SYDNEY- Regional Express (Rex), Australia’s third-largest airline, has entered voluntary administration, grounding all flights between capital cities.
The decision follows an emergency board meeting on Tuesday evening (July 30, 2024), marking a significant disruption in Australia’s aviation sector.
Photo: By Robert Myers (CC-BY-SA 3.0 AU), CC BY-SA 3.0 au, https://commons.wikimedia.org/w/index.php?curid=99464793Rex Voluntary Administration
The airline has stood down 360 of its 2,000 employees, with over 600 jobs at risk if regional operations are also grounded.
Competitors Qantas Airways (QR) and Virgin Australia (VA) have pledged to hire affected Rex employees where possible, mitigating some of the immediate job losses.
Rex, which has served Australia’s regional routes for 21 years, expanded to 11 major domestic routes after the COVID-19 pandemic, including the competitive Golden Triangle between Sydney (SYD), Melbourne (MEL), and Brisbane (BNE). The airline’s most recent major route, connecting Melbourne and Perth, launched just last month.
Despite capturing 5% of the domestic passenger market, Rex has struggled with consecutive losses for years. The airline faced challenges including a global pilot shortage, intense competition from larger rivals, and high operational costs on major domestic routes. These factors forced Rex to suspend several regional routes over the past year.
Recent internal conflicts have further complicated Rex’s situation, with former executive chair Lim Kim Hai, a major shareholder, seeking to regain control of the company.
Transport Minister Catherine King confirmed the government has contacted Rex’s voluntary administrators, Ernst & Young. However, the government has not yet provided financial support to the struggling airline.
King emphasized the need for a cautious approach, stating the government wants to avoid repeating past mistakes of providing unconditional funding without proper oversight.
The government’s primary focus is on ensuring the continuation of Rex’s regional routes, which are crucial for connecting remote Australian communities. However, Minister King stopped short of committing to direct financial assistance, indicating a more strategic approach to supporting the aviation sector.
Photo: By Simon_sees from Australia – Sydney Airport, CC BY 2.0, https://commons.wikimedia.org/w/index.php?curid=72845384Minister Remarks
Transport Minister Catherine King addressed the situation, emphasizing the challenges inherent in the aviation industry globally.
King highlighted the government’s priority to maintain regional services and connectivity, which formed Rex’s core business. She stressed the need for a cautious approach to avoid repeating past mistakes of unconditional funding without proper oversight.
The minister refuted claims by shadow minister Bridget McKenzie that the government’s failure to reform Sydney Airport’s slot allocation system contributed to Rex’s troubles. This assertion underscores the complex factors at play in the airline’s financial difficulties.
Photo: Virgin AustraliaVirgin Australia EOI
Virgin Australia has moved swiftly to secure leases on part of Rex’s Boeing 737-800 fleet. CEO Jayne Hrdlicka cited Rex’s collapse as evidence of the industry’s complexity.
Virgin Australia also expressed interest in potential future partnerships with Rex’s regional business through code share or interline arrangements, aiming to maintain comprehensive network access for regional Australians.
Virgin Australia faces delays in aircraft deliveries due to Boeing’s quality assurance issues. The airline’s order of 31 Boeing 737 aircraft is expected to arrive behind schedule, impacting its fleet expansion plans.
In response to Rex’s collapse, Virgin and Qantas have offered to accommodate Rex passengers on major domestic routes at no cost. This move aims to minimize disruption for affected travelers and demonstrates industry solidarity during a crisis.
Insiders at Rex express optimism about the airline’s future, suggesting a streamlined version could exit administration through a deed of company arrangement within weeks. This potential quick turnaround indicates a strategic approach to restructuring rather than a complete shutdown.
Virgin Australia’s CEO, Jayne Hrdlicka, has ruled out a formal takeover of Rex, emphasizing the lessons learned from Virgin’s own administration experience. Hrdlicka stressed the importance of focusing on core jet services, reflecting Virgin’s strategic decision to streamline its operations.
Sources reveal that consultancy firm EY has been working with Rex board members since April, following a leadership dispute involving former executive chair Lim Kim Hai.
Photo: BonzaFinancial Turmoil
Former executive chair Lim Kim Hai, who owns a 22.1% stake in Rex, stepped down in June following an ASX inquiry. The inquiry questioned Rex’s failure to disclose Lim’s familial connection to a director of National Jet Express (NJE) when Rex acquired the company in 2022.
Rex disputed the ASX’s concerns, claiming appropriate behavior and denying Thian Song Tjoa, Lim’s brother-in-law who held 30% of NJE, was a related party to Rex. Despite Rex’s defense, Lim resigned as chair shortly after the inquiry.
In a recent development, Lim attempted a board coup against fellow directors, including former Howard government minister John Sharp, seeking reinstatement as executive chair. This internal conflict adds complexity to Rex’s already precarious situation.
Rex’s entry into voluntary administration marks the second such event in Australia’s aviation industry this year, following budget carrier Bonza’s collapse in April.
Unlike Bonza, Rex directly owns its aircraft leases and received a $150 million investment from PAG Asia Capital during the COVID-19 pandemic to secure its Boeing 737 fleet and compete with Qantas and Virgin.
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FAQs
REX stands for Regional Express and it is Australia’s regional carrier based in Mascot, Sydney
REX has a fleet of 66 aircraft which includes 9 Boeing 737 and 57 Saab 340.
The Australian carrier with a 5% domestic market share has 7 bases including Sydney (Main), Brisbane, Cairns, Townsville, Adelaide, Melbourne, and Perth.
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