REX AIRLINES Trading Halt
 

It hasn't cratered but it does continue to decline. $0.60 was seen as a protection level but once it fell through it, the share price continued to decline and is now $0.56 meaning the share price is exactly half of what it was this time last year. It is likely it will test $0.55 in the next few days and, with no sign of any meaningful demand, it is just as likely to be approaching $0.50 by the time the annual results are released at the end of August.

Nev has a base salary as reported the other month of $350k. They have previously said they don’t believe in high salaries for management, however these people are likely not employable anywhere else which is why they are still there.

A early start to the holiday is only really 2 or 3 days worth of red ink for him.

Again, Rex (a few mongrels at HQ) show how obsessed they are with being dodgy and corrupt. The sooner this circus closes the better for everyone. Sure, many workers will feel the pinch but will be better for Australian aviation in the long term to see these clowns gone. Most of those saab guys are dinosaurs or green cadets.

REX AIRLINES Trading Halt
 

A article in tomorrows Australian saying Deloitte has been called in to look over the books.

It's out:

https://archive.is/rHiex/again?url=h...6e7facc6%3Famp

Yikes
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It’s quite frustrating to read that, again, another case of airline management down under who burn the house to the ground and wait until only smouldering pieces remain before calling in help, front line workers and families now suffer the consequences.

It didn’t need to be like this, I think this 737 operation could have worked, could have been done differently, but it’s been done the Rex way. It’s clear PAG are not offering further funding.

Rex needs to go back to being Rex. The issue is, the old Rex is also wounded with a depleted Saab fleet. Disposing of the Jets and going back to ‘what once was’, isn’t that easy either.

Not good for anyone if they go under.


REX CALLS IN TURNAROUND SPECIALISTSStories abound of instability in the nation’s aviation sector. Budget airline Bonza fell into administration in April. The mooted listing of Virgin Australia keeps faltering, and now Qatar Airways wants to gobble up a strategically important part of it.

And what of Regional Express? Its executive chairman, Lim Kim Hai, was hot-swapped in June for deputy chair John Sharp, a former transport minister in the Howard government. Lim had served as executive chairman for 21 years, and aside from brief remarks issued by the company acknowledging his “extraordinary service”, no further reason was provided for this sudden and startling tweak to the board.

Seething, as you would expect, Lim went on to requisition a shareholders meeting to remove Sharp and three other directors from the board: Lee Thian Soo, Ronald Bartsch and Jim Davis. No reasons were provided for that development either.

This upheaval is taking place just as Rex finds itself in a spot of serious financial bother, so serious, it seems, that Margin Call hears that the airline has invited a turnaround team from Deloitte to rifle through its books and try to stop the proverbial plane from crashing into the mountain.

Leading that team are Sal Algeri and Richard Hughes, memorable for their role in the recovery of Virgin Australia after that airline slid into voluntary administration in 2020. Deloitte didn’t respond to questions about Rex and Rex itself declined to comment. “Given Rex is a public company, we do not respond to press or market *rumours or speculation,” a spokesman said.

Rex’s troubles are not necessarily with its regional routes, which are said to be profitable, but with its expansion into the prized city destinations of Sydney, Melbourne and Brisbane, known in the industry as the Golden Triangle (a misnomer, by the way, the route connecting them forms no obvious triangle).

An expansion into those capital city markets began in 2020, its market share remains in the single digits, and the whole jolly has cost the business dearly. Deloitte’s partners are in a fever attempting a restructure solution as a rescue package. That too, we hear, is teetering towards failure.

Where to from here? Rex’s Golden Triangle dilemma could become intractable enough to push the airline into administration. Whether or not that occurs, the appearance of Deloitte’s clean-up team at least provides a plausible explanation for the airing of linen about to start in the boardroom.

After all, it was Sharp who said last year that profitability mattered more than market share, a remark made only after Rex posted a loss of $16.5m for the half to December 2022. Its latest results weren’t quite as fugly – a $3.2m loss for the half to December 2023

Another heapin' helpin' of that good old Rex arrogance! Given Rex is a public company, they have an obligation under S.674 of the Corporations Act 2001 to disclose to the market any information that would reasonably be expected to have a material effect on the price or value of the company.

It would be great if reporters commenting on financial matters could properly interpret financial reports. Rex's H1FY24 operating results were manifestly worse than H1FY24.

