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.
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.
PREVIOUS | Sydney Airport turned down the Australian government’s offer to develop and operate the city’s long-awaited second airport, saying the "considerable" risks associated with the A$5 billion project weren’t in the best interests of shareholders.
The operator of Sydney’s Kingsford Smith Airport, which was given first right of refusal to develop a second hub in the city’s west, said in a statement Tuesday the terms offered by the government didn’t meet its investment criteria.
The onus for building the new runway and terminal by 2026 at Badgerys Creek may now fall on the government, which indicated last week it’s open to more infrastructure spending to boost growth and productivity.
"The risks associated with the development and operation of Western Sydney Airport are considerable and endure for many decades without commensurate returns for our investors," Chief Executive Officer Kerrie Mather said in the statement.
The company can change its mind if the government offers more favorable terms to another operator or develops the hub itself.