Sydney Airport-run Badgerys Creek airport ‘the best option’

The federal government and Sydney Airport Corporation are being urged to compromise on building a new Sydney airport.

Sydney businessman and infrastructure expert Tony Shepherd. Picture: Jonathan Ng

The federal government and the Sydney Airport Corporation are being urged to end a row over the terms to build Sydney’s second airport, amid fears tough negotiations could delay the critical project or threaten its viability.

Sydney businessman and infrastructure expert Tony Shepherd said the two sides should be able to reach a deal on an airport at Badgerys Creek that would be a significant development in ­aviation for NSW and Australia.

“It would make good sense for Sydney Airport to be the owner of Badgerys Creek because the integration of both is going to be very important from a state and ­national perspective,’’ Mr Shepherd, the former Business ­Council of Australia president, told The Australian.

“In the national interest, it would be good for Sydney Airport and the federal government to come to an agreement to get it built.’’

Sharemarket analysts said tough new terms demanded by the federal government made it increasingly unlikely that Sydney Airport, the publicly listed operator of Kingsford Smith Airport, would exercise its first right of refusal to build Badgerys Creek.

Urban Infrastructure Minister Paul Fletcher has demanded Sydney Airport fund the full cost of developing Badgerys Creek — estimated at between $4 billion and $6bn — and withdrawn a previous offer of financial assistance, believed to be up to $1bn.

The federal government is threatening to develop the project itself or offer it on the same terms to a competing operator if Sydney Airport does not agree to the new terms.

Sydney Airport chief executive Kerrie Mather said while Badgerys Creek was an “exciting opportunity’’, the changed terms made it a “challenging’’ investment and asked for nine months to consider its options.

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.

Mr Shepherd said although the upfront costs looked daunting, developing the new airport was likely to generate good returns over the 99-year life of the lease because of the continuing growth in domestic and international travel. “Experience would show that the returns should be excellent over the long term,’’ he said. “You are backing a sure thing, in a sense.”

Mr Shepherd stressed he was speaking as a businessman, rather than as a director of airline operator Virgin International Holdings.

He has a long history in infrastructure development, including in his former role as WestConnex chairman, overseeing Sydney’s $15bn motorway project. As Transfield Holdings’ CEO of project development in the 1990s, he oversaw the ­Sydney Harbour Tunnel and Melbourne CityLink.

Sydney Airport said on Tuesday international passenger growth was up 7 per cent last month and domestic passenger numbers rose 3.2 per cent.

Broking analysts said the new terms made it less likely the publicly traded Sydney Airport would exercise its right to build the ­airport. Deutsche Bank analyst Cameron McDonald said Sydney Airport would need about $1bn in subsidies in the first 10 years to make the project viable.

“The long-dated and uncertain demand for the second airport, no government support and potential dilution an investment would have on (the company’s) existing (earnings) distributions make this deal unattractive in our view,’’ he said.

Mr McDonald suggested the government could offer other concessions, including removing the cap on the number of flights an hour and ­dedicated regional slots at peak times at Kingsford Smith in exchange for a commitment to build Badgerys Creek.

Macquarie Bank paid the ­federal government $5.6bn for Sydney Airport in 2002, before onselling it to sharemarket investors.

Strong growth in domestic and international passengers has seen the company more than ­double in value to $13.4bn after it abandoned a debt-fuelled inter­national ­expansion following the global ­financial crisis.

“At the time, the price for Sydney Airport was regarded as too high but it has turned out to be very good for investors,’’ Mr Shepherd said.

The prospect of funding the development with no income for up to 10 years prompted warnings from analysts that Sydney Airport would face interests costs of $10 million, rising to $100m a year before it generated revenue.

Mr Shepherd said having Badgerys Creek operated by Sydney Airport would overcome some disadvantages of the western Sydney location, including longer travel time between the city and airport, with Kingsford Smith on Botany Bay one of the best ­located airports in the world.

Shares of Sydney Airport hit a high of $7.92 in August but have fallen for two straight days — down 33c to $6.07 yesterday — on investor concerns about the row with the federal government.