Albanese government to spend $50m acquiring Rex debt to keep regional airline flying

The Albanese government will acquire a $50m stake in Rex to ensure private equity investor PAG does not move to liquidate the airline.

The federal government’s move to become a principle creditor of Rex by acquiring $50m of debt from investor PAG Asia Capital, will keep the airline flying for longer while the search for a buyer continues.

Transport Minister Catherine King said the acquisition was necessary to stop PAG taking action to put Rex into liquidation in an effort to recoup its investment.

She said at the moment there were “no credible bidders for the airline” but the government’s move would allow administrators to undertake a second sale process.

“We’re trying to make sure that we provide (Rex) with every opportunity of success because we know for regional communities … just how critical those connections are, and we want to make sure those services continue to be delivered,” said Ms King.

It comes six months after Rex was taken into administration after accumulating debts in excess of $500m, largely as a result of an ill-conceived move into jet operations.

Administrators EY immediately grounded Rex’s 737 operations, leaving more than 300 people jobless, and went about breaking up the “Frankenstein” company in an effort to pay creditors.

Aeromedical charter business Pel-Air was sold to Japan’s Toll Group for $47m and former Rex chairman Lim Kim Hai bought the remaining half of National Jet Express for an estimated $12m.

But there was next to no interest in taking on the regional airline which relies on a fleet of ageing Saab 340s.

Of the 57 aircraft, with an average age of 30.7 years, 29 are currently parked, with Rex believed to be using them for parts to keep the rest of the fleet flying.

The federal government is acquiring a stake in Rex in the absence of other buyers to ensure regional flights continue. Picture: William West/AFP

In a letter to creditors, administrator Sam Freeman said “an extensive engineering program was being undertaken aimed at increasing reliability and capacity in the network”.

It’s understood the work was being funded by an $80m loan from government, granted late last year.

“Although global supply chain issues are ongoing and may limit the pace of the improvement plan, every effort is being made to expedite this work to enhance the experience of all Rex customers and support network growth,” wrote Mr Freeman.

He said PAG would remain a minority secured creditor, and would likely be repaid from the sale of non-core assets.

“Importantly, this transaction does not increase the amount Rex owes its creditors,” Mr Freeman said.

“Rather, it simply means that the amount which was previously owed to PAG, is now owed to the Australian Government. Having the government as a secured creditor provides additional certainty and confidence for Rex, its customers, and stakeholders.”

Opposition leader Peter Dutton said the Coalition would be happy to support the government in a bipartisan way to see Rex fly again.

“It’s important for regional areas and it’s very important for competition in this country as well,” said Mr Dutton.

A PAG spokesman thanked the Commonwealth for acquiring the remainder of the firm’s debt position, at “this critical time”.

The Hong Kong-based firm also owns hotel group the Australian Venue Co, and has a controlling stake in Cordina Farms, Patties Foods and Vesco Foods in Australia.

Government support for Rex has angered other regional airlines which have offered to take over Rex’s routes, or add extra capacity.

On Thursday, the Regional Aviation Association of Australia acknowledged the announcement of a “further $50m in funding” provided by the government, and pointed out providing services to remote communities was challenging for everyone.

RAAA chief executive Rob Walker said members “once again extend their offers of support and are also ready and willing to assist where they can”.

“In the absence of any expressed interest to acquire the Rex regional services as a whole, we believe that we can collectively provide real industry-led solutions for the government as it seeks to secure the future viability and sustainability of aviation support of regional and remote communities,” Mr Walker said.

Although the Rex administration process was continuing, former employees have been able to press ahead with claims under the Fair Entitlements Guarantee.

Ms King said 302 claims had been processed from former Rex staff, with over $7.1m already provided under the FEG.

Former Rex executive chairman Lim Kim Hai. Picture: Justin Brierty

At the same time, the Australian Securities & Investments Commission is pursuing four former directors of Rex in the New South Wales Supreme Court, over allegedly deceptive and misleading conduct.

Documents filed to the court, showed former chairman Lim Kim Hai, and ex-directors John Sharp, Lincoln Pan and Siddharth Khotkar, were aware of Rex’s mounting losses but failed on multiple occasions to correct guidance to the ASX forecasting an operational profit in 2023.

Mr Pan and Mr Khotkar both represented PAG on the Rex board.

All have vowed to vigorously defend the ASIC lawsuit, which is due back in the NSW Supreme Court in April.

Originally published as Albanese government to spend $50m acquiring Rex debt to keep regional airline flying