Rex sale prepares for landing

Final bids are due shortly for regional carrier Rex, up for sale after falling into voluntary administration. Picture: Jerad Williams

The contest for the collapsed regional carrier Rex is getting down to the short strokes, with final bids due in the next couple of weeks.

The Rex camp and lenders are said to be reasonably confident about a positive outcome of some sorts, defying doubts in the market that the airline will find a buyer and may need a government bailout.

Whether this involves a break up of the airline, or a sale of the airline in one line remains to be seen, but both are still live possibilities, with suitors for all of Rex and parts of the carrier still part of the negotiations.

Offering comfort to buyers is the government’s guarantees to customers for flights or airfares back while the airline remains in administration.

As previously reported, the part of the business that is most appealing to suitors is the NSW and Victoria air ambulance services provider Pel-Air, which has Westpac as a lender of $170m and was the part of Rex that did not fall into receivership.

Lender PAG, owed $130m, is believed to keep changing its mind on the opportunity, initially planning to take over the carrier before cooling on the idea.

A challenge for the Asian private equity group is that it does not have the aviation expertise like other global buyout funds such as Bain Capital, which had previous airline expertise before buying the previously listed Virgin Australia out of voluntary administration in 2020 for $700m in equity and taking on $5.15bn of debt.

As previously reported, Virgin Australia, now 25 per cent owned by Middle Eastern carrier Qatar Airways, is not focused on buying Rex, while private equity firms like Platinum Equity and Anchorage Capital Partners are now thought to see better turnaround opportunities elsewhere.

Allegro Funds, meanwhile, is preoccupied with Scyne, the government advisory spin-off it inherited from PwC.

The final bid date has been extended to enable suitors plenty of time to run the ruler over the operation in the sale process run by Houlihan Lokey.

DataRoom previously reported that Oaktree Capital Management, Cerberus Capital and BGH Capital had all previously been in the Rex data room assessing an acquisition.

Yet, parties previously shaping up as the most likely acquirers were Asia funds.

Oaktree Capital Management may still be showing some interest, given it has experience in the industry, previously owning groups like aircraft leasing company Pegasus Aviation, while TPG Capital and Blackstone both own airlines, although the opportunity may be too small for such large global funds.

CVC Capital Partners and Cerberus have also owned aircraft leasing businesses, while private equity firm Indigo Partners was around Virgin Australia when it collapsed.

Rex, chaired by John Sharp, collapsed into administration in July with overall debts of around $500m.

A buyer would likely need to write out a cheque of about $300m.

Regional carriers may buy parts, and include Western Australia’s Nexus Australia, Queensland carrier Skytrans and Link Airways, which flies through Queensland, NSW and ACT as well as Sharp Airlines that flies in Western Australia.

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.

Rex also owns a 50 per cent interest in the National Jet Express business, providing services for fly-in, fly-out mining workers.

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

For the six months to December, Rex made a $3.2m loss, compared to a $16.5m loss in the previous corresponding period.