Report Title:

Airport Concessions


Provides lease negotiation relief to certain airport concessions.


S.B. NO.












SECTION 1. The legislature finds that the terrorist attacks of September 11, 2001, had a profound impact on air travel in the United States, and that the subsequent events of the Iraq War and severe acute respiratory syndrome further reduced air travel to Hawaii and other major airports in the United States.

The legislature further finds that further relief is necessary for previously qualified concessionaires who previously received relief following the events of September 11, 2001, but have not yet negotiated further relief with the State. While most concessionaires since the 2003 regular session have negotiated relief with the State, some have not been able to complete such negotiations, due to the fact that these concessions may have been permanently damaged by the new federal security requirements imposed after September 11, 2001, and because the State may need added authority to provide necessary relief to such concessions.

Shortly following the events of September 11, 2001, the legislature during its third special session of 2001 passed a bill that provided short-term relief to Hawaii’s airport concessions and various airlines. Congress subsequently provided relief to the airline industry but not airport concessions. The concessions have historically contributed about sixty per cent of airport revenues compared to about twenty-five per cent by the airlines. The legislature believes it is important to try to support qualified airport concessions needing relief since some income from concessions was better than no income until the airport system could find tenants willing to pay more rent.

While Hawaii’s airport system has provided significant benefits and waivers to the airlines over the years (by some estimates in excess of $200,000,000), no similar benefits have been provided to concessionaires especially during their time of greatest need such as the events of September 11, subsequent events of the Iraq War, and severe acute respiratory syndrome. The legislature believes that the concessions could be aided from the unrestricted surplus funds of the airport system to provide relief. Hawaii’s airport concessions are unique in generating about sixty per cent of airport revenues when concessions at most other airport generate about twenty per cent of such revenues.

The legislature finds that state government as a landlord must set an example and be fair to all of its airport tenants. It should not seek or support favoring various tenants over others by providing relief opportunities and benefits to some airport tenants and not others who are in dire need of relief for survival and who historically have contributed sixty per cent of all airport revenues. Such fairness helps to correct any negative image of Hawaii and seeks to promote Hawaii as a reasonable and fair State to do business.

The legislature further finds that fifteen or more airport concessions did not have multi-year contracts but rather month-to-month contracts since their long-term contracts had expired more than one year prior to the events of September 11, 2001. Many of these concessions had been on month-to-month contracts for two or more years, contrary to state policy and law that require such contracts be for no longer than one year and put out to bid for multi-year contracts. These fifteen or more concessions have been allowed to escape any dire consequences due to September 11, the Iraq War, and severe acute respiratory syndrome since their month-to-month contracts allow them to terminate their contracts on thirty day notice without penalty if they could not afford or do not want to continue paying their full rents to the State. By failing to follow public policy and state law, these fifteen or more concessions benefited from the actions by the State as its landlord. For the State to ignore public policy and to favor such concessions in this way and not seek to provide fair relief to qualified concessions on multi-year contracts has not been fair treatment to all airport tenants by the State as a landlord. The State demand that the multi-year tenants suffering operational losses due to the events of September 11, 2001, pay full rent or risk being evicted, forfeiting their bond or deposit and being barred from doing business with the State for five years. This is not fair treatment of all airport tenants by the State. Due to the State’s failure to follow public policy it has allowed certain airport tenants to receive benefits that it has not been willing to extend to other tenants.

The legislature further finds that as a landlord, the public expects the State to treat all of its airport tenants fairly and the State must seek to do so. To be fair the State must likewise afford qualified airport tenants on multi-year contracts a similar opportunity.

The governor vetoed S.B. No. 44, C.D.1 (2003), which would have provided further economic relief to airport concessionaires. However, since vetoing the bill the State has managed to provide relief to most of the concessionaires who qualified for relief after September 11. But one or more qualified concessions have not been provided relief by the State in spite of the many months that have passed since the last legislative session.

The legislature further notes that various concerns have been raised by the Federal Aviation Administration regarding legislation guaranteeing profits to concessionaires, providing relief to concessionaires at below fair market rents, and providing permanent relief to concessionaires. Clearly, that is neither the intent nor the meaning of the language under this Act. This Act seeks to address the concerns expressed by the Federal Aviation Administration. There are no guaranteed profits to a concession in this Act since, if the State cannot reach an agreement with the concessionaire, it can terminate and re-bid the contract. This is clearly not attractive to any ongoing concessionaire.

