DFS Hawaii may reap huge break from bill
| • | Senators narrow scope of emergency powers bill |
By Johnny Brannon, Andrew Gomes and Kevin Dayton
Advertiser Staff Writers
One of the companies that stands to benefit the most from the bill that would grant emergency powers to Gov. Ben Cayetano is retailing giant DFS Hawaii, which holds lucrative airport retail and duty-free concession contracts with the state.
Eugene Tanner • The Honolulu Advertiser
The company is lobbying the state to suspend contract provisions that require DFS to pay more than $70 million a year for its exclusive airport leases and marketing rights. DFS and smaller airport concessionaires want instead to formulate the payments as a percentage of their income, which has fallen since the Sept. 11 attacks.
DFS Hawaii says sales have plunged since Sept. 11 at its Galleria store in Waikiki and at its duty-free shops at Honolulu International Airport. The company is lobbying the state to suspend contract provisions that require DFS to pay more than $70 million a year for its exclusive airport leases and marketing rights.
It would be the third time in recent years that DFS has gotten state help to meet its contract obligations. The state has allowed DFS to defer concession payments twice in the past decade because of economic downturns, though the company has repaid all of those debts with interest.
The state Department of Transportation, which runs the airports and manages money from the contracts, acknowledged that the proposal would jolt its own income stream, but supports the measure just the same.
"We want to provide what relief we can to our airport businesses so they can continue services, minimize employee layoffs and prevent further damage to our economy," department spokeswoman Marilyn Kali said.
The controversial bill, expected to be voted on this week, would allow Cayetano to "suspend, waive, defer or modify any contract obligations owed to the state for up to a six-month period" if he declares an economic emergency. The state Senate yesterday approved an amendment that would limit any contract amendments to between now and April 30 and would apply only to measures passed during the special session. The House still must consider the amendment.
Lawmakers who favor the bill say it makes more sense to grant broad powers than to attempt to address a multitude of economic issues during the special session now under way. But Republican opponents say the bill would give the governor too much power and open the door for abuse.
Rep. Charles Djou, R-47th (Kahalu'u, Kane'ohe), said he objects to the bill because the governor would have complete discretion to decide what kind of break to give, if any. "It is an opportunity to favor your friends and punish your enemies," Djou said.
While Djou said he favors giving DFS a break, others are wary that DFS could get special attention. The company has donated or helped raise more than $450,000 to aid in the renovation of Washington Place — the governor's mansion — and key executives donated $5,500 to Cayetano's reelection campaign and to other Hawai'i Democrats, records show.
DFS holds four state contracts, the most valuable being the exclusive duty-free concession that lets the company sell untaxed imported luxury items such as liquors, perfumes and watches. DFS has retained that right since 1968.
The company says its sales have plummeted more than 50 percent because of the slump in visitor arrivals, especially from Japan. And strict new airport security requirements prevent friends and relatives of travelers from accompanying them past security checkpoints, where shops are located.
"There's no way that you can survive with that kind of loss of business," DFS Hawaii vice president Sharon Weiner said. "And I think we and the currency exchange are probably the hardest hit of all the concessions at the airport because we're the most dependent on the Japanese."
The state already has assisted airlines by waiving millions of dollars in landing fees, so assisting concessionaires is a matter of fairness, she said. And airports that serve other cities, such as San Francisco and Dallas, have already granted the kind of relief DFS is seeking.
Weiner declined to say why DFS Hawaii's majority owner LVMH Moet Hennessy Louis Vuitton SA — the world's largest luxury retailer — should not absorb the losses.
"We have a response, but I'm not going to be forthcoming at this point," she said.
The LVMH division to which DFS Group Ltd. is the largest contributor also has faced financial difficulties losing 92 million euros (about $82 million at today's exchange rate) in the first half of this year, more than quadruple its loss in the first half of last year. LVMH has 14,000 stores worldwide and its sales for last quarter alone totaled $2.8 billion.
Weiner said DFS Hawaii, which in the past has been one of the biggest revenue generators for DFS Group, is losing millions of dollars a month on its state contracts. She wouldn't say how long the company can continue operating without defaulting on its state contract as things are, or predict or forecast the next steps the company may be considering.
Defaulting on its state contract would prevent DFS Hawaii from bidding on the contract for five years and would cause the company to lose a $45 million bond.
If the Legislature does not approve the measure, DFS could find itself in a tough spot because its duty-free contract with the state prohibits the company from seeking adjustments as a result of unforeseen catastrophes and situations, including war.
Hawai'i Attorney General Earl Anzai said that if rent is waived for DFS there is a danger that the state could be sued by another company that wanted to bid on the duty-free contract but refrained because of its strict provisions.
"No matter what you do, you always have the potential to have disgruntled people object," he said. "That's something we live with."
