EDITORIAL
State must rethink its airport retailer deals

Call it a symbiotic relationship: The state needs income from the airport concessions — DFS Hawai'i, by far the largest, is supposed to pay a minimum of $60 million a year under its current contract — and DFS would have no enterprise at all without the airport.

DFS currently is asking the state to let it off the hook from its contractual obligation, citing a huge business decline. The company now says it cannot continue if it is held to terms of its current state contract. That's in sharp contrast to its normal position as the biggest money-maker of DFS Group's 150 airport stores.

At one level, the state must be realistic. This would be the third time it has had to renegotiate the DFS obligation during economic hard times. On the two previous occasions, to its credit, DFS eventually came through, with interest. Certainly the state's interest would be ill-served by having DFS close its doors. And Hawai'i needs the money.

But the state, fortunately, has developed a long memory with DFS. Risk-free business is an oxymoron, but the state was beginning to worry that DFS was counting on making big money during good times, while relying on the state to bail it out during bad times. Could that explain why it felt able to bid higher than its competition?

So in its last contract, the state prohibited the company from seeking adjustments as a result of unforeseen catastrophes and situations, including war. That was smart, certainly, but in hindsight, maybe a bit simplistic.

What it failed to recognize, perhaps, is the corporate "firewall" that is said to separate DFS from its majority owner, the luxury giant LVMH Moet Hennessy Louis Vuitton SA. LVMH is ready enough to rake in profits from DFS in good times, but unwilling to stand behind DFS obligation in bad times.

Gov. Ben Cayetano wisely vetoed a bill in June that would have extended relief for DFS because he said the bill would force the state to "virtually guarantee that airport concessions stay in business at the expense of the public."

Hawai'i Attorney General Earl Anzai also said that waiving rent for DFS could leave the state vulnerable to a lawsuit from any other company that considered bidding on the airport duty-free contract but was dissuaded by the strict contract provisions.

It's too early to say that the state should declare DFS in default. It still needs the DFS income as badly as DFS needs its airport locations.

Further down the road, though, the state must begin to make changes. For instance, most airport retail businesses today are located beyond the security checkpoints where only ticketed passengers can use them. It also needs to consider providing some of the money-making services that other airports offer.

Whether it's DFS or someone else, the state must be assured that it has a reliable business partner running its concessions. DFS' calls to be relieved of its obligations have become something of a broken record.