Senate Rural and Regional Affairs and Transport Legislation Committee, , 4:20:26 to 5:41:07
The department outlines the Commonwealth's support package for Rex Airlines during its administration and the debt recovery scheme for regional airports.
Topics: Infrastructure, Government spending, Procurement
Speakers: Marisa Purvis-Smith, Matthew Canavan, Belinda Sachse, Katrina Kendall, Josh Dolega, Hon Matthew Canavan, Jessica Hall, Senator Matthew Canavan, Speaker 11
hands are broadcasting. Thanks, Senator
>> thanks very much, Chair. Um, I just have a question in relation to or a couple of questions in relation to Rex Airlines. Um, so I'd like to start by just by asking um if the department can outline the steps taken by the Commonwealth that led to the successful sale of Rex Airlines um and tell us about the uh support um and how necessary it is um given the critical nature of regional aviation and connectivity.
>> Uh thank you Senator. Um uh as the committee may be aware uh Mara Perversmith, Deputy Secretary Transport Group. Thank you for the reminder. My apologies. Um, as you may be aware, uh, Rex Airlines went into voluntary administration on the 29th of July in 2024. Uh, we have for the for the last 18 months, uh, the government has been providing support to, uh, Rex Airlines. Um the voluntary administrators uh uh went through their process and have been going through their process under the corporations act which they have to follow. Um during that process, the government provided uh some supports for the continuation of the involuntary administration process to allow the administration process to continue and to allow um uh Rex to continue flying throughout the voluntary administration process. Some of those uh things that the government did to provide support uh was to provide a flight guarantee, a ticket guarantee initially uh to guarantee and to allow confidence for consumers and customers to buy tickets in Rex. while it was under voluntary administration. Um, Minister King waved the application on the what's known as the use it or lose it uh rule for Rex's New South Wales regional slots at Sydney Airport until the end of the Northern Summer 2026 scheduling season, which takes it through to October 2026. Um the Minister for Employment and Workplace Relations granted early access to the former employees of RAL which is the 737 business uh to the fair entitlements guarantee. Uh and then the government also provided loans to Rex through the administrators to allow the administrators to continue operating Rex throughout the voluntary administration process. Uh it also supported and said it would support a potent any potential bidder and buyers of Rex and it has also provided support to the buyer of Rex. The transaction the administrators finalized the transaction of Rex. Um the transaction completed on the 18th of December last year. uh and the uh the government has provided a range of supports uh to air which is a US company uh to support acquire Rex. I can go through those supports if you like.
>> That would be great.
Um so uh the existing debts owed by Rex uh which was the the loans provided by the Commonwealth to the administrators throughout the voluntary administration process have been restructured. Approximately $18 million of debt owed to the Commonwealth is carried forward by A and Rex with repayments through a profit sharing arrangement. Uh, a new Commonwealth loan facility of up to $60 million is available to complete the engine care and maintenance program with a portion available for general liquidity if required uh by Rex and air team. The government has maintained first ranking security over the SA fleet and the simulator uh assets of Rex. Uh this is in addition to uh the capital that will contribute of $50 million. Um in in return has committed to on a commercially reasonable basis our best efforts basis to an ongoing level of service to regional Australia. This includes stabilizing and improving Rex's governance, operational, and financial performance. Increasing aircraft in service from approximately 30 today to 44 over time, increasing the frequency of profitable flights across the network. uh engaging with the relevant state governments to mitigate the risks of any potential future loss of com connectivity community for communities that rely exclusively on Rex um and including Australian independent directors on the new Rex board. uh the government and the department will receive regular reporting from Rex on the company's performance
>> and um and so the the commitments that they've made um should regional communities have confidence um that Brex will be around for the foreseeable future now as a result of of these steps
Senator Eti has made statements uh that uh they are here for the long haul. Uh what they are doing is looking to stabilize the current network of wrecks increase as as new aircraft and new engines come on board. They will increase the frequency of flights in the current network. Once they have done that they will then start looking at what what are the parts of the network or increasing their network. uh but at the moment they are focusing on stabilizing the network, increasing the reliability of the current network, increasing the frequency of the current flights. Um and for them to be able to do that they need to progress the engine program uh which uh they have committed to do. is a company in the US has about 16 avionics businesses. Um they uh they acquire businesses and run them for the long term. Um and that is something they have said that they will be doing with with Rex.
