Title
Phoenix Sky Harbor International Airport Concessionaire Financial Relief (Ordinance S-46836)
Description
Request to authorize the City Manager, or his designee, to amend multiple Phoenix Sky Harbor International Airport (PHX) concession leases to continue to provide temporary financial relief to concessionaires by charging percent rent only in lieu of Minimum Annual Guarantees (MAG) from July 1, 2020 through Sept. 30, 2020. This financial relief will be provided to all food and beverage, retail, terminal advertising, valet, and passenger amenity concessions at PHX.
Report
Summary
The Aviation Director has reviewed the local market conditions due to the COVID-19 national pandemic. Airline passenger travel continues to be down by about 75 percent at PHX compared to the same period last year. In direct correlation to the reduced passenger activity, concession sales have plummeted for PHX's concessions. Due to the pandemic, 72 percent of the outlets in Terminal 3 and 78 percent of the outlets in Terminal 4 are closed. As a result, established rents are still unsustainable for the concessionaires in the Terminals. The Aviation Department (AVN) is requesting to provide some level of financial relief for concessionaires that includes prime operators and Airport Concession Disadvantaged Business Enterprise business partners to mitigate the effects of the decrease in passenger activity related to COVID-19.
All concessionaires who receive this financial relief will be required to adhere to specific requirements as follows: passing financial relief on to all joint venture partners and sub-concessionaires, recall and reemployment of furloughed or laid off employees, work with Community Economic Development on other relief and employment opportunities, submission of weekly sales reports, and providing notice of any Coronavirus Aid Relief and Economic Security Act relief. All other terms and provisions of the leases will remain in effect.
On April 4, 2020, the Federal Aviation Administration (FAA) provided guidance to airport sponsors encouraging them to consider the business circumstances created by the public health emergency and assist tenants to stay solvent so they can resume normal operations when the emergency ends. In keeping with the spirit of the FAA’s guidance and to ensure that continued assistance of the concessionaires does not threaten PHX’s financial viability, the Aviation Director has concluded that providing continued temporary financial relief to concessionaires by charging percent rent only in lieu of MAG from July 1, 2020 through Sept. 30, 2020 is warranted.
The concession leases that will be amended to allow for temporary financial relief are lease numbers 116300, 116653, 127576, 131410, 132907, 133475, 135006, 143718, 143719, 143866, 143867, 143910, 144047, 144322, 144323, 144324, 145872, 145873, 145977, 146077, 146163, 146458, 146459, 146614, 146676, 147232, 147258, 147279, 147350, 147461, 147735, 150683, and 152010.
Contract Term
Financial relief to allow percent rent only in lieu of MAG will occur beginning July 1, 2020 through Sept. 30, 2020.
Terminal 3 concessionaires will continue to pay percent rent through Sept. 30, 2020.
Financial Impact
AVN estimates that the proposed financial relief to concessionaires will result in approximately $7 million in reduced rental revenue to PHX from July 1, 2020 through Sept. 30, 2020.
Concurrence/Previous Council Action
Temporary financial relief for concessionaires was approved by the Phoenix City Council on June 8, 2020 for the period of April 1, 2020 through June 30, 2020, by a vote of 6-3.
Location
Phoenix Sky Harbor International Airport
Council District: 8
Responsible Department
Department
This item is submitted by Assistant City Manager Deanna Jonovich and the Aviation Department.