20 million -- topping the $18.5 million offered by Dufry Miami Retail Partnership and about $9 million more than two . By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. 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. If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. The FBOs lease space from the airport sponsor to be able to provide those services. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . - Suite 1 . 47114, with minimum apportionments for smaller airports that serve between 8,000 and 10,000 passengers annually. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. Please read our Privacy Policy for more information on the cookies we use. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. Retailers: Minimum annual guarantee 'rules of engagement' have changed "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 . Learn. Passengers have needs while at airports. 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. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. (The catch: Potential renters must submit a formal proposal to the Airport Commission and are subject . The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. 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 additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. CREDIT UPDATE Prior to the pandemic, Terminal 4 was observing strength in its operational performance with enplanements reaching 10.8 million in 2019, the leader across all terminals at JFK. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Because of the drastic reduction in flights and passenger traffic, airlines have been shrinking their staffing, space requirements and gate usage. The workforce retention requirement doesnt apply to nonhub or nonprimary airports.