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Airports lose $43M

Income fell more than
a third during the 2002 fiscal
year, including 9/11


By Russ Lynch
rlynch@starbulletin.com

Hawaii's airports operated at a loss of more than $43 million last fiscal year, as tourism slid in the wake of 9/11 and concessionaires fell behind on millions of dollars in rent payments.


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The airports took in operating income of $182.9 million during the 2002 fiscal year, down more than a third from $287.1 million a year earlier, according to state figures. At the same time, expenses, including depreciation, rose 6.8 percent to $226 million from $211.7 million.

The airports' biggest income source, concession fees, dropped 41.8 percent as concession holders, such as the duty-free business DFS Hawaii, flower and gift shops and restaurants, could not pay minimum rent to the state.

The state Department of Transportation's annual report for the fiscal year through June 30, 2002, shows revenue of $102.8 million from concession fees, down from $176.7 million a year earlier.

Airline landing fees, waived for nearly six months to help carriers recover from 9/11, fell 60.3 percent to $14.6 million.

For the current fiscal year, now nearly nine months old, the airports technically are showing no loss, but that is because the numbers are being counted as if the concessions were paying their full rent, state officials said.

Any loss is of major concern to the financially struggling airlines. Their contracts require them to make up any shortfall in airport income. The state's airports are required to fund themselves through user fees and do not receive a state government subsidy.

Aside from landing fees, the airlines pay a total of some $50 million a year for rent of ticket counters, terminal gates and other space.

For now, the state is dipping into the airports' cash balance to cover expenses, said Glenn Okimoto, acting Deputy Director of Transportation.

As of Dec. 31, the airports fund had a balance of $798 million, "of which $560 million is considered unrestricted and available," Okimoto said. However, $412 million of that "available" amount is for capital improvement projects. Some may have to be deferred if losses continue, he said.

The airlines have not been asked to pay more, "but we are in discussions with the airlines and the governor's office," he said.

Gov. Linda Lingle has said the state will not negotiate with concessionaires to reduce rent until they pay what they owe so far. DFS Hawaii, the biggest concession holder with tax-free and retail operations at the airports, says it owes some $30 million in back rent incurred up to Dec. 31.

The state pegs the figure at more than $36 million. DFS says it is willing to pay some of what it owes, but not until the state is willing to talk seriously about reducing rent.

The company is paying some rent, but not at the level previously negotiated with the state.

"We are paying something and it is substantial," said Sharon Weiner, group vice president at DFS Hawaii. She said DFS is paying what it considers a fair "severe hardship" rent of 15 percent of its off-airport revenues, from duty-free sales at its Galleria showroom in Waikiki, and 20 percent of its duty-free sales at the airport.

In its five-year contract, which started June 1, 2001, DFS is supposed to pay a minimum of $60 million a year.

If sales are large enough, DFS is required to pay 30 percent of its off-airport revenues and 22.5 percent of what it brings in at the airport.

"We're paying roughly 60 percent of what the state believes we should be paying," Weiner said. "We can't pay everything they say we owe, because to do that, we would bankrupt ourselves."

The duty-free business, selling tax-free goods to international travelers, had fallen off with the decline in Japanese tourism prior to 9/11, and has plummeted more since.

DFS had been paying minimum rent of $105 million a year, and at its peak made headlines in 1988, when it successfully bid $1.1 billion for a five-year contract.

DFS Hawaii, owned by conglomerate LVMH Moet Hennessy Louis Vuitton, says it is insolvent after losing $24 million last year, even after $9 million in rent relief it got under an emergency state law.

The company calculated it will lose $24 million this year, without counting a further setback in international tourism as a result of the war in Iraq.

A bill in the Legislature would help airport concession holders whose income dwindled after 9/11. The bill would allow concessions to pay a percentage of their revenues for rent, and let them off the hook for minimum rent, to allow them to break even but not make a profit.

The relief would apply to concessions whose revenues were down by 15 percent or more for 60 days after 9/11.



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