Rex administrators say pilot shortages and supply chain problems contributed to airline’s collapse

In short:

Rex Airlines administrators say a pilot shortage and supply chain problems have contributed to the company being $500 million in debt.

Administrators say they are confident of finding a buyer for the regional carrier and have already received several expressions of interest.

What’s next?

The second creditors’ meeting is expected to take place in early September.

Administrators of bankrupt regional airline Rex Airlines say a pilot shortage, supply chain problems and underutilization of available seats on its planes have left the company with more than $500 million in debt.

Rex went into administration in late July after days of speculation about the airline’s future when trading in its shares on the Australian Stock Exchange (ASX) was suspended.

So far, the airline has laid off about 600 employees, most of them working on routes in the country’s capital.

On Friday, trustees at consulting firm Ernst and Young (EY) told a first creditors’ meeting that Rex Airlines owes money to 4,800 creditors – including former employees, suppliers and other agencies – and it could be several months before they receive the money they are owed.

The airline’s regional operations have not been affected by the administration proceedings and the airline continues to operate flights to rural and regional Australia.

While it is too early for managers to say definitively what caused the airline’s collapse, there are three main factors that contributed to its significant debt burden.

“Our investigation is ongoing at this point… but initial observations are primarily around pilot access, supply chain issues, particularly engine parts, and load factors on domestic 737 routes,” administrator Sam Freeman told The Business.

Rex first announced its expansion into capital city routes in 2020 and then raised $150 million from private equity firm PAG to fund the operations, which would be operated by a fleet of up to 10 Boeing 737s.

Current and former Rex employees have previously told ABC that the 737s were often operating at less than half their capacity, with some flights still operating with as few as 10 passengers.

Before taking over, Rex blamed a pilot shortage for the reduction in its services. In his submission to the federal government’s Aviation Green Paper last year, he said the airline had been the victim of “pilot poaching” and that the “vast majority” of its pilots had been poached by Qantas and “to a lesser extent by Virgin”.

Asked whether the airline had operated while insolvent, Mr Freeman said the administrators had not yet made a decision.

“The administrators will be carrying out enquiries over the next few weeks which will include looking at the date from which the company may have become insolvent and whether there is an insolvency claim,” he said.

“This will be reported to creditors in our second report ahead of a meeting where they will be able to determine the future of the company.”

Sam Freeman is one of three EY administrators overseeing Rex.(ABC News: John Gunn)

The sale process for Rex began last Friday and Mr Freeman said the administrators were confident a buyer would be found.

“Since the first day of the administration, we have had a really large number of buyers approach us,” he said.

“We’ve been really impressed with the interest, with many already getting involved and accessing the data room, and we expect to see a lot more activity there in the coming weeks.”

Mr Freeman declined to comment on speculation that private equity firm PAG was among those interested.

“During the sales process, people become parties to confidentiality agreements as we go through it … so at this stage we cannot describe the individuals or groups that are involved,” he said.

Mr Freeman said he expected the second creditors’ meeting to take place in the first week of September.

Is government support likely?

In the weeks since the airline went into administration, the federal government has repeatedly expressed its support for the airline and said it would consider “any proposals” to help the company ensure the continuity of its regional and rural services.

Mr. Freeman declined to say whether the sale of Rex would likely be contingent on financial assistance from the federal government, or whether administrators had lobbied for government assistance.

“The company is being presented as Rex for the future, and buyers will judge it on their own merits,” he said.

“But they (the government) continue to have an open dialogue with us about the administration, which is to be expected given its importance.

“The administrators would welcome support from all parties during the Rex stakeholder engagement process, but I cannot comment on what that support might look like.

“In terms of how governments are involved in this process, that is a question that needs to be asked of the government at this stage.”

A spokeswoman for Transport Minister Catherine King said in a statement the department was still in talks with administrators.

“While it is too early to comment on what support might look like, we are not ruling anything out or ruling anything out,” they said.

Mr Freeman added that regional flights were continuing despite Rex Group being in voluntary liquidation, and encouraged customers to book “with confidence”.

“Since our appointment, the regional network has been running smoothly, thanks to the hard work of the entire Rex team,” he said.

“In the first week of voluntary administration alone, more than 20,000 passengers were transported.

“So it’s clear that the business is functioning and doing exactly what it needs to do: getting passengers from all over the country to where they need to be in the regions.”

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