- 27 Mar, 2020

Is Sydney Airport in debt? Fingers are pointing to Coronavirus and Climate Change

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While coronavirus and climate change vie to sink our tourism and travel industries, lending has found an interesting way to create the change we need to see in the world.

It’s far from news that airports will take a hit under the rapid-fire changes to the hospitality and travel sectors as the coronavirus continues its global spread. While Aussies were given a couple of weeks to adjust to the changes demanded of intense social isolation – Sunday evening’s mandated shutdown of all non-essential services, international travel and stricter interstate border control measures being employed will drive further struggles for these industries. 

The balance of protecting the wellbeing of our vulnerable and reducing the reach and size of the devastation wreaked by the virus will be a delicate dance that will play out for an uncertain time. While it is essential we isolate to slow and steady the cases of coronavirus and try to bring it under control, it’s undeniable this can have a domino effect of implications for our economy.

Sydney Airport itself is expected to see a 25% drop in international travellers in March, and a 6% drop in domestic traffic. Their largest customer Qantas will be reducing international and domestic capacity by 90% and 60% respectively until the end of May, with cuts of 25% and 5% expected to last until at least September this year. And the reduced income from flights are not the end of the tale – while international visitors account for 38% of Sydney Airport’s total traffic, they contribute 70% of revenue due to higher aeronautical fees and retail spending.

And these losses with be felt across airlines and airports – ANZ credit card and merchant data showed a steep drop in airport spending nationally in February according to the Australian Financial Review – they noted a 27% drop in spend across at Brisbane, Melbourne, Perth and Sydney airports from the week ending January 21 to the week ending February 8.

Mark Ludlow, Queensland Bureau Chief for the Australian Financial Review reported the tourism industry is losing about $US1 billion AUD ($US655 million USD) a month from the China travel ban, which is cutting off access to Australia’s most important market, worth about $US12 billion AUD ($US7.9 billion USD) a year. His comments came back in February, well before our interstate border control policies even kicked into play and added to the issue.

Climate Change is also hitting our hospitality and tourism industries hard

While coronavirus is creating havoc for the hospitality and travel industries en-masse, climate change is also costing the Australian economy – particularly for these two sectors. On January 17, the Australian Tourism Export Council estimated the recent bushfires impacted Australian’s tourism industry to the tune of $US4.5 billion over the course of 2020.

The International Monetary Fund went so far as to single out Australia and its economy as being in the firing line of more frequent climate-related natural disasters.

With one in thirteen Australian jobs relying on tourism and hospitality, Prime Minister Scott Morrison says “Australian tourism is facing its biggest challenge in living memory.”

While his comments come as no surprise, the timing might – they can actually be attributed to a mid-January press release heralding the $76 million tourism recovery package following the bushfires.

The long-term solution is tied into their current debt load

As climate change continues to be a hot topic and our understanding of the far reaching (and now more immediate) consequences of glossing over it, lenders and borrowers are looking at novel ways to encourage companies to do their part.

Formerly the domain of ‘green’ companies, sustainability-linked loan (SLL) are increasingly being embraced by companies keen to incentivise themselves to create more ecologically sustainable business that do less harm with terms that penalise borrowers if they don’t meet their targets, and financially reward them when they do.

And in late 2019, Sydney Airport closed a landmark SLL, raising a total of A$1.4 billion. It’s the largest loan of its kind in Asia Pacific, the first syndicated SLL in Australia and the largest SSL for any airport across the globe.  

The interest Sydney Airport will pay on the loan depends on the findings of an annual assessment of their overall environmental, social and governance (ESG) risk rating by Sustainalytics, a global leader in ESG research and ratings. Meaning if they keep it green, they financially benefit, if they don’t, they’ll be penalised where it hurts any business – the balance sheet.

Sydney Airport joins many major corporations taking up this kind of loan, with US$75 billion of SLLs being signed since their inception in 2017. The option offers attractive terms to borrowers with ambitious ESG agendas, with the margin on the loan varying based upon their ability to meet pre-set environmental, social and governance (ESG) performance targets.

As well as offering financial benefits for good green performance, these types of debt help justify spend aimed at improving ESG performance, across internal processes and reporting, specific initiatives or capital expenditure.

“We were particularly attracted to the funding flexibility an SLL offers in incentivising improvement across the entire environmental, social and governance (ESG) spectrum, especially when compared to related products that focus on sustainability-linked investment and lack a direct link to funding costs,” says Sydney Airport Group Treasurer Michael Momdjian.

The effects may take time, but their efforts are already well underway

As well as being Australia’s largest airport operator, Sydney Airport is already a recognised leader in sustainability within their sector. They’ve been running with a range or programs, including investing in electric vehicles and supporting infrastructure, and aiming to cut carbon emissions per passenger by 50% from 2010 levels by 2025, and run carbon neutrally by 2025.

These measures have seen them clock in fourth for ESG performance out of 38 in Sustainalytics’ global airports sub-industry group, and seventh globally in Dow Jones Sustainability Index’s transportation and transportation infrastructure sector.

While the short term is set to be uncertain for Australia – and many Aussie families – there’s the potential of the increased uptake of green financing will see the start of ecofriendly measures being adopted on a corporate scale.

Words by Melanie Hearse

Stressed about your finances? Contact a broker at eChoice today. Our brokers will be able to use their expertise to find you a competitive mortgage today.

Sources:

https://www.afr.com/policy/economy/climate-change-and-coronavirus-to-hit-economy-imf-warns-20200219-p542an

https://www.afr.com/companies/tourism/there-s-still-nothing-like-australia-to-lure-back-tourists-20200220-p542t5

https://www.businessinsider.com.au/australia-extends-visas-young-backpacker-tourists-travel-bushfire-recovery-2020-2?r=US&IR=T

https://www.afr.com/policy/economy/climate-change-and-coronavirus-to-hit-economy-imf-warns-20200219-p542an

https://www.pm.gov.au/media/rebuilding-australian-tourism

https://cib.bnpparibas.com/sustain/sydney-airport-hits-the-skies-with-pioneering-sustainable-loan_a-3-2957.html

https://institutional.anz.com/insight-and-research/apacs-biggest-sustainable-loan-takes-flight

https://institutional.anz.com/insight-and-research/apacs-biggest-sustainable-loan-takes-flight

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