The Australian government will explore contingency options that include the potential takeover of Regional Express Holdings (ASX:REX) in case the sale of the struggling airline does not pan out, according to a document released by the Treasurer as part of the federal budget announcement on Tuesday.

The government said it will negotiate with shortlisted bidders in relation to the sale of Rex. But if the sale fails, "the government will undertake work on contingency options in consultation with relevant states, including preparations necessary for potential Australian government acquisition of Rex," the document stated.

The government has already injected AU$80 million into Rex until June 30, 2025, and has acquired AU$50 million of the airline's debt to become its major secured creditor.