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Regional Express (ASX: REX) has today announced it is in exclusive negotiations to bag up to $150 million to support the launch of its domestic operations, due to commence on 1 March 2021.
The regional flight operator says it has signed a long-form term sheet and is in advanced exclusive discussions with PAG Asia Capital (PAG) regarding a proposed investment from the firm.
If an agreement can be reached the Asia Pacific-focused firm will be entitled to nominate two directors to the Rex board in exchange for its investment.
"With PAG's support, I have every reason to believe that Rex can successfully launch its domestic major city jet operations," says Rex executive chairman Lim Kim Hai.
"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 it safe, reliable and affordable.
"I am encouraged by the progress of Rex's negotiations to date with an investor of PAG's reputation and experience."
According to Rex's ASX statement, the funding is proposed to comprise first ranking senior secured convertible notes.
An initial funding tranche of $50 million will be drawn on completion of the transaction, targeted for the end of December 2020, with the remaining $100 million drawn over the following three years.
Rex still needs shareholder approval to get the deal over the line, with the proposal to be voted on at the airline's next annual general meeting, currently scheduled for early December 2020.
The Foreign Investment Review Board will also have to approve the deal, and the terms of the funding will be reviewed by an independent expert.
As reported by the AFR in May, Rex is looking to raise capital in order to lease around 10 narrow-body jets, hire pilots, cabin crew and group staff to operate them as part of its expansion into being a domestic route flight operator.
Rex revealed its FY20 results in late-August, showing a statutory loss after tax of $19.4 million on a turnover of $321.8 million.
At the time Rex chairman Lim Kim Hai said Rex was "brought to its knees" during the COVID-19 pandemic, witnessing passenger numbers dive by 90 per cent between 15 March and 28 March and passenger revenue plummeting by $65 million in the last quarter of FY20.
The company also took a substantial $62 million impairment in anticipation of difficult trading conditions in the next two years, however this was offset by $62.1 million of government grants and subsidies provided to Rex including JobKeeper payments.
Shares in Rex are up 4.59 per cent to $1.14 per share at 1.35pm AEST.
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