Securing Sydney's Second Airport

In a fascinating tale of twists and turn, two key decisions: in 1986 by Hawke and in 2016 by Turnbull delivered real economic reform - competitive airports in Australia's biggest aviation market.

Most big cities have multiple airports offering scheduled passenger services.

London has Heathrow, Gatwick, Stansted, Luton and London City airports. New York has JFK, La Guardia and Newark.

But until now Sydney has only had Kingsford Smith Airport (KSA) - located right over on Sydney’s far eastern fringe.

It has little capacity available for additional flights, it operates under a curfew, and its private owners take full advantage of its monopoly market power, as anyone who has paid for parking there knows.

The impending opening of Western Sydney Airport - with passenger flights starting in October this year - is good news. For those two million people who live closer to the new airport than to Sydney’s old airport it means convenient new travel options just as it offers more efficient avenues for air freight at 24-hour airport close to transport and distribution hubs.

But having two physically separate airports is only part of the story. The real benefit will come because Sydney’s new airport will be a competitor to Sydney’s old airport - rather than being its subsidiary.

The story of how the Commonwealth Government came to build Western Sydney Airport is a long and complex one, with many political twists and turns over more than sixty years. The Labor Party initially advocated it and secured the land, but then furiously opposed the project. The Coalition at different times supported the Badgerys Creek airport, said it wasn’t necessary, opposed it and then supported it again by which time the Labor Party had changed its mind back to supporting it.

When the Sydney Morning Herald ran a series of articles in 2012 on the second airport issue, Lenore Taylor fairly summed it up as “a decades-long story of political myopia and cowardice”.

In the course of these decades of mostly indecision and delay, in 2002 the Howard Government sold Kingsford Smith Airport (KSA) at Mascot to a group controlled by Macquarie Bank. As part of the deal, in a move which sacrificed competition for the sake of a higher sale price, the Howard Government gave the new owners of KSA, Sydney Airport Corporation (SACL), a right of first refusal (ROFR) to build any new airport within 100 km of the Sydney CBD. This was designed to ensure that the second airport, were one ever to be built, would be owned and controlled by SACL.

The Hawke government made the new airport possible by securing the land from 1986. The Turnbull government made it happen by ensuring, in 2017, the Commonwealth, and not SACL, finally built and owned the new airport.

HAWKE GOVERNMENT SECURES THE LAND:

While governments had acknowledged Sydney would need a second airport for many years, it was the Hawke Government that not only accepted that Sydney needed additional airport capacity but went beyond commissioning reports and acted on two fronts. In 1986 it started acquiring land for a second airport at Badgerys Creek. It also expanded KSA’s capacity by constructing a third runway which opened in 1994.

About 1700 hectares of land for Badgerys were acquired between 1986 and 1991 at a cost of $155 million and, despite later changes in policy, this land was retained ensuring that a second airport at Badgerys Creek remained a viable airport option that was not killed off by sprawling residential development.

THE POLITICS OF NOISE:

In June 1992, Labor Transport Minister Bob Collins turned the first sod at Badgerys Creek and, rather optimistically, said construction would shortly begin. It didn’t. At the 1993 and 1996 elections both the Labor Government and Liberal Opposition supported the construction of the second airport at Badgerys Creek. Bold promises were made that the second airport would be ready for the Sydney Olympics in 2000. Yet by 1996 when the Howard government took office, little work had been undertaken beyond securing the land but there was at least consensus on the need for a second airport and at the Badgerys Creek site.

Within two years that had changed. Just as the reality of aircraft noise from KSA at Mascot was hugely controversial in inner city electorates, including that of Anthony Albanese, so was the prospect of aircraft noise controversial in Western Sydney and the Blue Mountains.

In hindsight it was the third runway at Mascot that blew up the consensus in favour of Badgerys Creek. The No Aircraft Noise Party was formed to protest against noise from KSA’s increased operations which were perceived to be well in excess of what had been forecast in the Environmental Impact Statement. NAN polled especially well in Anthony Albanese’s seat of Grayndler in 1996 and even better in the State and local government elections in 1995.

