Surplus could provide relief

By Mike Leidemann
Advertiser Transportation Writer

Even though operating revenue at Hawai'i airports declined by more than $100 million last year, the state still has ample money to grant financial relief to its airport concessionaires, a national consultant told state lawmakers this week.

"The airports have a $550 million surplus, largely funded by the concessionaires in the past, and that money can be applied to rate relief now," said Roger Bates, who has worked as an airport consultant for more than 30 years.

The money is among the cash and other unrestricted assets that the airport system has accumulated and invested in secured funds, Bates told lawmakers at a hearing on a controversial bill to grant rental relief to the concessionaires, who have seen their income drop since Sept. 11, 2001.

The state has argued that it cannot afford to grant additional relief to the concessionaires and has sued the largest of the group, DFS-Hawai'i, which it says owes more than $49 million in overdue payments.

In the past, DFS had been able to pump hundreds of millions of dollars into the state budget with its lucrative duty-free sales at Honolulu International Airport and in Waikiki. That helped finance new development and helped keep airlines in Hawai'i from paying a larger share of airport costs as they do in most other locations, Bates said.

"The concessions in Honolulu were basically a big cash cow that generated enough money to pay for all the new airports on the Neighbor Islands," said Owen Miyamoto, a former airports administrator.

All that changed after the Sept. 11 terrorist attacks.

In the fiscal year that ended June 30, 2002, a sharp decline in collections of concession payments and landing fees contributed to an overall loss at the airports of more than $43 million in fiscal 2002, according to figures from the state Transportation Department.

The figures are contained in annual independent audit of the division required by state law. Although the fiscal year ended more than nine months ago, the audits were just completed and made public at the beginning of April.

Even so, the effect of rate relief would not pose a serious threat to airport finances, said Bates, who was brought to Hawai'i by a group representing the concessionaires. "There are other resources available to provide relief and still keep the revenue stream running," he said. In addition to tapping into its assets, the airport could impose new passenger fees and seek additional federal grants.

Airport officials, however, said the decline in revenue has had a big impact.

"A lot of the projects we had been planning for several years are still going to have to wait," said Davis Yogi, the state's airports administrator. "We're moving ahead on some things, especially security-related projects, but big things like expansion of the Diamond Head wing at Honolulu are on hold."

The 2001-02 fiscal year, which included the period right after the terrorist attacks, was a depressed one by just about any standard, according to the airport auditing firm of Deloitte & Touche.

"The Airports Division ended fiscal year 2002 with decreases in passenger activity, aircraft operations, landed weights, revenue passenger landings and deplaning international passengers," a summary of the audit states.

After Sept. 11, 2001, the state waived landing fees for almost six months at airports and offered relief to its concessionaires, which provide the bulk of financing for airport operations and capital improvement programs. In all, the concessions and waivers in 2002 amounted to $48.8 million.

That contributed to total operating income for 2002 of $182.9 million, down from $287.1 million a year earlier. During the same time, expenses — including those for additional security after the terrorist attacks — rose $6.8 percent to $226 million.

Overall the airports ended the year with an operating loss of $43.1 million — in contrast to the $75.4 million profit shown the previous year.

The state has begun collecting landing fees again, but many of the concessionaires remain far behind on their payments, a problem that continues to keep many new projects on the sideline, Yogi said.

DFS and a handful of other concessionaires say they have been unable to make more than minimum payments because of a decline in revenue following Sept. 11 and a continuing decline in international visitors and their spending habits.

Meanwhile, airport officials say they are pushing ahead with some projects while they try to work out agreement with DFS and other concessionaires.

Among the projects moving forward:

• Development of a new, larger central security checkpoint in the middle of the main Honolulu International Airport terminal.
• A nearly $10 million renovation and upgrading of the Emergency Operations Center in Honolulu, including new closed circuit video monitors throughout the airport.
• Barrier removal and renovations at restrooms to comply with the Americans With Disabilities Act.