largest regional airline, Regional Express (Rex), has issued a prospectus for
its initial public offering (IPO) which aims to raise A$35
million ($27 million) through the issuance of new shares and which values the
airline at A$115 million.
Rex expects to list on the
Australian stock exchange on 9 November after its share offer closes on 28 October,
the carrier says in its prospectus, which outlines plans to issue 35 million
new shares at A$1 each, increasing the total number of shares to 115 million.
The airline’s existing shareholders
will see their combined stake decrease to 69.6%, says Rex. Some of the major
owners include: a Canberra-based
consortium of investors, Canberra Air, with 9.4 million shares; Lim Kim Lark, with
11.9 million shares; Seah Kerk
Chuan, with 10.4 million shares; and the airline’s Singapore-based chairman,
Lim Kim Haim, with 7.5 million shares.
Rex says major shareholders have
agreed to refrain from selling their shares for one year after the market
listing and that the carrier plans to issue dividends after fiscal 2005/06.
It expects to generate an 8.4% increase in revenue for the 12 months to 30 June 2006
and record a pre-tax profit rise of 57%, to A$21.5 million from A$13.5 million.
In 2004/05 the airline had a net profit of A$11.3
Rex says funds from the share offer,
estimated at A$32.3 million after expenses, will be
used for various purposes such as spending A$1.16 million to buy from HZL
Limited of Australia
“a large stock of spares including two aircraft engines”. HZL is the
administrator of Kendell Airlines and Hazelton
Airlines, the two regional airlines that the current owners bought
from administrators in early 2002 and merged to create Rex.
An undisclosed sum will be retained
as “working capital” and to “strengthen its balance sheet so it can take
advantage of domestic and/or overseas investment opportunities if and when they
There is also A$12
million which will be used to buy a 50% stake in Sydney-headquartered
regional airfreight operator Pel-Air.
“Rex freighter and charter [FC] and
the shareholders of Pel-Air have also entered into a
put and call option deed whereby Rex FC has the right to acquire the remaining
50% of the shares over a 24 month period” for A$12 million, says Rex.
Other major items of future spending
include using A$2.1 million to buy a Saab 340B - from Salenia
Transport of Sweden
- which will be delivered on 18
It also plans to spend A$650,000 to pay the balance owed on two Saab 340As and
A$4.6 million to help pay for the airline’s three existing Saab 340Bs.
“The purchase of more aircraft” will
allow Rex “to reduce aircraft leasing charges” and boost revenue by “increasing
frequency on existing routes and serving new routes”.
It adds: “The company has budgeted for
a 9.2% increase in capacity…and corresponding 9.4% increase in passengers…for
the current financial year in the form of increased frequency and upgrades to
Saabs from [19-seat Fairchild] Metros.”
Rex also expects to generate more
revenue in future from freight and charters even though in the 12 months to 30
June 2005 these two segments each only accounted for 0.6% of total revenue.
“The potential for more charter
revenue is significant as Rex has had to turn away a large number of charter
requests due to unavailability of aircraft,” it says. “For this reason the
company intends to purchase an additional aircraft in November 2005” which will
be used as a back-up and for charter work.
Rex also sees potential to boost
freight revenues which is why it is “taking a strategic investment in a
well-established air freight company Pel-Air”.
It says buying a 50% stake in Pel-Air will contribute to profits and will allow Rex “to
position itself in this important sector” and “capitalise on potential
operational, commercial and administrative synergies”. Pel-Air
started operating in 1984 and now has several different aircraft types, mostly
IAI Westwinds and Fairchild Metros.
As for its own aircraft fleet, Rex
claims it makes more sense to buy rather than lease Saab turboprops because the
cost of buying “is currently equal to 2-4 years of lease payments depending on
the age of the aircraft”.
During the 12 months to 30 June 2005
the carrier transported around 1.1 million passengers on 35 routes from it main
hubs in Sydney, Adelaide and Melbourne using its five Metro 23s and 24 Saab
340s, seven of which are A-models and 17 B-models.
Rex says the Saabs have “an economic
life of between 11-16 years”, adding that “given the time remaining the company
feels it is not productive to speculate on the type of aircraft that would” be
needed in future to replace them.