From the Australian:
Regional Express is set to announce the purchase of Cobham Aviation’s fly-in fly-out airline business as soon as Friday. Rex shares were placed in a trading halt on Wednesday ahead of a likely announcement later this week. The stock last traded at $1.22 and has fallen about 13 per cent this year. Cobham’s FIFO business accounts for just under 20 per cent of the Australian market for transporting miners and gas workers to sites across the nation. The dominant player in the FIFO space is Qantas, combined with Alliance Aviation. Qantas currently owns 20 per cent of Alliance and is seeking regulatory permission to buy the outstanding shares. Together, the two account for about 70 per cent of the market. Virgin Australia accounts for about five per cent of the FIFO market through its VARA unit. For Rex, this purchase gives it a clear scope and direction. During Covid-19, the regional airline declared it would seek a bigger share of domestic city routes but directly taking on incumbents Qantas and Virgin was always going to be a challenge. Rex is not entirely giving up on that dream, but through the purchase of Cobham, it is able to carve out a big chunk of the high-yielding FIFO market, giving it a strong point of difference from some of its competitors. It is believed Cobham’s FIFO business had revenues of between $130-$150m last year, about half of Rex’s normal revenue in a non-pandemic year. The purchase price would likely be under $100m. David Porter, Macquarie Capital’s head of infrastructure, is advising on the sale of Cobham’s FIFO business and its other assets. Rex and Singaporean investor Lim Kim Hai, the airline’s chairman, will each fund half the acquisition, resulting in a joint venture arrangement. The Cobham FIFO unit, trading as National Jet Express, operates out of Perth, where it has its own terminal facilities, along with Adelaide. It also provides freight services in Melbourne, Brisbane, Gold Coast, Sydney and Adelaide. Rex is Australia’s largest regional airline, with six Boeing 737-800s and 60 Saab 340s. Through the acquisition of the Cobham unit, it will also have eight Bombardier Q400s and six Embraer E190s. A Rex spokesman declined to comment. The FIFO market is attractive to domestic airlines because it is often more profitable than metropolitan routes, excluding Sydney to Melbourne. In May, Qantas offered more than $600m in an all-scrip deal for the shares it does not already own in Alliance. The Australian Competition and Consumer Commission is due to hand down its findings on that takeover as early as next month. The ACCC noted at the time of the takeover announcement Qantas and Alliance overlapped in the supply of charter services to corporate clients and also for regular passenger transport. It took the ACCC several years to approve – after the event – Qantas’s purchase of the 19.9 per cent initial stake. It’s expected that Rex and Virgin – which has FIFO contracts with Alliance – will have both made submissions on the takeover.