Australian airline Rex set to appoint EY as administrators

Australian airline Rex is set to fall into administration as soon as Wednesday, sources suggest, which would make it the second domestic airline to fail this year in a market dominated by Qantas.

It is understood Regional Express Holdings, as Rex is formally known, will appoint Ernst & Young as administrators.

The airline’s shares were halted from trading late Monday, pending an announcement. Rex and EY both declined to comment.

Rex, which mostly serves regional and remote towns, had more recently started flights between major cities such as Sydney and Melbourne in a direct challenge to Qantas and Virgin Australia.

Already an operator in WA’s regions, Rex runs 24 flights per week between Perth and Albany and 22 per week to Esperance.

It launched its first interstate flights out of Perth at the end of June, with direct services to Melbourne and Adelaide.

Melbourne is serviced five days a week, and Adelaide three days a week. The new services are expected to bring 120,000 seats all up into Perth.

But the larger rivals have overwhelmed Rex in a price war on the more profitable east coast routes — name between Sydney and Melbourne — and it struggled to consistently make money.

Prime Minister Anthony Albanese said Rex provided a vital link between regional centres and capital city transport hubs.

“It is important for those local economies,” Mr Albanese said. “So we want to see the aviation industry in Australia continue to be one that provides that service and that access.”

Transport Minister Catherine King said the Government was taking “very seriously” news the regional carrier has stopped trading on ASX.

Ms King told Sunrise on Tuesday there “is a range of reasons why trading halts are put on companies”, adding she was seeking more information.

“It’s an incredibly important airline, and in many cases, the only airline going into a range of smaller country towns and are heavily reliant on it, King Island, for example,” she said.

“We are treating this very seriously and being very vigilant about what is happening and keeping an eye on the situation hour by hour.”

WA Transport Minister Rita Saffioti said Rex’s participation in both the intrastate market and the recent flights to Melbourne had brought more competition to WA’s skies.

Ms Saffioti said her agencies were meeting with Rex on Tuesday seeking further information, and was also staying in contact with the Federal Government,.

“Unfortunately, there seems to be something very significant that’s happening, where we’re seeking further clarifications,” she said.

“When there’s issues with one of the airlines that does worry me because as Minister for Transport, and as a Western Australian, we need more competition in these east west routes because, as I know the feedback I’ve got from everybody who travels East-West is that some of the prices have been very, very high.”

The company, which is also contracted to fly Monkey Mia and Carnarvon routes, was a “key player” in the regional market, Ms Saffioti said.

“We very much wanted to see them stay in Western Australia because of the need for long-term competition,” she said

“Rex played a key role in particular in some of our key air service routes.

“But as I said, we don’t know the extent of what’s what is happening and I can’t speculate more about what’s actually happening at the moment.”

Turbulent times

The appointment of Ernst & Young likely marks the end of Rex’s short-lived attempt to enter Australia’s main aviation market. Rex shares have fallen 35 per cent this year, slashing its market value to just $63 million.

More broadly, Rex’s struggles — after more than 20 years of operations — reflects an aviation industry still grappling with the effects of the pandemic. Manufacturing woes at Boeing and supply chain ruptures have made new aircraft hard to find, while falling fares are putting pressure on profitability.

Australia has already seen one airline fold this year, the start-up Bonza. Liquidators at Ernst & Young also took over Air Vanuatu in May after costs spiralled out of control.

The future of Australia’s regional air transport network is now in doubt. Dozens of rural communities rely on Rex’s fleet of propeller-driven aircraft to connect to larger cities or to catch onwards flights overseas.

The process of administration is designed to resolve a company’s future, either by securing a deal to save the business or by achieving the best outcome for creditors.

In Rex’s case, Asian private equity firm PAG had provided as much as $150m in funding, convertible into equity, for Rex’s domestic jet operations.

That could put PAG at the centre of any negotiations over the airline’s future. Rex said in 2020 that PAG could potentially end up with almost half of the airline’s equity if the debt is fully converted.

Bloomberg