Former prime minister Malcolm Turnbull has recounted how a 2016 proposal for Sydney Airport to receive a $4 billion subsidy to construct a second hub was rejected. The Commonwealth instead built the airport itself after the owner turned down a zero-subsidy offer, avoiding what Turnbull described as a 'terrible outcome' of two airports in the same city belonging to the same company.
The airport, which opened to international passengers last week, was subject to a right of first refusal held by the Macquarie Bank-controlled consortium that bought Kingsford Smith in 2002. The right gave it first option to build any new airport within 100 kilometres of the city centre.
In February 2016, the federal Department of Infrastructure recommended providing Sydney Airport Corporation Limited with a $4 billion long-term, low-interest loan to induce it to build a second airport. According to Turnbull, the department’s final subsidy proposal also included indemnities to cover cost overruns. Turnbull, who had become prime minister in September 2015, said he was 'appalled' by the proposal. 'I thought it was just shocking, I was just appalled by it,' he said.
After cabinet rejected the subsidy, the government had to find a way to honour the right of first refusal without offering financial support. In November 2016, cabinet decided to make an offer with no subsidy at all, expecting it to be rejected, and to build the airport itself if it were.
A zero-subsidy offer was made the following month. 'It came as a huge shock to [Sydney Airport],' Turnbull said. Sydney Airport flagged likely rejection and formally declined in May 2017. Within hours, the government announced a Commonwealth-owned company, WSA Co, would build and operate the new airport.
Turnbull said he doubted the city would have a second airport built if the Commonwealth had pushed ahead with the subsidy proposal: 'SACL has a vested interest in not having a competitive airport. They would have used the Commonwealth money to build it as slowly as they possibly could.'
Former urban infrastructure minister Paul Fletcher said the airport would have been smaller and taken years longer under Sydney Airport's control. He is optimistic about its growth, predicting it will become Sydney's biggest airport by mid-century. 'Half of Sydney’s population is closer to this airport than Kingsford Smith,' he said. Turnbull noted that more than two million people live nearer to the new airport.
The first international flight departed from Western Sydney International last Monday.
Analysis
Why This Matters
- The independent ownership structure prevents a single company from controlling both of Sydney's airports, promoting competition that could benefit passengers.
- The government's rejection of a $4 billion subsidy saved public funds and, according to officials, accelerated the airport's completion.
- The episode shows how contractual rights can be managed to avoid unwanted outcomes.
Background
The 2002 privatisation of Kingsford Smith Airport gave the buyer, a Macquarie Bank-led consortium, a right of first refusal to build any new airport within 100 km of Sydney's CBD. In 2016, the federal government considered a departmental proposal to grant the consortium a $4 billion subsidy to build a second airport at Badgerys Creek. After cabinet rejected that plan, the government offered a zero-subsidy deal, which the consortium declined. The Commonwealth then built the airport through a state-owned enterprise, WSA Co, which opened to international passengers in October 2026.
What to Watch
- Growth in passenger numbers at Western Sydney International as airlines add routes and travellers shift from Kingsford Smith.
- Response from Sydney Airport to new competition, including potential slot allocation changes or pricing adjustments.
- Whether the airport meets former minister Paul Fletcher's prediction of becoming Sydney's largest by the middle of the century.
Checked
12 claims in this story checked against 1 source: 11 supported.
Show each claim
- SupportedSydney avoided an airport monopoly, as the headline says.Sydney Morning Herald - Latest News: ““It would have been a terrible outcome to have two airports in the same city belong to the same company.””
- SupportedTurnbull said he was appalled by the $4 billion subsidy proposal.Sydney Morning Herald - Latest News: “He is referring to a proposal to Cabinet as late as February 2016 for Sydney Airport Corporation Limited (SACL) to be granted a $4 billion long-term, low-interest loan to induce it to build a second airport in the city.”
- SupportedThe Commonwealth later built Western Sydney International itself.Sydney Morning Herald - Latest News: “The decision to do that was taken to Cabinet in November 2016, Turnbull said, and at the same time it decided that the Commonwealth would build the airport itself when the offer was eventually rejected.”
- SupportedThe airport had opened to international passengers the previous week.Sydney Morning Herald - Latest News: “Passengers who have been flying in and out of Sydney’s new international airport since it opened a week ago”
- SupportedIn February 2016, the Department of Infrastructure recommended a $4 billion long-term, low-interest loan to induce Sydney Airport to build a second airport.Sydney Morning Herald - Latest News: “He is referring to a proposal to Cabinet as late as February 2016 for Sydney Airport Corporation Limited (SACL) to be granted a $4 billion long-term, low-interest loan to induce it to build a second airport in the city.”
- SupportedThe right of first refusal gave the Macquarie Bank-controlled consortium the first option to build a new airport within 100 kilometres of Sydney’s city centre.Sydney Morning Herald - Latest News: “a Macquarie Bank-controlled consortium that had become its new owners had been given a right of first refusal to build any new airport within 100 kilometres of Sydney’s CBD.”
- SupportedTurnbull said the final subsidy proposal included indemnities for cost overruns.Sydney Morning Herald - Latest News: “According to Turnbull, who had replaced Tony Abbott as prime minister in September 2015, the final subsidy proposed by the federal Department of Infrastructure also included indemnities to compensate the owners of Sydney Airport if the project for a second aviation hub ran over budget.”
- SupportedTurnbull said, “I thought it was just shocking, I was just appalled by it.”Sydney Morning Herald - Latest News: ““I thought it was just shocking – I was just appalled by it,” he said.”
- SupportedIn November 2016, cabinet decided to make a zero-subsidy offer and build the airport itself if Sydney Airport rejected it; the offer was made the following month.Sydney Morning Herald - Latest News: “The decision to do that was taken to Cabinet in November 2016, Turnbull said, and at the same time it decided that the Commonwealth would build the airport itself when the offer was eventually rejected. A month later, the zero-subsidy offer was made to Sydney Airport.”
- Partly supportedTurnbull said, “It came as a huge shock to [Sydney Airport].”Sydney Morning Herald - Latest News: ““[It] came as a huge shock to [Sydney Airport], I might add because they had been in all these discussions about asking for larger and larger and larger subsidies,” Turnbull said.”
- SupportedSydney Airport formally declined the offer in May 2017, and within hours the government announced WSA Co would build and operate the airport.Sydney Morning Herald - Latest News: “Sydney Airport quickly flagged it was likely to reject the offer before formally doing so in May 2017 . Within hours, the government announced a Commonwealth-owned company – WSA Co – would be set up to build and operate the new airport.”
- SupportedTurnbull said Sydney Airport would have used Commonwealth money to build the airport as slowly as possible because it had a vested interest in avoiding competition.Sydney Morning Herald - Latest News: ““SACL has a vested interest in not having a competitive airport. They would have used the Commonwealth money to build it as slowly as they possibly could.””