Wally; it was the previous government that awarded the contract. I am pretty sure the current government campaigned against Pelair winning it. You'd have to think if Pelair were that bad they would be out on their arse.
The tender was awarded because one tenderer scored higher on the tender assessment than the other tenderer, as are most tenders except when the government intervenes to favor a treasured sacred cow, for example the recent Australia Network tender (or your dream of the government intervening here).
I reckon I would agree with Wally that the RFDS are much better to work for than Pelair. I also think RFDS would be far better at recruiting and have far more applicants than the RFDS. I am sure their pilots are many times happier. The problem is, none of that is relevant with respect to contract performance. Companies don't get awarded contracts or keep them just because they have happy pilots. It is harder to do when your staff are unhappy, but sadly not impossible. Even companies that are a**holes to their employees can be very good at what they do. Look at the wider Rex Group, not many would say they are an employer of choice (they don't seem to be the nicest employer in the world) but no one can deny they are very good at what they do.
If Pelair blow the contract they'll lose it. If not they'll retain it. Not rocket science.