Rex's metro flight plan lures $150m from new Asian backer

PAG Capital mulls $150m Rex share deal to fund metro flight plans

Agribusiness
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Regional Express is in advanced negotiations for fresh funds with PAG Asia Capital, a prominent investor in fast food and real estate.

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One of the investors backing The Cheesecake Shop franchise looks set to become a key stakeholder in Regional Express as the airline consolidates plans for regular jet services between Sydney, Brisbane and Melbourne.

Rex is in advanced talks with PAG Asia Capital to secure $150 million in extra funds which would eventually give PAG a 48pc shareholding in the airline.

The deal would see PAG initially swap $50m for a 23pc stake at $1.50 a share in December, if shareholders approved the deal, then grow over three years as its convertible note investment translated into more shares.

Rex's executive chairman Lim Kim Hai said with PAG's support he had every reason to believe the big country airline could launch its capital city jet service in March next year.

Who is PAG?

PAG is one of the world's largest Asia Pacific-focused private investment firms, with nine key offices in Australia, Asia and further afield.

Past investments in its portfolio span the Red Rooster and Oporto quick-service restaurant businesses in the Craveable Brands stable, specialty retailer The Cheesecake Shop, and property market services firm DTZ which operates in 52 countries.

PAG currently manages $US40 billion in capital on behalf of more than 150 institutional investors in Europe, North America, Asia, Australia and the Middle East.

Its funding for the Rex expansion is subject to completion of its due diligence investigations, Foreign Investment Review Board consent and other regulatory approvals.

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Mr Lim said PAG was a well-respected and highly successful investment group and he was encouraged by the progress of Rex's negotiations with an investor of its experience.

"As a well-established carrier with an impeccable track record, I am confident Rex will deliver to Australians an alternative major city domestic service that is safe, reliable and affordable," he said.

Rex, which emerged from the ashes of the Ansett Airlines collapse in 2002, began flagging in May plans to expand its regional services by competing with Qantas and Virgin Australia on capital city routes.

Despite grounding most of its regional services because of border closures and coronavirus travel restrictions in March, Rex recorded a $4m increase in total revenue for 2019-20 of $322m and a $250,000 underlying profit before tax, thanks to help from $62m in federal government airline subsidies and JobKeeper payments.

Impairment charges against its now largely idle Saab turboprop fleet and other assets translated its financial year result into a $19.4m statutory loss.

Support services at risk

Meanwhile, a warning from the Regional Aviation Association of Australia suggests many aviation support services, including maintenance and parts suppliers and simulator training centres, may close forever because of COVID-19 travel restriction losses.

The association, which represents about 100 carriers, said essential services such as flying schools, simulator training and maintenance were suffering because of the slump in airline traffic around Australia, and Melbourne's strict lockdown.

RAAA chairman and Rex director Jim Davis said Victoria's long recovery roadmap had made the problem critical for Melbourne-based suppliers who had little revenue, but ongoing costs.

Border restrictions meant many interstate pilots could not access simulator training anywhere without undergoing quarantine on returning home.

The restrictions had also badly hurt small charter operators which, strangely, were subjected to stricter air crew quarantine requirements than the major domestic operators.

Mr Davis said it was critical aviation third party service providers be preserved because once they vanished there were too many barriers to entry into the industry to expect new players to fill the gap.

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The story Rex's metro flight plan lures $150m from new Asian backer first appeared on Farm Online.

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