Sydney Airport is "unlikely" to take up an option to develop a second airport in western Sydney due to expectations of low investment returns, says credit ratings agency Standard & Poor's.
S&P; has raised its outlook on Southern Cross Airports Corporation's BBB corporate credit rating to "positive" from "stable" amid expectations the owner of Sydney Airport will not take on the risk of building a second airport at Badgerys Creek and will continue delivering strong financial returns.
The credit ratings agency said the proposed Western Sydney Airport would be a "challenging investment" at a cost of more than $5 billion, and would not make adequate financial returns for at least a decade.
"We believe Sydney Airport is unlikely to undertake the investment, given its very clear position that it will not put at risk the existing airport in developing the project," S&P; said.
Sydney Airport chief executive Kerrie Mather has also said that while the company - which has reaped healthy profits from the privatisation of Kingsford Smith Airport in 2002, and benefited from rising numbers of domestic and international travellers - was "best placed" to develop the new airport, the government's decision not to provide any funding would make it a "challenging investment".
Sydney Airport has until mid-May to respond to a 1000-page "notice of intention" from the Commonwealth outlining the exact terms for developing the Badgerys Creek site in return for a long-term lease to operate it. It declined to comment on the S&P; statement.
Sydney Airport was surprised by the Commonwealth's decision in December to refuse funding for the new airport. The government had previously indicated it would pay for some development works and give Sydney Airport a long-term loan to cover some building costs, but now believes funding is unnecessary because private developers will benefit financially from a 99-year lease.
If Sydney Airport, which has first rights over any development at Badgerys Creek, does not take up its development option by May, the government will call for expressions of interest from other companies to build the second airport on similar terms or build the airport itself.
S&P; said it would raise Sydney Airport's credit ratings if it decides against developing the second airport. The ratings group has warned that the airport's credit quality would be hurt if it took on more debt to finance another airport.
S&P; forecast Sydney's Airport's financial performance would remain "strong" due to healthy domestic and international passenger traffic. The agency forecasts international traffic will rise 6 per cent in 2017 and domestic traffic will increase by about 3 per cent.
