Asian-based private equity firm PAG is believed to be positioning itself to become the new owner of Regional Express Holdings that has crashed into administration with more than $350m owning to its lenders and 700 jobs to be lost.
PAG is owed about $150m by the regional carrier known as Rex and Westpac about $200m, and Rex announced to the Australian Securities Exchange on Wednesday that it had entered voluntary administration in a move likely triggered by lenders calling in loans.
DataRoom understands that Virgin Australia is in talks to take Rex’s 737 planes into its stable, which have caused significant losses for the group.
But creditor PAG is likely to emerge as a bidder for the regional operation, bringing back the airline as one that no longer flies into the major capital cities where it competes with Virgin and Qantas.
Market commentators also believe it is likely that Virgin would be keen to take over Rex’s rights to land and depart from major city airports such as Sydney, Brisbane and Melbourne, buying its so-called “slots”, with those early and later in the day seen as particularly valuable.
While no investment banks are yet appointed around the situation, it is understood that KPMG has been assisting Virgin in carrying out its due diligence on Rex in recent weeks.
This could explain talk in the market in recent days that a float of Virgin in 2024 now looks less likely, as gaining more airport slots and 737s could be a positive for its float plans, but would probably mean more time would be needed to get the initial public offering off the ground with the extra preparation.
Following the success of the listing of Mexican fast food chain Guzman y Gomez in June, Virgin’s owner, Bain Capital, was said to be weighing a decision to move fast on its IPO plan.
It has remained in talks on and off over the past 18 months with Qatar Airways about taking a cornerstone stake in the carrier as part of a listing.
Virgin Australia also still needs to announce the appointment of a new chief executive following the resignation of the airline’s boss Jayne Hrdlicka.
Boston private equity firm Bain Capital purchased the previously listed Virgin Australia out of voluntary administration in 2020 for $700m in equity and took on its $5.15bn of debt, and has planned to re-list the carrier since last year with help from Goldman Sachs, UBS and Barrenjoey.
Last year, Virgin Australia was anticipated to list with about $1.97bn in borrowings and a $3bn-odd valuation.
Sources say that the regional routes that 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.
The group, which receives some government subsidies to operate emergency services to the regions, could entered a Deed of Company Arrangement to reorganise the carrier with the permission of lenders to ensure it continues to operate.
According to its latest annual report, Rex’s major shareholder is its former executive chairman Lim Kim Hai with 16.87 per cent of the stock.
For the six months to December, Rex made a $3.2m loss compared to a $16.5m loss in the previous corresponding period.
PAG has $US55bn of assets under management and in Australia it owns Australian Venue Co, Patties Foods, Vesco, Craveable Brands and The Cheesecake Shop.
Rex announced in 2020 that PAG had invested $150m in the form of convertible notes to support its major city jet operations and the gained the right to appoint two directors.
The understanding was the $150m loan was drawn to about $120m and PAG has security over the carrier.
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