The Albanese government is preparing for the possibility it may have to acquire the embattled regional airline Rex and operate it as a state-owned carrier, as efforts to find a new buyer to rescue the airline remain fruitless.
Administrators were appointed to determine Rex’s future in July, when the airline abruptly ended its Boeing 737 jet operations between metropolitan cities.
While Rex’s core regional operations have continued in the months since – in part through the government guaranteeing routes connecting isolated communities would continue to function with a loan of up to $80m – the future of the airline has become increasingly unclear, with the administration period extended to provide more time for a potential buyer to emerge.
The search for a new owner has come up empty-handed so far, with the airline’s future beyond the extended June 2025 administration period uncertain before the government’s announcement of continued support on Wednesday.
The administrators Ernst & Young revealed the carrier had been weighed down with $500m in debt, and listed Rex’s flight academy in Wagga Wagga for sale, as well as other assets including the charter subsidiary Pel-Air and flight simulators.
In an attempt to improve the airline’s sales proposition, the federal government last month announced it would acquire $50m of debt from Rex’s largest creditor, the private equity firm PAG Asia Capital, making the Australian government the principal secured creditor.
On Wednesday the government – which had previously shot down speculation about taking ownership of Rex – said it would still “work with shortlisted bidders” on what support it could provide to “maximise the prospect of a successful sale” but appeared less optimistic about finding a new buyer.
“Terms of commonwealth support will be subject to negotiation, but will be conditional on commitments by bidders to provide an ongoing, reasonable level of service to regional and remote communities, the need to provide value for money to taxpayers and good governance,” the government said.
“The government is not a bidder in the upcoming sale process and would like to see a successful market-led outcome.”
“However, in the event there is no sale, the Albanese government will undertake necessary work, in consultation with relevant state governments, on contingency options, including preparations necessary for potential commonwealth acquisition,” the government said.
Anthony Albanese said: “Regional Australians deserve access to quality and crucial regional aviation services.”
The transport minister, Catherine King, said regional Australians relied on Rex’s services.
“When markets fail or struggle to deliver for regional communities, the government has a role to ensure people do not miss out on opportunities, education and critical connections,” she said. “We are recognising that today and stepping in to keep these routes in the air.”
With Rex’s core regional business – which includes several routes propped up by state government subsidies – relying on ageing 36-seater Saab 340 turboprop planes that are increasingly costly to maintain and for which no clear replacements have emerged, industry observers have cast doubt about the airline’s commercial viability.
Rex’s short-lived expansion into jet operations between major capital cities – funded to the tune of $150m by PAG Asia Capital – was competing in some of the most lucrative routes in the country, including the so-called “golden triangle” between Melbourne, Sydney and Brisbane.
Despite the competition watchdog finding Rex’s entry into this market put pressure on Qantas Group and Virgin Australia and led to cheaper average air fares on competing routes – this part of Rex’s business struggled to perform.
Experts have attributed the failure to various factors, including limited access to Sydney airport slots and the ability to meaningfully compete at scale; the increasing cost to lease jet aircraft due to global aircraft manufacturing delays; as well as poor management practices and a bitter feud between Rex’s board members.
Rex’s chair at the time it entered administration, John Sharp, levelled allegations of anticompetitive behaviour against larger airlines, accusing them of retaliating against Rex’s metropolitan jet service expansion.
As part of the measures announced to support Rex, the government will also provide a waiver to the “use it or lose it” test for slots at Sydney airport, ensuring it retains access to its takeoff and landing slots until October 2026. This applies only to its regional slots, with no discussion of a resumption of its jet services between cities.
