REX: Trading halt. first Australian airline casualty of COVID-19?

REX is a small regional airline that operates nationally but with concentrations along eastern Australia, and in the south-west.

They are very worried about the effects that the COVID-19 crisis is having on their business and on regional communities. Today they issued an open letter to the Deputy Prime Minister and the Leader of the Nationals, Michael McCormack. It’s a long letter that you can read in full, but here are a couple of paragraphs from the Media Release:

‘Rex is a very strong airline with no debt and probably only one of five airlines worldwide that managed to maintain uninterrupted profits since 2003 in spite of a series of global economic and environmental shocks – wars, fuel prices above USD120 a barrel, volcanic ash, GFC, the worst drought in 120 years, catastrophic bush fires, crippling pilot shortages and the list goes on.

Yet even Rex cannot survive the next six months of this global emergency if the forecast of worldwide health experts materialises. If Rex, with all its strengths, were to collapse, probably following the collapse of all other independent regional carriers, and maybe even a domestic carrier, there will be utter chaos and mayhem on many regional and rural communities that depend on regional air services to be their socio-economic lifeline.’ REX Press Release

The letter itself demands that the government ‘mandate strong measures in the form of a waiver of the following fees and charges for one year‘:

‘All Airservices charges including the Enroute Charges (ERC), Terminal Navigation Charge (TNC), Rescue and Fire Fighting Charge (RFC) and Meteorological Service Charge (MSC);

The fuel levy that is currently imposed on domestic and regional airlines that contributes funding towards CASA’s costs. On this particular point, Rex feels that it is grossly unfair that international flights are exempt from the levy while they also utilise CASA resources. In effect Rex is subsidising international airlines’ activities in Australia. Airports also utilise CASA resources but are exempt from such contributions. Another example of Rex subsidising monopoly airports;

All passenger and baggage security screening costs at all airports, including regional airports. Security screening at regional airports could be suspended for the time being.’ Letter from Neville Howell REX Chief Operating Officer

The letter goes on to request a ‘sovereign guarantee’ on loans to regional carriers:

‘Rex therefore calls on the Federal Government to provide a sovereign guarantee for any new line of credit or banking loan taken out with the banks to enable regional carriers to continue operations through to the end of the pandemic. These guarantees should only be for loans designed to help overcome the negative cash flows caused by COVID 19, not for pre-existing debts or loans. ‘

Letter from Neville Howell REX Chief Operating Officer

It argues that this is in line with the President of IATA’s CEO Alexandre de Juniac’s call for government action by:

‘Extending lines of credit, reducing infrastructure costs, lightening the tax burden are all
measures the governments will need to explore.’

REX trading halt

Regional Express (REX) is tipped to suffer extreme financial losses during the coronavirus crisis. With that in mind, the regional airline informed shareholders via an announcement to the ASX that it has entered a trading halt. It will not trade again until Thursday, pending an ‘announcement.’ We don’t know what that announcement will be, but its a fair bet it will be that the government has agreed or not agreed to all or some of those requests outlined in the letter.

2PAXfly Takeout

Regional communities in Australia depend on their air service, and indeed, governments, local, state and federal pay some airlines incentives to assure an air service exists.

The Australia Government is proposing an addition to the financial crisis package they have already announced. Maybe this is also part of the ‘announcement’ REX hopes to make.