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Federal Government takes on $50m worth of debt to keep embattled Rex Airlines flying

Neale Prior and Cheyanne EncisoThe Nightly
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Rex has been fighting for commercial survival after it called in administrators last July.
Camera IconRex has been fighting for commercial survival after it called in administrators last July. Credit: Ed Turner

The Federal Government has struck a secret bailout deal with the Hong Kong investment giant that bankrolled regional carrier Rex Airlines’ disastrous foray into capital city jet services.

Infrastructure Minister Catherine King said on Thursday the deal would make the Federal Government Rex’s biggest secured creditor as administrators get ready for a second attempt at selling the airline’s vital regional operations.

The government statement only said it would “acquire $50m of debt” from PAG Asia Pacific. PAG had agreed in 2020 to provide up to $150m to fund Rex’s domestic jet service ambitions.

Federal officials refused to say the amount PAG had been paid and whether the big-ticket funder had taken the “haircut” that is customary with debt buyouts involving collapsed companies.

The secret deal comes on top of the $80m of taxpayer funding the government provided to Rex administrators from Ernst & Young in November after their first sales process failed.

Money from this debt buy-out deal will flow to PAG.

Rex has been fighting for survival since it grounded its high-cost fleet of Boeing 737 jets and called in administrators in July, with PAG holding the whip hand as the biggest secured creditor.

The administrators have focused on keeping the regional operations flying and selling assets, with proceeds flowing to PAG to help reduced the secured creditor’s debt.

The Federal Government is refusing to disclose the terms of its debt deal with PAG, which is part of a group that claims to have more more than $80 billion under management through private equity, private debt and hedge fund operations.

PAG entered into a secured funding deal with the administrators after they were appointed in July.

The administrators would not comment on the taxpayer-funded PAG bail out or Ms King’s ambition for the Federal Government to have a seat on the Rex creditors’ inspection committee.

Ms King said in a statement that the debt purchase would ensure regional communities stay connected and kept access to essential medical and freight services.

“The Albanese Government is ensuring Rex Airlines regional services will continue, supporting the administrators on next steps,” Ms King said.

“These actions preserve important economic, medical and freight services, supporting regional liveability and regional economies.”

Ms King told reporters separately on Thursday that its debt deal would allow EY to look for a buyer again.

“What this allows for is the administrators to undertake a second sale process which they will start the process of doing and we’re trying to make sure we provide that with every opportunity of success,” she said.

Since the first sale process ended without a buyer, it is understood the administrators carried out overdue maintenance work done on the Rex fleet of Saab 340B turboprop aircraft and getting as many planes as possible flying.

The Australian Securities and Investments Commission said in December it would sue Rex and four of its directors over continuous disclosure breaches for failing to reveal a $35m shortfall until days before the financial year ended.

The regulator is attempting to have the directors disqualified over alleged corporate governance failures.

The Australian Competition and Consumer Commission last year revealed travellers have been paying a whopping 95 per cent more for major domestic flights since Rex collapsed.

The airline’s collapse last July came less than three months after Gold Coast-based rival Bonza crashed and four years after Virgin fell into administration at the depths of the COVID-19 crisis.

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