“The negative coalition which made up the No Aircraft Noise Party—Tories, Trotskyists and political opportunists—were united only by their vehement hatred of Labor….The Labor Party was written off in Grayndler due to the backlash caused by the opening of the third runway at Kingsford Smith airport on 4 November 1994”. Anthony Albanese MP, Maiden Speech 6 May 1996

Western Sydney took note and opposition to Badgerys Creek intensified. Liberal Jackie Kelly won the seat of Lindsay in the 1996 Howard landslide, campaigning hard against the second airport, and then increased her majority at the by election later that year when her disqualification under section 44 forced her to go around again.

At the same time, opposition to Badgerys Creek had developed within Labor and in February 1998 a group of Federal and State Labor MPs from Western Sydney formed “Labor Against Badgerys”. In June 1998 the Western Sydney Alliance of Councils (which six years earlier had demanded a larger airport at Badgerys) announced they were now opposed to the new airport and would back anti-airport candidates against both major parties. The airlines, including Qantas, lobbied the Howard Government to abandon plans for a second airport. The anti-airport campaigns were amplified by talk back hosts like Alan Jones and Murdoch’s Daily Telegraph.

ENTRENCHING AN AIRPORT MONOPOLY IN SYDNEY

In December 2000 the Howard Government announced that it had shelved Badgerys Creek. It also announced that it would proceed to sell KSA which, Howard said, was comfortably handling the growing traffic. Bankstown Airport would be upgraded to absorb overflow as and when required. And the new owner would be given a right of first refusal to build any second airport in the unlikely event one was ever required.

Speaking to Badgerys Creek critic, 2UE’s Alan Jones, Howard said he would not sell the Badgerys Creek land but did not believe that it was likely that an airport would ever be built there. He said that five years before he had thought Badgerys Creek was “a real goer” but he now believed that KSA could handle future growth. “I think the people of Western Sydney….will understand that the retention of the site is merely an act of care and prudence rather than of an indication of our intention to build and operate an airport.” The big change, he said, was that his government had worked out how to share the noise from KSA more fairly rather than just dumping it on one part of Sydney. Sydney’s airport needs would be reviewed again in 2005.

BADGERYS CREEK IS SHELVED (AGAIN):

Politically, the second airport went into a bleak period. The Coalition had concluded one was not needed - probably never would be - and by July 2003 Labor leader Simon Crean announced that Labor was now firmly opposed to the site - there would be no airport at Badgerys Creek under Labor. Opposition to Badgerys Creek became part of Labor’s platform in 2004.

While this appealed to Western Sydney MPs, it appalled inner city ones including Anthony Albanese. Speaking to one of his local branches shortly after Crean’s decision he said Labor had made a dreadful decision when it decided to build the third runway at Mascot rather than building the new airport at Badgerys Creek. He said that it was not good enough to just rule out Badgerys Creek without identifying an alternative which Labor policy now decreed must be outside the Sydney Basin.

LABOR’S SEARCH FOR A SITE

The Coalition remained opposed to a second airport. Deputy PM and Minister for Transport John Anderson said on 4 December 2003 that “there is no need to build a second airport,” Labor, having abandoned Badgerys Creek, maintained a second airport was needed although in line with its 2004 Platform it must be outside the Sydney basin. Albanese (bound by Labor policy) could no longer advocate for Badgerys Creek but criticised the Howard Government’s approach saying in the House on 22 March 2004: “The [Sydney Airport] master plan suggests there will be no need for a second Sydney airport in the next 20 years. I believe this is dishonest and motivated by the profit-taking needs of Macquarie, who own Sydney airport”. He went on to promise a Labor government would prepare a new comprehensive EIS for a preferred site south of the Nepean River through to the southern highlands. Labor’s preferred site had become Wilton.

At the 2004 election the Howard Government’s policy stated bluntly “We will not build a second Sydney Airport.” Nothing changed in the 2007 election campaign; the Coalition said a second airport wasn’t necessary, a view loudly supported by SACL keen to preserve its monopoly. Labor said one was needed but it shouldn’t be Badgerys Creek.

