DFS lobbies DFS Hawaii has offered to pay some of what the state says it owes in back rent for airport concessions, but Gov. Linda Lingle turned down the offer, the company said today.
for relief
The airport concession holder
says Gov. Lingle turned down a deal
offering a fraction of back rent
By Russ Lynch
rlynch@starbulletin.comSharon Weiner, DFS Hawaii group vice president, told a state House committee she met with Lingle yesterday and repeated a proposal to pay some of what is owed in return for an assurance that the state will look into ways of providing long-term relief, perhaps in the form of lower rent.
"She said she would not consider relief" until DFS pays about $30 million in minimum rent for the exclusive right to sell tax-free goods to international travelers, Weiner said. After a hearing of the House Committee on Transportation on a bill to provide post-9/11 relief for all airport concession holders, Weiner said she told Lingle DFS would be willing to pay 5 percent to 10 percent of what it is owed "on a handshake" for a promise to negotiate.
During the hearing Weiner said DFS Hawaii is insolvent after losing $24 million last year, even after $9 million in rent relief it got under an emergency state law that expired in April. "Right now we're looking at losses for this concession in the neighborhood of $34 million in 2003, without any calculation for an Iraq war" and the damage it might do to tourism, she said.
Its contract requires DFS to pay the state at least $60 million a year.
Weiner said later that she was encouraged to hear Rodney Haraga, state transportation director, say the administration is looking for ways to help the concessions although he is operating under Lingle's decision not to talk about relief for concessions until they pay what they owe.
Speaking later about the governor's stance, Weiner said "we certainly hope it's not a take it or leave it offers."
Among other things, the bill under discussion would allow the state to waive minimum rents and collect only a percentage of gross sales from concessions that can show their revenues were down at least 15 percent as a result of 9/11.
Concessions do post performance bonds to guarantee that they will honor their contracts, and DFS Hawaii posted one for $45 million that the state could collect if it deems that DFS's failure to pay rent violates its contract.
Asked yesterday if the state could take the money, dismiss DFS as the duty-free contractor and open the concession up for new bids, Haraga said: "Yes, we could, but it's not a good option."
Peter Fithian, owner of Greeters of Hawaii and an operator of concessions at Honolulu Airport for 40 years, said in an interview that sales at his floral business there are down 33 percent from what they were before 9/11.
People don't buy leis for themselves, he said. Flowers are bought by people seeing friends and family off at the airport and new security rules have kept those people out of the terminal areas housing the flower shops, he said.
That is a problem for restaurants and other shops in the terminals, he said.
Fithian, who heads the legislative committee of an association of airport concessionaires, said no operator at the airport is paying the minimum rent because none of them can afford it.
"We're paying a hardship percentage (of sales), which we've determined would let us break even," he said.
Concessions historically have produced more than 60 percent of statewide airport revenues. If the state cannot collect enough rent from them to run the airport system, the financially ailing airlines using the airports will have to make up the difference. State laws require the airports to be self-sustaining.
Since 1962, airlines have had a "signatory agreement" to support the system of 15 airports, said John Thatcher, executive director of the 24-airline Airlines Committee of Hawaii.
Thatcher said at today's hearing that while the airlines support the idea of some relief for the concessions, the current bill goes too far because it would let concession holders walk away from leases.
That would leave the airlines responsible for the shortfall in airport funds and airline have their own financial problems, Thatcher said.
In a separate but related matter, DFS seized the opportunity of today's hearing to complain about what it said was a deliberate leak of confidential information that it had paid its parent company $100 million last year while it was in arrears with its state rent.
"In a malicious act designed to discredit my company and the hard work of these financially ailing concessions, someone leaked this one piece of information in a totally misleading manner to the press," Weiner said.
She said none of the $100 million came from DFS in Hawaii, which couldn't pay any because it has lost so much money. It came from DFS operations in Asia and elsewhere, she said.
DFS Group, headquartered in San Francisco, had no choice but to make the payment against some $500 million lent by its parent, LVMH Moet Hennessy Louis Vuitton, Weiner said. She added the payment was disclosed to the state under a confidentiality agreement and it was known only by four officials and the accounting firm of KPMG, hired by the state to look at the company's books.
DFS Hawaii