DFS owes state
$50 million

Asia troubles take toll
on sole bidder for the
duty-free contract

By Russ Lynch
Star-Bulletin

DFS Hawaii, troubled by the decline in tourist arrivals from Japan and the changed spending habits of those who do come, is nearly $50 million in arrears in concession fees to the state's airport system.

The duty-free shops operator made a $5 million payment on Tuesday, but its contract called for $26 million on that day, said Marilyn Kali, a spokeswoman for the state Department of Transportation.

DFS has been paying about $4 million a month through this year while it tries to negotiate a new schedule. The total due now, with interest and late fees, in $49.7 million, Kali said.

DFS Hawaii's president Ed Brennan is traveling and was not available for comment. The company, which has been running the duty-free stores since 1968, won the current contract in 1966.

Taking the chance that some other company might outbid it, DFS bid just over the minimum required, which was $400 million for a four-year contract.

It turned out to be the only bidder and the state accepted its offer of a minimum of $102 million for the first year, through June of this year, $104 million for the 1998-99 fiscal year, $106 million for 1998-2000 and $108 million for 2000-01.

The contract requires it to pay at least those amounts or 20 percent of its revenues, whichever is bigger.

The company, which also has extensive non-duty-free retail holdings at the airport and elsewhere in the islands, missed its March 1 quarterly payment for the duty-free concession. A month later it announced it would be laying off 300 of its 1,660 Hawaii employees in stages through this year.

DFS has said its sales are down 20-25 percent.

At the peak of the Japanese travel boom, DFS bid more than $1 billion in 1988 for a four-year contract. For the next contract it bid $401 million.

Once before when foreign tourism dropped off, during the Persian Gulf war of 1991, DFS negotiated a time-payment plan for about $100 million and later paid it all to the state. DFS Hawaii is part of DFS Group Ltd., which in turn is a subsidiary of LVMH Moet Hennessey Louis Vuitton SA.