A firm buyer is yet to emerge for the regional operations of insolvent Rex - Regional Express (ZL, Wagga Wagga) two weeks after the airline jettisoned its B737-800 operations and declared bankruptcy. However, its administrators, Ernst & Young (EY), say there has "been a large volume of interest" in the business ahead of an August 14 deadline for non-binding bids. At the same time, a picture has emerged of boardroom dysfunction under ousted chairman and majority shareholder Lim Kim Hai.

EY has opened a data room for potential buyers of Rex's regional operations, which cover airports in every mainland state, supported by a fleet of 57 aircraft including twenty-two Saab 340Bs and thirty-five Saab 340B(Plus) types, although twenty-two of these are out of service due to maintenance, supply chain issues, and pilot shortages.

The administrators have confirmed that Rex owes approximately AUD500 million Australian dollars (USD331.3 million) to around 4,800 creditors. EY's Sam Freeman told the Australian Broadcasting Commission that most of the losses stemmed from its failed venture to take on Qantas (QF, Sydney Kingsford Smith) and Virgin Australia (VA, Brisbane International) on intercity domestic routes using the B737s, which was reported to be costing the carrier around AUD1 million (USD660,000) in weekly losses.

Aside from the B737 and Saab 340 operations, Rex has a 50% stake in fly-in-fly-out charter operator National Jet Express (JTE, Adelaide International), owns freight and aeromedical operator Pel-Air Aviation (PFY, Sydney Kingsford Smith), operates a pilot academy, and has a substantial MRO facility at Wagga Wagga

PAG interest in REX vacillates

Flights continue to operate as normal on Rex's Saab-operated regional routes. Singapore-based private equity firm PAG Asia Capital, which issued Rex AUD150 million (USD99.4 million) in convertible notes (on five-year 4% per annum terms) to bankroll its B737 venture and is now a major creditor, was initially reported to be keen to swap the debt for equity and take control of the airline. But that interest has waned amid interest from other potential buyers. Nonetheless, PAG has provided the administrators with an additional loan to keep the regional flights going for the short term. Rex drew down AUD130 million (USD86.2 million) against the PAG notes.

Sydney-based private equity group Allegro Fund, a regular buyer of distressed assets when it senses a turnaround opportunity, had expressed interest but has since ended talks because it cannot match terms on a deal involving government backing.

The Australian government's transport ministry is also meeting regularly with Rex and the administrators to determine whether it should step in to bail out the airline, which may include taking an equity stake. But Freeman says government officials have told them they will only consider supporting Rex if it prioritises "critical regional flights." The prospects of so many regional routes ending at once ahead of an election in the first half of 2025 is politically unpalatable to the government.

Alongside its misjudged venture into jet operations, EY says supply chain issues and Saab 340 pilot shortages also contributed to Rex's downfall. However, it is board-level infighting that has captured local headlines. The board ejected Lim Kim Hai (referred to within Rex as LKH) from the chairman's role in June after two-plus decades in the role. While a reason was never provided, it was widely reported that LKH's alleged lackadaisical approach to corporate governance and disclosure regulations contributed to his downfall. Hai was, and remains, Rex's largest shareholder with a circa 17% stake.

An unpopular ex-chairman

Since Rex went into administration, a picture has emerged of the former chairman's leadership style. Long-time deputy chairman and now chairman, John Sharp, wrote in an email leaked to the Australian Financial Review that "he lives in a world where he is God" and described a decision by Hai to override a COO decision as "pure LKH humbug."

In the runup to the decision to axe the B737 ops and file for voluntary administration, reports have emerged of would-be suitors having difficulty dealing with LKH, or in the case of Virgin Australia CEO Jayne Hrdlicka, refusing to deal with him at all. In the months leading up to the administration, PAG had approached Virgin Australia to see if it was interested in taking a stake. Some meetings took place, which ultimately went nowhere, but Hrdlicka ruled out Hai participating in those talks.

Michael Jones, co-founder of Rex and now chairman and CEO of Equatorial Launch Australia, told The Australian outlet recently that he led a consortium interested in taking over Rex in 2023. He said they were in a position to offer around AUD160 million (USD106 million), twice the airline's market capitalisation at the time. He told the newspaper that LKH was "rude, dismissive, and not interested," adding that he was "becoming a megalomaniac."

EY has appointed investment bank Houlihan Lokey to run the sale of Rex's regional operation. The data room opened on August 7, and non-binding offers are due this week. Shortlisted bidders are expected to be notified within days, and binding offers will be due by the end of the month.