Rex Airlines rescue more a relief than cause for celebration

Our ailing regional airline Rex has got a buyer, and it’s a relatively unknown North Carolina-based company, Air T, whose business is mainly operating freight delivery services and trading aviation spare parts.

So good news for regional travellers and the Albanese government, but a rescue deal for Rex isn’t exactly a glamorous event. The government has kept Rex’s financial heart beating for almost a year. It had to because many of the airline’s customers don’t have many choices.

Air T Inc isn’t some high-profile commercial airline or even some big-brand private equity player that’s looking to revive Rex and flick it on down the track for a big price. This is no repeat of the Virgin administration in which buyers were fighting with one another to recapitalise the airline, strip out its costs and debt to make it profitable as the second player in the national aviation duopoly.

And there’s no Qatar Airways lurking around looking at Rex.

This rescue deal is for a regional airline which brings with it some hefty baggage. Most notably, the economic challenge of flying into relatively remote markets with lower passenger volumes to boot.

While Air T is a modest outfit, with a market capitalisation of $US62 million ($95 million), which is a touch over a third of what Rex was worth five years ago, it has one big plus in its corner.

It has an inventory of spare parts for the particular aircraft that Rex uses, the Saab 340. And given these planes are no longer made, those parts are in high demand from airlines around the world that still fly these models.

And it’s this detail that may make any impending deal work.

The theory goes that armed with the spare parts, Rex can continue to run these planes for longer, thus stretching the time needed before investment in replacement aircraft is needed.

That said, the aircraft will eventually need replacing, which will be an expensive exercise, even if they are leased. For Air T, overcoming that hurdle in the future may prove a tall order.

At the time of writing there was no official statement about Air T’s proposal, so we don’t know how much of the $130 million the government has lent Rex will be recouped. But the government will be pleased to have the airline’s business taken off its hands, so any deal would be a cause for celebration.

What it would mean for the continuance of certain regional routes depends on the shape of the deal that remains to be hashed out between the federal government, Air T and Rex’s administrators at EY.

Running any airline is tough, and making a profit from an Australian regional airline is even tougher. Rex became unstuck when its ambitions moved beyond regional markets, and it pursued Virgin and Qantas to take on the intercity market.

It was hit by a competitive wall when Virgin, and to a lesser extent Qantas, used lower fares to combat the interloper.

Ultimately, Rex became another aviation casualty joining the list of outfits that over the years have sought to break the stranglehold of Qantas.

Making matters murkier, the corporate regulator, the Australian Securities and Investments Commission (ASIC) took legal action late last year against Rex.

In December, ASIC took Rex and its executive chairman Lim Kim Hai and directors John Sharp, Lincoln Pan and Siddharth Khotkar to the NSW Supreme Court over “serious governance failures”, alleging they misled the market in February 2023 about the health of the company’s finances.

Rex has been through a wringer. Its ambitious push into the lucrative intercity routes came a cropper even as it grappled a boardroom brawl and management turmoil.

So the rebirth of Rex under new ownership and management will be more a relief than cause for revelry.

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