Rex Airlines will need a bailout if it’s going to survive

Can Rex be saved? Or is going to follow Bonza onto the – pretty crowded - scrap heap of Australian aviation dreams?

Rex Airlines has been losing money on routes where it competes with Qantas and Virgin.

Can Rex be saved? Or is going to follow Bonza onto the – pretty crowded - scrap heap of Australian aviation dreams?

The short answer is that Rex is not another Bonza.

The slightly longer answer is that it now probably needs even more – and direct - permanent government support, over and above what it’s always had.

For 20 or so years Rex had a – half – sustainable business, flying to places that the big two airlines didn’t go.

I say, ‘half-sustainable’, because it did require government support. No support, no business.

Further, it also didn’t spend money on new aircraft.

That bill was always going to have to be met. It now has to be met; even more urgently.

What tipped it over the edge, Bonza style, was trying to tackle the big two on the so-called Golden Triangle – Melbourne-Sydney-Brisbane - with cheaply-leased (thanks to Covid) Boeing 737s.

Even with those cheap leases, it was losing money on these routes – and the losses were exceeding the (government-supported) profits on its regional routes.

The cheap leases have now run out; the losses will – would have? have already? – become company-threatening.

So, it could theoretically walk away from the 737s and the Golden Triangle, going back to its regional future.

Indeed, that part is utterly non-negotiable.

That’s also why it’s no Bonza. Bonza did not have an even semi-profitable core to go back to.

But a Rex that did return to its routes, so to speak; would still face those financial issues, it had been postponing around a fleet re-equipment program.

Right now, any value in the brand is leaching away rapidly. So also, embedded investment in staff – especially in the wake of the so-recent Bonza experience.

Yes, things can be – and will be - stabilised with an administration. That can keep the core fleet flying; so crucial for cash flow; to quite literally sustain any sort of business.

Obviously, were the regional fleet to stop flying for any length of time, the prospects of following Bonza would increase astronomically.

So, stabilisation – of the broader business and the day-to-day operations, around the regional operation - is the crucial first step. Then a deep, but quick dive into the airline’s true financial position.

That will tell us that things are ‘suddenly’ worse than we were being told yesterday. They always are.

But how much worse is critical. But again – from the outside – it encouragingly doesn’t look like a repeat of Bonza. At least, not yet.

Then the next, big, step is the recapitalisation.

Somebody has to be prepared to put in perhaps $200-300m; although it doesn’t all have to be upfront.

One of the prices of that will be that the present equity is worthless or all-but worthless. But in the absence of fresh money going into the airline, it’s worthless already.

It’s possible this can be done without direct government involvement.

But I would suggest that the government – the Feds and maybe two or three state governments – have to get involved. And better if done upfront.

The next two weeks will be critical. But not necessarily utterly determinative.

Originally published as Rex Airlines will need a bailout if it’s going to survive