Project. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. The Federal Aviation Administration (FAA) . Airports should carefully consider how they structure deals and their business models to ensure more flexibility to respond to potential future shocks. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. 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. That report and certification should include the number of full-time equivalent employees working at the airport as of March 27, 2020, as the baseline comparison. In other parts of the world, MAGs are the airports exact expected rental payments. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. 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. Alternatively, different percentages could be charged for varying levels of sales or by assigning either fixed or variable rates to different product categories (e.g., one percentage for food and non-alcoholic beverage and a separate percentage for alcoholic drinks only). Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. The single factor most tied to concession success is the footfall past the concession locations. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. When one partner tries to do too much, it will lessen the benefits of the joint venture. 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. New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. Airports would also have to hire and manage many additional hourly employees. This Minimum Annual Guarantee must exceed $100,000. A by-location per passenger MAG may be too complicated for widespread implementation at this point. ); that is, airport sponsors meeting statutory and policy requirements under this section, as well as those identified in the FAAs current National Plan of Integrated Airports System (NPIAS). 3300 Capital Circle, S.W. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. 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. Notably, the GASB has deferred the implementation date of GASB Statement No. 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. Minimum Annual Guarantee (MAG) of at least Eleven Million Dollars ($11,000,000) for each Contract Year and an annual escalation of at least three percent (3%) for the Contract Term. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Bond Covenants and Indenture Pledge of Revenues. Please pay it forward. 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. 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. Receive perspectives on the industries and issues that matter. Elsewhere, airports do not expect vendors to exceed their MAGs. Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. Minimum Annual Guarantee listed as MAG. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. Audit. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. Concessions and retail often fill that need. "No. We did not review solicitation or award of concession agreements in this audit. Flashcards. Created by. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Summary: The Metropolitan Washington Airports Authority is seeking competitive bids from all responsible and qualified companies desiring to manage and operate rental car concessions from on-Airport facilities at Ronald Reagan Washington National Airport. 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 . To level the playing field so that DBEs can compete . a minimum annual guarantee or MAG annually, which more or less translates to rent. Rent abatement / minimum annual guarantee: A decision to abate rent (including "minimum annual guarantees" and also encompassing fees) is a local . Concessionaires need to understand this new business reality when they ask for relief. There are means of counting passengers who pass a concession location, but few airports have installed such technology. Because of the drastic reduction in flights and passenger traffic, airlines have been shrinking their staffing, space requirements and gate usage. 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. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). 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. It was suspended in June, following the severe decline of passenger traffic over those . Additionally, nonoperating revenues would generally include grants, among other things. Minimum Annual Guarantee. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. . To ensure that firms meet the requirements of DBE qualification. "We've already . 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. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. 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. The FBOs lease space from the airport sponsor to be able to provide those services. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. 49 CFR Part 23 requires airports to have a concessions-based DBE program. The FAA issued an extension of limited waiver (PDF) through October 29, 2022 of the minimum-slot-usage requirement for international operations at John F. Kennedy International Airport (JFK), LaGuardia Airport (LGA), and Ronald Reagan Washington National Airport (DCA).Additionally, the FAA extended through October 29, 2022, our . Were here to help! 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. Option 6: The airport as concession operator. These MAG clauses in concession contracts should be carefully reviewed. A by-location per passenger MAG may be too complicated for widespread implementation at this point. Airports would also have to establish supply lines for products that they have not procured in the past. October 09, 2020, 11:40 a.m. EDT 4 Min Read. Concessions are typically leased with a percentage type lease so that a specific percentage of gross sales are given to the airport as part of their lease agreement. The Trinity model can be considered an extension of the joint venture model. 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 that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. The competitive landscape may beby necessityaltered. Concessions covers more than what you think of served at a traditional concession stand. [1]https://www.law.cornell.edu/cfr/text/49/part-23 jQuery('#footnote_plugin_tooltip_333_1_1').tooltip({ tip: '#footnote_plugin_tooltip_text_333_1_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top center', relative: true, offset: [-7, 0], }); The entire premise of the DBE program is based on: The writers of AirportU do so not for recognition, rather for learning, sharing, and empowering others.