Qantas, Sydney airport hail early T3 deal

Qantas and Sydney Airport say they are both winners from a $535 million T3 terminal deal.

Qantas and Sydney Airport say they are both winners from a $535 million deal that will see the airline’s Sydney domestic terminal change hands four years ahead of schedule.

The deal resulted in ratings agency Standard & Poor’s yesterday reaffirming its BBB ratings for Southern Cross Airports Holdings’ Sydney Airport Fin­ance Company with a long-term stable outlook.

The deal will see Terminal 3 revert from Qantas to Sydney Airport from September 1 but gives the airline certainty of tenure until 2025. The airline’s 30-year lease on the facility had been due to expire on June 30, 2019, and the organisations had been in long-running talks that culminated in a serious of agreements on Tuesday night.

Under the deal, Qantas retains exclusive use until 2019 and gets priority access to the terminal’s gates, check-in and baggage ­facilities until 2025.

The airline will also book a $210m profit this financial year, which will be outside its underlying pre-tax profit and apply to statutory earnings, but it will start paying a per passenger charge similar to those levied at other airports from September 1.

Qantas chief executive Alan Joyce said there was now certainty about what price it would get for the improvements the airline had made and what would happen once the terminal became a common user facility.

“Importantly for Qantas, and I can’t overemphasise this, this deal provides certainty,’’ Mr Joyce told reporters in a phone hook-up with Sydney Airport chief executive Kerrie Mather.

“The lease was always going to revert after mid-2019. What the deal does is give us certainty for our passengers, for our employees beyond that date and through to 2025. This certainty comes in a form of a priority usage of key parts of the terminal after 2019, which we didn’t have before, and that includes check-in areas security lanes, gates and baggage carousels. We also have expansion rights for our lounges.’’

Mr Joyce said the agreement meant Qantas also had certainty on its aeronautical charges for its domestic operations in T3 as well as Qantas International and Jetstar International operations out of T1. “And the deal for T3 has been done in between the cost of capital for both companies,’’ he said, noting that the cost of capital for Sydney Airport was lower than for Qantas.

Ms Mather said taking ownership of the facility delivered on the airport’s financial strategic and operational objectives.

“It’s EBITDA and cashflow ­accretive, purchased on around 11 times EBITDA multiple for the first full year,’’ she said, later adding that the airport expected an incremental boost to EBITDA of about $50m from a combination of aeronautical, property and retail revenue. “We’ll be funding the transaction efficiently through a mixture of debt facilities and cash. We’re certainly now excited to own and operate 100 per cent of airport footprint and we look forward to transitioning T3 through into our broader business.’’

Both Ms Mather and Mr Joyce said the deal would forward the plans to integrate international and domestic operations in single terminals but said the timing of move, about which Virgin Australia has expressed reservations, still had to be worked through.

While Ms Mather said the integration was a key plank in the airport’s long-term master plan, she said it was outside the airport’s current five-year plan and that it was too difficult to say when it would happen.

S&P senior analyst Thomas Jacquot said the affirmation reflected the view that the increased debt the airport would need to take on to fund the deal would be offset by increased earnings from a domestic terminal passenger charge levied on Qantas as well as new retail and property earnings from the terminal.