Updated from 10:54 a.m. EST

Airline investors had a crazy day Tuesday, as mixed signals came from Washington about whether a federal bailout is forthcoming, while

Delta

(DAL) - Get Report

warned of steep losses.

In the latest Washington developments, Senate majority leader Bill Frist (R., Tenn.) said that despite the absence of money for airlines in the president's newly announced war budget, some kind of relief is probably in the cards. "I think it is likely

that in some form, relief will be given, to some extent, to the aviation industry," Frist said.

The statement sent

AMR

(AMR)

up 10.6%, Delta up 3.5%,

Continental

(CAL) - Get Report

up 3.2%, and

Northwest

(NWAC)

up 9%. Shares in bankrupt

UAL

(UAL) - Get Report

gained 2.4%.

Earlier Monday, the airline industry was left out of the $75 billion war spending plan that President Bush presented to Congress. While the White House didn't rule out the possibility of providing aid, the current plan includes money only for airport security as part of the funding for homeland security.

The developments followed an estimate by the Air Transport Association, the industry's trade group, that losses would hit $10.7 billion if the war with Iraq goes ahead as planned. After losing nearly $20 billion and more than 100,000 jobs, and canceling thousands of flights over the last two years, the ATA said the industry would lose 70,000 more jobs, cancel 2,200 flights and see more airlines enter bankruptcy if help isn't forthcoming.

"The economic risks go far beyond the airline industry -- the stakes for the entire U.S. economy are very high," said ATA president and Chief Executive James May in his report on the industry. "Without government action, the outlook for the entire airline industry is bleak."

Indeed, airlines are warning that they won't meet already low expectations due to the sliding demand. In a Tuesday morning filing with the SEC, Delta, the third-largest U.S. carrier, said that first-quarter losses would equal or be worse than the year-ago first-quarter loss of $2.90 a share, excluding all items.

Going forward, Delta CEO Leo Mullin said that the company will post losses for 2003 and that the airline industry will not recover until 2004, at the earliest. This follows Monday's news that Delta would shrink its network by about 12% and consider job cuts.

Fearful of even greater job losses ahead, labor unions underscored the importance of the government's providing relief as soon as possible. "The pilots of United have already sacrificed a great deal, and are willing to sacrifice even more to ensure that our company exits bankruptcy the strongest, soundest carrier in the U.S. Unfortunately, world events hinder us from going it alone. We ask the government to provide the type of relief necessary to save our jobs, protect our families and secure our economic freedom," said UAL-MEC chairman Paul Whiteford.

The airlines are looking for $9 billion in aid, mostly in the form of tax relief, and an end to the security fees that many in the industry feel are especially onerous. While published ticket prices are at 15-year lows, according to the ATA, the amount of tax on each ticket has been soaring, which means that customers pay more and carriers get less. On a $130 round-trip flight between New York and Boston, taxes and fees account for more than 20% of the ticket price, according to online travel searcher SideStep.

Without help, one of the biggest fears is that AMR could join United and

US Airways

in bankruptcy, especially after Friday's news that

Hawaiian Airlines

(HA) - Get Report

would seek Chapter 11. In this scenario, the industry would have its largest, second-largest and seventh-largest airlines all in bankruptcy proceedings.

While awaiting government action, the industry has taken major strides to not only combat the rising price of oil, which hit close to $40 a barrel in the run-up to war, but also the slumping travel demand. UAL and Continental Airlines have cut back capacity, while Northwest Airlines has cut flights by 12% and eliminated 4,900 jobs.

The cutbacks are having ripple effects throughout the travel universe, with

Starwood Hotels

(HOT)

, best known for its Sheraton and Westin brands, withdrawing its first-quarter and full-year earnings estimates due to slumping demand on Monday.