Massive earthworks to start next year on Sydney's second airport

Massive earthworks to prepare the way for Sydney's new airport will begin in the second half of next year as the Turnbull government gives its strongest signal yet that it is preparing to go it alone in the $6 billion-plus project.

Sydney Airport is widely expected within the next week to turn down the opportunity under its "right of first refusal" to build and operate the new airport at Badgerys Creek in western Sydney.

This will heap pressure on the government to show it has alternative plans for constructing and financing the project.

Speaking at a business gathering on Friday, Urban Infrastructure Minister Paul Fletcher said the government had undertaken significant work to ensure its timetables for construction would be met if Sydney Airport decides against building the new airport, citing meetings in recent weeks with nine large construction companies as part of the contingency planning.

"I am personally very confident that there is strong interest in this project from the construction sector," Mr Fletcher said in a speech to the Committee for Sydney.

"If Sydney Airport Group declines to accept the notice of intention, we are ready to move to the next stage on this project in a timely fashion.

"You can expect a clear indication from the government of the next steps we will be taking within a short timeframe."

The plans are for bulldozers to begin moving tens of thousands of tonnes of earth at the 1700-hectare site at Badgerys Creek, about 50 kilometres from the CBD, by the end of next year and for a 3.7-kilometre runway and terminal capable of handling 10 million passengers a year to open by 2026.

"Anybody else to whom the government grants the right to build the airport must similarly meet this requirement – and in turn incur the necessary capital expenditure to do so," Mr Fletcher said.

"No matter who develops the airport, it is our strong expectation that they will draw on world-class private sector expertise. This airport is not going to be designed by public servants in Canberra. There has been a lot of contingency work done over the past few months to deal with the different possible scenarios."

Sydney Airport has until May 8 – a day before the federal budget – to reveal whether it will take up its right to build and operate Western Sydney Airport.

Given the short timeframe, it is believed unlikely that the government will commit significant funding in this year's budget for the development of the airport.

If Sydney Airport walks away from the opportunity, Mr Fletcher said the two options would be for the government to build and operate the airport itself, or to go to market to choose another private sector party to build and operate it.

"We have been working hard to prepare for the other scenario. The government will have more to say once we know what Sydney Airport Group decides to do," he said.

However, Macquarie equities analysts have said they do not believe the economics stack up for any third-party bidders to build and operate the airport themselves.

Nevertheless, the analysts expect the airport will break even for the government within a decade of operation and "achieve the potential for competition".

They estimate the cost of building the airport is likely to be about $5.4 billion. However, that does not include the cost of funding its operation in the early years, when it will be unprofitable.

"Irrespective of the ultimate owner, there is a strong logic of the government funding the airport during the construction phase, as it ensures a 30 per cent reduction in the cumulative cost," the Macquarie analysts said in a note to clients.

The analysts forecast passenger growth at the new airport to be relatively strong at about 10 per cent per annum in the airport's early years. On that basis, they expect the terminal will need to be expanded within 10 years of operation.

Mr Fletcher also said the vast majority of tenants on land designated for the airport had now left and buildings demolished.

"Only a handful now remain and we are optimistic that a completely vacant site will be achieved soon," he said.

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