REPRESENTATIVE JON RIKI KARAMATSU
Senate Bill 1478, Senate Draft 2, House Draft 1
Airport Concessionaires Floor Speech
Tuesday, April 08, 2003
“Mr. Speaker,
The operations at the Honolulu International Airport are primarily funded by two sources: airline landing fees and airport concessionaire rental payments.
With the threat of terrorist attacks, the federal Homeland Security mandates has greatly affected the flow of people going through our airport. Long lines prevent travelers from purchasing at the concessionaire stores. Further, families and friends who used to enter the airport terminal to greet or send off passengers at their gate are now stopped at the security checkpoints and cannot enter the area of the airport where the concessionaires conduct business.
Let us consider the largest vendor, Duty Free Shoppers Hawaii (DFS): a company that employs 1200 Hawaii residents and pays tens of millions of dollars a year in state taxes. In its 40 years of doing business, DFS has never been held in default on an airport concession agreement anywhere in the world. This company has generated approximately $2.5 billion for the Hawaii airport system. Keep in mind that this is a company that had humble beginnings as a small little store in Waikiki.
In addition, in giving relief, it is important to note that in regards to DFS, like the airlines, government heavily regulates them, as a majority of DFS' customers must be international travelers. Therefore, DFS is not your average store where all merchandise can be sold to anybody. When asked in the House Finance Committee why the concessionaires pay a higher percentage of the operating fund for the Honolulu International Airport when airports in other states require a much lower percentage from their concessionaires, the Department of Transportation replied that the reasoning was DFS has a Waikiki Store outside of the airport. However, had it not been for the DFS Waikiki store, the State would not have been able to receive $2.5 billion from them.
That being said let me clear up some confusion as to DFS' rental payment to the State. It is true the company made a required partial debt repayment of $100 million to its primary financial creditor, LVMH Moet Hennessy Louis Vuitton. But consider this. In this post-9/11 airline and airport related business environment, it is risky for corporations to assume the financial risk in supporting companies such as DFS. In order for DFS to survive, it had to pay its primary creditor Louis Vuitton to receive continued financial support from them so it can pay its airport rents. Recently, the company made a $25 million rental payment to the State and it would not have been able to do so if it went bankrupt. Instead, DFS wants to continue to be a contributing partner in Hawaii by providing jobs and bringing revenue into the State.
In the aftermath of 9/11, much of the airline landing fees have been waived or greatly reduced by the State of Hawaii in addition to relief from Congress. Likewise, we must do what we can to help the concessionaires who in the past 20 years have contributed close to 60% of airport operating revenues when the airlines contributed close to 10%. For most airports, these percentages are reversed and relief for concessionaires was given. For example, in California, LAX Airport recently provided relief to DFS by suspending their minimum rent of $37 million a year until 2005. Instead, DFS will pay 23% of sales this year, 27% in 2004 and 28 to 39% through mid-2005 depending on sales.
We must not allow government regulations to smother the businesses in our airport or the State may be left with even less revenue from them or none at all. The airport concessionaires are offering to pay DOT rents they can afford with the DOT having the right to replace them if someone is willing to pay 10% more rent. If replaced by a new tenant and not penalized and barred from future re-bidding, the airport concessionaires agree to make no claims against the DOT and to suffer the loss of any improvements and any losses relating to the cancellations of their office, warehouse and equipment leases. This offer by the concessionaires shows their good faith effort to remain in business, keep Hawaii's people employed, and generate revenues for our State.
In this period of global turmoil, we do not always have the ideal alternatives before us. Sometimes we need to make a decision that is right for the times and circumstances we live in. This is the right choice for this time and under these circumstances.
Thank you.”
JON RIKI KARAMATSU 