State auditors are examining BWI's concessions manager and the minority-owned shops and restaurants participating in a program designed to help them prosper, after mixed results, lawsuits and tenant complaints.
Some minority business owners say the airport and concessions manager BAA Maryland Inc. became so focused on building a large shopping mall inside the Baltimore-Washington International Thurgood Marshall Airport that it hurt their ability to earn a larger share of the millions spent there.
The owner of the Celebrate Maryland gift shop, for example, said her sales fell after a larger rival was allowed to sell similar items. A couple operating a Church's Chicken franchise claim they lost money because BAA dictated their prices and hours. Also, the longtime operator of the smoothie shop Flying Fruit Fantasy said she couldn't afford renovations and higher rent in the new mall.
Those operations are gone from the airport. State reports obtained through the Maryland Public Information Act show that two other businesses have left the airport's Minority Business Enterprise program since 2004 when the state hired BAA to overhaul concessions to include more name brands, local merchants and minority members. Meanwhile, BAA has not met all of the minority goals set by the airport.
"I think the airport was thinking in very lofty terms about what BWI should be," said Melissa Fulton, who opened Celebrate Maryland in 1995 at BWI. She was evicted May 4 for not paying rent and is suing BAA, the airport and the state for $10 million for breach of contract.
"They thought they deserved to have a first-class retail program, and I agree. But I don't believe it should be at the expense of one of the very necessary components of the program, which is the local, small and minority business community that give the airport a real sense of place," Fulton said.
More variety
To be sure, there has been progress, and a BAA official said auditors will see that. Company officials say shopping choices have been widely expanded at the airport, where few name brands or local businesses were found in the past. In addition, officials have more than doubled the number of women- and minority-owned firms since launching the airport program. But while help is available for tenants, BAA said, merchants must succeed on their own.
State Transportation Secretary John D. Porcari, who oversees the airport and all Minority Business Enterprise programs, agrees that variety is greater than ever.
"But we expect [BAA] to make every effort to meet the goals. And if they need to make changes and work harder to meet those goals, then they should be doing that," Porcari said.
The issues at the state-owned airport three years into BAA's contract and questions by The Sun prompted Porcari this month to order audits of BAA's financial performance and tenants' compliance with minority program rules. The recently appointed Porcari and airport chief Timothy L. Campbell would not comment in depth on the program, citing lawsuits and the audits.
Participants in the Minority Business Enterprise program must be women or minority members with limited net worth and relevant experience. Minority members must also control any partnerships. The businesses are eligible for government contracts once the state certifies them.
Airport officials wanted a program so women- and minority-owned businesses would have more opportunities and BWI's concessions would have more of a noncorporate character. But they also knew that consumers have come to expect name brands largely absent in the previous 30 years under HMSHost, which ran most of its own concessions.
BAA promised to mix up the offerings, but the smaller local and minority-owned shops haven't always been able to handle the same debt, rent and competition as the big corporations that have opened there.
Competition blamed
Celebrate Maryland was the most recent business to go. This month, Fulton, 60, sold off her inventory of regionally themed key chains, mugs and Maryland wine and food, and said goodbye to 40 workers at her four stores.
It marred a retail career that she began in 1969 at the Columbia-based Rouse Co., which opened Harborplace and many area malls. Fulton launched her business in her hometown of Ellicott City 20 years ago and moved it to BWI in 1995.
When BAA was hired, she welcomed the company, seeing a chance for the tired concessions to get a fresh infusion of money. Fulton agreed to spend $1.2 million to build new airport stores.
But airport construction forced her to relocate a store several times. BAA and airport officials never turned over space for four of the eight stores she expected to open. Fulton was in debt, her rent was up and sales were down, from $3.3 million in 2003 before BAA took over to $2.7 million last year. She stopped paying rent in December.
A big problem, Fulton said, was competition from Hudson News, a private, New Jersey-based giant in the transit world with shops in about 70 airports and train stations. It's BWI's largest retailer, and, with a partner, had already opened nine of 18 planned stores. Those shops sold many of the same Maryland-themed goods as Fulton in addition to soft drinks, snacks and magazines. Airport documents from 2004 show that only four other such stores were planned.
