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Rex close to deal for 737s to fly Sydney-Melbourne-Brisbane

written by Adam Thorn | September 30, 2020
A file image of a Regional Express (Rex) Saab 340B (Seth Jaworski)
A file image of a Regional Express (Rex) Saab 340B (Seth Jaworski)

Rex has today announced it’s close to a deal to lease six 737-800 NG aircraft to fly its new network between Sydney, Melbourne and Brisbane.

It’s not known whether these are the same aircraft previously used by Virgin Australia before it took the decision to trim its 737 fleet.

The news comes after Rex revealed it was in advanced negotiations with an APAC investment firm to secure $150 million of investment to launch the new domestic network in March 2021.

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On Wednesday, the regional airline announced it had signed a letter of intent with two lessors that will see three of the Boeing aircraft ready to fly between Sydney and Melbourne at launch, with another two to follow by Easter and the final one shortly after.

“From there, Rex will continue to grow the domestic fleet in line with the return of passenger demand and hopes to see its fleet of 737-800 NGs reach 10 by year end,” said Rex deputy chairman John Sharp.

“The signing of these letters marks another significant milestone for our entry into the domestic jet market. Our preparations are progressing very well and on schedule and we hope to obtain regulatory approval by December. Advanced ticket sales are also envisaged for December, subject to regulatory approval.”

Last week, Australian Aviation reported how PAG Asia Capital could initially invest $50 million for secured convertible notes that could allow it to hold 23 per cent of Rex’ shares by December.

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Rex’s executive chairman, Lim Kim Hai, said, “With PAG’s support, I have every reason to believe that Rex can successfully launch its domestic major city jet operations.”

After the initial investment, the regional carrier would then be able to draw down the remaining $100 million over three years, which would see PAG then hold 48 per cent of the business.

The deal, based on current issued share capital, is subject to due diligence being completed and a review by an independent expert.

“PAG is a well-respected and highly successful investment group which manages more than US$40 billion on behalf of major global institutional investors,” said Kim Hai. “I am encouraged by the progress of Rex’s negotiations to date with an investor of PAG’s reputation and experience.”

In May, the airline first announced its ambitious plans to take on Qantas and Virgin by expanding its network to service Australian capital city routes, including the coveted Golden Triangle – between Melbourne, Sydney and Brisbane.

Speculation later linked the airline to the lease of 10 Boeing 737s from Virgin Australia.

The news that a deal for new routes and aircraft might be close comes after Rex recorded an underlying profit before tax of $250,000 and an increase in revenue, from $318 million last year to $322 million in FY20, despite the coronavirus crisis.

The positive results also marked a remarkable turnaround from March, when Rex warned it would have no choice but to announce the “shutting down of its network” if it didn’t receive financial aid, even threatening to stop transporting COVID-19 testing samples.

The strong performance was in part attributed to the company accepting $62.1 million of government grants, including JobKeeper and regional aviation bailouts.

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18 Comments

  • Rod Pickin

    says:

    At this time I think it prudent that Rex just sit back and have a re-think; not a good move.

  • Kim

    says:

    Wonder whether REX will share Virgin’s terminals, and how the two will co-operate.

  • Why wouldn’t you take ex-Virgin metal as they should still be on the Australian register and all engineering records would have been vetted by CASA.
    Further the operating history would be known.

  • John Phillips

    says:

    Is there a market for a third mainline carrier? Many have tried, but all have failed?

  • Ian

    says:

    Well, when you’re gifted 200 million of course you can do anything. I hope Qantas and Virgin drop the prices so far that Rex won’t be able to compete and go broke.
    I hope the public remember this at election time, the federal government said they couldn’t help Virgin or Qantas, yet gave money to Rex, well guess what they are biased, Michael McCormick needs to held accountable.

  • john

    says:

    History of the Australian domestic aviation scene tells us there is room for only 2 profitable operators operating Mainline. So yes, I am sure they will get off the ground, and sure as eggs, one is going to fail, allbeit it being Virgin, Rex, or QF(and I lump JQ in with QF). I make no predictions publicly, but privately I suspect one who wont fail.

