Federal government to build Sydney's second airport at Badgerys Creek

Sydney Airport has declined to develop the proposed second major airport in western Sydney, saying the project does not meet its investment criteria.

File image Source: AAP

The federal government has confirmed it will build Sydney's second airport after the operator of the city main Kingsford Smith airport confirmed it will not take up an option to develop the project.

The ASX-listed Sydney Airport on Tuesday said that after an extensive evaluation, it has determined that the terms of the federal government's notice of intention (NOI) for the project do not meet its investment criteria.

"Despite the opportunities that Western Sydney Airport will present, the risks associated with the development and operation are considerable and endure for many decades, without commensurate returns for our investors," chief executive Kerrie Mather said.

A statement from Prime Minister Malcolm Turnbull and infrastructure minister Paul Fletcher said the government had been planning for either acceptance or refusal from Sydney Airport.

"We are well positioned to move forward," the statement said.

Details of how the project will be funded will be announced in the federal budget on May 9.

The decision means that Australia's largest city will have a second airport operator within a decade, with the federal government set to either offer the project to other groups, or build it on its own.

Sydney Airport's refusal had been widely expected after the federal government in December ruled out any direct financial support towards the cost of building and operating the proposed $5 billion project.

The company, which held right of first refusal, had sought more time to consider whether it wanted to develop the facility at Badgerys Creek, 60km west of the Sydney CBD.

It had until May 8 to make a final decision.

"Sydney Airport's decision not to accept the WSA NOI on the terms provided is in the best interests of our investors who represent millions of Australians through their superannuation funds," Ms Mather, who is set to leave the company, said on Tuesday.

The new airport is likely to be operational by late-2026, and is expected to cater to around 10 million passengers annually within a few years of opening.

The federal government in April indicated it would ensure work at the site starts by the end of 2018, in order to stick to the construction timetable.