HAGÅTÑA (The Guam Daily Post) — An ongoing lawsuit the Guam International Airport Authority is wrapped up in presents challenges and uncertainty to the airport’s ability to put concession contracts – including the $154 million deal with luxury vendor Lotte Duty Free – out to bid again.
The airport is seeking authorization from the Legislature to renegotiate and extend all existing concession contracts for another three years, including the contract with Lotte, which is the subject of a long court battle with former airport luxury concessionaire DFS, which alleged misconduct in the Lotte award in 2012.
Lotte’s contract is set to expire July 20, company officials told lawmakers during a public hearing held Wednesday.
DFS and the lawsuit filed by it weren’t mentioned by name during the 90-minute hearing, only “the litigation.”
Airport officials initially framed the need for contract extensions as purely fiscal. Fees from airport vendors that have struggled through the COVID-19 travel slump and now Typhoon Mawar provide nearly 30% of GIAA’s operating revenue. But questioning from senators Wednesday revealed the ongoing legal battle also may be imperiling GIAA’s ability to seek out other vendors.
Renegotiating existing contracts, rather than having to put them out to bid again, would help airport vendors and their hundreds of employees remain financially stable in the wake Typhoon Mawar, airport General Manager John Quinata told senators. It also would encourage vendors to continue to invest in the airport and provide valuable services to travelers.
The airport lost $130 million through the course of the COVID pandemic, he said, and $60 million worth of federal aid has now dried up, so it is urgent for GIAA to be able to have contract extensions authorized.
‘Some challenges’
But Speaker Therese Terlaje questioned why the airport didn’t want to put the vendor spaces up for bid again, noting the competitive process could yield even better deals for GIAA.
GIAA Deputy General Manager Ricky Hernandez told Terlaje that rough travel market conditions made the authority wary about the prospect of getting better deals from other vendors than what was already in place.
The speaker said travel numbers were expected to pick up in fiscal 2024.
“It looks like it’s still valuable for these vendors to stay in there, and I just, I just don’t hear that rationale,” she said, unless GIAA wanted to negotiate contracts at lower rates.
“I guess there is current ongoing litigation,” Hernandez said. “And we try not to comment on things related to that. But we will mention that, because of that ongoing litigation, there has been some challenges as it relates to putting out new solicitations for concession-related services.”
“And when are those challenges going to end?” Terlaje asked.
“I wish we knew,” Hernandez replied.
He said GIAA was seeking new rules and regulations, which might resolve some of the uncertainty around whether it could put concession contracts out for bid again.
Terlaje questioned Hernandez about the differences in contract terms between smaller vendors, operating on month-to-month terms, and “that big vendor.”
Hernandez said the litigation was causing issues with putting all concessions out for bid.
Sen. Joanne Brown asked Hernandez whether there was a court order that froze the airport’s ability to seek new vendors. Hernandez said there wasn’t, but the ongoing litigation made it difficult for him to comment further.
Brown suggested that GIAA’s leadership should challenge the opinion of any opposing attorneys, because “every attorney’s opinion is exactly that until the court decides otherwise. So I think you need to think about that. Because now I’m beginning to wonder to what degree our assets are in good hands.”
She asked Quinata what the airport’s backup plan was, should the Legislature opt not to authorize renegotiations.
“We have looked at different contingencies. And, worst-case scenario, we’re not going to have a vendor up there, or vendors up there, at the airport. The airport has to assume all responsibilities,” Quinata said.
As of Wednesday, Lotte was the only vendor to submit testimony in support of the legislation, Sen. Amanda Shelton said during the hearing.
Lotte paid $20M in airport legal fees
Lotte has so far covered about $20 million worth of legal fees for GIAA, besides $20 million worth of the company’s own legal fees, according to Tony Sgro, a consultant for Lotte. Sgro told Sen. Jesse Lujan that the agreement to pay any resulting legal fees was a part Lotte’s initial contract with the airport.
Sgro said Lotte enjoyed no offset in rental payments due to the deal.
Again, Sgro never mentioned DFS by name, but the competing luxury goods dealer has sued both Lotte and the airport, Post files show. The Office of Public Accountability reported in 2019 that Lotte had reimbursed the A.B. Won Pat International Airport for $13.5 million worth of legal fees in a court battle over Lotte’s concession contract. Sgro, a former GIAA board chair, has himself been the subject of accusations from DFS, which he has disputed.
“It’s no secret there’s been a lawsuit has been going on for the past 10 years,” Sgro said.
Danny Chen, CEO of Lotte Duty Free Guam, told lawmakers the company’s total loss over the past 10 years has been $100 million, but that the multinational company still sees the potential in Guam and its airport.
A.B. Won Pat has about the same sales traffic as an airport in Vietnam, he said, but charges higher fees.
With no agreement in writing about Lotte’s future with the airport, luxury brands which fill their shelves with product were now looking to pull out, Chen said.
Among brands that are pulling out are Bottega Veneta, Bulgari, Chanel, and The Body Shop, Lujan noted.
And Lotte won’t be able to continue selling much of the $12 million worth of luxury goods in its inventory, Chen said, as the brand deals require them to either return the product or destroy it, Chen said, “that’s the main reason Lotte really needs the bill to be passed.”
Lujan said, between the legal fees and the $100 million loss on Lotte’s end, if no extension was granted, “if I was of any legal mind at all, … while I’m exiting, I would also file a lawsuit against the airport. And that’s a great possibility, right?”
“Yes, sir,” Chen replied.
“The bottom line,” Sgro said, “when we first met with the airport concerning this bill, it all had to do with one thing: it was to try to recover the losses after the pandemic, it had nothing to do with
The A.B. Won Pat International Airport as seen Dec. 30, 2022.
