(1) On-Airport (% of Gross Receipts). Minimum Annual Guarantee Process Up to 3 years Or Up to $100,000 per year Direct negotiation with potential concessionaire Over 3 years and up to 5 Supplemental Airport Grant-In-Aid Funding In the concessions arena, they are referred to as Airport Concessions Disadvantaged Business Enterprise (ACDBE). Passengers have needs while at airports. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. 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. Minimum Annual Guarantee listed as MAG. 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). Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. Products and services both fall into the concessions category. 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. The Trinity model can be considered an extension of the joint venture model. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. 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. All rights reserved. There are several types of concessionaires that lease space to operate at the airport. If you have questions. The FAA has published a map showing airports that are receiving the funds and the allocations made to them. In North America, airports tend to look at MAGs as the least amount of acceptable rent. To remove barriers in participation of DBEs. The price tag is a whopping $440 per square foot. A by-location per passenger MAG may be too complicated for widespread implementation at this point. 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. Normally, operating classification on the statement of revenues, expenses, and changes in net position will typically follow the classification of operating activities in the statement of cash flows. This site uses Akismet to reduce spam. 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. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. Current generally accepted accounting principles suggests that entities should establish a policy that defines operating revenues for enterprise funds and use it consistently. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. In times of continued and prolonged growth, airports have learned to depend upon MAGs. Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. 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. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Most simply, the airport and vendor could agree to a fixed percentage rent. Discover how we help clients achieve success. Discover the top trends shaping government in 2023. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. 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. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. Each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. Airport concession fees in the era of COVID-19, Airports should carefully consider how they structure deals and their business models, Do Not Sell or Share My Personal Information, Limit the Use of My Sensitive Personal Information. Option 5: The Trinity (or Trinity Plus) model. 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. Without this expertise, the concession will almost certainly fail to operate at an optimum level. One-twelfth of the MAG shall be due in advance on the first day of each month However, there is no relief of the obligation to withhold and remit the corresponding employee share. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. In this model, the airport takes on two roles: landlord and partner in the operation. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. 1, their minimum annual guarantee was superior to anybody . Percentage Rent to the Board as set forth in Article 1 based on Concessionaire's Gross Receipts, subject to a Minimum Annual Guarantee (MAG) as set forth in Article 1, and as further provided below. A MAG, as currently developed, is unsustainable in anything but relatively normal times. (The catch: Potential renters must submit a formal proposal to the Airport Commission and are subject . Non-airport retail leases typically charge rent on a per square foot (PSF) basis. . This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. Airports provide the passengers, the retailers provide the services. Elsewhere, airports do not expect vendors to exceed their MAGs. The CFC is a charge based on either the contract value, gross receipts, or per car per day. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. In other parts of the world, MAGs are the airport's exact expected rental payments. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. Bond Covenants and Indenture Pledge of Revenues. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. That $7.4 billion is divided in half and distributed in two ways: 50% is allocated among all commercial service airports based on each sponsors calendar year 2018 enplanements as a percentage of total 2018 enplanements for all commercial service airports., 50% is allocated among all commercial service airports based on an equal combination of each sponsors fiscal year 2018 debt service as a percentage of the combined debt service for all commercial service airports and each sponsors ratio of unrestricted reserves to their respective debt service.. 47114 (as modified by the CARES Act), then the remainder is distributed in the same manner as the $7.4 billionbased on a mixture of enplanements and debt service. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). 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. Budapest Airport. Option 6: The airport as concession operator. The airport operator is always present and has a wealth of knowledge about the airport. 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). - Suite 1 . A by-location per passenger MAG may be too complicated for widespread implementation at this point. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. 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. 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. Performance. The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . 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. In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. 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 (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. 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. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. This financial shock has created a number of legal and financial issues. In times of continued and prolonged growth, airports have learned to depend upon MAGs. 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. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. There are numerous ways to frame a contract without a MAG. 4.1.1 Minimum Annual Guaranteed Concession Fee. . It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. Concessionaires need to understand this new business reality when they ask for relief. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. Discover our insights for a sustainable, low-emissions future. 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).
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