Australian Airline Rex set to fall into administration

Australian airline Rex is set to fall into administration as soon as Wednesday, people familiar with the matter said, the second domestic airline to fail this year in a market dominated by Qantas Airways Ltd.

Regional Express Holdings Ltd., as Rex is formally known, will appoint Ernst & Young as administrators, according to the people, who asked not to be named because the information is private. The airline’s shares were halted from trading Monday, pending an announcement. Spokespeople for Rex and EY declined to comment. 

Rex, which mostly serves regional and remote towns, had more recently started flights between major cities such as Sydney and Melbourne in a direct challenge to Qantas and Virgin Australia Airlines Pty. 

The larger rivals overwhelmed Rex in a price war and it struggled to consistently make money. The appointment of Ernst & Young likely marks the end of Rex’s short-lived attempt to enter Australia’s main aviation market with Boeing Co. 737 jets.

Tickets on major Rex routes including Sydney-Melbourne and Perth-Melbourne were no longer available as of Tuesday, according to the airline’s website.

Rex shares have fallen 35% this year, slashing its market value to just A$63 million ($41 million). 

More broadly, Rex’s struggles — after more than 20 years of operations — reflects an aviation industry still grappling with the effects of the pandemic. Manufacturing woes at Boeing Co. and supply chain ruptures have made new aircraft hard to find, while falling fares are putting pressure on profitability.

Australia has already seen one airline fold this year, the startup Bonza. Liquidators at Ernst & Young also took over Air Vanuatu in May after costs spiraled out of control.

The future of Australia’s regional air transport network is now in doubt. Dozens of rural communities rely on Rex’s fleet of propeller-driven aircraft to connect to larger cities or to catch onwards flights overseas.

The process of voluntary administration is designed to resolve a company’s future, either by securing a deal to save the business or by achieving the best outcome for creditors. 

In Rex’s case, Asian private equity firm PAG had provided as much as A$150 million in funding, convertible into equity, for Rex’s domestic jet operations. 

That could put PAG at the center of any negotiations over the airline’s future. Rex said in 2020 that PAG could potentially end up with almost half of the airline’s equity if the debt is fully converted. A spokesperson for PAG declined to comment.

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