This Act seeks to ensure income for Hawaii’s public airports given the circumstances while seeking to avoid unfair penalties to concessionaires for the events of September 11, 2001, by causing them to forfeit their security and concession bonds and be barred from doing business with the State for five years.

The purpose of this Act is to provide additional authority that will allow the State and some concessionaires to reach an agreement as to relief and to provide a mechanism for resolving their differences if an agreement cannot be reached.

SECTION 2. Section 102-2, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) The bidding requirements of subsection (a) shall not apply to concessions or space on public property set aside for the following purposes:

(1) For operation of ground transportation services and parking lot operations at airports, except for motor vehicle rental operations under chapter 437D;

(2) For lei vendors[;], including vendors of Hawaii floral products and lei greeting services;

(3) For airline and aircraft operations;

(4) For automatic teller machines and vending machines, except vending machines located at public schools operated by blind or visually handicapped persons in accordance with section 302A-412;

(5) For operation of concessions set aside without any charge;

(6) For operation of concessions by handicapped or blind persons; except concessions operated in the public schools by blind or visually handicapped persons in accordance with section 302A-412;

(7) For operation of concessions on permits revocable on notice of thirty days or less; provided that no such permits shall be issued for more than a one year period; provided further that revocable permits issued by the department of transportation at state airports for concessions shall be valid for not more than two years but may be extended if the director of transportation determines that:

(A) A natural disaster has occurred; or

(B) A continuation of adverse economic conditions existing within the previous twelve months would adversely affect the State's ability to obtain favorable bid proposals for a new concession;

(8) For operation of concessions or concession spaces for a beach service association dedicated to the preservation of the Hawaii beachboy tradition, incorporated as a nonprofit corporation in accordance with state law, and whose members are appropriately licensed or certified as required by law;

(9) For operation of concessions at county zoos, botanic gardens, or other county parks which are environmentally, culturally, historically, or operationally unique and are supported, by nonprofit corporations incorporated in accordance with state law solely for purposes of supporting county aims and goals of the zoo, botanic garden, or other county park, and operating under agreement with the appropriate agency solely for such purposes, aims, and goals;

(10) For operations of concessions that furnish goods or services for which there is only one source, as determined by the head of the awarding government agency in a writing that shall be included in the contract file; and

(11) For operation of concession or concession spaces at the convention center under chapter 201B.

For purposes of this subsection, "adverse economic conditions" means a reduction of fifteen per cent or more in the gross receipts of a concession as provided in section 102-10."

SECTION 3. Section 102-10, Hawaii Revised Statutes, is amended to read as follows:

"§102-10 Modification of contract terms. [If] (a) With respect to contracts adversely affected by construction work, if during the term of the contract (including contracts which have been executed and are presently in force) there has been a reduction of fifteen per cent or more in the volume of business of the concessionaire for a period of sixty days or more, computed on the average monthly gross income for the eighteen months just prior to the period or [as long as] from the date the concessionaire [has been in the business,] submitted a bid to the start of the period, whichever period is shorter, and [such] the reduction as determined by the officer letting the contract is caused by construction work conducted during the period of time on, or within or contiguous to, the public property upon which the concession is located by either the state or county governments, or both, the officer, with the approval of the governor in the case of a state officer and the chief executive of the respective county in the case of a county officer, may modify any of the terms of the contract, including the agreed upon rent, for a period [which] that will allow the concessionaire to recoup the amount lost by such reduction; provided that if the contract includes provisions allowing modification for the above contingencies, this section shall not be applicable thereto; provided further that this provision shall not apply to any particular concession if the application thereto may impair any contractual obligations with bondholders of the State or counties or with any other parties.

(b) With respect to economic emergency relief, if a public airport concession contract has suffered a reduction of fifteen per cent or more in gross receipts for a period of sixty days or more, computed on average gross receipts for the twelve months immediately preceding the date relief is requested or from the date the concessionaire submitted a bid to the start of the period, whichever is shorter, and that reduction is substantially caused by a reduction in the eastbound or westbound passengers arrivals during that period of time, the State may modify the concession contract by granting rent relief to that concession suffering the reduction, including but not limited to waiving guaranteed rents and collection of rent during the period of relief, or by providing other appropriate relief."

SECTION 4. All relevant administrative rules of the department of transportation shall be suspended during the period of relief provided by the department of transportation to an airport concession pursuant to this Act.

SECTION 5. If the State cannot provide the relief specified under this Act, the contract between the concession and the State shall be terminated as a matter of law. The concessionaire shall not be deemed in default.

SECTION 6 Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 7 This Act shall take effect upon its approval.