This sounds like the Bonza playbook. Nothing to see here, everything going well, plenty of cash for the next two years. Then call for financial advice to dig themselves out of a hole. Leading to bingo, doors are closed, see you later. The tax payer picks up the allowances and the needle returns to the start…

Events back in 2007 have led Rex to where they are now. That's when they decided they owned staff and didn't have to work with their employees to achieve a better workplace. Since then instead of real expansion the airline has generated profits from cost cutting and cherry picking subsidies, none of which are solid long term business plans for a company which main focus should have been its traditional regional customers. Instead their heart in the country is now being picked apart by QLink adding to their major competitors profit and expansion/upgrades. I could probably point directly at 3 or 4 major years in history where regional patronage was booming only to be stymied by a lack of staff, mainly pilots, leading to a loss of reliability and passengers jumping ship or driving. So even thugh Rex has been profitable in the past they could have been exponentialy more successful had they not hit these management induced speed humps.

Agreed on both points!

You’d think if you’re are calling in Deloitte to look at restructuring the business - then the ASX probably should have been told!

And it constantly surprises how little digging business journalists from the Australian or AFR do into Rex.

Safe to say, it is likely that REX will be suspended from quotation on Monday and when/if is appears back available for trade the actual price could be somewhere between $0.05 and $0.20.

Yikes indeed!

Do you hear that? Chickens coming home to roost.

It's a bit hard to say without knowing where they've landed this FY.

My view - and it's just an opinion - is that they are probably worth a bit more than that, given the variety of potential revenue streams that they have. I'm also a view that, while they have basically just sleepwalked their way into this predicament, they've at least called in administrators before they have completely exhausted all their cash. Things MIGHT be salvageable (emphasis on MIGHT).

What will Deloittes tell them ? You are losing money on 737 routes so stop flying those. You don’t have enough and can’t keep pilots and engineers so you need to pay them more and put up ticket prices to cover that. Trouble is then you have less paying customers and probably the pilots at least will still leave. I hope like hell they survive but am not confident.

Deloitte will have access to the complete warts-and-all dataset of booking profiles, yields, cashflow, etc and will be able to take a very focussed commercial view of proceedings.

PelAir is almost certainly profitable so there's a starting point.

There is almost certainly a kernel of profitable routes for the B737s, just as there are routes that have just been cash incinerators. There may be a play by exiting some routes and increasing frequency on others.

You'd have a good look at what's going on with the Academy. You'd also have a look at NJE - it looked like it was on the cusp of profitability at the end of last year.

There may be a path out of it, there may not - as the Zen Master was fond of saying, "We'll see."

They don’t have any real stability, it’s been an issue and they have done nothing to address that. Have a look at the fleet in the air now, GDS is showing roughly 50% loads for the 7 NGs up right now. Transcontinental Perth not looking that flash.

Watch ancillary revenues start to appear. Basic Economy would be a start, bring the price down, watch the loads jump very quick.

Probably best to get Deloitte in while LKH is not holding the power. Not someone I can imagine working with such people. Just imagine lol.

Are you saying the 737 operation is saveable Mick? Because I thought it was losing $1m a week.

And would exiting some routes and increasing frequency on others be enough to turn that around? It seems like a big ask….

I'm speculating, Colonel. Presently, they are probably losing more than $1 million a week on domestic jet ops, where said ops consists of around 314 or so flights a week, covering some 11 city pairs (12 if you count the E-jets doing ADL-PER three times a week). Two thirds of those flights are on the triangle.

There are a couple of routes that seem to see not unreasonable pax numbers; MEL-OOL springs to mind. There are many routes where they are just torching cash; SYD-MEL leaps off the page when you look at this month's numbers.

Could you construct a route structure/flight schedule/pricing strategy that is better commercially than the current offering? Undoubtedly! Could it sustainably make money for them? Your guess is as good as mine.

One thing for sure and certain is that if they have engaged Deloitte, they will be able to cut through bullsh!t and determine if there's a pathway out.

I don't think LKH will take an ounce of notice of Delloites if he wins the boardroom battle, and he will shut the investigation down. Let's hope the current board have got the kahunas to take him on all the way and prevent this from happening. Seems like Nifty is gearing up to be a casualty of the purge.

