Pandemic-hit Flight Connections fights to stave off airport eviction

Air travel is bouncing back, but some travel-related businesses are still in the throes of the adverse economic impacts of the ongoing COVID-19 pandemic.

Airline logistics and support services company Flight Connections Limited, FCL, has gone to court to fight efforts by PAC Kingston Airport Limited, PACKAL, the operator of the Norman Manley International Airport, NMIA, to terminate the concession agreement under which the firm provides ticketing, baggage handling, airplane sanitation and other services to several airlines.

PACKAL is a wholly owned subsidiary of Mexican airports operator Grupo Aeroportuario del Pacífico SAB, or GAP – which translates in English to Pacific Airport Group.

A February 2021 notice to FCL to quit and hand over its airport space to PACKAL stems from rent and other payment arrears, including the required rental deposit.

An application filed on January 29, 2021, by FCL for an injunction barring PACKAL from carrying through on its notice to terminate the agreement and ultimately evict it from the airport, was heard in the Supreme Court on May 13 and June 11 by Justice Icolin Reid, who delivered an oral judgment denying the injunction.

FCL, in its court submissions led by attorney Hugh Wildman, said the notice was in breach of an agreement between itself and PACKAL, and requested the injunction pending the referral of the dispute between itself and the airport operator to an arbitration tribunal established under the concession agreement to resolve the dispute between the two parties.

The airline service firm contended that the pandemic severely affected operations at NMIA, which was closed for three months, during which time the concessionaire lost revenue as no passenger commercial flights were allowed. It admitted that it had fallen into payment arrears and the security deposit of over US$54,000 was used to offset payments that became due during the period of the airport’s closure.

FCL said the effects of the pandemic were still being felt and that PACKAL had extended to October 2020, the period to restore the deposit. It said it sought a loan from a financial institution to pay off the arrears and had informed the airport operator of its fundraising efforts.

On January 8, 2021, according to FCL, it received a letter from PACKAL informing that it was in breach of the rental agreement for having failed to pay concession fees for more than 45 days and failing to replace the security deposit. It was also issued, it said, with a notice to quit and deliver up the premises by February 13, 2021.

FCL contended that since it was unable to seek compensation from the operator of the airport during the closure of the facility, PACKAL should be similarly blocked from enforcing the contract during three months of the airport’s closure. It also argued that the one-month notice period was unlawful and a breach of the Rent Restriction Act, which it said provided for a six months’ notice for commercial leases. It’s lawyers also pointed out that the concession agreement provided for a 12-month notice period.

They added that FCL would be severely affected if given less than six months’ notice to vacate the premises as that would give rise to significant liability for redundancy and notice pay for its over 186 employees as well as to being exposed to legal actions from its clients and affiliates who require six months’ notice for termination of its services.

The airport operators, represented by attorneys Emile Leiba and Nickardo Lawson of law firm Dunn Cox, noted that when it took over operations of the airport in October 2018 and full management of the facility one year later, some tenants were in good standing while others, including the FCL, were in arrears. It said payment plans were offered to bring tenants into proper standing before the transition to its full control of the facility in October 2019.

Following a letter to FCL in June 2019, advising of rental and concession arrears of US$108,779 and $1,865,324 for utilities, as well as in several meetings, PACKAL said, a payment plan was agreed and signed by both parties on June 11, 2020 for FCL to eliminate its arrears by December 2020.

The airport operator noted that while it had seen a letter from National Commercial Bank about a loan that was being sought by FCL, the loan application process had not been completed and several months’ payment remained outstanding.

The judge, in determining the application, pointed out that based on the evidence presented by FCL, it was in arrears at all times during its dealings with PACKAL and the basis of the agreement between the parties was not the concession agreement of May 15, 2017, but rather, the letter signed by the FCL chief accountant in June 2020. The court also noted that the NMIA was exempted from the Rent Restriction Act.

The court found that the details of the correspondence between the parties did not indicate the existence of any dispute of facts, including the existence and amount of the arrears, on which both parties agreed, and as such there was no issue that warranted a referral to arbitration.

The judge found that FCL was in breach of the agreement contained in the June 2020 letter as a result of its failure to pay the amounts agreed on.

“I also find that the respondent was on good ground when it issued the notice to quit to the applicant,” the judge added.

Cost was awarded to PACKAL.

Efforts to contact the management of FCL were unsuccessful but Wildman told the Financial Gleaner that his client is continuing its operations at NMIA as the matter was still in court, FCL having filed suit for breach of contract against PACKAL.

The management of PACKAL declined to respond to Financial Gleaner questions about the number of airport tenants in arrears, the total amount owed and the what portion of the outstanding sums have accrued since the onset of the pandemic.

In an emailed response, PACKAL CEO Fernando Vistrain Lorence said PACKAL has regarded the pandemic as a very serious situation.

“From the beginning we established a programme of payment plans and important discounts for all our clients who were up to date with their payments. In 2020 we offered 60 per cent discount on MAG (minimum annual guarantees) and currently we are offering up to a 50 per cent discount and the programme will stay at least until the end of the year 2021, taking into consideration the percentage reduction of passengers per month compared to 2019,” he said.

Airport concessionaires typically make set MAG payments as part of their overall fees to the operator, no matter the level of business being experienced.

huntley.medley@gleanerjm.com