Sydney Airport profits rise amid concerns over new city passenger hub

Government aid will be needed to build a new airport for Sydney says existing hub operator , saying without it the project is not a viable commercial proposition.

A Qantas aircraft being towed into the hangar at Sydney Airport. The hub operator says a new facility will require state aid. Dan Himbrechts / EPA

Building a new A$5 billion (Dh14.17bn) airport in Sydney is not economically feasible without government aid, the operator of the existing airport in the Australian city said on Thursday, raising doubts about its likely participation in the project.

“On the present terms, it is a deeply uneconomic investment proposition,” said Kerrie Mather, the chief executive of Sydney Airport Holdings, referring to the airport proposed to be built in the western outskirts of Australia’s largest city.

“It would be decades before you see reasonable cashflows on a very significant outlay. Perhaps it does make sense for the government to be playing a role in that,” Mr Mather said.

Hi comments came as Sydney Airport reported a 10.3 per cent rise in 2016 earnings before interest, tax, depreciation and amortisation to A$1.11bn, in line with market expectations, after international traffic growth rose at the highest rate in 12 years.

Sydney Airport has first right of refusal to build the new airport, which the Australian government hopes will boost inbound air passenger numbers to Sydney by about a quarter, or 10 million people per year, from current levels within five to 10 years of opening.

It has until May 8 to take up its development rights. If Sydney Airport declines, the government can build the airport itself or offer the development to other groups, such as pension funds and infrastructure funds.

But that would mean losing its monopoly status in Australia’s most populous city when the new airport opens in a decade. Being a monopoly has helped it to charge the highest landing fees in Australia and generate large sums of cash, endearing it to investors.

Sydney Airport had initially discussed forms of subsidies with the government, such as funding of earthworks or concessional loans, but no assistance was offered when the government approved the project in December.

RBC Capital Markets analysts last month said the government would need to offer at least A$1bn of funding to make the project attractive enough for Sydney Airport to develop it. The airline operator’s largest shareholder, UniSuper, has said the chances of the development being financially viable for Sydney Airport based on the current terms appears “negligible”.

Mr Mather on Thursday did not rule out taking on a partner to offset some of the costs, in a move that would reduce the size of the financial risk but would not boost returns.

However, several infrastructure fund managers and investment bankers hasve said they are not aware of any partnership proposals even though a decision is due in less than three months. They could not be named because they were not authorised to speak publicly about the matter.

A spokeswoman for the minister for urban infrastructure, Paul Fletcher, said the government had “ample capacity” to fund the new airport if needed.

Sydney Airport reported on Thursday a 10.3 per cent rise in 2016 earnings before interest, tax, depreciation and amortisation to A$1.11bn, in line with market expectations, after international traffic growth rose at the highest rate in 12 years.

Shares of Sydney Airport closed 2.1 per cent lower on Thursday, while the broader market ended flat.

* Reuters

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