>> Excellent. Um and what about the uh the support of the re the recently announced support packages for regional councils and airports that service Rex? Um can you tell us about this in the fund?
>> Uh yes I can. So as the government announced uh the opening of the scheme that they have provided uh a a program and a fund to assist those regional airports and councils in particular who are owed debts by the Rex regional business um uh and won't be recovering any of those debts uh going forward to provide them with some uh some some funds. It will and I I might ask Miss Sash to go through we can take you through uh the the program is opened and we take you through some of the requirements and the criteria for the program if that's helpful.
>> Yes, please. Yeah. And also if you've got an idea of how many regional councils are that are expected to benefit as well that would be fantastic.
>> Um Belinda Sash, acting assistant secretary domestic policy and programs branch. Um as Miss Pervvis Smith said uh the program um was launched on the 4th of February. Um the program will be providing a total of $5 million um in relief payments to uh operators of regional and remote airports that were owed money by the Rex Airlines business when it entered voluntary administration. Um, applications for support have to include evidence of the debt, a statement limited to one page describing how the local community has been disadvantaged as a result of that debt, and a declaration made by their chief financial officer, chief operating officer, or equivalent, declaring that they operate the remote and regional um airport, that they have an unsecured debt, that the grant relief payment claim is legitimate and eligible um and that they have received no funds or compensation from any other source for the purposes of covering ing the debt owed by the Rex Airlines regional business. Applications for that program will close at 5:00 p.m. on the 17th of March.
>> Excellent. And how many councils do you expect will benefit?
>> Um we we don't have an expected number. We do have um so you need to be a remote and regional um airport there. We are using um a list of those as defined in a uh AC report from August 2025. Um but we don't have like I guess
>> we can see if we can get an approximate number for you. Um uh we have an idea of of of the councils. It will depend in particular as to whether they have a debt to the regional business versus uh the company called RA which was the 737 business. So that that will be a critical um part of the criteria. We'll see if we can get an approximate number
Thank you very much. Um, and I might just move to road safety if I may now. Um, particularly for First Nations
>> Yeah,
>> I I don't mind. Yep. Yeah, of course. Yeah, of course.
>> While we're on Rex, let's save the hot seat, then I'll come back to Senator Dolega, then back to Senator Canavan. >> you want to ask questions?
>> Thanks. Thanks, Chief. Uh just so the 5 million is is that what proportion of debts is that proposed to cover? So I'm I'm thinking of got a remote one that Senator Dolega and I both know King Island 30% of their turnover is running the airport. So they would be significantly impacted by that. Is there going to be a different rate of payment or is it try to cover the debt or and they certainly would have had wouldn't have had jets flying into King Island airport. Not that I'm >> not that I've seen.
>> I the the payment will be proportionate to how much debt they're owed. Um so uh uh it won't be we expect we anticipate that councils will get a significant part of their debt repaid but it's not it hasn't been designed uh to provide um completely every debt and and up to 100%. So it will it will depend on how many applications uh and the level of applications but we it has been designed 5 million will give a we think a significant portion of of their debt to uh to councils. So you
hadn't had any you hadn't sort of gone out and said get to get a sense from those airports where Rex was flying to get some sort of understanding of the quantum that you might require to deal with it. Will there be a differential Bernie airport 49% owned by or 51% by the Bernie city council 49% by a corporate entity another airport I think is um versus King Island airport 100% King Island will there be a difference depending on the ownership structure of the airports
>> it's not I can I can I can um hand over to Miss Sash but it hasn't been designed by ownership of council or own on ownership ship. It's based on remote and regional airports that have uh that will have a debt owed owed to them by Rex uh not based on the ownership of that
>> So I can I can take you through how the payment will work. Um so this is this is set out in the guidelines. So payments to grantees are determined based on a formula that calculates the payments against the total unsecured debts owed by the grantee. So for example um if someone um applied for an amount that was equal to 4% of the total unsecured debts claimed by all ele all eligible applicants then they would receive a maximum of 4% of the $5 million. So that's how it's worked. So what everybody owes is summed up together and then the percentages are worked out and you will get that percentage of the $5 million. Um but the amount that you get won't be above the amount of unsecured um debt that you were owed.
