Virgin Australia Regional Network Not Suitable For REX Saab Takeover

Australian carrier, Regional Express, has moved to slap down speculation it is interested in non-core regional routes flown…

Virgin Australia Regional Network Not Suitable For REX Saab Takeover

Australian carrier, Regional Express, has moved to slap down speculation it is interested in non-core regional routes flown by Virgin Australia. This came after speculation this week that the airline was eyeing off some routes and thinking of entering into a consortium to recapitalize Virgin Australia.

REX has said almost no Virgin Australia regional routes match its own fleet capacities. Photo: Andrew Curran / Simple Flying.

REX squeezes money from marginal regional routes

Regional Express, better known as REX, flies 57 Swedish built Saab 340 turboprop aircraft across 59 regional routes around Australia. While not especially well known in the larger cities, the airline provides a valuable service linking rural and regional communities. But it’s a tough business, eking out a profit on these marginal routes.

Although REX usually manages to make a slender profit, the airline is known for running on the smell of an oily rag. As the 2020 pandemic began to bite, REX fought hard for government assistance. In late March, REX won the lion’s share of a USD$129 million regional airline assistance package after threatening to shut the airline down.

Although Singaporean entrepreneur Lim Kim Hai holds a 17.25% stake in the airline, REX isn’t cash-rich. In the year ending 30 June 2019, REX had total revenues of USD$206.5 million. The airline had an after-tax profit of USD$11.4 million. The pandemic and subsequent travel downturn have seen REX withdraw its 2020 profit forecast.

REX’s Vice-Chairman says his airline has ability but not money

Against this background, speculation that REX had the financial capacity to join any consortium interested in recapitalizing Virgin Australia was a stretch. In mid-April, REX Vice-Chairman John Sharp was asked on ABC Radio if the airline was in a position to replace Virgin Australia.

“There’s no question a company like REX would have the ability to run a company like Virgin, it’s a question of whether we have enough capital to do it and I would suggest to you that we aren’t in a position at this stage. We don’t have the capital to take on the liabilities of running a company as large as Virgin,” Mr Sharp said.

Virgin-Australia-REX-Saab
John Sharp says REX could take over Virgin – if only it had the money. Photo: Simon_sees via Flickr.

The Vice-Chairman also threw this into the mix;

“Certainly, REX could step up and offer more services between some of the destinations that Virgin flies now. We don’t operate large commercial jetliners, we operate turboprop aircraft, small and medium-sized regional aircraft, and so we could step up and offer some services.”

But what regional routes would REX be interested in?

Earlier this week, The Australian newspaper floated the idea of REX joining a consortium in a bid to recapitalize Virgin Australia and take over some of Virgin Australia’s existing “non-core” regional routes.

A regional route can be defined as a route that services an airport outside the capital cities. By definition, this includes large airports like Newcastle, Cairns, Gold Coast, and Launceston. But it also includes tiny airports like Charleville, Thargomindah, and Narrandera. Virgin Australia has stuck to the larger regional airports while REX specializes in the smaller airports. There is some, but not a lot of overlap.

Virgin-Australia-REX-Saab
REX’s fleet of SAAB A340 is a good fit for smaller regional routes. Photo: Andrew Curran / Simple Flying

REX slaps down suggestion they will take over Virgin Australia regional routes

Given REX’s financial limitations and only operating one aircraft type, the SAAB A340s (which can seat about 34 passengers), what existing Virgin Australia routes would REX have been looking at?

We put this question to REX who told us;

“Virgin Australia has almost no regional routes that are suitable for our fleet of Saab 340.”

The keyword here is “almost,” but REX is right. There are very few routes Virgin Australia flies that REX does not that are suitable for a 34 seat turboprop. It makes media suggestions that REX is making a play for some of Virgin Australia’s regional routes unlikely. REX has neither the pockets or aircraft capability to make the higher traffic regional routes work.

REX has survived and made money because it knows its limitations and sticks to it, keeping it simple, keeping it lean, running one aircraft craft, and sticking to its core business. It is unlikely to make the mistake of other airlines and stray from this well worn and proven path.

Source : Simple Flying More   

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Air India Bid Deadline Extended Until Late June

In light of current circumstances, the government of India has extended the deadline for bids for Air India.…

Air India Bid Deadline Extended Until Late June

In light of current circumstances, the government of India has extended the deadline for bids for Air India. The new date, June 30th, gives potential bidders two more months to submit an offer for the state-run carrier.

The government is hoping to fully privatize Air India. Photo: José Luis Celada Euba via Wikimedia Commons

More extensions on the cards

The government’s decision hardly comes as a surprise considering the current conditions. However, this could be the first of many extensions as companies and airlines deal with heavy financial losses. Many potential bidders for the airline, such as the Tata Group (majority owners of Vistara and AirAsia India) and Hinduja Group, will likely wait for their financial situations to improve before such a purchase.

Vistara A320neo
The Tata Group, which owns a majority of Vistara and AirAsia, is considering a bid for Air India. Photo: Raju Sundaram via Wikimedia Commons.

The coronavirus has forced carriers around the world into survival mode, including Air India. The airline has struggled to pay salaries and is hoping for a government bailout in order to remain afloat. With other airlines in similar situations, it seems unlikely any airline will be looking to buy Air India right now, or even in the coming years.

How lucrative is Air India?

An important question to ask in this difficult time for this industry is how lucrative Air India is. The Air India sale comes with a $3.07bn string attached to it, which is a percentage of the airline’s debt. This is in addition to its very large staff, outdated cabins, and maintenance issues. However, the airline does have a fleet of 128 aircraft (excluding subsidiaries), a majority of which it owns, and valuable slots at airports like Heathrow.

Air India Narrowbody
Bidders might be rethinking any investments in the aviation industry. Photo: Getty Images

The questions bidders will have to ask themselves is how valuable planes and slots are in a time when demand is nonexistent. Even though India is in desperate need of a new international carrier, the coming months will tell us how soon the aviation market in India, and globally, will rebound.

Overall

The coronavirus has undoubtedly put any large aviation deal in jeopardy. Just this week we saw Boeing terminate its deal with Embraer, and previously saw LOT Polish airlines pull out of its purchase of Condor. Even Jet Airways has likely lost any hope of restarting in these tumultuous times. While Air India is in a much better position than other airlines, primarily due to its backing from the Indian government, the coronavirus does change the calculus of any potential deal.

The coming months could see more extensions, as airlines recover from the current shock. We may also see deep-pocketed firms picking up the airline while competition is low and capitalize on this opportunity. With the aviation industry still grounded, only time will tell us how the demand for large airline purchases will recover.

What do you think of Air India privatization? Let us know in the comments below.

Source : Simple Flying More   

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