With the election of the Rudd Labor Government in 2007, Albanese became Transport Minister and responsible for aviation. Opposition to Badgerys Creek was now locked in and the Rudd/Gillard governments did nothing to advance a second airport there or anywhere else. The Liberals were no different. And of course it suited SACL perfectly that the KSA monopoly was maintained

Albanese continued to state that Badgerys Creek was ruled out as an option for a second airport but in 2009 commissioned a joint Commonwealth NSW study with the NSW Government to identify other potential second airport sites and ominously “consider the future of the Badgerys Creek site given the Government has ruled it out as an option for a second airport.”

Unsurprisingly, in March 2012 it concluded that Sydney needed a second airport given the increasing pressure on Sydney Airport. Equally unsurprisingly it strongly recommended Badgerys Creek for all of the reasons that had made it appealing to the Hawke Government when, 26 years before, it had started acquiring the land.

Albanese warmly received the recommendation that a second airport was needed but repeated the Labor Government’s opposition to an airport at Badgerys Creek and announced a detailed investigation into the suitability of the Wilton site in the Southern Highlands, which the Joint Study had, however, described as an inferior option to Badgerys Creek. Meanwhile, the NSW Liberal Premier Barry O’Farrell had been elected in 2011 on a “No Badgerys Creek” platform and ruled out a second airport ever being built near Sydney under a Coalition state government. SACL remained opposed to a second airport and there was an ongoing slanging match between its chairman, Max Moore-Wilton and second airport supporters in the Parliament like Albanese.

Both major parties approached the 2013 election without any commitment to a second airport. Albanese had received yet another report on Wilton which underlined the problems of building an airport there not least of which was the presence of several large underground coal mines operating below what would be the runways! In the federal election leaders’ debate on 11 August 2013 Abbott noted that Albanese had said a decision on a new airport would be made in the next term and he said that if he were elected he would do the same.

THE POLITICAL SHIFT IN WESTERN SYDNEY

2014 saw a change of heart. On 15 April 2014 Prime Minister Abbott and his deputy and Infrastructure Minister Warren Truss announced that Badgerys Creek would be the site of the new airport saying “for more than 50 years governments have talked about a second airport for Sydney. The talk is over. The final decision has been made.” In the meantime, since the election the Labor Party with Bill Shorten as leader had announced it too was back on board with Badgerys Creek.

Sometimes a change of government can overturn an irrational policy position - as happened here. But it wasn’t just a change of government that had made the difference. Views in Western Sydney had changed too. Twenty years before the politics of Badgerys Creek was all about aircraft noise and that did remain an issue especially in the Blue Mountains. Jackie Kelly, retired from politics in 2007, re-emerged to campaign furiously against Abbott and the second airport. But increasingly the airport was seen as a positive for Western Sydney, for three reasons.

The first was that airports are proven drivers of economic growth and jobs. The same Western Sydney Councils that had called for a larger second airport in 1992, opposed the second airport from the late 90s now changed their tune, again, to support it.

A second reason was that the deregulation of Australian aviation in the nineties had led to lower airfares and many more people flying. In 2016 there were around four times as many passengers taking flights in Australia as thirty years earlier. Air travel was no longer a luxury or a rarity – it was part of the ordinary lives of everyday Australians, in Western Sydney just as much as in the eastern or northern suburbs of Sydney.

Thirdly, people in Western Sydney increasingly saw having their own airport as due recognition of the size and status of this dynamic but too long overshadowed part of Sydney - which if it were a standalone city would be the Australia’s fourth largest and third largest economy. Business groups like Business Western Sydney and the Christopher Brown’s Western Sydney Leadership Dialogue supported Badgerys Creek. Even the Daily Telegraph which had amplified the no airport campaign in the 90s started to campaign for a “Fair Go for the West” the key element of which was the new airport.

Nothing had changed at Badgerys Creek, nothing much had been done. But Western Sydney had changed - the 1990s had been about noise. By 2014 it was about more jobs; more convenient access to flights; and recognising the confidence and aspirations of Western Sydney.