So, so you'll get a proportion based on your share of the overall debt of Rex to all of the airports combined and then applied to the 5 million.
>> Yes. Correct. So, of all the eligible airports.
>> Yeah. Okay. Okay. And but the eligibility is based on um the work of the AC you said.
>> Yes. So the the definition of uh the eligible regional and remote airports um is set out um in a August 2025 AC report and that just lists um all of the airports and classifies them against major cities regional or remote. So we have um >> just pointed people to that list so they can work out if they are a regional or a
Wouldn't they already understand that?
>> Yes, we we would like to hope so, but for the avoidance of doubt, um we we've put that in there.
>> Okay. Right. Thanks. So, thanks.
>> Thanks, >> Senator.
Thank you. And just um uh now back to road safety if that's okay. >> Yeah. Yep. Yep. All right. Um just one as far as um uh closing the gap outcomes. Um, can you give us an update on some of the investments um that the government is making to improve the road safety in First Nations communities
>> Thank you, Senator. Um, I will get my team to um go through the information
>> Thanks, Senator. Katrina Kendall, assistant secretary. Um so the government makes um significant investments in a range of um measures that are targeted towards road safety. Um one of the ones that we can talk I can talk you through um is the national road safety action grants program um which provides funding under five streams towards um some of the government's key non-infrastructure road safety commitments. Um one of those streams is a dedicated first nations funding stream um and there's $6.1 million um being delivered under that stream to 12 projects. um applications under that stream were only open to first nations community controlled organizations um who could also partner with other organizations in bringing their applications forward. Um and that is partly to ensure that the funding is directed towards the local solutions within the communities. Um the aim of that funding is to improve access to road safety education for first nations people and also to assist governments to better understand the priorities emerging in those communities. Um projects under that um funding stream can include things like young driver training activities, uh improving access to culturally appropriate road safety education tools, development of road safety messaging in local languages, and support for First Nations people to obtain driver's licenses, for example. Uh so some of the specific projects that um are in there. So through the Tamworth Local Aboriginal Land Council, uh the government's providing $200,000 to support up to 100 First Nations people uh access professional driving lessons. Um so that includes students in their senior school years um unemployed youth and adults and young mothers through that program. Um forgive me on the pronunciation of this one. The Tandi Aboriginal Corporate Corporation is also receiving uh $500,000 to deliver a learn to drive program uh where the initiatives are culturally safe and effectively tailored um to the specific needs of participants in that program. Uh and the Be Gambble Native Title Aboriginal Corporation is also receiving $1.1 million under that funding stream uh to provide culturally appropriate road safety education training to Aboriginal job seekers and community members and a focus on facilitating acquisition of learners licenses uh in a culturally and linguistically diverse way.
>> Excellent. Thank you, chair.
you have any other examples before I go to Senator Canavan? Mhm.
>> Um, >> we also have also all of the road projects we could
>> Oh, no. That's okay. I'd like to see them and I won't take up too much time asking for them. I'd really like to see that cuz I got to make sure s your state and my state. >> Good stuff. Thank you.
>> Thank you. I actually had a few additional questions on Rex. Sorry. Um Um We're not too far removed. Uh uh I just wanted to go to the $5 million package for the local government. So has there been uh guidelines drafted for those yet?
>> Yes, there has. Well, Miss Sash is coming to the table. Yes, they have. Uh the program is open, so the guidelines are available.
>> Okay. They're public, are they?
>> Yes, they're on the business hub website.
>> When do applications is there a closing date?
