Government to Build New Sydney Airport as Operator Balks at Risk

(Bloomberg) -- Australia's government said it will build a long-awaited second airport for Sydney after the operator of the city's existing hub ruled out developing the project because of the “considerable” risks to shareholders.

Details of the plan for Western Sydney Airport will be unveiled in the budget next week, Prime Minister Malcolm Turnbull said in an emailed statement Tuesday. The new airport will be a major catalyst for jobs and economic growth in the region and is a “vitally important project,” he said.

Sydney Airport Ltd., which operates Kingsford Smith Airport, was given first right of refusal to develop a second hub at Badgerys Creek after the government committed to the project in 2014. Chief Executive Officer Kerrie Mather said earlier today the terms offered by the government didn't meet the company's investment criteria and that the risks would “endure for many decades without commensurate returns for our investors."

Successive governments have studied the need for a second airport in Sydney since the 1940s.

Read More: Australia's decades-long debate about a second Sydney airport

Kingsford Smith, which accounts for about 40 percent of Australia's international and domestic services, will run out of capacity by 2037, costing the economy A$59.5 billion ($45 billion) in lost growth by 2060, according to government agency Infrastructure Australia.

Construction of the A$5 billion first stage of the second airport, which includes a single 3,700-meter runway, parallel taxiway and terminal buildings, is due to begin next year. Total development costs could reach A$38 billion, Infrastructure Australia says.

Sydney Airport has three months to review the terms on which the government develops the new hub itself, and can change its mind. Its shares declined 1.2 percent at 11 a.m. in Sydney, compared with a 0.3 percent fall for the benchmark S&P/ASX 200 Index.

The new airport will inject more than A$1.9 billion into the economy during construction and 60,000 jobs in the region in the long-term, Turnbull said.

To contact the reporter on this story: Matthew Burgess in Sydney at mburgess46@bloomberg.net.

To contact the editor responsible for this story: Edward Johnson at ejohnson28@bloomberg.net.