Lagardère Travel Retail vows to “defend its interests” in Warsaw after contract award to Baltona Duty Free

POLAND. Lagardère Travel Retail has said that it will vigorously “defend its interests” after claiming that a recent contract award to Baltona Duty Free at Warsaw Chopin Airport was the result of a process that was neither “fair nor transparent”.

As reported on 8 May, Flemingo-owned Baltona was awarded concessions for 14 retail outlets by state-owned Polish Airports State Enterprise (PPL). In a statement last week. Baltona noted that these cover duty free, fashion boutiques and confectionery, tobacco and news (CTN) outlets under a nine-year contract. They cover almost 3,000sq m of space that has been managed until now by Lagardère Travel Retail, whose contract ends on 30 June. [Separately, Lagardère Travel Retail runs around 5,000sq m of space in the rebuilt T1, which remains unaffected – Ed].

Frédéric Chevalier: “We are currently considering all options through which we can defend our position”

Speaking to The Moodie Davitt Report, Lagardère Travel Retail Regional Chief Operating Officer EMEA Frédéric Chevalier said: “We are currently considering all options through which we can defend our interests. That includes at Polish or European level. We believe our interests have been spoiled. It’s important that we share with the industry how we see this situation, and give our concerns a voice.”

Lagardère Travel Retail outlined several concerns about the process conducted by PPL, which began last year with a formal call for tender.

Chevalier said: “PPL organised a tender that began in August, with the usual formalities. We have no issue with that and prepared to take part. The process was then interrupted in early December and although we were not told why, we also know that this can happen for many reasons.

“It was from this point that things changed. From January until March, we entered into what we believe was a non-transparent process. There was no formal framework for a tender, which runs contrary to Polish and EU law.

“We had been discussing it with PPL and eventually they asked us to make an offer, which we did. We provided a financial offer, renderings for the spaces and so on, but without any tender having been formally called. We presume that a formal tender was needed, hence the arrangement to launch one last year.

“We then learned to our surprise that Baltona had been awarded the contract after a press release from Baltona was released to the stock exchange. Even until now, we have not heard official confirmation from PPL that the stores have been awarded to anyone else. And we have had no notification that we should begin a handover process. This is very unusual for a contract that terminates in 44 days. It is detrimental, not only to us, but to the passengers in the terminal and to the brands.”

Baltona has provided artist impressions of its new stores, saying its new units will embrace nearly 3,000sq m, including the main 1,200sq m duty free shop

Chevalier said that it was seeking clarification from PPL, but noted that Baltona’s statement to the Polish stock exchange highlighted some key issues.

“First,” he said, “the release states that the parties agreed to settle a court case about previous spaces operated by Baltona, a case initiated back in 2012.” (See panel)

Baltona Duty Free’s statement to the Warsaw Stock Exchange

In a filing to the Warsaw Stock Exchange (WSE), on whose main index it has been listed since 2013, Baltona said last week that the company and its related legal entities have signed an agreement with PPL (Polish Airports State Enterprise) which paves the way for its return to Warsaw Chopin Airport. (Additional reporting by Jaroslaw Adamowski in Warsaw.)

“Under the agreement’s provisions, the parties have renounced all their mutual claims (both present and future) in relation to the aforementioned disputes, and, in particular, those related to the proceedings before domestic courts by both [Baltona subsidiary] BH Travel and PPL, and Flemingo’s claims against the Republic of Poland,” Baltona said in the WSE filing (see main story).

“In relation to the signing of the agreement, on 6 May 2018, [Baltona] and PPL simultaneously concluded a package of 14 lease agreements for commercial space, covering 14 stores located at both terminals of the airport, with a total surface of about 2,818.75sq m,” according to the filing. “The validity of these individual lease agreements was determined for a period of nine years following the date of the transfer of the premises covered by a given lease agreement.”

The 14 deals are estimated to have a net worth of a total of PLN710 million (€167 million), the filing said.

