There will be “casualties” among the current roster of Airport Concessions Disadvantaged Business Enterprise (ACDBE) certified companies as the pandemic continues to hinder recovery in air travel, experts say.
“Inevitably there’s going to be some shakeout – there are going to be some casualties,” said Warner Session, founder, Session Law Firm and board member of the Metropolitan Washington Airports Authority (MWAA). “That unfortunately will just be a fact of life.” Some will be able to hang on, depending on individual circumstances and resources while “others, unfortunately, may not make it,” Session said.
Clark Sharpe, president of Shellis Management Services, also expects ACDBE operators to falter. “We’ll see some potentially leave the industry,” he said. “It may be some of those [operators who] we thought to be very able. Some ACDBEs – no doubt especially ACDBEs – will have to seek new investors and regrettably, we may have some defaults.”
Sharpe and Session spoke on the future of the ACDBE program on the weekly industry call hosted by the Airport Restaurant & Retail Association (ARRA) and the Airport Minority Advisory Council (AMAC). Both men advocated for short-term intervention to shore up finances for current ACDBEs as well as for longer-term efforts to ensure robust continuation of the ACDBE program.
Sharpe said the strain on ACDBE operators comes against a backdrop where airports are going to be forced to “right-size” their concessions programs amidst a sharp downturn in demand from air travelers. He said he expects “a lot more careful thinking about the use of MAGs,” or minimum annual guarantees, in contracts between airports and concessionaires. He also thinks the practice of overbidding to get a foot in the door may go by the wayside. “There might be a short-term economic benefit to the airport to let someone ‘buy’ a contract, but that kind of process will diminish significantly,” Sharpe said. “And the condition of accepting any space and thinking we can make it a concession – that will be something of the past.”
Warner also predicts evolution. “The formula for concessions going forward… will inevitably change,” he said. “And I can say for sure that one size will not fit all. Every airport will have its own parameters, its own demands, its own considerations.” Warner says the two commercial airports under MWAA governance will be reassessing concessions programs. “I’m certain that how we structured concessions in the past will have to be adjusted to make sure that we maintain a level of customer service with the right offerings, and at the same time balance that with the business health of the actual operators. It’s too early to tell what that’s going to look like. It will evolve. I think it will look very different a year from now than it did prior to the COVID-19.”
A Coalition of the Willing
Given the extraordinarily difficult environment for airport concessions currently, concerns have arisen about the overall viability of the ACDBE program. Currently, U.S. airports that receive grant assistance from the U.S. government must comply with federal requirements surrounding minority participation in projects. Sharpe explained that FAA has the responsibility of implementing the ACDBE legislation and that, over the years, airports have stepped up to implement the program into their overall concessions programs. Early efforts by committed individuals allowed the program to thrive, Sharpe said.
“It really does have to be a coalition of the willing,” Session agreed. “None of this happens in a vacuum. It really does require that you have people of like minds who are committed and have the passion to create, in this case, a program that was significant in terms of its impact on the air travel industry and impact on minority and women owned businesses.”
Now, with the program threatened as ACDBE-certified companies struggle to survive, Session advocated for a pro-active and inclusive approach.
“It’s going to take all hands on deck,” he said on the call. “It’s going to take folks on the executive side, it’s going to take the elected officials both in Congress and at the local level. It’s going to take the advocates advocacy organizations like ARRA,…and of course AMAC has been at tip of the sphere for over three decades. We have to find a way a creative way to start engaging the private sector, and that would, I think, necessarily include financial institutions. I’ve had lots of conversations with community-owned banks for instance, that could potentially play a part in providing solutions….”
“This truly is a triage moment,” Session said. “There are businesses that are going out of business as we speak. There’s the immediate [need to] stop the bleeding,” then a longer-term effort to move toward a viable solution for the future.
In working toward a solution, Session said every ACDBE should be connected with their member of Congress. He mentioned a specific instance, in the early days of the program, where a McDonald’s franchisee sought support from his member of Congress to gain a contract at Chicago’s O’Hare International Airport. “At the root of it was an engagement between the business owner and the policy maker, and that’s the micro level. We have to engage every single DBE and ACDBE in a systematic and organized way to approach to approach their respective member of Congress,” he said, noting that any changes to make the program less unwieldy would have to come through legislation.
At the macro level, Session urged industry members to continue to connect with advocates within the federal government for more relief for the aviation industry.
Sharpe outlined key areas of focus to break down the barriers that impede ACDBE success. “We need to make the net worth standard more relevant to these kinds of developments that we are working through,” he said. “The net worth standard doesn’t allow you to have much staying power with a couple of hiccups. The small business standard needs to be bumped up considerably. Both of those standards need to be changed in order to not impair the ACDBE and their capacity to take care of themselves.”
Sharpe also suggested a policy by which the U.S. Secretary of Transportation would be able to use discretionary resources to support a loan program that would provide a link between the Small Business Administration and a certified ACDBE under contract at an airport. “Empowering the Secretary of Transportation to have authority to bump up SBA lending specifically for transportation-related, airport-specific [uses] would be a tremendous asset to enable an ACDBEs to work more effectively with that lending and capital hurdle.”
In addition to beefing up relationships with members of Congress, Session also advocated for a private sector effort. “I think a missing piece of this is that, in my experience, we haven’t really fully engaged the private sector. And I’m not sure exactly what that looks like just yet.” He noted the prevalence in financial institutions in partnership with SBA programs, which he said could be replicated in the airport concessions business. He also pointed to public-private partnerships, which are used for some airport projects, and called on the industry to attempt to influence those players on ACDBE participation.