The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. Because of the drastic reduction in flights and passenger traffic, airlines have been shrinking their staffing, space requirements and gate usage. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? 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. One-twelfth of the MAG shall be due in advance on the first day of each month Flashcards. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. 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. The single factor most tied to concession success is the footfall past the concession locations. 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 . Test. 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. Products and services both fall into the concessions category. 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 . The actual process is the easiest for the airport sponsor since there are minimal contracts. Tallahassee International Airport . How does the Airport Authority charge rent? Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. To promote the use of DBEs for federally funded projects. Most simply, the airport and vendor could agree to a fixed percentage rent. Wealth Management. To remove barriers in participation of DBEs. Without this expertise, the concession will almost certainly fail to operate at an optimum level. 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. The Trinity model is particularly applicable to duty free concessions, where it is practical to divide a store into departments wherein vendors (e.g., Channel, Rolex, Hrmes) are given the ability to design and operate their mini outlets. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. To level the playing field so that DBEs can compete . The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee (MAG). The AICPA State and Local Governments audit guide includes certain accounting guidance that has been cleared by GASB as Category B authoritative guidance. 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. 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. Kona International Airport at Keahole is located on the western coast of the Island of Hawaii, approximately 10 miles from the town of Kailua Kona. Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. 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. View bio. Terminal Closure and Footprint Reductions. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. The competitive landscape may beby necessityaltered. That will, in turn, harm the concession program. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. MAG - Minimum Annual Guarantee. If FAA does not receive emergency approval, the economic recovery of the nation's air North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. 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). This . The fallacy of Minimum Annual Guarantee (MAG). 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. 6 . There will still be passengers, and the concession industry needs to be ready to serve them. Attention: Finance & Administration Division . These cookies do not store any personal information. Elsewhere, airports do not expect vendors to exceed their MAGs. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. The concept is not uncommon. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. You also have the option to opt-out of these cookies. Concessionaires need to understand this new business reality when they ask for relief. 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 . This website uses cookies to improve your experience while you navigate through the website. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. 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 . As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. Under the current process, minimum annual guarantee for the first year is the financial bid parameter for selection of bidder and the period of concession is 10 years from the commercial operations date. This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . 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. Minimum Annual Guarantee (MAG) waived for concessionaires and rental cars -Targeted Operations & Maintenance reductions Implemented a hiring freeze and 8 furlough days Offered early retirement Focused on essential expenditures The intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). The future of airport concessions in a post-COVID-19 world, COVID-19's impact on commercial aviation: Customer survey findings, Why sustainable aviation is more than a flight of fancy, Sustainable aviation: A guide for aviation professionals. 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 Board of Airport Commissioners at Los Angeles World Airports has recently approved a recommendation by management to permit concessionaire relief measures, including moving all concessionaires with contracts based on Minimum Annual Guarantee fee payments to percentage rent-based agreements 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. They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. The airport environment is complex and has become even more challenging due to COVID-19. We did not review solicitation or award of concession agreements in this audit. Tallahassee, FL 32310 . However, MAGs in concession contracts still expect continued growth. 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. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . The airport operator also brings knowledge of how to do business in an airport environment while allowing the concessionaire to concentrate on what they do best: operate a highly successful restaurant or shop. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . Created by. Primarily, in residual agreements, the rates vary based on airport revenue. Lets consider six potential options. 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 youre far enough along in the implementation process, you may want to move forward with adopting these standards. The airport environment is complex and has become even more challenging due to COVID-19. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. Car rental companies are concessionaires at the airport. Primarily, in residual agreements, the rates vary based on airport revenue. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. That is no longer possible. When one partner tries to do too much, it will lessen the benefits of the joint venture. 2023 Plante & Moran, PLLC. Creation of the lounge would require around a $4-million investment from whichever group decides to take over the space, which is 9,100 square feet -- on the small side for most airport lounges. If, on the other hand, the airport sponsor decides to enforce the terms of a MAG, then it should carefully review the concession contract to determine the terms of enforcement and whether the concessionaire has any basis to refuse to pay the MAG.
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