Allegro Funds opting not to bid for failed Regional Express airline

Bids for Rex are due towards the end of this week. Picture: AFP

Suitors that could have been interested in buying failed carrier Regional Express are understood to be sidestepping the sale process because they will not be able to match terms on a deal involving government backing.

Sydney-based private equity group Allegro Funds is opting not to bid because the price would not make sense for the group, say sources.

Allegro bought logistics company Team Global Express from Japan Post as a distressed asset, and it typically surfaces in sale processes for similar turnaround opportunities.

Rex provides critical air services to regional communities. The federal government has signalled it will step in before allowing it to be liquidated.

The main lender is Asian private equity fund PAG, and Rex has drawn down $120m of the $150m of finance provided.

Initially, sources said PAG was positioning to buy Rex out of administration, but it later decided to do so only if no other parties came forward.

EY has been flooded with emails from parties expressing interest since it was appointed as administrator last month, but strategic investors are largely missing from the picture.

Virgin Australia has been in talks to take back the 737 planes it sold to Rex, but its interest does not extend to acquiring the airline.

Houlihan Lokey is running the sale process for Rex.

Westpac has lent $170m to the Rex-controlled Pel-Air, which provides NSW and Victorian air ambulance services and is not in administration.

Rex also owns a half-interest in the National Jet Express business, providing services for fly-in, fly-out mining workers.

While Rex owns some of its aircraft, the fleet is about 30 years old on average.

Deloitte and Ashurst are working for PAG, while law firm White & Case is helping EY with Rex.

In late July, Rex owed $500m to 4800 entities, most of which were employees.

Bids are due towards the end of this week.