Tel Aviv Ben Gurion International Airport duty free tender deadline nears as legal challenge is withdrawn

ISRAEL. The duty free tender at Tel Aviv Ben Gurion Airport terminals 1 and 3 is set to close on 9 August with prospective bidders weighing up whether to bid on either or both concessions.

As reported, Israel Airports Authority (IAA) issued the tender on 5 June. Bidders can make offers on either the T1 or the T3 contracts, or make a collective bid on both. The contract/s run for seven years from 1 January 2018 with a three-year extension at the Authority’s discretion.

Attendees at a pre-bid meeting on 13 July included JR/Duty Free (the incumbent) and Gebr Heinemann (which will bid together following the creation of a joint venture earlier this year), DFA, Dufry and local firms Superpharm and April Parfums.

The two-terminal tender is a result of the full re-opening of Ben Gurion Airport T1 to international departing (not arriving) passengers on 19 June this year. The T1 change of status dilutes traffic at the existing international T3 (around 1.5 million of the airport’s current 9 million departing international passengers will fly from T1 but will arrive back at T3.) Passengers flying from T1 will be able to order their duty free goods on departure and pick-up on arrival at T3.

Deputy Director General – Commerce and Business Development Yoram Shapira told The Moodie Davitt Report that a decision will be made “within two to three weeks” after bidding closes.

JR/Duty Free is the Ben Gurion incumbent but this time will bid in partnership with Gebr Heinemann, runner-up in the last bid

He confirmed that the tender process had been smoothed by the recent withdrawal of a legal challenge brought by Veta Ovda, part of the DFA group, against Israel Airports Authority (IAA) and JR/Duty Free. The claimant had alleged that the IAA should not have allowed JR to exit its current ten-year contract for T3 (which was due to conclude in October 2024) in favour of being allowed to contest the new T1/T3 dual tender. The agreement to do so was “extremely unreasonable”, DFA argued.

In its defence, the IAA claimed that the adjustments in the tender were a “fair and necessary procedure”. The authority claimed that the sole purpose of the petition was to prevent James Richardson from competing in the next tender.

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On the recommendation of the judge at a hearing on 3 July, Veta Ovda withdrew its application. Awarding costs against the claimant, the judge said that the IAA Tender Committee’s decision was so reasonable and proportionate that any other decision the Committee might have made “would have been an unreasonable decision”, it said.

“This is good news,” Shapira told The Moodie Davitt Report. “It helps the tender to continue.”

Leon Falic, co-Owner of DFA, explained to The Moodie Davitt Report that the purpose of the case had been to create an equal playing field. The company had been told before the last bid in 2013 (won by JR/Duty Free) that no renegotiation would be possible once the winner had posted its guarantee and commenced the contract. While DFA subsequently chose not to bid, the company felt that JR had effectively been allowed to renegotiate by being allowed to exit its onerous per-passenger-based contract terms.

The IAA’s concessions are notable for involving such a fee formula. However, an increase in passenger numbers has hurt rather than aided retailer profitability since the introduction of the ‘Open Skies’ agreement in 2014 – intended to bring low cost flights to and from Israel. The resultant surge in traffic has led to a decrease in penetration, driven by a combination of lower-spending travellers and repeat passengers who are less likely to buy on their additional trips.

Both of the likeliest bidders for the Tel Aviv contract, Jr/Duty Free and DFA, will be mindful of the risks associated with such a contract structure. JR at Ben Gurion and DFA at Ovda Airport in Eilat (where it sought and was granted rent relief by the IAA) have been adversely affected by the Open Skies agreement. For the years 2014 to 2016, JR’s passenger spend rate (PSR) fell -17% while DFA’s dropped -45%.

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