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Can’t trust Sydney Airport to build Badgerys Creek

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The very notion of having the owner of Sydney’s Kingsford Smith airport, Sydney Airport, build and operate the city’s second airport at Badgerys Creek is akin to putting the turkey in charge of Thanksgiving.

In corporate terms, it’s the equivalent of asking Telstra to build a competitive phone network, BHP to build a competitive iron ore company or the National Australia Bank to open a fifth banking pillar. Crazy.

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Sydney airport announcement

The Federal government will announce in the budget how much it’ll allocate to building the airport in Badgerys Creek after Sydney Airport Group chose not to build and operate it.

While the government was obligated to allow Sydney Airport first bite of the cherry on building and operating a competitive new airport, thanks to an agreement struck 15 years ago, the reality is that this is an infrastructure asset that only a government can invest in.

Sydney Airport doesn’t want competition. It is in its interests to institute a go-slow on introducing a new player into a market in which it has a monopoly.

It is not in Sydney Airport’s interests to subject its investors to a long-term and expensive project that is more than a decade away from making a return.

It will cost $6 billion to construct an airport and that’s without taking into account the cost of financing. Add to that the fact that  it won’t become operational for another 10 years. Turning a profit will take longer again.

Thus it’s not surprising that Sydney Airport declared on Tuesday that from a commercial perspective it’s a no-fly zone. Committing billions to a project that will ultimately cannibalise its own earnings would border on the financially insane for Sydney Airport.

But the strategy ticks plenty of  boxes for the federal government. Sydney has been talking about a second airport for 30 years and for most of that time it hasn’t been the compelling argument that it is today.

Sydney Airport CEO Kerrie Mather: Company won't build Badgerys Creek. Sydney Airport CEO Kerrie Mather: Company won’t build Badgerys Creek. Photo: Anthony Johnson

It is an investment in the future of tourism – which is one of Australia’s biggest growth sectors. Add to that the reality that in next 10 years Sydney Airport will run out of capacity to accommodate an increase in air traffic.

One need look no further than Sydney Airport’s investor presentation on Tuesday in which it said traffic in the March quarter moved up 5.7 per cent. Inboard tourism is booming.

The federal government's move makes sense. The federal government’s move makes sense. Photo: Rob Homer

Federal Treasurer Scott Morrison will enlighten us with more detail in next week’s budget but suffice to say this is now to become one of those infrastructure projects that requires “good debt” so it’s a less painful budget impost – given that at some stage, maybe in 15 years it can be sold via an asset privatisation.

Unlike the NBN – the government’s biggest infrastructure investment over the past decade – a new airport is not particularly complex. Pricing the build is not that hard, and technology will not play a significant role in moving the goal posts over time – there are certainly fewer moving parts.

It is an investment in the future of tourism – which is one of Australia’s biggest growth sectors.

And unlike the second airport in Melbourne at Avalon, there should be demand for a second Sydney airport that is not in a paddock miles away from anywhere.

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