* Project "deeply uneconomic investment proposition" minus
* Sydney Airport has until May 8 to exercise 1st right of
* Australia govt says has "ample capacity" to fund airport
(Recasts with CEO comments)
By Jamie Freed
SYDNEY, Feb 16 Building a new A$5 billion ($3.86
billion) 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," Kerrie Mather, chief executive of Sydney Airport
Holdings Ltd, said at an earnings briefing, 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," Mather said.
Sydney Airport has first right of refusal to build the
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 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 on Jan. 31 said the government
would need to offer at least A$1 billion 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".
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 told Reuters 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 percent rise in
2016 earnings before interest, tax, depreciation and
amortisation to A$1.11 billion, in line with market
expectations, after international traffic growth rose at the
highest rate in 12 years.
Shares of Sydney Airport closed 2.1 percent lower on
Thursday, while the broader market ended flat.
($1 = 1.2965 Australian dollars)
(Reporting by Jamie Freed; Editing by Dominic Evans and