Airport vendor dangles a deal Outlay offered for longer lease

The concessionaire at the state's largest airport wants to invest about $2.3 million to upgrade its operations in exchange for extending its lease through 2018.

But some members of the Little Rock Municipal Airport Commission, which oversees Little Rock National Airport, Adams Field, question whether the proposed extension is too long.

Airport staff members recommend approving the proposed lease extension, which goes before the full commission today.

The changes "will better service our customers and increase revenue for the airport," said Judy Ross, the airport's properties, planning and development director.

HMSHost, formerly known as Host Marriott Services, has held the concession contract at the airport since 1997. The contract, scheduled to expire in 2011, has already been extended at least once. The company had $7.2 million in sales at the airport last year.

The extension, an airport staff member said, would give the company time to earn a "reasonable" return on the proposed $2,268,500 investment.

Under the proposal, HMSHost would:

Develop a full-service restaurant and bar beyond the passenger screening area.

Replace a Cinnabon outlet in the food court with a Quiznos outlet.

Replace the Ouachita Brewhouse with more seating for the food court.

Replace the generic food and beverage cart in baggage claim with a second Starbucks Coffee outlet.

The moves that HMSHost is proposing reflect changes in what airline passengers do with their time and their eating habits, company and airport executives say.

Quiznos "would provide a healthier food choice and alternative breakfast selection" for the food court, according to documents prepared to support the recommendation that the commission approve the offer.

The sit-down restaurant and bar concept in the secure gate area represents part of a trend in airport concessions since the Sept. 11, 2001, terrorist attacks that prompted increases in airport security, said Steve Douglas, a vice president for HMSHost's business group.

Many airports and airlines regularly recommend that passengers arrive at airports well before departure times. Consequently, many passengers have time on their hands once they clear the security screening area. Frequent flight delays also are a factor in people spending more time at airports.

"We had a lot of comments" about having more eating options available beyond passenger screening, said Marcus Devine of Little Rock, who holds a 30 percent stake in the HMSHost contract.

The full restaurant and bar would supplant the art gallery on the concourse. The gallery would be moved to a pre-screening area. The multimillion-dollar investment in the airport's aging terminal doesn't preclude the airport from moving forward with a redesign of the terminal or building an entirely new one, Ross said. A proposed amendment to the lease with HMSHost contains a provision giving the commission a buyout option if it goes forward with building a new terminal or significantly altering the existing terminal, Ross' summary of the changes said.

"If the buy-out is exercised, then the lease will immediately terminate ... and the commission has the ability to perform a competitive selection for a new concessionaire," Ross wrote in the summary.

The investment is expected to improve the airport's bottom line, adding an estimated $160,000 annually to the revenue the airport generates from the HMSHost lease, Ross said.

HMSHost paid the airport about $844,000 in 2006, said Carol Snay, the airport's controller. "At their current pace, they will probably pay more than that this year." The company also spends more money for utilities and renting office and storage space, she said.

The airport's annual operating budget is $29 million.

Douglas and Devine were in town Wednesday to brief members of the airport panel's lease committee. Three of the seven commissioners present at the meeting had more questions than company and airport administrators could answer, and the lease panel forwarded the proposal to the full commission without a recommendation.Commissioner Bob East wondered if the proposed lease extension amounted to a new lease, which would require the airport to seek proposals from other concessionaires.

"Can we do that legally?" he asked at the Wednesday meeting. "We're essentially giving them a new lease without competition." Lease extensions in exchange for new investment is common in the industry, Ross said.

By Thursday, commission attorneys had cleared the proposal of any potential legal snags.

"There are no prohibitions against extending the HMSHost agreement," said Carolyn Witherspoon, a Little Rock attorney and the commission's chief counsel.

Tom Schueck, another commissioner, expressed concern that under the proposal the commission would be unable to revisit the lease until 2018 and wondered if the lease couldn't be for a shorter period, such as seven years instead of 10.

"We wouldn't be able to recoup our investment in that short of a term," Douglas said.Commissioners also preferred a "name-brand" sit-down restaurant rather than the one the company proposed, which would have an Arkansas flavor.

The commissioners visited several airports earlier this year as part of the commission's deliberations on whether to build a new terminal or renovate the existing one. The cost of a new terminal has been estimated at $230 million. The offerings they saw at airports include Chili's Grill and Bar and Friday's restaurants, which the commission members suggested would help attract customers.

"They know what they are going to order at Friday's," Schueck said. "I know I do." Douglas and Ross said those brands require a level of passenger traffic that Little Rock National might not meet. About 2.5 million passengers go through the airport annually.

"The economics would require a different set of deal terms," Douglas said. "We will look at that." Ross said the work required under the proposed concession changes wouldn't be too much of a disruption to passengers.

"The one that would be of the greatest concern is the Starbucks in baggage claim," Ross said. "That's mainly because of the utility connections" that would be needed.

This article was published 10/16/2007