>> Yes. 5:00 p.m. on the 17th of March.
>> Right. Okay. How many councils do you
>> we've said that do we have a
>> Yes. So we expect approximately 30 councils will be eligible.
>> Right. Okay. Um and by the sounds of the earlier questioning the 5 million won't be enough to make them whole. Are you are you have you estimated that or
>> we've estimated that it will go uh a long way to providing them with
>> does that mean >> half of their own debt?
>> It'll depend on on the applications uh and we will need to verify the uh their invoices. Uh so I wouldn't like to to give you a number senator.
>> Okay. Can I just get a bit of a consolidation now about how much uh assistance in what form has been provided by the Commonwealth government? Uh so initially there was some loans is that right? Have you got a considered amount how much of the assistance is in loans or remains in loans? Uh and if so who too is it the new entity? Uh and uh what what has been provided in terms of grants?
>> Uh I can take you through I can take you through that senator. Uh there's been no grants provided.
>> Right. Okay.
>> Uh so so everything being provided is is through
>> apart from the 5 million that's a grant
>> apart from the five which is not to >> the administrators or to Rex. >> Yep. Okay. Um so initially uh in total the government h provided a loan of a total availability of a $110 million to the administrators uh and Rex to allow the the airline to continue to operate and to fund the administration process.
>> Yep.
>> Um the amount owing at the end of the deed administration uh of that was 109 100. They drew down
109 million effectively. Is it right to
>> 100.9 million. Sorry, not 109. >> Correct myself there.
>> But that's what they owe now. The >> administration.
>> No, that's that's that's what was owed at the end of the deed administration.
>> Yep. Sorry. Yep. That's what I meant.
Yep. As part of the negotiations with the buyer and the now owner, uh, sorry, before I get to there, the government also acquired $50 million uh, of secured debt and a security over the assets that went that with that debt, >> right? Um there was some
>> was that at a discount or
>> uh that was that was
>> face value of the debt was 50 million or
>> we we paid $50 million for uh in the end $50 million of debt but we took the security that went with that debt. So we uh had general security over all of the assets of of Rex which included the regional aircraft planes, the simulators uh and and and general security over all other assets.
>> Okay.
>> There was some repayment uh made to the Commonwealth of of 8.3 million uh bas >> based on some asset sales. >> Okay. Um so so there was
>> presumably now sorry to interrupt but presumably given your security if assets are sold that are secured you you you you need approve then you need to be consulted or approved such sales
>> uh during that process we needed to be consulted on all asset all sales of assets.
>> Yep. Right.
>> Um uh there was interest acred on that. So the the amount after that was uh $46.6 $6 million owing. So the total amount owing >> to the Commonwealth at the end of the deed administration was $147.5 million.
>> Okay. Thank you.
Part of negotiations with the now owner of Rex was that the Commonwealth restructured its debt and is taking forward $18
>> So we wrote off 50 odd million
effectively. There there was there was a portion not recovered.
>> Yeah. Okay. Right. Okay. >> And that's and that's done. That deal is done is it?
>> Yes. The transaction completed on the 18th of December. A now own and have taken the keys so to speak. Yep. >> Uh of the airline.
>> And the security have we still got
security? So we under the package that we negotiated, we still h um have security um over the air aircraft and the engines and the simulator.
>> Okay. Um Right. And is that is there interest bearing or debt on that?
>> Uh the the 108 will be repaid through a profit sharing arrangement.
>> Right. Okay. Um but that still comes back to my point. Will it will the amount of the >> the amount of share with profits will that will that grow over time?
>> Uh it's a concessional loan.
>> Okay. So there is an interest rate but it's a concessional rate.
>> Uh it's I can say there's no interest rate unless uh the the regional commitments are not
>> Okay. You got a couple of negatives there. So presume I think it's going in only one direction hopefully. So if they meet their reg put it the other way if they meet their regional commitments there is no interest rate or >> Okay. Right. Thank you. I was going to get to this but good. Okay. Um can you tell us what the interest rate is if they don't?
