BIG LOSSES: REX IN TRADING HALT AFTER LOSING ALMOST $1M A WEEK
Robyn IronsideRex is on the brink of financial collapse after losing close to $1m a week on its ambitious expansion into major city routes, with its *potential demise set to decimate regional transport links across Australia.
Anthony Albanese on Monday sought information about Rex’s crisis – first revealed by The Australian’s Margin Call column – from Transport Minister Catherine King because the airline was “important”.
Rex is the largest regional airline in Australia, servicing dozens of routes across NSW, Queensland, Victoria, South Australia and Western Australia with 2000 staff across its operations.
The Prime Minister said he would always stand up for Australian airlines and “it was important we do that”. He told ABC radio: “One of the discount airlines here (Bonza) has gone under in recent times, but Rex is an important airline. Rex is particularly important for regional communities and there are a range of communities where Rex is the only airline serving some of those destinations.”
He added that Rex had come through the Covid pandemic and received “substantial government support”, but his government would remain vigilant. “We will continue to work with them because we want to see not just those jobs maintained, but we also want to see those communities continue to have access to aviation,” Mr Albanese said.
A spokeswoman for Ms King said she had asked her department to provide briefings as more information became available, and she expected Rex “to provide timely public updates”.
The dire situation has prompted a trading halt for Rex shares, as directors await a report from EY Australia, which was brought in to examine the airline’s financial *affairs. The report is expected to provide restructuring advice to the airline, which could spell the end of the 737 operations launched in March 2021.
There was also a possibility EY could recommend the appointment of administrators.
The airline’s half-year results published in February showed Rex’s regular public transport services were bleeding cash, with a loss of $25m for the six months to December 31 – or almost $1m a week. The pilot training academy also lost $2m and the recently *acquired National Jet Express shed $1.5m, leaving only charter operations in the black with an $8m profit.
Given the January to June period is typically a tougher period for airlines, it is unlikely Rex has been able to turn around its losses on the 737s operations at the same time as leasing costs and airport charges *increased.
Fierce competition from *Virgin Australia, Jetstar and Qantas also made life tough for Rex, which was attempting to steal market share from the airlines on lucrative routes such as Melbourne-Sydney, Brisbane-Sydney and Melbourne-Brisbane.
Rex’s recent expansion into east-west routes, with the launch of Melbourne-Perth, sparked a ferocious price war with Virgin Australia, which quickly undercut Rex’s fare of $99.
Adding to growing tension was an investigation of Rex by the Australian Securities & Investments Commission over at least two corporate governance issues.
The investigations by ASIC are understood to have triggered a boardroom mutiny against longtime executive chairman and major shareholder Lim Kim Hai.
Rex informed the ASX in June that Mr Lim had been replaced by deputy chairman John Sharp, and chief operating officer *Neville Howell had been appointed CEO.
It soon became clear Mr Lim was not happy with the arrangements. He called a meeting of shareholders to vote on resolutions, including the removal of Mr Sharp and three other directors – Lee Thian Soo, Ron Bartsch and Jim Davis. A date for the meeting is yet to be set.
Last week the terms of Mr Howell’s contract as CEO were updated to ensure he would be entitled to 12 months’ pay in the event of his position being terminated. The changes were authorised by Mr Sharp.
The boardroom upheaval came after years of stability at Rex, which was formed in 2002 in the wake of the Ansett collapse, following the merger of regional carriers Hazelton and Kendell.
Most of the senior management team have been with Rex for more than 12 years, and several since the airline’s inception.
The investigations by ASIC are believed to concern two corporate governance issues, including a week-long delay in informing the market of a downgrade in profit guidance for the 2023 financial year.
The second investigation related to a failure to disclose the relationship between Mr Lim and his brother-in-law, Thian Song Tjoa, during the 2022 acquisition of National Jet Express. Between them, Mr Lim and Mr Tjoa held 50 per cent of shares in NJE.
Opposition transport spokeswoman Bridget McKenzie said the Albanese government must not allow Rex to go the same way as budget carrier Bonza, which failed in late April leaving thousands of customers and hundreds of staff in the lurch. “A competitive aviation industry is crucial for the Australian economy and the travelling *public, but true to form in its approach to aviation, Labor sat on its hands as Bonza entered administration,” Senator McKenzie said. “Now is the test for Anthony Albanese.”
In recent weeks, shares in Rex have sunk to lows not seen since the pandemic struck in early 2020. Shares last traded at 56c.
Rex employs about 2000 *people across its operations, based in Sydney, including many within the 737 service.
Despite trumpeting the arrival of a 10th 737 late last year, only nine remain in service after one was returned to the lessor.
A third of Rex’s Saab 340 fleet was also out of action due to a shortage of parts, pilots and *engineers