Airline Extends Creditor Deadline : People Express Purchase Contingent on Interest Rate Cut

People Express Airlines said it has extended until the end of today’s business day the deadline for holders of its public debt securities to agree on interest payment cuts.

The financially strapped carrier said it may be forced to turn to federal bankruptcy court unless 85% of its holders agree to the cuts, ranging from 2.25% to 6.5%, which are a condition of its acquisition by Texas Air Corp.

Bruce Hicks, a spokesman for Houston-based Texas Air, said Thursday that the deal will be called off should that condition not be met.

Additionally, Hicks said, holders of 85% of parent People Express Inc.’s Swiss franc convertible bonds must agree to sell for 65% of the principal amount plus interest.

Without the deal, People Express will not receive a $15-million loan from Texas Air. That money would be used to pay $9 million in interest due Saturday, People Express said.

The extension for creditor approval, announced on Thursday, was the third such extension.

Initially, the carrier had set the deadline for Nov. 6, but only 74% of the affected debt securities had been exchanged by then.

The deadline was extended until Wednesday, but when only 80% had been exchanged by then, the deadline was extended again, to 5 p.m. EST today.

Hicks said it was up to People Express to say whether yet another extension is possible or if the merger deal would be dead if the airline is unable to coax an additional 5% of bondholders to agree to the deal by today.

Industry analysts interviewed by telephone Thursday said they believed that People Express will meet the quota.

“It is like looking at a soap opera,” said Robert Joedicke of Shearson Lehman Bros. of New York. “It just goes on and on. But it will come to a head eventually.”

People Express said Thursday that the condition has been met with all but one of the debt issues, which total $474 million.

Texas Air already has bought People’s bankrupt Frontier Airlines subsidiary, merging it into its own Continental Airlines, and has agreed to lend People $40 million in operating cash. Of that, $10 million has already been advanced and another $15 million is dependent on bondholder approval.

Texas Air already owns New York Air and Continental and is trying to buy Eastern Airlines.