minimum annual guarantee airport minimum annual guarantee airport

Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. 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. Discover how we help clients achieve success. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. However, there is no relief of the obligation to withhold and remit the corresponding employee share. Created by. 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. Were here to help! If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. 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 . Terminal Closure and Footprint Reductions. Elsewhere, airports do not expect vendors to exceed their MAGs. A by-location per passenger MAG may be too complicated for widespread implementation at this point. When passenger traffic does come back, airports should rethink how their concession contracts work. To remove barriers in participation of DBEs. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. While the bulk of the $10 billion appropriated for airport sponsors can be used to make bond principal and interest payments if necessary, airport sponsors may be faced with difficult decisions about how to prioritize needs while under financial stress. Concessionaires pay the Airport Authority a percentage of their gross sales each month, which is one-twelfth of a pre-determined minimum annual guarantee (MAG). Receive perspectives on the industries and issues that matter. 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. These three options do not change the underlying airport-concessionaire relationship. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). Attention: Finance & Administration Division . If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. For information on the business impacts of COVID-19, please visit ourCOVID-19 Resource Center, which we continue to update as the situation evolves. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. 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 . Lets consider six potential options. Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. Paid parking went into effect at . We did not review solicitation or award of concession agreements in this audit. When passenger traffic does come back, airports should rethink how their concession contracts work. This site uses Akismet to reduce spam. . Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . The key will be ensuring that airline charges remain fair and reasonable. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. (1) On-Airport (% of Gross Receipts). In times of continued and prolonged growth, airports have learned to depend upon MAGs. Through Dec. 31, 2020, the airport sponsor must continue to employ at least 90% of the number of individuals employed (after adjusting for retirements or voluntary employee separations) as of March 27, 2020. 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 . Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. It is Minimum Annual Guarantee. The intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). The adjustment in Guaranteed Annual Rent may not, in any event, result in a decrease in the current amount of Minimum Annual Guaranteed Rent.. Any increase in Minimum Annual Guaranteed Rent shall be based upon an average increase in the index calculated over a period of 90 days prior to the end of the current five year term. For aviation, global recovery to 2019 levels is projected to take several years, into 2023 for markets with significant domestic air . Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Regardless, this shifting of risk may not be acceptable to airports. The workforce retention requirement doesnt apply to nonhub or nonprimary airports. A MAG, as currently developed, is unsustainable in anything but relatively normal times. . Lets consider six potential options. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. 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. There are means of counting passengers who pass a concession location, but few airports have installed such technology. Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. Primarily, in residual agreements, the rates vary based on airport revenue. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. The company, which . Budapest Airport. Please read our Privacy Policy for more information on the cookies we use. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. While the bulk of the $10 billion appropriated for airport sponsors can be used, if necessary, to make bond principal and interest payments, airport sponsors may be faced with difficult decisions about how to prioritize needs during the financial stress. Most airports already calculate a PSF rent amount in their airline rates and charges (e.g., office space with passenger access) that applies to concession-type spaces. Examples of Minimum Annual Guaranteed Rent in a sentence. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. The CFC is a charge based on either the contract value, gross receipts, or per car per day. Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. The concept is not uncommon. . While many contracts include a "force majeure" clause, this does not necessarily cover pandemic scenarios and in many instances, there is no formal agreement in place to review commercial terms in the event of such a . The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. Below are some considerations for airport sponsors to keep in mind. But opting out of some of these cookies may affect your browsing experience. When one partner tries to do too much, it will lessen the benefits of the joint venture. The competitive landscape may beby necessityaltered. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. "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 . Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. In other parts of the world, MAGs are the airport's exact expected rental payments. The FAA released guidance for airport administrators, but questions still linger and issues have gone unaddressed. 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. Minimum Annual Guarantee. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. That will, in turn, harm the concession program. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. 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. Given the current state of the economy, Congress has turned to working on the next comprehensive economic relief package, which is being referred to as CARES 2.0. 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. Regulatory Updates Extension of Minimum Slot Usage Requirements. A different methodology is required to ensure that vendors are allowed to earn a fair return on their investments, are able and willing to reinvest to improve and grow, and still provide a reasonable return to the airports. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. 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). Will this have an impact on airline and concession agreements? Option 4: Airport-concessionaire joint ventures. In this model, the airport takes on two roles: landlord and partner in the operation. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. 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 program in order to maximize non-aviation revenue, increasing sales per enplaned passenger at a rate higher than passenger . Rates for each new fiscal year will be posted on this page after Board approval of the rates and fees. At least for the immediate future, there will be reduced demand for concession services. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. 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). No one is sure how long recovery will take. To ensure that firms meet the requirements of DBE qualification. Necessary cookies are absolutely essential for the website to function properly. 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. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Where abatement results in shifting costs between various classes of airport tenants and users, the airport sponsor is encouraged to consult with all affected parties. The airport operator is always present and has a wealth of knowledge about the airport. President Donald Trump has already tweeted his support for such an infrastructure bill. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. Audit. Option 6: The airport as concession operator. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. If the basis for a MAG is what the airport thought it should be earning, the amount may never be supportable even if a concessionaire signed the contract. Learn. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. These MAG clauses in concession contracts should be carefully reviewed. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. 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. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. . Airlines, while they may be able to reduce some operating costs associated with vacated premises, must still cover all their fixed and operating costs associated with the vacated space. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. Test. 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. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. . Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. It was suspended in June, following the severe decline of passenger traffic over those . As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. Jacksonville International Airport's split is 70 percent nonaeronautical revenue, which brought in $52 million in 2015, driven by parking, rental car and concessions, he said. . The policies and procedures are available for review here. - Suite 1 . This is especially true for leases incorporating a Minimum Annual Guarantee (MAG) mechanism or fixed rent clauses. In either case, history has shown that MAGs are not supportable in the event of severe downturns.