Credit rating agency, Standard and Poor (S&P) Global Ratings, has predicted Sydney Airport is unlikely to take part in the development of the city’s second airport in Western Sydney.

S&P Global Ratings has revised its outlook on Sydney Airport’s parent company, Southern Cross Airports Corporation Holdings (SCACH), from stable to positive, and affirmed its ‘BBB’ corporate credit rating.

S&P Global Ratings credit analyst Thomas Jacquot said, “The outlook revision reflects our view that Sydney Airport is unlikely to participate in the development of Western Sydney Airport, enabling it to continue generating strong financial metrics.”

The revision comes after the Australian government delivered to Sydney Airport a notice of intention to develop Western Sydney Airport, which Sydney Airport has a Right of First Refusal in its lease.

The Australian government is seeking to develop a second airport in the western part of Sydney to service the neighboring population, as well as address the likely capacity constraints that Sydney’s existing airport may face in 20 to 30 years.

S&P Global Ratings said the conditions the government presented make the investment proposition extremely challenging since the group would be unlikely to earn an adequate return for at least a decade.

A S&P Global Ratings statement said, “The project will be a very challenging investment for any private-sector entity.

“We believe it would require an investment in excess of A$5 billion for a relatively small airport, compared with peers, when it opens by 2026.

“We expect the airport may serve no more than 3 million or 4 million passengers annually in the early years. As a result, the return on investment would be extremely low in the early years.”

Given those challenges, Sydney Airport had been expecting that the Australian government would provide financial support as well as other forms of protection.

In its notice of intention, however, the government indicated that it expects the private sector to bear all the risks and fully fund the project.

S&P Global Ratings said in these circumstances, Sydney Airport would be unlikely to undertake the investment, given it would not put the existing airport at risk in developing the project.

Mr Jacquot added, “We would raise the rating if SCACH and its parent elect not to pursue the Western Sydney Airport project and that the Australian government would not present alternative proposals to SCACH.”

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