Model Planes for Troubled Autos

Say the word "bankruptcy" in the auto industry, and people cringe. Say the same word in the airline industry and people just shrug.

Maybe that helps to explain why the U.S. auto industry is collapsing while the airline industry is experiencing one of its periodic golden ages.

In both cases, proud legacy companies have been challenged -- and often surpassed -- by lower-cost challengers. But while high labor costs, entrenched business methods and inefficient distribution channels continue to plague the legacy automakers, legacy airlines have -- at least for the moment -- put those problems at bay.

Each of the six remaining legacy carriers has benefited from bankruptcy. United(UAUA) cut costs by $7 billion. Delta(DALRQ) cut costs by $3 billion and remade itself into an international airline. Continental(CAL), just rated the most admired airline by Fortune magazine, declared bankruptcy twice.

American(AMR) never filed. But it came within hours of doing so in 2003, forcing labor concessions. Facing off against its peers -- all of which are bankruptcy beneficiaries -- has made American one of the most strategic and innovative airlines.

By contrast, Ford(F) lost $12.8 billion in 2006. General Motors(GM) lost $3 billion in the first nine months of last year and is revising fourth-quarter results. Chrysler, a unit of DaimlerChrysler(DCX), lost $1.5 billion in 2006 and is up for sale.

A year ago, bankruptcy talk permeated the auto industry. In a February 2006 article about GM, Fortune described the automaker this way: "It is a car company doing poorly, and it is an insurance company engulfed by obligations way beyond its ability to pay. Such an enterprise probably cannot escape bankruptcy."