Another thing that hadn’t changed was the ROFR. The Abbott Government proceeded on the basis that it had no choice other than to work with SACL.

THE COST OF A MONOPOLY

If the Government wanted a second airport, it needed first to consult with SACL for at least nine months and this consultation was begun in 2014. For its part SACL said the new airport was not an economic proposition and could not take it on without a massive government subsidy. Initially Truss proposed that the Government pay for all of the civil works preparing the site - up to $2 billion of a total cost of $5 billion. This would have been a grant, a gift, to SACL and would go straight to the budget bottom line, so an alternative way of subsidising SACL was considered which involved a long term loan of $4 billion (80% of the total cost) at the lowest possible interest rate of around 3%. Repayment of interest was to be capitalised for the first 15 years and principal not to be finally repaid for 40 years.

The Abbott government, thanks to the ROFR created by the Howard Government, found itself in the awkward situation of being obliged, it believed, heavily to subsidise SACL to build an airport SACL didn’t want to build - no doubt as slowly as it possibly could - and then see SACL operate that second airport in a manner calculated to maximise the value of its main asset, KSA.

There is no doubt that if the government had proceeded with the deal SACL wanted the Commonwealth (meaning the taxpayer) would be on the hook for most of the money and most of the risk but have no control. The Howard government had locked in an airport monopoly.

Or had it? The general consensus within the Abbott government at the time was that there was no way to proceed other than with SACL - the government had to give SACL whatever they asked for as we begged them to build the second airport they did not want. Once the government had announced the second airport would go ahead, SACL believed it had the government over a barrel - the only thing worse than a gigantic subsidy was having no airport at all.

At the end of the consultation period, the government was obliged to give SACL a Notice of Intention which was an offer, capable of acceptance, to build the airport on specific terms. So through the long period of consultation the Government had refined the design parameters and capacity of the new airport with SACL. Both sides knew what “the second airport” would involve. The big open question was the financial deal and all of the discussions between SACL and the government involved one giant subsidy after another - huge grants, huge soft loans, promises to compensate SACL if there was a cost overrun - there appeared no end to the corporate welfare the Commonwealth was expected to dispense to get the second airport.

Happily, no deal had been finalised by the time Turnbull became Prime Minister in September 2015.

THE COMMONWEALTH STEPS UP:

The ROFR made it practically impossible to deal with any other commercial operators. That was its intent. So were we completely stitched up? After the 2016 election Turnbull appointed Paul Fletcher the Minister for Urban Infrastructure. This moved the responsibility for the second airport out of the hands of the National Party and into the hands of an urban Liberal Party minister.

Our starting point was that it was important to capitalise on the decision made by the Abbott Government and proceed to get the new airport built as quickly as possible. But equally important in our view was to seize the opportunity this new airport presented as an important driver of economic policy and of urban growth policy.

The economic policy potential of this new airport was profound. By providing additional aviation capacity for Sydney and Australia (given that Sydney is the principal hub of our domestic aviation network), it could stimulate more flights, both domestic and international, and more competition and choice. At the same time, this new airport would attract businesses to locate nearby, it would generate jobs, and it would thus catalyse economic activity in the regions around the airport.

But we knew little of this was likely to be achieved if Western Sydney Airport were owned and operated as a subsidiary of KSA. In that scenario, KSA would drag out the construction of the new airport for as long as possible; use it only for the most marginal traffic; and generally do everything possible to maximise the amount of activity at KSA and minimise the amount of activity at KSA. We were legally obliged to honour the KSA’s right of first refusal; but if KSA were to take up that right and build and operate WSA, then our broader economic policy objectives for WSA were unlikely to be realised.

We both had a close look at the agreements and concluded our position was not quite as bleak as the Abbott government and its officials had assumed. The Government’s lawyers confirmed our view; the agreement required the Commonwealth to make SACL an offer capable of acceptance but it did not require that offer to be commercially acceptable. In other words, we could offer SACL nothing by way of subsidy. Our offer would be that they should build the airport to a specified design, on a specified timetable and pay for it themselves.

