SYDNEY, Sept 22 (Reuters) - Australian airline Regional Express...

SYDNEY, Sept 22 (Reuters) - Australian airline Regional Express Holdings Ltd (Rex) (REX) said on Tuesday it was in advanced talks with Asian investment firm PAG Asia Capital for up to A$150 million ($108.4 million) of funding to launch jet services between major cities.

The flights would compete against those offered by the country's dominant airlines, Qantas Airways Ltd (QAN) and Virgin Australia Holdings Ltd (VAH) , from March 1, 2021 at a time when they are struggling financially due to the pandemic.

It would be a major expansion for Rex, which currently operates on less competitive regional routes like Sydney to Wagga Wagga and Adelaide to Port Lincoln using a fleet of ageing Saab 340 turboprops with 30 to 36 seats.

Rex said it had signed a long-form term sheet with PAG and planned to draw on an initial A$50 million convertible note tranche by the end of this year, with the balance drawn over three years.

The notes would be convertible at A$1.50 a share, which compares with Rex's last closing price of A$1.09. It would give PAG a 23% stake in the airline upon the exercise of the first tranche and 48% if the full amount was drawn and converted.

PAG, which manages $35 billion in capital for institutional investors according to its website, would also be entitled to nominate two Rex board directors.

Rex Executive Chairman Lim Kim Hai said in a statement that the airline would provide domestic flights that were safe, reliable and affordable.

PAG did not respond immediately to a request for comment. ($1 = 1.3833 Australian dollars)