Pel-Air shines as jewel in Rex’s tarnished crown

Rex Airlines Boeing 737 planes lay idle on the tarmac at Melbourne's Tullamarine Airport. Picture: William West/AFP

Regional carrier Rex may wind up as a break-up candidate, with strong interest in its Pel-Air operation.

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

Possible buyers of this part of the business include existing regional carriers like West Australian carrier Nexus Australia, Skytrans, Link Airways, Sharp Airlines and Northern Territory Air Services.

As earlier reported, several private equity funds are in the data room assessing an acquisition of Rex, but many think the opportunity is too small.

Private equity funds including Oaktree Capital Management, Cerberus Capital, BGH Capital and Bain Capital are thought to be taking a look.

Asian funds are also interested, and could be strong candidates. Alliance Aviation, which already operates in Australia and is almost 20 per cent owned by Qantas, is thought to be interested.

It is understood non-binding indicative offers are due within days in a sale process run by investment bank Houlihan Lokey. EY is the administrator.

Rex collapsed into administration in July, owing about $130m to Asian private equity fund PAG. The initial understanding was PAG had been prepared to step in and own the airline, but now a sale looks more likely, after the government threw its support behind Rex and gave customers guarantees.

Rex owes about $500m overall, but a buyer would probably need to write a cheque for about $300m.

EY has restructured the carrier. It focuses solely on flying to regional destinations and not major capital cities.

Sources say the regional routes Rex operates are profitable, but its undoing came as it tried to compete with Qantas and Virgin by offering services out of capital cities and was unable to compete on price.