While we were confident of our legal position it was not without risk. SACL could seek to obstruct the process - they had a lot at stake and could seek to hold things up with litigation that if not ultimately successful would at least create political embarrassment.

But there was a lot at stake for the government too - the subsidy approach would involve the Commonwealth underwriting 80% of the cost but having no control. And the community would suffer too. The second airport would be in the hands of an owner which was inherently conflicted and had every incentive to ensure the second airport was built as slowly as possible and when built offered as little competition to KSA as possible.

On the other hand, if we made SACL an offer they would not accept, it was inconceivable that any other commercial operator would accept the same deal. The only alternative to SACL building the airport, if we could navigate the legals, was for the Commonwealth government to do it.

SEIZING THE MOMENT

If we were to build the second airport ourselves, the Commonwealth would be up for an additional $1.3 billion but be in complete control of the second airport. In other words, rather than committing $4 billion on very unattractive terms which left taxpayers with none of the upside a new airport could deliver and very little control of the project, we could commit $5.3 billion as equity, giving government control during the construction and early operation phase, and giving government on behalf of taxpayers ownership of what in due course would become a very valuable asset. In the near term, a particular priority for the Turnbull Government was ensuring that Western Sydney Airport was integrated with our urban development goals for what was becoming known (thanks to Lucy Turnbull’s Greater Sydney Commission) as the Western Parkland City. The second airport was going to be the key economic engine in that new city stretching from Penrith in the north through to Campbelltown in the South.

At the same time we learned that an important parcel of land adjacent to the Badgerys Creek site belonged to the Department of Defence which had decided to transfer it to Defence Housing Australia. Why would you dedicate a strategic block of land right next to a new airport to residential development? Turnbull intervened and ensured the land was recovered from the Defence Housing Australia and it became the site of the new aerotropolis now known as Bradfield - for industry and commercial development.

So when the Cabinet decided to make SACL a no subsidy offer, we also made the decision that the government would build the airport if (as we expected) SACL declined to proceed. The one outcome which was utterly unacceptable was any delay or hiccup in the shift from a SACL built airport to a government built one.

It came as quite a shock for SACL to learn in the course of 2016 that the Commonwealth was no longer going to provide a massive subsidised loan and if they wanted to control the second airport, they would have to pay for it themselves.

We expected SACL to decline the opportunity and we prepared to establish a new Commonwealth owned company, WSA Co, which could receive and accept precisely the same offer SACL had rejected. This was all carefully put in place so that the minute SACL said they would not accept the offer we could announce that a Commonwealth owned company would build the airport. We were acutely conscious that the day SACL, as a publicly listed company, made a market announcement that it would not be taking up the right of first refusal, there was a real risk of getting headlines: “Western Sydney Airport project in disarray as SACL pulls out.” Hence we were determined to do all the detailed planning necessary so that we could announce, on that very day, what the plan would be.

RETURN FOR THE COMMONWEALTH

The final, formal Notice of Intention was delivered on 20 December 2016 and SACL quickly acknowledged the commercial challenges a no-subsidy offer involved saying in their press release; “Given the significant challenges the project will face, Sydney Airport has consistently stated that the project would require material support from the Commonwealth to make it commercially viable.” On 2 May 2017 SACL advised us that it had not accepted the offer in the Notice of Intention saying the decision not to accept the offer “was in the best interests of their investors as the risks associated with the development and operation of WSA are considerable and will endure for many decades without commensurate rewards for investors.”

In the Budget brought down on 9 May the Treasurer, Scott Morrison, announced the financial details of our response:

We will establish the Western Sydney Airport Corporation to build and operate the new Western Sydney airport, creating 20,000 jobs by the early 2030s and 60,000 in the longer term. We will inject up to $5.3 billion in equity over the next ten years into this company. Earth moving works will commence on the 1800-hectare site in the second half of next year and Western Sydney Airport will be delivered in 2026.

