Clock starts ticking on Sydney Airport’s Badgerys Creek decision

When the Commonwealth sold Sydney Airport in 2002 it included a 30-year first right of refusal to build and operate any airport within 100km of the existing terminals at Mascot.

While it is understood the government could have offered between four and nine months for Sydney Airport to consider the NOI, Minister for Urban Infrastructure Paul Fletcher said it opted for four months given the extent to which the two parties worked on the document together.

“The Commonwealth considers that the consultation process has allowed Sydney Airport Group to become substantially familiar with the terms of the Notice of Intention, meaning that under the terms of the Right of First Refusal it has four months in which to accept the Notice of Intention,” the Minister said in a statement on Tuesday.

The NOI period would expire in mid-May, Fletcher told reporters in Sydney.

The issuing of the NOI followed publication of the final Western Sydney Airport Plan on December 12, which showed Stage 1 of the airport would feature a terminal capable of handling up to 10 million passengers a year, with domestic and international flights operating on a single 3,700m long by 60m wide runway in a 05/23 orientation.

The design of the facility would allow for a second parallel runway and expansion of the terminals to cater for 37 million passengers a year by 2050 and 82 million a year by about 2063.

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The terminal design would feature swing gates capable of handling both domestic and international flights, which would increase the efficiency of transfers and increase the use of contact gates equipped with aerobridges.

Meanwhile, jet fuel supply was expected to be delivered by road tanker in a similar way to other airports operating on this scale, such as Canberra and Gold Coast airports.

And the Airport Plan said the flightpaths have not been finalised, noting the draft flight paths shown in the draft Airport Plan were a “conceptual model for aircraft arrivals”.

In November, Federal Minister for the Environment and Energy Josh Frydenberg laid down 40 environmental conditions that needed to be met as part of the construction and operation of the proposed airport. They covered biodiversity, noise and heritage and were developed after a review of the proposed airport’s environmental impact statement (EIS) that was finalised in September.

Fletcher said the timetable contained in the NOI was for earth moving works to start by late 2018 and airport operations to commence by 2026.

“I am confident that the terms the Commonwealth has put to Sydney Airport Group are in the public interest with a view to securing a high quality airport in the required time frame,” Fletcher said.

Sydney Airport said in a statement it would seek more time beyond the four months, which it described as a “limited time allowed” to consider the NOI.

“Sydney Airport believes it is entitled to a nine-month consideration period and is continuing to discuss this with the Commonwealth,” the airport said.

“The length of this period will have no impact on the announced opening date for the airport.”

The company also described the proposed Badgerys Creek airport as a “challenging investment proposition” given the level of government funding committed to the project.

In its statement to the Australian Securities Exchange, Sydney Airport said the two-year consultation period considered different scenarios for how the airport’s construction would be funded.

During the first 12 months, the consultations were based on the idea the federal government would pay for site preparatory works while Sydney Airport paid for the aviation infrastructure work, Sydney Airport said.

In the second 12 months, the funding model considered involved a long-term Commonwealth loan for a “significant part” of the airport’s development costs and a “multi-year procurement process at the end of which Sydney Airport would have the right to withdraw from the project if costs were materially greater than anticipated at the date of the NOI”.

However, Minister Fletcher’s statement noted: “All of the costs of building and operating the airport would be met by Sydney Airport Group in return for all of the economic benefits of ownership of the airport over 99 years.”

Fletcher later told reporters in Sydney: “There is no financial support, no direct financial support, from the Commonwealth provided towards the cost of building and operating Western Sydney Airport under the contract, the proposed contract set out in the Notice of Intention.”

The cost of construction was estimated to be between $5 billion and $6 billion.

On the level of government funding committed to the project under the NOI Sydney Airport said: “Given the significant challenges the project will face, Sydney Airport has consistently stated that the project would require material support from the Commonwealth to make it commercially viable.”

“Whilst Sydney Airport accepts that the Commonwealth has ultimately exercised its right to deliver a NOI that does not feature these procurement protections or any Commonwealth funding, the Commonwealth’s recent change in approach makes the Western Sydney Airport a challenging investment proposition.”

Sydney Airport chief executive Kerrie Mather said the challenges facing the development of a greenfield airport could not be underestimated.

“Project risks include procurement and construction risks over the approximately 10-year period before the airport opens, and operational, traffic, financing and political risks, which are at their peak in the initial years of the airport lease,” Mather said.

“Our job now, on behalf of our investors, is to evaluate the opportunity taking a rigorous approach and applying our disciplined investment criteria including consideration of rates of return, cash flow, growth potential, downside protections and the impact on Sydney (Kingsford Smith) Airport (KSA). Once that evaluation is complete the Board of Sydney Airport will determine whether it is in the best interests of investors to exercise the option.”

Fletcher said the government could choose to build and operate the airport itself or offer the opportunity to private sector companies should Sydney Airport decide not to exercise the right of first refusal.