SAC to reject its right to build $6bn Badgerys Creek airport

Sydney Airport Corporation is likely to reject its right to build the $6bn Western Sydney Airport at Badgerys Creek.

Sydney Airport Corporation is likely to abandon its right to build the $6 billion Western Sydney Airport at Badgerys Creek, which is an “extremely challenging” proposition, according to analysts at Standard & Poor’s.

The high probability that Sydney Airport will repudiate its right of first refusal to develop the airport has been enough to cause the credit ratings agency to revise its outlook for the airport’s holding company, Southern Cross Airports Corporation from “stable” to “positive”.

The Weekend Australian previously revealed the federal government, which was negotiating with Sydney Airport, had variously offered to cover $1bn in preparatory site works and to provide a loan at a concessional rate to cover 80 per cent of development costs, before deciding against that.

It has become increasingly likely the government will instead develop the airport itself.

“We believe that the conditions the government presented make the investment proposition extremely challenging since the group would be unlikely to earn an adequate return for at least a decade,” S & P analysts wrote in a memo released yesterday.

“We believe it would require an investment in excess of $5bn for a relatively small airport, compared with peers, when it opens by 2026.

“We expect the airport may serve no more than 3 million or 4 million passengers annually in the early years. As a result, the return on investment would be extremely low in the early years. We would raise the rating if Sydney Airport were to confirm its intention not to participate in the development of Western Sydney Airport.”

Sydney Airport’s largest shareholder, the $40bn superannuation fund Unisuper, has said it is not in favour of the deal.

Sydney Airport chief executive Kerrie Mather was pushing for a nine-month period to consider the government’s revised terms, but it is unlikely Urban Infrastructure Minister Paul Fletcher will agree to an extension on the four-month period in place.

The new airport would service a population growing from two million people to three million by 2030 — bigger than state capitals such as Adelaide and Perth — and provide thousands of jobs, as well as opening up investment and tourism opportunities.