Rex seeking FIRB approval for $150m PAG injection

Rex will seek FIRB approval for a $150m deal with Asian investment firm PAG to fund new city jet operations.

Regional Express aircraft at Sydney Airport. Picture: Getty Images

Regional Express Airline has entered into a deal with Asian-based investment firm PAG that appears set to result in a change of ownership for the carrier.

Under the deal, PAG will invest $150m into Rex that will ultimately give the firm a 48 per cent stake in the airline, making it the largest shareholder.

Foreign Investment Review Board approval is required for the deal announced to the ASX on Tuesday following a trading halt.

An initial funding tranche of $50m will be provided by the end of the year, with the remaining $100m to be drawn over the next three years.

It’s a considerable increase on the $30m Rex initially indicated would be needed to purchase five to ten Boeing 737s to operate flights on the lucrative “golden triangle” routes of Sydney-Melbourne-Brisbane.

Prior to the COVID-19 crisis, Melbourne-Sydney was the second busiest route in the world with more than 54,000 flights a year, and over 10 million passengers.

Rex has acknowledged that in order to service the routes it will need to add narrow body jets to its fleet, currently made up of Saab 340s with an average age of 25 years.

Rex executive chairman Lim Kim Hai said PAG was a well-respected and highly successful investment group which managed more than $55bn on behalf of major global institutional investors.

“I am encouraged by the progress of Rex’s negotiations to date with an investor of PAG’s reputation and experience,” said Mr Lim.

“With PAG’s support I have every reason to believe that Rex can successfully launch its domestic major city jet operations.”

He said Rex’s “affordable fares” would support Australia’s economic rebuild and recovery efforts in the wake of the COVID-19 crisis.

The flights between Sydney, Melbourne and Brisbane were expected to start in March next year and would compete with Qantas, Jetstar and Virgin Australia services.

“As a well-established carrier with an impeccable track record, I am confident that Rex will deliver to Australians an alternative major city domestic service that is safe, reliable and affordable,” Mr Lim said.

PAG expanded its Australia-New Zealand operations this year, installing former Future Fund deal maker Sid Khotkar as its regional managing director.

Among the companies in which PAG has invested in Australia, are the Cheesecake Shop and fast food operator Craveable Brands.

In August, Rex reported a $19.4m after tax loss for the 2020 financial year, despite receiving $62m in government grants and subsidies to ensure services to regional Australia continued in the COVID crisis.

Qantas Group chief executive Alan Joyce recently questioned the airline’s plans for expansion at a time when other carriers were drastically downsizing to survive the pandemic.

“We’ve had Virgin going into administration and we have Rex getting a big assistance from the government, and then saying they may take loans on the aircraft to get more aircraft and come back in on this market,” Mr Joyce told the CAPA – Centre for Aviation summit.

“That doesn’t feel right, doesn’t seem right. So, they should not be using government subsidies to actually fund the growth in there.”

Rex will seek Foreign Investment Review Board approval of the deal with PAG, and shareholder approval at Rex’s annual general meeting, tentatively scheduled for early December.

Shares in the airline rose 4.1 per cent on Tuesday to $1.14.