Is Bankruptcy Back on Airlines' Itinerary?

Standard & Poor's analyst Phil Baggaley says bankruptcy concerns are justified, given the combination of weak revenue and rising fuel costs, but "It's too early to sound the alarm definitively." Baggaley said a key question is whether the capital markets will be receptive to airlines in need of refinancing debt. "Both United and American have substantial debt maturities," he said.

Baggaley noted that today's airline economy bears little resemble to the situation 20 years ago, when Eastern and Pan American World Airways filed for bankruptcy protection and subsequently shut down. "The difference is that Eastern and Pan Am were in long-term decline and pretty much hopeless cases," he said.

Eastern Airlines, a throwback that never made it out of bankruptcy.

Today's carriers are far stronger, but face an extremely challenging environment. Because they completed another round of bankruptcies and cost-cutting in the middle of the current decade, opportunities to further reduce costs are limited, but "they could probably bargain down some aircraft debt," Baggaley said.

It is conceivable that airport charges, which have been steadily rising in spite of industry weakness, could also be addressed were bankruptcies to occur.

FTN Equity Capital analyst Mike Derchin forecast this week that American and United will lose around $1 billion each this year, but he notes "I don't see bankruptcy as a reasonable near-term issue."

Derchin says questions remain: "Will international business travel resume? What impact will the swine flu have on travel in the coming flu season? How high will jet fuel prices go over the coming months?"