On 10 July 2017 SACL confirmed that the offer we had made to WSA Co was not materially more advantageous than the one we had provided to SACL and so we were now clear of the ROFR and good to go.

Our decision that the Government should build the airport was certainly correct in policy terms. It made no sense to have two airports in the same city owned by the same company. But it was also a better outcome from an investment perspective. Our estimates at the time showed that while traffic would take some years to build up at Western Sydney Airport the overall investment would give the Commonwealth an internal rate of return of around 7% a year - too low for Macquarie Bank but very satisfactory from a government point of view.

Of course, everything depended on the new government company being able to complete the airport within the budget. Almost all large projects, especially airports, run late and over budget. Paul Fletcher recruited a first-class team to run the project chaired by former Optus CEO Paul O’Sullivan. The Western Sydney Airport was completed on time and on budget, as far as we are aware, the only major infrastructure project to have done so in recent times apart from the North West section of the Sydney Metro.

ACTIVATING WESTERN SYDNEY

Our Government’s decision to build Western Sydney Airport was taken at the same time as we developed our plans for the Western Sydney City Deal. The City Deals were one of the most important policy innovations of my Government. Historically cooperation between Federal, State and Local governments had been ad hoc and often uncoordinated with decisions guided by political priorities of the day. The City Deals aimed to get all the relevant government stakeholders around a table to agree on what was needed for a particular city or region and then agree on who would do what, who would pay for what and set up a detailed timeline and agreement so that all the parties, national, state and local could be held to account.

The Western Sydney City deal negotiation was begun with NSW Premier Mike Baird in October 2016 and finally signed on 4 March 2018 with his successor Gladys Berejiklian. As well as the national and state governments, the city deal included all eight local councils. The key commitments included the development of a rail line funded jointly from St Marys in the north through the airport to the aerotropolis, now called Bradfield. This together with new road infrastructure would activate the whole region and involved building the mass transit infrastructure before the residential development - as opposed to allowing suburbs to sprawl for miles without adequate transport infrastructure. It involved new educational facilities, especially focussed on STEM.

BEING PREPARED TO LEAD

All of the Governments involved made an important contribution. Bob Hawke had the vision to opt for Badgerys Creek and buy the land. The Howard Government promised not to build a second airport and the Rudd and Gillard governments weaved around the issue, commissioning reviews and reports but no more progressed the second airport than Howard had done. But at least both of these governments did not sell the Badgerys Creek land - and so the option was retained.

Tony Abbott ended Liberal opposition to Badgerys Creek and announced it would be the site of the second airport, thus returning it to the status it had held under Hawke thirty years before. But Abbott was stuck with the ROFR Howard had given SACL when he sold Sydney Airport in 2002. If the subsidy approach Abbott was pursuing had been carried out, it is very doubtful whether we would have a Western Sydney Airport today, or any time soon. The second airport would have been delivered into the hands of the company that least wanted it to succeed.

The Turnbull Government finally bit the bullet and decided the Government would build at Badgerys Creek. It was the only way Sydney could have a second airport, independent of KSA.

This new airport will bring a new level of competition to the Australian aviation market - with plenty of capacity and with curfew free operation.

For many decades there has been no choice of airport in Sydney. But soon Sydneysiders - and visitors to our city - will come to know Western Sydney Airport’s impressive modern terminal; the easy access via the M12 (and within a year or two via metro rail); and the twenty-four-hour operation.

The prospect of competition is already having an impact on the hitherto monopolist at Mascot. In September 2025, SACL announced the integration of Terminals 2 and 3 mirroring Western Sydney airport’s design and the acceleration of the master plan review with up to 12 new international gates. This will give the existing KSA more capacity, smoother connections for passengers and greater efficiency for airlines. For the first time in 30 years, SACL will undertake a $200 million upgrade to the existing T2 terminal.

Ultimately it is customers who are the beneficiaries from competition, and not just passengers. Air freight will have a new 24-hour airport close to the big warehouses, distribution hubs and motorways.

With Sydney’s new challenger airport about to open, we are all going to see the difference that competition brings.