This is especially true for leases incorporating a Minimum Annual Guarantee (MAG) mechanism or fixed rent clauses. This simplified agreement includes the requirements under the CARES Act and makes funds immediately available for expenses, other than airport development, including payroll, debt service, utility expenses, service contracts, and supplies. A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . . Test. The repayment will occur over time, with 50% of the deferral being due by Dec. 31, 3021, and the remaining due by Dec. 31, 2022. When one partner tries to do too much, it will lessen the benefits of the joint venture. 1, their minimum annual guarantee was superior to anybody . Concessions Development - Airport University 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. The FAA has published a map showing airports that are receiving the funds and the allocations made to them. Non-aeronautical revenueairport revenue from sources other than airlinestypically includes retail concessions, 1 car parking, and property and real estate. It is mandatory to procure user consent prior to running these cookies on your website. SFO Launches Emergency Rent Relief Program for Airport Concession Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. This website uses cookies to improve your experience while you navigate through the website. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. In other parts of the world, MAGs are the airport's exact expected rental payments. To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. . Terminal Closure and Footprint Reductions. PDF Concession Policy 1. Overview 1 To remove barriers in participation of DBEs. 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. Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . Airlines value an attractive commercial program because it makes a better background for the expression of their brand. However, this still may not be the most effective solution. Find more information in a tax alert comparing COVID-19 employer tax incentives, issued by our National Tax Office. This . Match. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. The Trinity model can be considered an extension of the joint venture model. The price tag is a whopping $440 per square foot. February 2, 2021January 28, 2021 | AirportU. 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. In other parts of the world, MAGs are the airport's exact expected rental payments. The CFC is a charge based on either the contract value, gross receipts, or per car per day. 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 information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. In either case, history has shown that MAGs are not supportable in the event of severe downturns. Concessions covers more than what you think of served at a traditional concession stand. There are a few limitations, however, that make this a less than optimal solution. First, and most important, the recently enacted Coronavirus Aid, Relief, and Economic Security Act (CARES Act) contains a supplemental appropriation of $10 billion to be made through Grants-In-Aid for Airports. That $10 billion is divided into the following categories: Any airport that receives money under the CARES Act must continue to employ, for the remainder of 2020, at least 90% of the number of employees that airport had as of March 27, the date of the enactment of the Act. 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). Current generally accepted accounting principles suggests that entities should establish a policy that defines operating revenues for enterprise funds and use it consistently. Elsewhere, airports do not expect vendors to exceed their MAGs. Wealth Management. Budapest Airport. Opinion: Why MAG flexibility is essential for airport advertising Relief for US airport operators deemed insufficient despite US$800m While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. Examples of Minimum Annual Guaranteed Rent in a sentence. 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. Each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. Bond Covenants and Indenture Pledge of Revenues. However, MAGs in concession contracts still expect continued growth. COVID-19: For airport enterprise recovery, it's time to act now Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. DOCX Airport Rescue Grants Airport Concession Certification for XYZ Airport Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. Minimum Annual Guarantee (MAG). How does the Airport Authority charge rent? That will, in turn, harm the concession program. Piedmont Triad International Airport in Greensboro gets $10 million in Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. There are numerous ways to frame a contract without a MAG. Majority-In-Interest (MII) clauses. In North America, airports tend to look at MAGs as the least amount of acceptable rent. No one is sure how long recovery will take. PDF Request for Proposal - Dallas/Fort Worth International Airport A MAG, as currently developed, is unsustainable in anything but relatively normal times. Land . Option 5: The Trinity (or Trinity Plus) model. Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. I certify that Airport Concessions Inc. has not received a second draw or assistance for a covered loan under section 7(a)(37) of the Small Business Act (15 U.S.C. . Tallahassee, FL 32310 . Relaxing in a $4 Million Lounge Under the Dulles Control Tower Could Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). 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. Airport Actions in Response to the COVID-19 Pandemic How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Regardless, this shifting of risk may not be acceptable to airports. 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. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. 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. When passenger traffic does come back, airports should rethink how their concession contracts work. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. $82M Google Airport Terminal Set - ABC News 9. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. In North America, airports tend to look at MAGs as the least amount of acceptable rent. FY2021 Rates & Fees | Northwest Florida Beaches International Airport Minimum Annual Guarantee ("MAG") Lowest amount of rent to be paid To Be Negotiated . 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. Some larger airports take a percentage of every sale. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . However, it does reduce the potential benefit to the airport by splitting the proceeds generated. If you have questions. Minimum Annual Guaranteed Rent Definition | Law Insider 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. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. mwaa.com - RFP-21-26914: Fixed Base Operator, IAD Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. 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). The Trinity model can be considered an extension of the joint venture model. . Why is airport food so expensive? - Policygenius It varies based on the size, capacity, and operations of the airport. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. 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 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. 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. 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. Minimum Annual Guarantees. Senior Living Development Consulting (Living Forward), Reimagining the future of healthcare systems, National Plan of Integrated Airports System, tax alert comparing COVID-19 employer tax incentives. Learn. Additionally, nonoperating revenues would generally include grants, among other things. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. Learn. 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.