>> Uh I would have to take that on notice. Most of the uh the loan arrangements are public but there are some that has been redacted. They've has had to put some things on the SEC website but they have redacted certain things. So I'll just have to check to see whether that's a reduction.
>> And the profit sharing element of this uh uh is that is only a repayment's only made after a certain level of profit or any profit kicks in >> kicks in repayment.
>> Uh actually my understanding is it's any any level of profit.
>> Profit kicks in some level of repayment and profits >> just net profit on their books.
>> Uh the way it's the way it's defined is excess cash flow.
>> Excess cash flow. Okay. All right. Thank you. Um all right. Uh uh do you have an expectation of how long it would take to
>> uh that I don't the tenor I do have material on the tenner which is slightly different to how long it might take.
>> Yes, of course.
>> Yep. Uh so there is a 30-year tenor,
>> right? And if I'm reading that or hearing you right, that tener would mean after 30 years they'd have to repay what's left or renegotiate
>> or or recent. There are also um there are also options to extend
>> right in the contract.
>> Yep. Depending on certain conditions being met.
>> All right. Good. Um now in terms of these regional uh uh services which which are the condition for the interest rate, what is what is that in detail? What do they
have to do? Um so some of those some of that material has been redacted and the reason why is uh for competition reasons with their competitors. >> Uh so um I can say as I went through before uh what what they have agreed to is something called the uh the engine care and maintenance program uh which they have to spend money on in order to increase the amount of aircraft that are flying. uh in order to stabilize the network and increase frequency of the network uh they have to increase the amount of aircraft uh and for that they need to spend money on um engines uh and so that's that's a main part of the regional commitments uh they also uh are committed to speaking and engaging with the state governments as well
>> how many routes did Rex service before administration
uh around 41.
>> All right.
>> They're still it depends on how how the length prior to administration. So they're still currently operating 41 pri a little while before maybe a year before they were operating uh a few more and they had pulled out of some routes in the 12 months prior to going into administration.
>> And how many are Rex only routes? 23 I
believe from memory.
>> Okay.
>> Happy to be.
>> So, uh I mean by the sounds of it and I know this would be quite strange but they don't have to they don't have to keep going with the 41 to get this interest free deal.
>> Uh so um uh there are some requirements on minimum service level standards but
>> but not they don't have to maintain the exact
>> not the exact routes. No, exactly. So they can change their routes. Uh you know for example if a route is not profitable and lossmaking we do want air and Rex to be profitable. Uh but there is also a requirement that if they are to withdraw from a route they do need to engage with the state government a certain amount of time prior to them doing so.
>> Um in order to presumably you'd be
involved as well. uh they would have to alert us as well. >> Um but for the state government so that they can engage with the state >> uh to see if anything
>> do any of these routes particularly the reconing ones do they receive any state
it it depends. So um uh uh we haven't gone again I don't want to provide information that provides information to to competitors but they have contracts with Queensland for example. So that will be that will be
governed by the Queensland contracts the
they will be governed by by the contracts with
>> and that's the reason for the state consultation then that if they to pull out of a route there might be a negotiation to be had there
>> for those particular they will need to but that will be governed by their contracts already but what we have in there also is if they're going to withdraw from a route that's not covered by those contracts they need to engage with the relevant state government.
Okay. All right. And uh um is the the are any of the conditions uh on this triggering this interestf free uh concession uh do they uh create greater obligations on the 23 Rex only routes compared to the ones where there is competition? >> my question is yeah is there a distin is there is that distinguished in the contract because >> different requirements on those
>> again uh by by narrowing down exactly what routes there are is providing
>> well maybe take that on not you can see my point though obviously I'd probably be more concerned about them pulling out of ones where there's no other alternative
>> yes and that's one of the reason
>> presumably and there's also a greater rationale there for government to be providing some level of assistance. Okay,
>> that's right. And that's also one of the reasons why there is a condition for them to engage with the relevant state government.
>> Okay. Um uh yeah. Okay. Well, look, we were you given access to the data room uh that the presumably the administrators ran? >> Through this process you did. Okay. And and to >> um it air's data. Did you were able to look at their books?