Fulton filed her lawsuit in Anne Arundel County Circuit Court in March, accusing BAA and the airport of unfair competition and breach of contract. BAA asked her to leave within a week. Also, it has temporarily replaced one of her stores with a gift shop operated by Hudson News.
Mark Knight, head of BAA Maryland, declined to comment specifically because of the lawsuit. But he said he was disappointed by Fulton's course of action, which was in "stark contrast to the outstanding partnerships BAA Maryland has forged with over 40 other tenants."
Today, 10 of those are women- and minority-owned firms in the state's Minority Business Enterprise program, including a new one this year. That's up from four in the year before BAA launched the minority program.
But declining revenue at shops such as Celebrate Maryland means that BAA hasn't met all the goals set by the airport. In the latest report from fiscal 2006, 11 percent of the retail revenue came from certified minority owners, falling short of the airport's 30 percent goal. One of the owners has since gone out of business.
For food sales, about 46 percent came from minority-owned shops last year, far outpacing the airport's goal of 15 percent. Three of the owners are no longer in the program.
Overall, BWI concession revenue was $57 million in the fiscal year that ended October 2006, and about 37 percent came from minority businesses.
BAA was picked in 2004 in the midst of a billion-dollar airport expansion. Some elected officials and HMSHost complained that the process was narrowly crafted to suit BAA Maryland, an arm of the European-based BAA PLC. The company controls all concessions in one other U.S. airport, in Pittsburgh.
BAA promised Maryland taxpayers $110 million over 10 years. The lease was extended five years to compensate BAA for its $19 million investment at BWI. Because the past three years were considered a transition, the lease will expire in 2022. Construction delays and unexpected costs, however, mean that the "Airmall" is only 60 percent complete.
Porcari said he did not know if there were widespread problems with the treatment and operations of BWI's minority-owned businesses, pointing out that a third of small companies nationwide fail in the first two years. Even so, Porcari said, he has enough questions about airport merchants to order the audits.
Part of doing business
BAA's Knight insists that the program is working, and that overall revenue from minority members has grown since his company took over operations. He said the audits are part of doing business with the government.
"Our success rate speaks for itself," said Knight, saying that only two businesses have gone under at the airport and the rest left for other reasons. "Is there going to be a problem here and there? Yes, of course."
But some former merchants argue that the problems are more widespread.
Marcus and Denise Beasley, who are African-American, said they opened a Church's Chicken franchise in 2005 but closed it a little more than a year later and filed a $6 million lawsuit that is pending in Anne Arundel County Circuit Court against BAA, the airport, the state and others. The Beasleys' suit claims that their terms made profit impossible. They said BAA forced them to price their food too low and to open at 5 a.m., even though they didn't serve breakfast. BAA would not comment because of the lawsuit.
Federal documents about the Beasleys' case show that Timothy L. Campbell, the executive director of the Maryland Aviation Administration, which manages the airport, asked BAA to be more flexible with tenant pricing. Campbell declined to be interviewed because of the lawsuits and audits, but said in a statement that he expects BAA to make a good-faith effort to achieve its minority goals. He added that he believes minority participation is good.
That assertion angers Georgia Martin, who ran her smoothie business, Flying Fruit Fantasy, at the airport for 18 years and closed in October 2005 because she couldn't come to terms with BAA. Martin said the lease terms she was offered would not cover the investment she needed to succeed at the airport.
"I've seen a number of leases over the years, and I realized that they were going to have a revolving door of small businesses with those kinds of terms," she said. "Big corporate chains could do it, because they can handle the debt and they have economies of scale. Eventually, that's all BWI will have. No small and local businesses. You'll look around, and you won't know if you're in St. Louis or Pittsburgh or Baltimore."
BAA's Knight said Martin agreed to a lease and left the airport "hanging" for eight months while she changed her mind about building the business. He said, "She chose to walk away from an opportunity that others have since prospered from."
At least three other small or minority tenants also say they are having financial troubles at the airport, including Major F. Riddick Jr., former chief of staff to Democratic Gov. Parris N. Glendening. Riddick operates three restaurants and has one under construction.
One shop tucked in a wing of the Southwest Airlines terminal lost a third of its revenue after the carrier moved flights from those gates. BAA lowered his rent, and he lowered his expenses, but Riddick said he is still not making a profit there.
