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The federal government has come to the rescue of Rex Airlines after accepting the assignment of $50 million in corporate debt owed by its parent company Regional Express Holdings (ASX: REX).
The debt represents “a portion” of what Rex owes Singapore-based investment group PAGAC Regulus Holding (PAG) and now positions the federal government as the largest secured creditor of the airline company which was placed into voluntary administration last August.
PAG, which in 2020 announced $150 million in funding to assist Rex in expanding its Australian air services, will remain a minority secured creditor following the deal which was settled today.
Federal support for the airline comes on the heels of the government in November forwarding a commercial loan of up to $80 million to the administrators to keep Rex’s regional routes operating.
The government also agreed to grant early access for former Rex employees to the Fair Entitlements Guarantee to pay their entitlements, while funding from PAG was also used to pay entitlements to former employees of the regional business who were made redundant during the voluntary administration period.
“This makes clear the government’s ongoing commitment to maintaining access to aviation services for regional and remote communities and recognises the critical role of the Rex network to local economies,” says Catherine King, the Federal Minister for Infrastructure, Transport, Regional Development and Local Government.
King says the Employment and Workplace Relations Department has received 306 claims and processed 302 claims from former Rex employees, with over $7.1 million provided to Rex staff.
“These actions preserve important economic, medical and freight services, supporting regional liveability and regional economies,” she says.
The Australian Travel Industry Association (ATIA) has welcomed the latest government support for Rex Airlines.
“It’s great news for travelling Australians, the communities who rely on Rex and for the health of the Australian aviation sector,” says Dean Long, the CEO of ATIA.
“Rex is too important to be allowed to fail. We need a third airline, and if Rex is allowed to fail, the reality is that even if another airline decides to enter this market, it will take so much longer for them to come into play.
“That’s a delay that would hit regional and rural Australia hard as well as the hip pocket of travellers.”
Long says survival of the company increases the likelihood that ATIA's travel business members who are owed money after selling Rex tickets to customers prior to the administration are “more likely to get at least some of their money back”.
“Currently, 98 per cent of passengers across this country only have a choice of two airlines, and that’s not great, especially considering we already have the most concentrated air market in the world,” he says.
“Ensuring the future of a third airline in Australia means we have competition in the skies as well as access for regional and rural Australia.”
Samuel Freeman, Justin Walsh and Adam Nikitins, of Ernst & Young Australia were appointed voluntary administrators to the Rex Airlines group in August last year.
Since then, the administrators have worked to cut debt at Rex Airlines, which previously stood at more than $500 million, through asset sales.
Last month, the administrators announced the completion of the $47.1 million sale of the Pel-Air ambulance business to Toll Holdings.
Rex also settled the sale of its interest in fly-in-fly-out specialist National Jet Express which it acquired in 2022 for $48 million. Proceeds from both of these transactions were used to pay down debt.
Shares in Regional Express Holdings were placed in a trading halt in August following the appointment by the company of voluntary administrators. The shares remain suspended from trading.
While the federal government’s support has given some comfort to shareholders, the company remains in hot water with corporate regulator which last month announced court action against the company over allegations of misleading and deceptive conduct.
The Australian Securities and Investments Commission (ASIC) is alleging that Rex released a misleading ASX announcement on 28 February 2023 by stating it was "optimistic the group will have positive operating profits for the full FY23 barring any further external shocks”.
ASIC is seeking to ban four directors of the company from managing corporations over alleged contraventions of their duties.
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