Rewrites paragraph 1, adds details and background in paragraphs 3,5,7 and 8 and analyst reaction in paragraphs 6 and 9

By Rishav Chatterjee

Feb 20 (Reuters) - Australia's Regional Express REX.AX on Thursday said its administrators had begun a sale process for the collapsed airline, over a week after the Labor government indicated it could buy out the company if a private owner does not emerge.

Regional Express Holdings (Rex) went into voluntary administration in July 2024, resulting in hundreds of job losses and the suspension of its Boeing 737 BA.N flights between Australia's major cities. The airline continues to serve rural areas with smaller turboprop planes.

The Australian airline sector has been under pressure in recent years because of increased competition and price wars, and Rex joined Virgin Australia and startup Bonza as the third Australian airline to have entered voluntary administration since 2020.

"We'd suspect that REX would not be in this position of Administration if there was a more competitive airfare landscape to begin with, notwithstanding the current pricing environment has been artificially created by our elected officials," said Jesse Moors, portfolio manager at Spatium Capital.

Rex currently owes A$500 million ($320 million) to 4,800 creditors after struggling to compete with Qantas QAN.AX and Virgin Australia IPO-VIR.AX, which together dominate about 98% of the domestic market.

Last week, the federal government suggested that if Rex failed to secure a successful sale, the Commonwealth may step in to acquire the airline. That could lead to taxpayers footing a bill of hundreds of millions of dollars to replace Rex's aging 40-year-old fleet.

The government buying Rex would mark the first time the state has owned an airline since Qantas was privatized in 1993.

"Especially given the criticism Qantas, in particular, has faced recently for price gouging and not refunding Australians, purchasing Rex might create a public conversation about re-nationalising Qantas after its many public failures of late," Moors said.

The government in January said it would buy A$50 million of debt from the company's largest creditor, Asian private equity house PAG Asia Capital, to have more control during the voluntary administration process.

($1 = 1.5780 Australian dollars)

(Reporting by Rishav Chatterjee in Bengaluru; Editing by Varun H K and Tom Hogue)

((Rishav.Chatterjee@thomsonreuters.com;))