There are plenty of big question marks over Regional Express, the embattled carrier better known as Rex. EY’s Adam Nikitins is poised to be appointed the administrator.
But one of the biggest unknowns is what PAG Asia Capital will do. The private equity fund is a major lender to the regional airline, handing over some $150 million to allow Rex to expand into capital city routes and compete against Qantas, Jetstar and Virgin Australia.
Sources with direct knowledge of the situation told Street Talk on Tuesday that live negotiations between PAG and EY were centred on converting its debt to equity — given its massive influence over the airline — should EY be appointed as expected.
PAG’s view, they said, was that the capital city strategy had been a failure and should end immediately. The regional routes, however, could be saved.
First among their priorities is to prevent the airline from being liquidated by fuel suppliers and airports which are creditors, which would likely leave very little for anyone else.
It is also understood to be pushing for Rex’s board to spare units that are standalone profitable, like the fly in, fly out contractor division, from the administration proceedings. PAG declined to comment.
PAG, in January 2021, invested $150 million in Rex via convertible notes to help it launch major city jet operations. Under the deal, the notes had an initial term of five years, and entitled PAG to earn 4 per cent per annum in interest and convert into equity at $1.50 a share. Rex shares last changed hands at 56¢ apiece, before it entered a trading halt on Monday.
The airline has drawn down on this over the years, including $50 million in the 2021 financial year, $25 million next year and $15 million in the 2023 financial year. At December 31, Rex had used up $120 million in total from the PAG convertible notes, which are first-ranking senior secured debt.
Westpac has also provided a $175 million debt facility to Rex, of which the carrier had used $169.9 million at December end. The two lenders have security over different pools of assets.
Amid the turmoil, Rex has stopped selling seats for the next fortnight. Prime Minister Anthony Albanese told the ABC on Tuesday that Rex already received subsidies. Bonza, a low-cost rival to Rex, collapsed earlier this year.
