Delta Air Lines

(DAL) - Get Report

has yet to file for bankruptcy, but its shares are trading as if it has.

The stock slumped again Monday on continuing fears that the nation's No. 3 airline will show up in bankruptcy court. The shares are now firmly in the range that another bankrupt carrier,

United Airlines'

parent

UAL

(UALAQ)

, has recently plied.

If Delta does file for Chapter 11, equity holders will be left holding paper that likely will end up worthless. That's because companies tend to cancel common stock when they emerge from bankruptcy and issue new shares to pay off creditors.

Fueling concerns about Delta Monday was a report in

The New York Times

over the weekend saying the company has begun arranging financing it will need if it files for bankruptcy. The report cited people with "direct knowledge of Delta's actions."

The newspaper added that Delta officials have acknowledged the airline must be prepared for a bankruptcy filing. But these officials said a final decision was not "imminent."

Also causing worry is what Delta may disclose in its quarterly 10-Q filing with regulators, which is due out soon. Last Tuesday the airline postponed the filing for five days, citing continuing talks with a new Visa and MasterCard card processor.

Delta noted that the new processor required a "significant cash reserve," something the cash-strapped carrier can ill afford at a time when fuel prices are moving ever higher. The contract matters because Delta sells a substantial number of tickets that are paid for with Visa or MasterCard.

Shares of Delta were down 28 cents, or 17.4%, at $1.33, below the $1.42 level where UAL's stock was changing hands.

Delta has made a valiant effort to stay out of Chapter 11 by cutting costs, getting financial help from

General Electric

(GE) - Get Report

and

American Express

(AXP) - Get Report

and streamlining operations. But its top executive has acknowledged that higher oil prices are overwhelming its transformation efforts.

In addition, a large percentage of the carrier's routes overlap with discount airlines, pressuring Delta's fares and, by extension, its revenue.

At current levels, the cost of fuel is a nightmare for airlines, where it represents the second-biggest expense after labor. Last year, carriers were complaining when the price of a barrel of crude oil was in the mid-$40 range.

Delta's ambitious transformation plan, which aims to provide $5 billion in annual savings by the end of next year, assumed jet fuel would cost a lot less -- $1.22 a gallon -- this year than it has. The airline paid an average of $1.60 a gallon in the second quarter, and rising crude costs are pushing the expense even higher. The impact is significant, with Delta estimating that every penny increase in the average price of a gallon of jet fuel increases its liquidity needs by $25 million a year.

Ironically, Delta's push to restructure outside bankruptcy could make a reorganization under Chapter 11 all the more difficult. That's because the airline pledged a substantial amount of its remaining collateral to secure financing from GE and American Express late last year.

"That makes the hurdle that much higher" to a successful reorganization, said Marc E. Richards, a senior partner in the business reorganization and bankruptcy practice group at Blank Rome LLP in New York.

Having unencumbered assets gives bankrupt companies more options to raise cash with outright asset sales or new financing, said Richards, who has represented creditors in multiple airline bankruptcies but whose firm does no business with Delta.