Rex may be nationalised if no private buyer for airline

If that falls through, Labor will begin working on contingency plans - including preparations for a potential Commonwealth acquisition.

"The collapse of Rex ... endangers access of these regional communities throughout Australia to our capital cities and to the connectivity that is so vital for the quality of life, so vital for these local economies as well," Mr Albanese told reporters in Merimbula, on the NSW south coast.

During the previous coalition government, Rex received substantial Commonwealth support in the form of JobKeeper payments and direct funds, Mr Albanese said.

But without strings attached to the payments, Rex expanded beyond its means into capital city routes, leaving it in a "financial mess" that his government now had to deal with.

This will be the second attempt to sell Rex after it fell into voluntary administration in mid-2024.

Federal Transport Minister Catherine King said it was evident through the first sales process that without government support, a private sale was unlikely to be successful.

"My department will work with successful bidders on an incentives package from the Commonwealth government," she said.

"It is absolutely critical for regional communities that Rex continues to operate and continues to provide those services.

"We know they are flying 41 different routes every single week, and on 22 of those, they are the only airline that is available to communities to get to medical appointments, to get businesses working, to get people in and out for tourism."

Questions were raised over the government's role in Rex's future after it acquired $50 million of debt from Rex's largest creditor to ensure the airline could continue operations and loaned up to $80 million so the carrier could run regional routes until the end of June.

Should Rex be nationalised, it would be the first time a federal government has owned an airline in three decades after Qantas was privatised in 1995.

Deputy opposition leader Sussan Ley blamed the government's "failure of management" for allowing Rex to go under in the first place.

"Governments shouldn't own airlines," she told Sky News.

"Because that means that taxpayers own them and taxpayers pay for them."

Mr Albanese said when markets failed, the government had to intervene in the aviation sector and look out for regional communities.

"We know internationally, Air New Zealand next door is owned more than 50 per cent by the government," he said.

"The reason why governments have intervened in airlines around the world, whether you look at Singapore, BA got bailed out, Alitalia, Lufthansa, as well as of course the Middle Eastern Airlines, are all connected with their governments.

"There's a reason for that, because aviation plays a critical role in communities."

The government has also guaranteed Rex's regional flight slots at Sydney Airport until October 2026.

The Transport Workers' Union said nationalising Rex would be a significant turning point in building an aviation industry for the "public good".

"This announcement ... is a huge moment for the aviation industry," national secretary Michael Kaine said.

"This is a vital step towards a future where aviation actually works for the people of this country, not its overpaid executives."

The government will also spend $12 million to upgrade regional airports across NSW.

This includes a $3.8 million investment in Merimbula Airport's runway extension, $5 million for runway upgrades at Albury Airport and other commitments at Mudgee, Griffith, and Moree airports.