Don’t repeat John Howard’s worst mistake: Sydney Airport

The sale of Sydney Airport in 2002 was the most inept thing the Howard government did in its 11 years in office.

The sale of Sydney Airport in 2002 was arguably the most inept thing the Howard-Costello government did in its 11 years in office. It is indisputably the most inept privatisation we have seen from any government, federal or state.

Their political heirs and successors are now trying to deal with the consequences of that ineptitude, which locked the country into giving the owners of Sydney Airport a 99-year licence to print money like no other government licence in our history — not even the TV ones at their most lucrative came close — by gouging Australian passengers and foreign tourists alike.

The board of Sydney Airport is now at least discombobulated if not outraged that the current Turnbull-Morrison government won’t simply extend the money-printing licence to the proposed new airport at Badgerys Creek.

It appears that it came close, disturbingly, dangerously close, to doing exactly that, but Infrastructure Minister Paul Fletcher pulled back at the last moment from a most egregious handover of taxpayer money to Sydney Airport.

However, the stunning ineptitude of the 2002 agreement still enables a rational Sydney Airport to maintain its licence to print money for the rest of this century, although it will have to spend $5 billion and more at Badgerys Creek to do so, and in the process reduce its profitability somewhat.

The sale back in 2002 could not have been worse-timed. Just absorb the date: it came months after 9/11 and the collapse of Ansett. Airline traffic around the world had gone into free-fall.

I remember the two events well: I was delivering a speech to a transport conference on what would become the morning after 9/11. I had written it to open: anyone want to buy an airline?

Now, that was intended to refer to the coming collapse of Ansett; 9/11 not only sealed its fate but meant Qantas backed off secret negotiations to buy it.

The government should have pulled the sale of Sydney Airport, but the prime minister quite simply panicked, as he was inclined to do in moments of extreme political crisis.

Remember, this was before we got all those China-driven budget surpluses, and annual tax cuts to boot. Indeed, in the 2002 budget, Costello had to report a deficit of $1.2bn. Yes, that’s tiny — the current treasurer would swoon for just one like that — but apart from the opening, Keating-bestowed deficit of 1996-97, it was the only deficit in Costello’s 12 budgets.

The seemingly big bucket of money to be reaped from selling Sydney Airport was just too alluring; and so in June, the Macquarie Bank-led consortium was able to execute the deal, literally, of the century.

This, incidentally, gives us a new addendum to what I would call the (Kerry) Packer Rule. It was long clear that if Packer was selling something, it was not wise to be the buyer. We should now know that if Macquarie is buying, you shouldn’t be selling. And we see this again with its ‘‘try-on’’ to buy Tatts.

The terms of the Sydney Airport sale were dumb, indeed dumber, and can only be explained by a state of fiscal panic. By all means grant the 99-year lease — if you wanted to do the equivalent of a full sale. But don’t give it the right to lock-in a 99-year monopoly of the country’s biggest and most important gateway!

For goodness sake, the Victorian Labor government was justly lacerated for proposing to give the buyer of Melbourne port a 50-year exclusive licence. It sensibly reduced that to 15 years.

It didn’t scare off either the buyer or the lush price the buyer was prepared to pay for such a top-tier asset. Sydney Airport was and remains an even higher premium asset. Macquarie & Co got it a bargain basement price, when the seller was, effectively, hiding in fiscal fear in that basement.

In its latest half-year Sydney Airport generated a staggering gross profit of 81c in every revenue dollar. No other business comes close.

Even Telstra at the very peak of its fixed-line telco monopoly only made around 50c in the revenue dollar. Toll-road operator, our down under ‘‘giant vampire squid’’ Transurban, is perhaps the closest, generating 73c of gross profit out of every revenue dollar.

But it has much higher capex to sustain its dominance and has had to get new roads. Its net profit is less than 10c in the revenue dollar. Sydney Airport has just had to sit at Mascot and grow fatter every year. Its latest net profit was a very lush 23c in the revenue dollar.

In its response to the government triggering the take- it-or-leave-it second airport option, Sydney Airport revealed just how mendacious it was.

The two sides have been ‘‘talking’’ for two years. Initially it was on the basis that the taxpayer pay for all the site preparation works; Sydney Airport would only have to pay for the direct aviation infrastructure.

I suppose we should be grateful that Sydney Airport didn’t expect the taxpayer to pay for the full $5 billion-plus and then simply hand the completed airport to it gratis. Then the talks switched to the taxpayer lending the money to pay for most of the development cost — but, with Sydney Airport having the right to walk away from it if it thought the end-cost was too high.

Fortunately, the government has come to its senses: Fletcher has told Sydney Airport that you build it to our specs, at your cost and risk — apart, importantly, from the $3.5bn of taxpayer funded access infrastructure — or you are out of the game.

Sydney Airport really has no choice: it can huff and it can puff, but it cannot afford to let another party threaten a coming century of gouging. We still get gouged, thanks to Howard and Costello; but at least we don’t also pay Sydney Airport a bonus to do so.