Regional Express Airlines picks up bargain lease on Virgin Australia 737s

Virgin Australia’s pain has proven to be Rex’s gain with the smaller carrier nabbing a bargain on used 737s.

Rex is painting over former Virgin Australia 737s. Picture: Bloomberg

Regional Express Airlines will pay as little as $60,000 a month per aircraft to lease six former Virgin Australia Boeing 737s, which will be used on the lucrative Melbourne-Sydney route.

Rex refused to comment on the deal signed with two lessors, following a dramatic downsizing of the Virgin Australia fleet.

It’s believed Virgin was paying at least twice as much in monthly payments for the 737s, all of which are more than 10 years old.

The first 737 to join the Rex fleet arrived in Sydney on Thursday, after its Virgin livery was painted over at Toowoomba’s Wellcamp Airport.

Airline sources revealed the launch of Melbourne-Sydney-Brisbane flights using 737s had been dubbed Project Mother by Rex, because “mother is the opposite to Virgin”.

Although deputy chairman John Sharp would not discuss the leasing arrangements, it is understood the $60,000 a month cost will rise to $100,000 a month after the first 12 months.

Rex plans to begin Melbourne-Sydney flights using three 737s from March 1, 2020, with another two to go into service before Easter.

It is expected Rex will increase its 737 fleet to 10 aircraft by the end of 2021, with $150m in funding from investment firm PAG Asia Capital.

The narrow body jets will be used exclusively on the Golden Triangle routes of Melbourne-Sydney-Brisbane, competing against Virgin Australia and Qantas.

Revelations of Rex’s gain as a result of Virgin Australia’s administration came as a court battle over four engines took another turn.

Engine owners Wells Fargo and Willis Lease Finance first took action in June in an effort to have Virgin’s administrators honour the original contract to return the engines to Florida.

The lessors won the case in the Federal Court, but their victory was short-lived, following a successful appeal by administrator Deloitte to the Full Federal Court.

Wells Fargo and Willis have now applied for special leave to appeal the decision in the High Court while other details of the matter are sorted out in the Federal Court.

Last week, Deloitte told the court the lessors were now refusing to take back their engines, which were awaiting collection in Melbourne.

An affidavit from Virgin Australia general manager of engineering and aircraft servicing Darren Dunbier said the airline had been trying to have Willis collect its engines since June.

“Since that date, Virgin has had to store, maintain, preserve and insure those engines while the litigation continued, notwithstanding that the engines are surplus to requirements and not being used,” Mr Dunbier said.

“Virgin does not have sufficient space to continue to safely store the Willis engines for any further period.”

But a new submission filed this week by the lessors said both sides wanted the engines returned to Florida, and they would be happy for Deloitte to do so at the administrator’s expense.

Costs would be sorted out after the High Court appeal was heard, the submission said.

Until then, the lessors argued it would be pointless to have another hearing on costs.

The next hearing is scheduled for November 10 in the Federal Court, before Judge John Middleton, who delivered the original ruling in favour of the lessors.