>> Uh we during negotiations we required certain information and data from them.
>> Okay.
>> Um in uh in in including
>> are they a separate company here? I'm ignorant. Are they do they run airlines overseas or
>> so? They are uh they run they have about 16 avionics um businesses in the US. Okay. uh their main they one of their businesses is that they run and have experience with uh prop aircraft. Okay. >> They run they have the contract for FedEx in in the US that uses prop aircraft. >> Uh they have a maintenance and supply business for SARS. So they know the SARS very well.
>> Is the um is their their corporate entity here in Australia? Is it separate from their American operations?
>> I think they have set up an entity in Australia um in order to uh
>> but if I mean the key thing is if the debt is not
>> a subsidiary it's not yet
>> can we can we pursue them through their parent companies?
>> Um no. So, uh, we have, so we've got the other thing we have is we've got step-in rights on, uh, if if it, if if the worst were to happen, the Commonwealth has step-in rights uh, over air as well.
>> Okay. Uh, look, well, um, I think you've done a pretty good job here so far. That's good. It's a shame we didn't do more like this during co uh, with the bigger amounts of money we gave. Um, hopefully it works out. Um I just want to do one more question. This I'm happy to rotate the call chair. I realize others are waiting. Um I am a little concerned. We'll pick this up in our other inquiry, but I am a little concerned around the circumstance of Rex uh uh getting to the situation, particularly the potentially the predatory conduct of Quantis and Virgin. Is there any plans to actually investigate what happened?
Uh so in a voluntary administration it is up to the administrators to undertake an investigation as to the reasons why a company went into administration. That creditor's report uh is is public. Um it outlined uh a range of reasons. Uh if you would like I can
>> Well, did any of them did they did they at all did the creditors at all identify any partic Well, I'll I'll drop the porative. Uh did did the creditors uh highlight any conduct of Quantis and Virgin that contributed to Rex's financial position?
>> Uh the the the administrators rather than the creditors, the administrators who undertake the investigation under the Corporations Act. >> Um so there was >> uh the administrators found that it failed because of uh a couple of reasons. Negotiations were in process with a major domestic mainline operator to sell or transfer the lossmaking domestic business which was the the 737 business. Uh when an arrangement could not be reached uh the directors of that company had no further options available to them but to appoint administrators. um the the other companies within the Rex structure failed by reason uh of cross default under the the the secured creditors facility. uh the Rex businesses were subject to a cross guarantee which means that if one entity in the business fails or needs to go into liquidation it crystallizes the debts for all of that entity for all of the entities. Uh so it means that basically the debt of one entity is the debt of all of the entities and crystallizing the debt of re which was the 737 business would mean that all of the other other businesses uh would would fail. Um uh there they also raised pilot shortages and supply chain issues particularly engine maintenance components which led to suboptimal fleet utilization and entering the competitive domestic market which is the 737 business to service the metro flight routes between major cities with an inability to secure
Okay. Just just I won't hold up too much longer, but the 737 uh issue you highlighted first, they were the planes that were using on the Sydney Melbourne route, right?
>> Yes, that's right. Yes.
>> So, I suppose my question goes to well, why did that fail? Is there I I mean we can take this up in the other inquiry, but is there any plans from yourselves or the AC or any any discussions or investigations happening about what happened to deliver this result in particular whether Quantis and Virgin or Virgin uh behaved in anti-competitive
fashion? Not the department wouldn't um I don't know whether the AC would but then it would need to um it may need uh the seven the domestic business to be still running for it to take anything. I
>> I mean yeah I suppose that's why I'm a bit worried about leaving to the C because you're right there's no business left to as often happens in these sort of investigations by the time they get around to relief the um the the victim is already out of business. uh uh so uh but I think there's still potentially lessons here to be had. So obviously we'll take this up in our inquiry uh that we're doing and uh I think it'll be it's worth a very worthwhile exercise. Thank you chair. I'll come back to
>> Thanks can Hodge Bay.