Rex in the red to the tune of $500m, administrators tell first creditors’ meeting

Rex owed $500m to 4800 creditors at the time of its collapse and its administrators say they are investigating the possibility the airline was trading while insolvent.

Rex was half-a-billion dollars in debt when administrators were appointed late last month.

The first creditors’ meeting conducted by Ernst & Young Australia partner Sam Freeman, revealed 4800 entities are owed money, not including “contingent creditors” or customers with cancelled flights.

Many of the creditors are employees, including more than 600 people who were “let go” when the 737 aircraft operations were axed on July 30.

Flight and cabin crew were told Rex had no money to pay their final wages or entitlements, and it could be months before they received what was owed to them.

Mr Freeman said they were investigating whether the airline was trading while insolvent at the time of EY’s appointment, but it was “too early to conclude one way or another”.

“We had to make some tough decisions upon our appointment given the financial predicament, and we made the decision the continuation of the regional business was really important,” Mr Freeman said.

“In terms of the domestic trunk route services, the decision was made we needed to terminate. It didn’t made good commercial sense for it to continue and all aircraft have now been handed back to the lessors.”

During the 90-minute meeting it emerged that prior to administration, Rex had asked a firm to market and sell some of the Saab 340s that were not in operation.

Mr Freeman was unable to put a dollar figure on the value of the regional fleet, of which 23 of the 57 are parked, but said that was being assessed.

Buildings and land owned by Rex and a simulator were also being assessed as the administrators looked to “realise and recover value from them”.

Asked why Rex fell into such financial distress, Mr Freeman said investigations were continuing.  “The initial or preliminary view is the pilot shortage really impacted the business and created a position of sub-optimal fleet utilisation, as did problems with the supply chain, parts and turbine props, which also impacted fleet utilisation and the efficiency of the business,” he said.

He also nominated “competition and Rex’s difficulty in securing the frequency of flights it needed” as factors.

It was emphasised that the administrators do not want to prolong the process, and they will only seek to extend the administration if there is an opportunity for a better return for creditors.

The contract for CEO Neville Howell was also raised.

Terms and conditions were changed in his favour at the same time EY was meeting with Rex investor PAG to discuss voluntary administration.

“We have been made aware of the changes to (the contract),” Mr Freeman said.

“Those changes were negotiated by the board and Mr Howell prior to our appointment (as administrators).

“We had no involvement with respect to those negotiations.”

The next step of the administration will see interested parties invited into a data room to better understand the company, in the hope of offers being made by late next week. Mr Freeman said it was critical that travellers continued to book with Rex’s regional service to demonstrate there was a passenger network that wanted to support it.

He acknowledged the support of Virgin Australia, which had taken tens of thousands of calls from affected Rex customers and rebooked more than 49,000 on its own flights free of charge.

Qantas was also credited for helping to carry Rex customers at no charge.