Isn’t this what the board has been paid handsomely to do for years? If you have to get consultants in to do this, what have the board been paid for?

Lucky QF have 14 mid-life Q400s due soon … I’d dare say that we will see the 200s and 300s sticking around for some time to fill the REX void … I’m not sure what the realistic plan is for their regional network … sub in NJE Q400s? NJE are busy doing their own thing, and for the most part, they do it well … I’m certain that if QF hadn’t been busy with (and knocked back on) the shelved Alliance deal, they would have jumped at the NJE opportunity.

REX are 20 years behind QF on DBO, WGA, MQL etc … all of the mini majors … reliability is down the drain … these routes should be their cash cows … but instead, they’re running ancient SAABs and bussing PAX into SYD and MEL terminals outside of security … get with the program! PAX want the QF offering minus the ‘welcome to Country’.

Realistically, their best option is to leverage the 737 fleet and go in hard - they’ve got the planes, the people and the opportunity - but there is zero marketing nous.

The board is paid to do what LKH wants.

Whatever hope Deloitte has at a restructuring here will all be out the window if he gets reinstated.

They need to keep him at bay.

It is actually executive management's role to establish things like route structures, flight schedules and yield management/pricing structures, and adapt those to changing circumstances. The Board's role is to appoint the executive manager (CEO), review/endorse strategies developed by the executive, and monitor performance against the strategic objectives.

Given that deliberate role separation between oversight and execution, one very important, fundamental principle for board structuring is that the Board should be demonstrably independent of, and separate from executive management, and vice versa regards executive management. Accordingly, the ASX sets out a number of recommendations to support this, specifically:
V

• Recommendation 2.1: A majority of the board should be independent directors.
• Recommendation 2.2: The chair should be an independent director.
• Recommendation 2.3: The roles of chair and chief executive officer should not be exercised by the same individual.

Until the recent palace coup, Rex had never conformed to any of those recommendations. Only three of the directors are independent. And, until recently, LKH, who is not independent, was both Chair and CEO. It was a model of dysfunction that was tolerated, probably due to force of personality, and the fact that until 2020 the business had made modest profits. The old normalisation of deviance process to a certain extent, in my opinion given quite the leg-up by cowardice and general lack of character in some of the players.

Any old how, it is where it is. Finally, a few Board members have summoned the courage to have the captain escorted from the flight deck. I agree with general sentiment that keeping that fellow out of the LHS is going to be essential if there's any chance of saving the show.

Unless something very untoward has happened in the past six months, there should be about $50 million in cash in Rex's bank account. That will give Deloitte some cushioning around deploying changes. Not a lot but it is certainly a markedly different circumstance to that facing most administrations where the business has no cash at all when the call is finally made.

Back to the Zen Master, "We'll see."

Very simple in my opinion, even with LKH at the reigns it was making money every year before the jet op came in.
Simple thing is to get out of the jet op while you still can and save the rest of the business (saab) op that is making money.
The saab op has been funding all jet infrastructure and extra staff, no wonder it’s down on the books as not making money.
Rex’s mindset has been
1-jet op
2-Nje & Pelair
3-saab rpt op
Saab rpt flights last minute are being delayed and or cancelled so that the aircraft can be used on charter flights.
Due to being tight arses, they are down to around 35 operational Saabs out of a fleet of 52, due mainly to trying to cut costs on engines.

Over the years rex has had plenty of opportunities to update the fleet, choosing not because it costs money, well you can’t work an old fleet forever.

They can’t keep staff now because people are sick of being treated like **** and can see the writing on the wall, this includes long serving Captains to engineers, cadets in the current climate are out at first opportunity before their contract is up, it’s a train wreck and management are reaping what they’ve sowed.
Look at the salaries of management in the company, huge $$$.

Jet op 9 aircraft 120 pilots, saab op 52 aircraft around 35 operational and only 230ish pilots down from 300 + and AAPA was meant to stop Rex’s pilot shortages, millions invested in this place and it hasn’t elevated any crew shortages ever!!

The board had no option but to vote out LKH due to the asx investigation/questioning, I also believe he’s being investigated for similar in another country.

One could argue quite rationally that the time to exit the Jet operation would have been in the 3 months between Bain announcing its intention to save VA, and the deadline to sign on the dotted line with PAG?

