Sydney Airport has turned down the opportunity to build and operate the new airport at Badgerys Creek because of the “considerable risks” its investors would bear for decades.
In delivering the worst-kept secret in local aviation, the ASX-listed Sydney Airport said the terms of any deal with the federal government for the construction and operation of Western Sydney Airport had failed its “investment criteria”.
Badgerys Creek residents split on future
A new airport is set to radically reshape Badgerys Creek in Sydney’s west – for good or bad.
The owner of Australia’s largest airport had until next Monday to reveal its hand after the Turnbull government issued it with a notice of intention in December, under which it could exercise its “right of first refusal” to build the new airport.
However, Sydney Airport chief executive Kerrie Mather said it was in the best interests of its investors not to accept the notice of intention.
“The risks associated with the development and operation of WSA are considerable and endure for many decades without commensurate returns for our investors,” she said on Tuesday.
Last month the Turnbull government said it had undertaken significant work to ensure timetables for construction would be met if Sydney Airport decided against building the new airport, including meetings with nine large construction companies.
The government’s plans are for bulldozers to begin moving tens of thousands of tonnes of earth at the 1700-hectare site at Badgerys Creek, about 50 kilometres from the CBD, by the end of next year and for a 3.7-kilometre runway and terminal capable of handling 10 million passengers a year to open by 2026.
Urban Infrastructure Minister Paul Fletcher has said the two remaining options would be for the government to build and operate the airport itself, or to go to market to choose another private sector party.
Sydney Airport CEO Kerrie Mather: Company won’t build Badgerys Creek. Photo: Anthony Johnson
Unlike Sydney Airport’s Kingsford Smith, the new airport will not have a curfew on night-time flying. That will give it a better chance of competing against its much larger neighbour at Mascot.
Macquarie equities analysts have estimated the cost of building the new airport is likely to be about $5.4 billion. However, that does not include the cost of funding its operation in the early years, when it will be unprofitable.
The new airport at Badgerys Creek is due to open by 2026. Photo: Peter Rae
The analysts forecast passenger growth at Western Sydney Airport to be relatively strong at about 10 per cent per annum in its early years. On that basis, they expect the terminal will need to be expanded within 10 years of operation.
They expect the airport will break even for the government within a decade of operation and “achieve the potential for competition”.
But the analysts doubt the economics will stack up for any third-party bidders to build and operate the airport themselves.
Last month, the Australian and Competition and Consumer Commission warned a single owner of Kingsford Smith and Western Sydney Airport would have an incentive to delay and restrict investment in the latter so it could boost returns from its existing operations.