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Dec 20, 2016

Deal or no deal? Sydney Airport told 2nd airport could cost it $5 billion

How much would Sydney's existing airport pay for 99 year monopoly control over a 2nd Sydney airport?

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Stage One graphic of the Sydney West Airport development 10 years from now
Stage One graphic of the Sydney West Airport development 10 years from now

A rather shoddy PR campaign to get Sydney Airport’s existing owners into monopoly pricing control over its 2nd airport at Badgerys Creek for a pittance (or $1 billion) appears to be coming unstuck.

The Turnbull government today served Sydney Airport’s owners with a notice of intent to go ahead with the new Sydney West Airport and made it very clear that it was a take it or leave it deal when it came to their exercising a first right of refusal to build it and then operate it for 99 years.

That would cost Sydney Airport Group between $3 billion to $5 billion upfront for what amounts to the right to gouge airliners, their passengers, terminal retailers and car parkers for whatever fees it thinks it can get away with for the following century.

The fanciful figure of $1 billion for just building the terminal that was floated last week didn’t come from government sources.

The Minister for Urban Infrastructure, Paul Fletcher, said this morning that if it accepted the terms of the ‘notice of intent’ Sydney Airport Holdings would have open the airport served by an initial single 3700 metre runway by 2026, with a terminal able to take an initial 10 million passengers a year, and start work on heavy earthworks required to level the site by the end of 2018.

Minister Fletcher said Sydney Airport was assumed to be familiar with the terms of the deal following hundreds of meetings between the company and the government concerning the building of the 24 hour airport, which will be open domestic and international flights and able to take jets up to the size of an Airbus A380 from day one.

The existing airport’s owners have at most nine months in which to agree to the terms of the ‘notice of intent’ prior to entering into a binding contract. Minister Fletcher made it clear the government wanted an answer sooner than that. If they declined the offer the Commonwealth, which owns the Badgerys Creek site, would build the the new airport itself, or with an alternative private consortium.

In a statement Mr Fletcher says:

“All of the costs of building and operating the airport would be met by Sydney Airport in return for all of the economic benefits of ownership of the airport over 99 years.

“Should Sydney Airport choose to decline the opportunity to build and operate Western Sydney Airport, the government will be free to develop and operate the airport itself, or to offer the opportunity to other private sector companies on substantially the same terms as those offered to Sydney Airport today.”

(This would end Sydney Airport’s monopoly over airport charges and see price competition emerge for airline access to the greater Sydney metropolitan basin, which has a population of approximately 4.7 million today and is estimated to exceed 7 million people by the middle of this century.)

The Federal Government has already started work on a $3.6 billion package of access roads and other western Sydney infrastructure improvements, and has required the new airport to be rail service ready on opening. The Badgerys Creek site can be connected to either or both of the main western and southern suburban rail lines without the cost of extensive tunneling.

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13 comments

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13 thoughts on “Deal or no deal? Sydney Airport told 2nd airport could cost it $5 billion

  1. Dan Dair

    Minister Paul Fletcher is talking tough right now.
    It’s a really good soundbite.

    The comment;
    “The existing airport’s owners have four weeks in which to agree to the terms of the ‘notice of intent’ prior to entering into a binding contract”,
    is a bit odd.?
    There has been no previous deadline or ultimatum for agreement intimated by the government, nor alluded to in any previous statement from ministers, government spokespeople or anyone from the SAH group.
    In many way the whole ‘negotiation’ process has been one of delay & obfuscation by SAH, presumably to retain their single-airport monopoly for as long as possible, which was a point made at the start of this current process 18? months ago. (it’s taken this long just to get to a point where Macquarrie/SAH might actually say yes or no. God alone knows how long the next part of the process will take if they say no.???
    Will the government start the process over from the start by inviting tenders for the lease or tenders for the work to be done as a government project.?)

    Maybe I’m missing something, but the idea that SAH have four weeks to agree to pay for a lease for $3- $5 billion at some future time, but will immediately be rewarded by the government building a $4 billion airport with an additional $3.6 billion of infrastructure spending,
    doesn’t seem like much of a threat to me.?
    It looks a lot more like a Jason Statham & his meanest, threatening look, offering SAH a large diamond from a velvet glove.!!!!

  2. Dan Dair

    Having had a better look at the artists-impression graphic of what BCA will look like on it’s first operational day,
    it occurs to me that they’ve got airbridges…..
    Apart from that, it doesn’t look remarkably different to Wellcamp………
    Projected spend of $4 billion for BCA,
    actual spend of under $200 MILLION for WTB…… hmmmmmm.?

  3. Deano DD

    Perhaps there may be somewhat of a positive outcome here
    I have no idea why Maq Bank wasn’t told to foot the whole bill for the airport, they simply would have said no from the start
    Then either offer the job to Wagners or even better, the government could build it
    Better how
    If you know anything about finance, it would cost the government nothing
    How?
    Just like a bank does for home loans where they create money from the title of the property they hold (less 10% they should have in actual cash) the government has the same ability to create money from the value of the airport, both land and infrastructure along with the income generated which leaves a profit
    When a government creates money for building INCOME PRODUCING infrastructure, then this does not de-value our dollar
    The “loan” does not even need to be paid back, nor is there any interest, but the infrastructure would need to generate an income just like any business to work
    Other examples
    Building a freeway would not work unless a toll is involved, then it would work
    Buying assets back, like Telstra, Qantas, CBA or Energy companies would work on the same basis
    Buying back former government assets would be a huge win for Australia as NEW money is injected back into the Australian economy, yes in some cases it pays out multinationals, but they would likely re-invest into something else anyway
    Ford, Holden and Toyota are all leaving Australia, there is no reason that the government couldn’t buy up the assets of one and continue the production of a V6 model car, selling to police, councils, government departments etc. would guarantee base sales, with the general public also offered these Aussie cars to buy. This plant could also produce light trucks or buses, also primarily for sales back to the government
    This sort of ethos could well (like Donald Trump) make Australia great again