On course that would have been the rational thing to do.

The board has voted LKH out of leadership roles.

However, LKH, as someone who holds 5 percent or more of the shares of the business, has exercised his right under S.249D of the Corporations Act 2001 to call for a general meeting of shareholders to vote on removing all the independent directors plus non-executive director Lee Thian Soo, and have two of his mates installed as directors. The board has to convene that meeting, but not until as late as 12 September. So, at that point, the shareholders will have the final say on whether LKH runs the show or not.

On the basis that the business would likely be in administration when that shareholder meeting is finally held, I expect that LKH will seek some form of injunctive relief to prevent the now standing board from appointing an administrator prior to the outcome of the shareholder meeting.

Again, back to the Zen Master, "We'll see."

As I mentioned earlier, once Joe Public gets a whiff of all this they will cease to book anymore than a few days in advance. The public have Bonza in their recent memory. When that happens cashflow reduces massively.

That’s a great point, and it was clear Bonza’s bookings in April just collapsed while the AFR started publishing. They also ceased ops with a fairly alarming lack of future bookings. Remember when Virgin was on the brink, once those news reports started coming out in the final weeks, everyone started cashing out points, they had to cease it.

I just fail to see what LKH does here to improve anything. He hasn’t taken any action re the declining performance in last few years, I can’t see him returning and magically turning the place around. One cannot stress the importance of keeping someone like him, well away for the time being. Nobody cares about his personal financial ties and associated risks he has to this business, the employees is where the focus needs to be in any restructuring.

You just hope they haven’t yet signed the dotted line for the next batch of NGs they had been talking about.

Word on the street that VA will be getting a couple more Singapore (Silkair) NGs

Random idea, but could VA/Bain step in?
Could wait for the price to drop to rock bottom, buy Rex out of administration, absorb the jets into their network and rebrand them, and restructure the regional network back to what used to work.

They come out with more jets, more pilots, and a filler regional network to compete with QF and add to the existing small numbers of Link SAABs bashing around.
Depends if they have the cash to do so and/or see the value in it, idk just spitballing.

Can confirm

I'm guessing those MI/SQ 738s were originally intended to be leased to REX? If so that's a real squander/drop the ball moment there courtesy of the LKH/Board infighting.

Probably a very good outcome for all parties. How would Rex have been able to make the lease payments? and what routes would they have put them on? The last thing that Rex needs at the moment is more fixed costs.

I don’t think the majority of the travelling public, especially Bonzas target market, read AFR. Bonza bookings didn’t collapse per se, they were never there in the first place, thanks to the unavailability of a web booking engine and schedules that made weekends away impossible, let alone reliability issues with last minute changes. $40 sales were a sugar hit to a diabetic operation.

Rex has different issues, their formerly profitable operation is a ticking time bomb re the lack of suitable fleet upgrades and staff, dipping their toes into Jets was an opportunistic gamble were they were “David” not counting on a Goliath to come into the arena. Alliance took the place of Cobham with NJE as far as QF was concerned and Rex got to pick the carcass once again. Since the demise of Ansett Rex have come across as the opportunistic Crows/Ravens of the local scene, now they are looking a bit like bin chickens, with the staff and shareholders paying the price for management ineptitude. Their current market cap is close to their expected cash holdings, circa $50m, potential lessors do read AFR I suspect, which is why fleet growth is in the negative.

Perhaps VA are acquiring a few more NGs on lease due to MAX delays?

MAX-10 isn’t expected across the industry until late 2027. So say 2028. 4 years with no growth certainly isn’t ideal.

Everyone knows the board members regularly make direct decisions, take direct action and micromanage parts of the business according to their personal whims.

If they weren’t so busy being fickle and attempting to bully employees maybe they would have more time to ‘monitor performance against the strategic objectives’ and the share price wouldn’t be so tanked!

If ZL goes into administration, it could be the existing -8SAs with ZL as the lessor can immediately reclaim them at that point.

There’s no defined end date for the Q200/300 exit but it won’t be far away.

I dare say there would be sufficient excess capacity in the Q400/ejet fleet (by swapping Dash/ejet routes for instance) to absorb any potential loss of Rex in the market.

The QLD Govt runs in QLD would be harder to manage but would probably be managed in accordance with a “failure to deliver” clause or similar in the contract.