Sydney Airport Finance Company Pty Limited (SAFC) is a wholly-owned financing subsidiary of Sydney Airport Corporation (SAC). SAC is the lessee and operator of Sydney’s Kingsford Smith Airport (KSA) under a long-term lease granted by the Commonwealth Government.
KSA is Australia’s largest airport and has the strongest business risk profile of any of the Australian airports. This is a result of its diverse and reliable cash flows, resilient passenger numbers, quality management and shareholder support.
Sydney has Australia’s largest airport and remains the key national hub both domestically and internationally. The major Australian airports are monopolies or near-monopolies as they dominate the aviation market in their respective states. As a monopoly asset, Sydney Airport’s aeronautical-related revenues are regulated which provides some cash flow surety and underpins the financial model.
Sydney Airport enjoys significant revenue diversification which is directly correlated to passenger numbers, such as car parking and shop rents within the terminal. While non-aeronautical revenues are not regulated, they still display highly monopolistic traits (once they are at the airport there is nowhere else for a passenger to go). Retail rents, which contribute significantly to total revenues, are underpinned by fixed leases, while retail revenues operate under a ‘ratchet’ mechanism to increase returns in line with overall terminal performance Sydney Airport services 39 airlines, the largest number of any airport in Australia.
Further, significant passenger numbers through Sydney Airport are serviced by government-owned airlines, such as Singapore, Emirates and Air New Zealand, which lessens the risk of a significant airline collapse.
Notwithstanding this, history has shown that Sydney Airport quickly replaces any lost passenger volumes caused by the departure of an airline (such as Ansett), as demand for ‘landing slots’ remains high.
Sydney Airport maintains a well-diversified debt profile with debt maturities ranging from 2018 to 2030 and its liquidity position is robust, which primarily reflects its holding of cash balances, solid operating cash flows and its staggered debt maturity profile.
The airport sector in Australia has a history of resilience with few instances of economic downturns or one-off industry shocks
affecting passenger numbers for more than six months. Some examples include the financial crisis and the SARS outbreak.
Sydney Airport retains a relatively aggressive financial profile. However, this is offset by:
- Its position as the premier airport hub in Australia,
- Its revenue diversification from a passenger type,
- Carrier and revenue stream perspective; and
- The regulated nature of its key aeronautical revenues
While a ‘second Sydney Airport’ is often raised as a risk, we believe the risk to bondholders is limited. The current Sydney Airport masterplan shows the existing airport can meet the forecast.