  • AlanH

    says:

    Are they going to re-brand themselves? Hardly “Regional” Express now!

  • Kieran

    says:

    How thorough was VA’s maintenance of their aircraft when they were losing $bn’s???
    And, if so, how much work needs to be done on them now, to get them in servicing condition?
    A ‘hidden’ cost to any potential buyer, methinks. Hopefully not ‘a pig in a poke’ purchase.

  • Mark

    says:

    Last airline to try this was Impulse .

  • john

    says:

    rod pickin

    Rex’s timing is perfect, but they need to get more than 3 aircraft operating SYD/MEL asap to offer frequency to high paying business travellers who want frequency. They can less fill the aircraft with inflexible loss leader fares if necessary.

  • Max

    says:

    Maybe REX could eventually become the nation’s official carrier one day. It would be great for Australia to have a national carrier that we are not ashamed of.

  • Theodore

    says:

    To Rod Pickin……

    I said the same as you now, last week, & was howled down.
    Still think Rex is setting itself up for a fail. Trying to cash in on the revered ‘golden triangle’ is gross economic stupidity. But they’ll have to learn the hard way.
    If people thought QF was ‘aggressive ‘ pre-pandemic, just wait until DOM flights’ get going more often from now on.
    Remember back in the day, when a particular airline started up as only Business Class, because its’ bosses’ saw full J Cls cabins’ on QF aircraft? What they didn’t realise was most of THOSE pax were QF FF using their Points! So off they happily went, thinking they were going to rake in the $$$. I think it lasted 6-8 weeks before it went bust.

  • Neil

    says:

    Sounds like we might be seeing another version of OZJET!

  • Craigy

    says:

    You may be ashamed of Qantas Max but I’m certainly not and I’m not the only one.

  • Dan

    says:

    I am not sure we have the room for Rex to be taking on JQ and QF and VA… BUT maybe it’s a good thing? The more competition in the market place, the greater the downward pressure on Airfares will be, possibly speeding the recovery to ‘pre-COVID’ costs for domestic travel, if we can keep the virus under control.

    That said, I can’t see Rex lasting too long against a QF and VA lead price war!

  • Ted

    says:

    To Craigy, above……

    I wholeheartedly agree with your comment!

    QANTAS has millions’ of loyal passengers’, who’ll fly with them soon again.

    NEVER will I give Rex any of my $.
    They’re just greedy, to the nth degree, & the way they got McCormack to give them MORE tax dollars’ back in March 2020, was totally beyond the pale.

  • An interesting set of comments. I have just seen on the Virgin group register that they have receive 6 Boeing 737-800 NG aircraft on lease back onto their operation. These are the ex Tigerair aircraft that replaced TigerAir A320’s. I wonder whether these are the 6 Boeng 737-800NG airframes thats Rex has leased for their low cost operation for the Melbourne-Brisbane- Sydney triangle operation. Perhaps a deal has been done to allow REX to wet lease the aircraft including ex Tigerair pilots and flight attendants. If so, this would enable Rex not t have to retrain all their new staff on these aircraft and get their service up and running sooner. A further thought is what about Rex licensing the Tigerair name for their new REX Express service. Although I suspect they might prefer to be promoting the REX Marketing image

  • John

    says:

    I recall Kendall Airlines (which was part of the foundation of Rex) totally floundering when trying to introduce a fleet of CRJ200s in to complement their turboprops; I think Ansett senior management had to step in. Now Rex wants to take an even bigger operational and philosophical jump from SAAB340s to B7373NGs. Finding aircraft quickly and leasing them is the least of their problems. Where is this new fleet AOC going to come from? Unless its all going to be done under a full wet lease arrangement from an existing type approved operator, I suspect it will be a long road before CASA approves Rex to operate these aircraft in their own right.

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