REX AIRLINES: Government will buy if commercial sale fails

Regional Express (Rex) has faced a tough road since its inter-capital city route plans failed last year. It has been offered for sale since entering voluntary administration in mid-2024.

With a fleet of aging 40-year-old Saabs, mounting pressure from creditors and operational challenges, the administrators are struggling to find a buyer for the airline.

Regional air services are essential in Australia, given the distances between destinations in this wide brown land.

This has placed the Labor government in a difficult position now that it faces an imminent election and needs to be supportive of regional communities. That has led to the potential for public ownership of REX if a private buyer does not emerge by mid-2025.

Prime Minister Anthony Albanese has emphasized that the government is still pushing for a successful private sale. But he is open to contingency plans, including the Commonwealth’s acquisition of REX.

If implemented, this would be the first time the government and taxpayers would own an airline since Qantas was privatized in 1993.

REX’s struggles and Government support

Rex has faced ongoing financial difficulty due to its reliance on a fleet of aging, no longer manufactured Saab aircraft. This means challenges in sourcing spare parts and competing with entities like the U.S. military for access to crucial maintenance resources.

REX’s fleet of 79 Saabs, valued at around $70 million, will need significant capital investment to keep operating. Replacing these planes with second-hand equivalents could cost between $2 million to $3 million each. That’s a hefty expense for any buyer.

Despite this, the government has already taken steps to shore up REX’s operations. Labor provided an $80 million loan to help sustain its routes until mid-2025 and a $50 million payment to buy REX’s debt from its largest creditor, PAG.

This demonstrates the government’s commitment to maintaining regional air services in the short term. But it doesn’t mitigate concerns about the airline’s long-term financial viability.

The fight for REX’s future

Its aging fleet and management infighting have complicated efforts to sell REX. Despite the challenges, there are some buyers still interested in parts of the business. Japan’s Toll Holdings, bought the airline’s air ambulance arm, PelAir. Other companies have expressed interest in REX’s charter operations. Negotiations for the sale of the core airline have, however, stalled.

The Australian Financial Review reports that Renaissance Infrastructure has made a credible bid to acquire the entire airline, with the financial backing of JPMorgan Asset Management. Kym Lennox of Renaissance has expressed frustration that the government has delayed any discussions until after the upcoming election to be held by May 2025.

The government insists that any support or acquisition of REX will come with stringent conditions. That includes commitments to serve regional communities and to ensure value for taxpayers.

Regional airline importance

The collapse of REX has been a blow for regional Australians, who rely on the airline for essential travel services. With limited alternatives available, the oss of REX could significantly impact regional communities.

The government is supporting regional air services. It’s investing $12 million in regional airport upgrades in New South Wales and waiving the ‘use it or lose it’ rule for regional flight slots at Sydney Airport until 2026.

Labor’s priority is ensuring that regional Australians continue to have access to vital transport links, even if it means temporarily stepping in to take control of REX’s operations.

Whether a private buyer will emerge for Rex or the government will step in with a long-term solution remains to be seen. The stakes are high, with both the future of regional aviation and taxpayer funds on the line.

Meeting with smaller regional players

Other regional airlines, 43 of which form the Regional Aviation Association of Australia (RAAA), have finally been granted a meeting with Department of Transport executives to be held on Wednesday, 12 February 2025.

They see themselves as part of a ‘market-led’ solution that would let them expand to take on some of the regions now serviced by REX. Putting the government in charge of an unsaleable REX, even for a short time, would interfere with these smaller airlines’ ambitions.

2PAXfly Takeout

This is a very tricky situation for any government. The opposition echoes support for every move the current government makes on the issue.

REX, although a profit-making enterprise before its expansion into inter-capital city routes, had some big structural problems. These were mainly the age of its fleet and some underlying issues between board members. The Australian Competition and Consumer Commission is actively investigating four of REX’s board members on whether they acted lawfully in exercising their directors’ responsibilities.

Government ownership might resolve the board issues, but so would a sale. The nuts and bolts issue likely to prevent a clean sale is the fleet of 40-year-old aircraft.