Is Bankruptcy Back on Airlines' Itinerary?

But he also sees "recent green shoots among the garden of weeds," including two domestic fare increases in June, strong leisure demand, and a balance between domestic supply and demand, helped by "late booking strength for June and July."

Despite the sector's weakness, Credit Sights analyst Roger King says: "It's hard to talk about airline bankruptcies. Two variables -- demand and oil -- affect cash flow, and they are basically imponderables right now. No one knows where demand is going, and no one knows where oil is going.

"Airlines have been on bankruptcy watch for the past 50 years," King adds. "There's really nothing new there."

In the past week, both United and American have issued public debt, to sharply different market receptions.

On Monday, United announced pricing for $175 million of senior secured notes due in 2012. The notes were issued at a discount to face value and will carry a coupon rate of $12.75% annually: S&P rated them B+. In a report, King said that with the discount, the yield on the notes is 17%.

"The pricing indicates a lack of investor interest and management desperation," King wrote. "This type of issuance is frequently a few steps from the grave - it signifies that sources of liquidity are drying up."

However, in an employee publication, United CFO Kathryn Mikells said "the credit rating on our transaction was relatively low, driving up the cost" because the issuance was secured by spare parts, and "over 50% of the collateral in the transaction is not eligible for Section 1110 bankruptcy protection." Additionally, she said, "our transaction did not have any type of structural credit enhancement."