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Sydney Airport’s pause for thought on high-cost second airport

High-flying growth stock Sydney Airport (SYD.AX) closed down 2.14 per cent at $6.40  Tuesday despite reporting significant increases in traffic both during the year to date, and in the month of November by more than 7 per cent.

The cause of the problem was a 100-page legal document Notice of Intention sent to the company by the Turnbull government making it clear that it expected Sydney Airport to contribute up to $5 billion more than the $1 billion it had anticipated towards the construction of a new and second airport at Badgery’s Creek, Western Sydney.

Sydney Airport has a first option to build and operate Badgery’s Creek under a long lease,  and therefore to maintain its monopoly on airport facilities in the country’s biggest and most important city.  But the documentation makes it clear that the company has to foot the bill for the one 3700 metre runway planned, and a terminal capable of handling 10 million passengers a year, as well as most of the rest of the infrastructure.

In its hard-nosed approach the government has shortened the period of time the company’s board has to make a decision to four months, and also made it clear that if it chooses not to exercise the option it is prepared to build it itself.

Given the Turnbull ministry’s budget problems – and the poor reputation of Canberra in running public projects, to wit the National Broadband Network, this may be a hollow threat.

Australian Strategies does not see how the numbers add up for Sydney Airport, but the board will take its time to make a decision, which could make meeting the ten-year deadline to get it operating hard to achieve. Negatives include the fact that most international airlines will choose to remain where they are, much closer to the CBD than Badgery Creek, where the government has at present no plans for a rail link. Another consideration isthat Australia’s main construction union, the CFEMU, is notoriously difficult to manage, with building costs escalating all the time.

View Sydney Airport official statement.

 

 

Sydney Airport