    1. ghostwhowalksnz

      Banks dont create money like that for house lending. The borrow the money elsewhere (depositors , offshore) for all asset backed lending. Banks make their money from borrowing short ( 90 days) and lending long (25 years ). Even the overnight money to make the inflows and outflows balance is only from the Reserve Bank ( and they pay interest on that)

  4. derrida derider

    The obvious profit-maximising strategy for Macquarie here is to make the facilities as cheap and nasty as the contract allows, and build them at a very leisurely pace. The “rail ready” requirement won’t be a barrier – given NSW’s rail infrastructure history you can bet that even a leisurely construction pace for the terminal will still beat the rail line (of course, even better might be a really low ball bid from an allied company to win the rail line contract). Or, US corporation style, there might even be some unaccountably well funded grassroots opposition to hold things up.

    All sorts of issues are possible that just somehow happen to preserve the KSA monopoly for as long as possible.

  5. ghostwhowalksnz

    Who would have guessed, that the new airport would be uneconomic when it opens and for some time after that. Ive been saying that for some time, spending $5 bill for the traffic that Hobart gets doesnt make sense – unless it taxpayers doing it. In the long run it will be fine but the issue is the location to the far west isnt where the travellors are. Brisbane is the ‘lab rat’ , as its 3 extra airports show the effect with only 2 being where people want to go to/from.

    1. Ben Sandilands

      Ghost,
      No-one is suggesting it won’t be profitable from day one. However it will be closer to just under half the population of greater Sydney than the current airport, and if you think those people and their businesses don’t fly a lot you are sadly lost somewhere in mid 80s, when the site was surrounded by farmland. Whether the new ownership structure of Sydney Airport (largely divested by Macquarie Bank) has the fortitude to stump up around $3-5 billion is a moot point. Many are hoping it hasn’t, since real competition between the two airports for some of their market overlap would be good. I don’t think there is any rational basis for comparing what is going on in the Sydney basin to a huge slice of SE Queensland or Melbourne or anywhere else. The current airport’s owners clearly wanted to grab the action, but seemed to be hoping for a low ball $1 billion deal, which just isn’t on. Keep in mind, they can always sell their investment, something Macquarie did with the current Sydney Airport.

      1. ghostwhowalksnz

        It may be closer to ‘half the population’, just that the other half is wealthier, travels more and will have the lions share of the international traffic for some time. Jetstar and Tiger will love the place though, but they will expect some money from the operator to run flights.

      2. Dan Dair

        Ben,
        Is it still the case that Emirates have that late-arriving flight into KSA,?
        & would they be likely to make it later still (for the convenience of departing passengers at Dubai, if it could land at BCA long after KSA’s curfew-time.

        That would be the starting-point for international services.
        One might then assume that QF/JQ &/or VA, keen to pick-up the onward-journey passengers might then have Brisbane & Melbourne flights ready to depart soon after the EK lands.?

        Equally, when the Emirates departs BCA in the morning, you would imagine that there would be flights arriving to bring connecting passengers to that EK flight.?

        1. Ben Sandilands

          Yes, I flew it recently and arrived very early at just after 9.30 pm.
          Although it’s 10 years off, I think the ME carriers, CX and probably many PRC and Indonesia carriers we can’t envisage today will be keen on it for timetabling flexibility. However domestic back of clock is a harder call. Melbourne and Brisbane are 24 hour airports, have been ‘forever’ and are ghost terminals late at night with almost no action. The real need for capacity is for day return domestic flights to nearer cities, and country towns, using the peak arrival and departure hours within the same Australian time zone. And reliable schedules within those peak hours. Same story in many parts of the world. Flying is as we all have to remind critics, a matter of time saving, not exercises in scheduling ‘efficiency.’

          1. Dan Dair

            I was thinking about a high-profile service which might benefit from departing later out of Dubai & generate immediate attention at the new airport.
            Of course, since SAH don’t want the new airport operational util 2025-ish, anything could happen in the meantime…..

            The Wagners,
            (or anyone with their own money at risk)
            would want to have planes flying within three years, even if the terminal building was actually just a bloody big tent.!!!!
            (or temporary cabins.?)

            SAH/Maquarrie might be content to continue to to delay BCA in order to keep KSA as their cash-cow,
            an alternative owner/operator at BCA would want it to be operational at the earliest date they can manage, in order to start to make a return on their investment as soon as possible.!

  6. Jacob HSR

    If the regulator ordered BAA to be broken up, why is SAH allowed to own Badgerys Creek airport?

    https://www.gov.uk/government/news/cma-report-shows-benefits-of-baa-break-up

    Is the Aussie regulator corrupt?

  7. Mark Skinner

    It seems to me the Sydney Airports would have no trouble at all financing this.

    After all, whatever it costs, they can raise charges to whatever they like to cover it plus profit. Not only that, they can raise charges at SYD to whatever they like to help pay as well.

    Johm Howard and Peter Costello should be up on economic treason charges. Lucky for them there’s no such crime on the books. They sold Australia out to Macquarie, and this will be a repeat by Turnbull and Morrison.

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