Rex has revealed it is in advanced negotiations with an APAC investment firm to secure $150 million so it can launch flights between Sydney, Melbourne and Brisbane in March next year.
The deal would see PAG Asia Capital initially invest $50 million in secured convertible notes that could allow it to hold 23 per cent of Rex’s shares by December.
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 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 purchase of 10 Boeing 737s from Virgin Australia.
The news that a deal for new routes 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.
This led to Qantas chief executive Alan Joyce attacking Rex for accepting the handouts before unveiling plans to expand its network. “That doesn’t feel right,” said Joyce. “That doesn’t seem right.”
Rex fired back, stating Joyce was “misinformed by his advisers” and arguing that it was impossible to use the COVID-19 payments for improper means because they are “strictly audited” by Ernst & Young.