SFO concession tenants pay the greater of a Minimum Annual Guarantee (MAG) or a percentage of Gross Receipts (Concession Fee), along with other cleaning and infrastructure fees. 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. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. . COVID-19 has sent shockwaves throughout the world. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. 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. . For information on the business impacts of COVID-19, please visit ourCOVID-19 Resource Center, which we continue to update as the situation evolves. If, at the end of any year during the Term, the total amount of monthly installments of MAG and Percentage Fees paid for such year is less than the total amount of annual MAG and Percentage . . The FAA released guidance for airport administrators, but questions still linger and issues have gone unaddressed. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . All rights reserved. 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. Below are some considerations for airport sponsors to keep in mind. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. In addition, they typically provide the fueling services for the airport. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. With the new economic and industry realities, capital access may be an even greater hurdle. These MAGs are usually based on some percentage of the prior year's revenue and are intended to provide the airport sponsor with a revenue floor from these . However, there is no relief of the obligation to withhold and remit the corresponding employee share. 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). While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. In North America, airports tend to look at MAGs as the least amount of acceptable rent. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . 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. That will, in turn, harm the concession program. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). The entire concessions space is typically leased out to a single company who is responsible for subletting the spaces. Nichols wrote to the County Board of Supervisors that $12.1 million of the money will be used to finalize airport agreements that waive contractual minimum annual guarantee rents for airport . The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. Airports should carefully consider how they structure deals and their business models to ensure more flexibility to respond to potential future shocks. The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. The same rules govern the use of CARES Act funds that govern the use of all airport revenues. 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. 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. Option 6: The airport as concession operator. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). Lets consider six potential options. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. Audit. "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 . Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. With the new economic and industry realities, capital access may be an even greater hurdle. 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 actual process is the easiest for the airport sponsor since there are minimal contracts. Meet the Woman Stockpiling Cash to Sue San Francisco Over Housing Deadlock, Loeb Secures Defense Victory for the State of California and the California State Lands Commission, Loeb Lawyers Recognized in 2023 Edition of Best Lawyers in America, American Conference Institutes (ACI) 37th International Conference on the Foreign Corrupt Practices Act, $500 million, which can be used to fund any grant made under the FY20 Appropriations Act (P.L. This site uses Akismet to reduce spam. Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. minimum annual guarantee (MAG) obligations to eligible airport concessions. Most experts agree that there will be no quick snapback of passengers, so airports face the issue of having too many concessions locations or even too many operators. In a 6-to-3 vote on Monday, June 8, the council approved temporarily revising the Minimum Annual Guarantee, which is a fixed amount restaurants guarantee they will pay the city to do business at . To ensure that firms meet the requirements of DBE qualification. The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. This . 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. 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. If FAA does not receive emergency approval, the economic recovery of the nation's air . 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. Discover how we help clients achieve success. Were here to help! . 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 disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. Tax. At least for the immediate future, there will be reduced demand for concession services. To level the playing field so that DBEs can compete . The CFC is a charge based on either the contract value, gross receipts, or per car per day. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). This category only includes cookies that ensures basic functionalities and security features of the website. From layoffs to business closings, social distancing to shopping only on days that correspond to the first letter of your last name, we have all seen and felt the impact. In other parts of the world, MAGs are the airport's exact expected rental payments. No one is sure how long recovery will take. The develop pays the amount due to the airport through the lease agreement and pockets the rest. Concessionaires need to understand this new business reality when they ask for relief. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. One-twelfth of the MAG shall be due in advance on the first day of each month Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . Some larger airports take a percentage of every sale. There are means of counting passengers who pass a concession location, but few airports have installed such technology. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. Find out how our purpose shapes our culture, people, and mission-driven work. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. Necessary cookies are absolutely essential for the website to function properly. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). The airport operator is always present and has a wealth of knowledge about the airport. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. When passenger traffic does come back, airports should rethink how their concession contracts work. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. 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. abandoned places in upper peninsula, tarot spread for buying a house, walter johnson high school student death,