REX's capital city flights are on track; in talks to raise $150m

Regional Express’ (ASX:REX) capital city flights on track to start on March 1, 2021
$150 million financing deal at negotiation stage with PAG Asia Capital
REX share price performance well ahead of Qantas & Virgin

Regional Express’ (ASX:REX) capital city flights are a step closer with a $150 million deal for the launch currently being negotiated.

The regional airline seeks to rival Virgin Australia (ASX:VAH) and Qantas (ASX:QAN) in launching jet operations between Australian capital cities.

This morning the airline told the ASX it was in advanced negotiations with Asia-Pacific private equity firm PAG Asia Capital for financing.

The funding will help Rex’s capital city flights get off the ground and include obtaining jet aircraft. Rex’s fleet currently consists solely of Saab turbo-prop aircraft.

Financing will come in the form of convertible notes enough for a 23 per cent stake in REX if fully drawn down and converted.

Upon completion, PAG will be entitled to nominate two directors for Rex’s board.

Rex’s capital city flights on track

The deal is subject to regulatory approvals, such as from the Foreign Investment Review Board, and completion of due diligence.

But the original time frame for Rex’s capital city flights – March 1 next year – was reiterated this morning.

Rex chairman Lim Kim Hai said he was encouraged by the progress of negotiations to date in light of PAG’s reputation and experience.

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

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

Rex outperforms Qantas, Virgin in 2020

Rex shares saw a modest rise of 4 per cent this morning but are 4 per cent in the red in 2020.

Yet, this is better than Qantas and Virgin which both down by over 40 per cent in 2020. The latter stock has not traded since April when it entered administration.

Regional Express (ASX:REX) share price chart

The title of best performing airline stock belongs to charter operator Alliance Aviation (ASX:AQZ) which is up over 30 per cent in 2020.

It has thrived off the back of demand for charter flights and similar to Rex is working on expansion plans. Last month it signed a deal worth over $110 million to buy 14 Embraer aircraft.

Rex’s struggles began far earlier in 2020 when Qantas announced its intention to enter some of its regional routes.

But due to COVID-19 these plans have not materialised to the extent Rex feared and in July the ACCC gave Rex and Qantas permission to co-ordinate flight schedules on certain regional routes.

Rex was also able to survive the first bout of national restrictions in March thanks to the federal governments funding package.