Rift Between Suris, Hilton Threatens Management Pact

The Lalit Suri-promoted Bharat Hotels is considering changes to its 10-year management agreement with global hotels major Hilton International, which is owned by the UK-based Lad-broke. The New Delhi-based company may replace the management contract with a cheaper franchising contract, under which it would manage its hotels without any management expertise or help from Hilton.

Bharat Hotels and Hilton signed the management agreement in 1995, after the former opted out of its franchisee arrangement with Holiday Inn Hotels International. Under the current agreement, Hilton manages Bharat Hotels properties in New Delhi, Mumbai and Goa. Bharat Hotels retains 40 per cent of the annual gross operating profit in each of these properties, while Hilton gets a management fee as well as the remaining 60 per cent of gross profit.

 

Sources revealed that Bharat Hotels is unhappy with Hiltons failure to meet its promised annual operating profit figures for the Delhi property. The Indian company has made it clear to Hilton that the management contract is proving too expensive and uneconomical for the Suris.

The Suris are expected to take up the issue with the Hilton brass in November, when the management agreement will come up for review.

As a result of the two companies differences, the Suris have also decided to shelve their plans to float two more joint venture companies a hotel-owning company and a management company- with Hilton International. The ventures, planned to manage the Comfort brand of four-star hotels in India, would have marked Hiltons maiden acquisition of a stake in a hotel venture.

When contacted by Business Standard, Bharat Hotels chairman-cum-managing director Lalit Suri responded with No comments. A fax sent to Hilton Internationals country manager, J J Kiefer, evoked no response.

However, a senior Bharat Hotels executive revealed that in 1996-97, there was a shortfall of about Rs 12 crore from the budgeted gross operating profit figure provided by Hilton to Bharat Hotels.