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Sydney Airport – Notice of Intimidation

The good people of Western Sydney have waited a very long time for the green light on Badgerys Creek as the site for the new international airport.


The Commonwealth Government has now issued SYD with a formal Notice of Intention (NOI) that contains the broad terms and conditions upon which the airport should be built. SYD has the First Right of Refusal to build the airport as the site is within the 100km distance from central Sydney that was part of its privatisation deal back in 2002.


But the Government has thrown a spanner in the works by apparently reneging on an agreement to provide the project with a $1 billion loan to help fund the project. Instead, the Government seems to be suggesting that SYD should take all the risk involved in developing and constructing the airport in return for all the financial benefits it would generate over the 99-year lease.


If SYD calls the Government’s bluff and decides the risks of developing and building the airport outweigh the benefits, it could put the project back a decade or more.


If the Government thinks it can take on the project alone or flick it off to another private enterprise, then they have probably spent a little too much time out in the western Sydney sunshine for their own good.


SYD would be highly likely to convincingly argue that the extensive curfew placed on the Kingsford Smith Airport was no longer justifiable given the likely competition the Badgerys Creek airport would bring.


The curfew on flights taking off or landing at Kingsford Smith between 11pm and 6am is well known, but the restrictions include a limit of 80 aircraft movements per hour, regional flights are guaranteed 30% of slots in each peak hour and every day, nine different flight paths must be used to spread aircraft noise across Sydney.


Each of those restrictions is a significant impediment to Kingsford Smith Airport and none of them applies to the Badgerys Creek airport.


No doubt that is exactly what the airlines would want as they seek to play one airport off against the other for cheaper landing fees. It would be naïve to think the airlines would pass on lower landing fees in the form of lower airfares, so customers should not get excited.


The Government has also set the clock ticking by putting a four month RSVP on the NOI to SYD, but SYD believes it has up to nine months to consider the proposal. Don’t be surprised to see lawyers lining up quicker than you can say ‘fee festival’ as the negotiations are dragged out.


In the meantime, the Kingsford Smith Airport is busy coping with a stampede of international visitors to Australia. The number of different airplane tails criss-crossing the runways these days is quite a sight and the number of larger and newer aircraft is putting staff and infrastructure under the pump.


That’s all good news for operating earnings as the heavy growth in passenger numbers provides more retail and Duty Free opportunities to shake loose the spending power of all these tourists.


SYD is also spending up large on a vast array of projects from improving the road flow in and out of the domestic terminals to upsizing the baggage carousels at the international terminal.


The equity market has fallen out of love with bond-proxies like SYD as global interest rates begin to rise and the stoush with the Government over funding the Western Sydney Airport hasn’t helped the share price either. But the fundamental business remains a powerhouse so, subject to how the Badgerys Creek kerfuffle plays out, buying this stock for your portfolio near the $6 mark will likely be a rewarding long term investment.

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