DFS says it’ll pay
millions to state

The airport concession business
agrees to give $25 million for
past-due fees to delay a lawsuit

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By Russ Lynch
rlynch@starbulletin.com

DFS Group has agreed to pay the state $25 million, or about half the concession fees the state says are past due, in return for a promise by the state to undertake good-faith negotiations toward a new duty-free contract for Hawaii's airport system.

Gov. Linda Lingle's office announced late yesterday that the two sides have agreed to not launch any litigation while talks are taking place, but the agreement to talk does not cancel existing litigation. DFS also keeps the right to seek a refund of the $25 million.

Meanwhile, the state will not seek to cash the $45 million DFS performance bond while the two sides talk about new concession terms.

State Attorney General Mark Bennett also agreed to put a hold on the state's lawsuit against DFS, challenging what he said was a fraudulent transfer of $100 million by DFS Group in San Francisco to its parent, LVMH Moet Hennessy Louis Vuitton Inc. Bennett had charged the loan repayment should not have been made while DFS was legally insolvent in Hawaii.

Ed Brennan, chairman and CEO of DFS Group, met with Gov. Linda Lingle yesterday and they discussed ways to resolve their problems and work together on longer-term matters, according to Sharon Weiner, group vice president of DFS Hawaii.

Weiner said Brennan was "very impressed with (Lingle's) interest, not only in our business but in ways we can partner together to improve business not only from Japan but from the People's Republic of China and others."

The state announcement said discussions will now take place regarding "the possible withdrawal and early termination of the concession leases between the state and DFS" or some other resolution of their differences.

Two years ago, DFS bid a minimum of $60 million a year for five years for exclusive rights to sell duty-free merchandise to outbound international travelers from its Waikiki and airport shops.

But the flow of its main customers, Japanese tourists, dropped drastically after 9/11. Since then, DFS has been paying what it calls a "severe hardship" amount, about half what its concession contract requires.

Two weeks ago, Bennett gave DFS a demand notice for $49 million he said the company owes the state. He also filed suit against DFS and its parent over the $100 million transfer.

In the statement today, the state said the new agreement is not intended to affect moves in the state Legislature, where DFS and other concessions are seeking emergency relief to lower their rents retroactively to 9/11. Both sides are free to continue to advocate their positions, the state said.

Bennett, who said he spent most of the day with attorneys on both sides, said that as attorney general he is "happy that we are going to have the opportunity to see if this issue can be resolved."

He said he was particularly happy DFS agreed with what Lingle had demanded, the payment of $25 million in overdue concession fees before the state would talk about new contract terms.