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July 8, 2015

Sydney’s Badgery Creek Airport would need $1bn in government subsidies: Deutsche Bank report

The Australian Government will have to provide $1bn in subsidies or impose additional levies for the proposed airport in western Sydney’s Badgery Creek, a recent analysis by Deutsche Bank has revealed.

By admin-demo

The Australian Government will have to provide $1bn in subsidies or impose additional levies for the proposed airport in western Sydney’s Badgery Creek, a recent analysis by Deutsche Bank has revealed.

In a 48-page analysis, Deutsche analyst Cameron McDonald has concluded that the airport will experience a shortfall of $1bn in earnings over the year to reach an internal rate of return (IRR) of 9.3%.

Either a government subsidy or an initial extra levy of $2.50 for every passenger at both Kingsford-Smith and the new airport could cover the shortfall.

The levy would decrease to $0.30 per passenger by 2035.

McDonald wrote in his analysis: "We believe that the government is unlikely to guarantee a top-up payment (given budgetary constraints) and therefore a levy imposed on all air traffic at either Sydney airport is the more likely course of action.

"However, we note that this will put the cost of operation up at both airports and our initial discussions with airlines have resulted in a reluctance to have such a cost imposed."

The Australian Government and the Sydney Airport Group recently closed a nine-month consultation on the construction of the airport that will cost an estimated $2.7bn. It is scheduled to open in 2026

According to the report, the number of passengers to the airport has been overestimated and there is a possibility of it handling only domestic passengers in the initial years.

The airport is estimated to handle more than five million people in the first year.

"The underlying economics of the western Sydney region do not indicate to us that the region will be a strong user of air travel services.

"Specific commitment from airlines in advance to operate at the second airport [in Sydney] will be difficult given the cost and uncertainty of demand," McDonald added.

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