Baltona stated that, under the terms of its agreement with PPL, in case of a violation of the deal, Baltona will be required to pay a financial penalty of €22 million. In addition to this, a penalty of €1.5 million per lease agreement could also be imposed on Baltona if the company or its related entities pursue their legal proceedings against PPL or the Polish authorities.

The agreement also allows Baltona to demand financial compensation from PPL if its terms are violated.

“The aggregate value of financial penalties that can be calculated by [Baltona] from all of its lease agreements ranges between PLN90 million in the first year of the validity of the lease agreements and PLN9 million in the last year of their validity,” according to the filing.

That case followed a PPL move to unilaterally cancel its retail lease agreement with Baltona’s subsidiary BH Travel Retail Poland before beginning an overhaul of one of its terminals at the time. Baltona fought and won the case, with The Hague-based Permanent Court of Arbitration ruling in 2016 that the Polish state must pay over €20 million to Baltona. For full background, click here.

Chevalier said: “The settlement of a historical claim appears to have been an integral part of the assessment of the bid and of the agreement between PPL and Baltona, and is highlighted in Baltona’s press release. If you factor into the concession something that relates not to the operation of the 14 stores then we believe it calls into question the fairness of the competition.”

He added: “We also understand that the talks between PPL and Baltona were completed months ago, suggesting this took place away from any tender process. This reinforces our view that the process was non-transparent.

“We were invited to talk with PPL about this contract earlier this year without being aware that parallel discussions were taking place. So as a formal procedure it was not transparent. We consider this very serious and embarrassing.”

“A decision by the landlord should not infringe competition, limit our company’s access to the travel retail market, or be discriminatory”

Chevalier also raised other issues that he said were of concern.

“Based on the information we have from PPL we understand our financial offer was the equivalent of Baltona’s, not taking into account the obvious negative impact on the Polish state to settle the historical claim. So we would like to know what else the decision was based on.

“It also doesn’t take into account the massive operational disruption and complexity to replace an incumbent in a very short period, under two months, though as I said we have not received notification of this. Assuming a decision has been made, it leaves very little time to rebuild the stores. It is a huge operational challenge.”

He confirmed however that Lagardère Travel Retail would vacate its stores as per its contract with PPL.

“We are clear on the contract. We will cease trading on 30 June and we will respect our contract as we do everywhere. We will leave the premises. We don’t intend to go against any decision that has been made. But on the operational side, we are in limbo.

“Whatever happens we intend to protect the intellectual property of our group and ensure nobody can transfer or use our know-how, assets, capabilities or data to the detriment of Lagardère Travel Retail. This will make the takeover even more complex.”

Chevalier said the situation was all the more surprising in view of the retailer’s hitherto good partnership with PPL not only at Warsaw, but at other Polish airports too.

“With PPL until now we have had an excellent relationship. Performance has been very good – indeed last year was a record year for us in Poland. There is no commercial dispute between us. We are even arranging a celebration in Krakow on 7-8 June, to mark our strong partnership with PPL and successful operations at that location. We work hand in hand with the landlord there and in all other locations. That makes this more than curious, surprising and upsetting.”

He added: “To be clear, I do not challenge the right of PPL to make an agreement with Baltona or any other competitor. Those are the rules of the game.

“We respect Baltona as a competitor. In Tallinn we competed and they won. We have had competition at regional airports in Poland, and we didn’t win all of them. That is the travel retail game. Sometime you win, other times you lose. As long as the process is open, I have no issue.

“What we contest is that a decision by the landlord should not infringe competition, limit our company’s access to the travel retail market, or be discriminatory. My concern is how this has been conducted.

“So we are exploring our options. If all of this is confirmed – and we would like to hear the voice of PPL – we have to defend our interests and will pursue this either in Warsaw or at EU level.

“This has come from nowhere, it is barely conceivable and is not acceptable. We are ready for a long-lasting fight if needed. We would regret that but feel we have no choice, no matter how long it takes.”

*The Moodie Davitt Report has contacted PPL for reaction on this matter, offering a right to reply, but had yet to receive a response at the time of publishing.

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