"Those of us in the terminal are counting on BAA and [airport] officials to work with us," he said. "We need to figure out what to do. A small business can only survive for so long in the red."
BAA's Knight said Riddick's other stores are posting good sales, and that, together, his businesses are performing well.
Porcari's audits will measure how well the airport is complying with the minority goals. State auditors have already said that some businesses might have been improperly approved for the statewide program - including two at the airport. Those findings were released May 10 to The Sun.
Not at the controls
The state confirmed that one company described in the earlier audit is Airport 2000 Concessions LLC. It was formed in 2004 by three minority members and a non-minority partner in Atlanta and owns Java City, Nature's Table and mamma ilardo's.
By 2005, state and company records show Erroll Brown had become the sole minority partner. Program rules say he should have been running the company, but he said he had no control. In a letter to airport officials, he said he was expected to be "an ambassador of good will."
State officials confirmed they met with Brown three times about who was operating Airport 2000 Concessions. Also, they notified the company in November 2005 that they were investigating whether it still met program requirements. Meanwhile, Brown stopped working at the airport and representing the company.
But the state waited more than a year to take further action as the partners feuded. BAA continued to count the business' restaurant revenue toward its minority goals, a BWI report says.
Records show that the two former minority partners notified the state in January that they returned as owners and Brown left. The state declined to renew the company's minority certification, citing the ownership change.
State officials say they are unsure if minority members have had control of the company from the start, although two partners with Airport 2000 Concessions insist they did. One partner, who is African-American, said he is proof that the program is helping minority members even if the company is no longer certified as a minority business.
"It's important to look at all these operations," Brown said of the audit.
BAA's Knight said he expects other minority-owned companies to join the airport program this year. He said his firm would also continue to offer tenants market research, merchandising suggestions and even financial aid.
He also said BAA will continue to require big firms such as Hudson to find minority partners.
Hudson has become so large at BWI that its sales could also significantly help BAA meet its own payment obligations to the airport. And with a minority partner, Hudson could go a long way toward meeting a program goal.
Hudson found Sandy Roberts as its minority partner. He is the owner of a small Prince George's County wholesale janitorial and medical supply firm.
Roberts' company, Olympic Supply, was certified by the state for airport concessions in early 2004, though he had not worked in retail, according to state records.
But revenue from the business was not counted toward minority goals because the joint venture Olympic formed with Hudson was rejected by airport officials seven times over two years. That's because Roberts didn't have enough control over company operations, according to e-mails between BAA, the Federal Aviation Administration and an airport lawyer. The FAA official suggested that Olympic sublet stores from Hudson, and they agreed. In February, Olympic began running four stores, called Olympic News, that will count toward the goals.
Olympic's Roberts did not return e-mails or telephone calls to his Olympic Supply or airport offices or his home. An airport spokesman said recently that the joint venture between the two was appropriately rejected, but BAA and Hudson disagree. James Wilson, a Hudson vice president, said in written comments that the airport staff had "difficulty" understanding the rules and "didn't properly interpret how to measure and count [minority] participation in joint ventures."
The state says Olympic will face an audit in August, after its stores are open six months.
Some tenants who came in with BAA said they believe officials there are doing a good job. Cheri Cernak, an owner of Obrycki's Crab House, said BAA officials were "straight shooters" who successfully brought in local businesses. Lauri Weitz, an owner of Chesapeake Bay Roasting Co., said BAA supported her desire to improve the vendor offerings: "We hated what was there at BWI. We were intent on bringing in a good product. And we've had a wonderful experience."
Unique needs
Other tenants and consultants said small business have unique needs that are not being met.
Wayne Frazier, president of the MD. Washington Minority Contractors Association, which helps minority members win pieces of public contracts, said small businesses have little buffer when sales slow. They can't close early or raise prices without BAA's consent. When they can't pay rent, they risk losing their shops and houses used to back loans. BAA can keep the fixtures and re-rent the space for more.
Frazier, who has worked with BWI's minority-owned businesses, said some companies might have failed because they lacked good business plans. But there is enough blame to go around: "Some of these business owners may not be so experienced in a big mall situation and were sold on the whole idea of `We'll bring you in and take care of you.'"
Copyright 2005 LexisNexis, a division of Reed Elsevier Inc. All rights reserved.
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