Is $5 billion enough to save

UAL

(UAL) - Get United Airlines Holdings, Inc. Report

? Some on Wall Street seem to think so, unless it's just short covering.

Shares of UAL were up 31% to $2.90 as the market cheered labor's proposal late Wednesday to help cut costs at United Airlines and keep the second-largest carrier out of bankruptcy. Countering management's offer to hack away $9 billion in costs over the next six years, union representatives put forth a proposal to cut costs by $5 billion over the next five years.

In a letter to UAL CEO Glenn Tilton, representatives from five unions say its cost-cutting plan will increase United's "core annual profitability" by $2 billion to $3 billion. The proposal was originally slated to be announced last Thursday.

On the news, the rest of the battered airline sector climbed. The broad American Stock Exchange Airline Index gained 6.2%.

AMR

(AMR)

, parent of American, gained 14.3% to $4.80.

Continental

(CAL) - Get Caleres, Inc. Report

added 7.6% to $5.69.

Delta Air Lines

(DAL) - Get Delta Air Lines, Inc. Report

rose 5.2% to $11.10.

Northwest

(NWAC)

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jumped 6.8% to $7.55. And

Southwest

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, the only major airline with profits, was up 2.8% to $13.64. (For more on the outlook for UAL and the sector, see

Some Fund Skippers Fly in the Face of Convention.

The labor proposal doesn't mean United is out of the woods, or that the union's proposal dramatically changes anything. It's quite possible the pop the stock is getting is a short-covering rally, because more than 24 million, or 45%, of the UAL's shares are shorted -- a bet the stock will ultimately plunge.

"The unions haven't released a lot of the details, but it doesn't look very impressive," said Ray Neidl, airline analyst with Blaylock & Partners. "That doesn't meet what management said they needed

to avoid bankruptcy. There are not a lot of hard dollars in that plan."

The union plan is a key component in keeping UAL from bankruptcy and its shares from going to zero. After losing $3 billion over the past 18 months, UAL management says its access to capital is restricted and has applied for a $1.8 billion government-backed loan with the Air Transportation Stabilization Board to stave off bankruptcy. While the ATSB's mission is to provide capital to struggling carriers, it has not been throwing cash to all comers, demanding that airlines reduce costs, especially labor expenses.

But in Neidl's opinion, the union's plan is "smoke and mirrors" and doesn't cut deep enough to sway the ATSB. "It doesn't look like they're biting the bullet. I would doubt that the ATSB will be swayed. They're looking for companies to reduce their real costs, not playing games."

UAL management was appreciative of the effort, but indicated that more work will be needed to get a new loan application onto the ATSB's desk. "Given the very real deadline imposed by our financial situation, we appreciate this quick but thorough effort," the company said, in a statement on Wednesday evening. "We will study the framework very carefully, and we are committed to responding to the coalition and its members in the days ahead to finalize an updated business plan to take to the ATSB."

Aside from the possibility that cost cuts aren't deep enough, other factors are working against UAL's chances of getting a loan, such as the fact that its unions, which own 55% of the company, have refused to grant the government an equity stake in the company as collateral to repay the loan guarantee. Both

America West

(AWA)

and

US Airways

, which have both received approval for a government-backed loan, have taken this step.

And other factors are conspiring against UAL's efforts. The company has close to a billion dollars in debt that needs to be refinanced in the fourth quarter. With the war in Iraq looming, the price of oil has been rising, which will only increase UAL's costs at a time when it desperately needs to reduce them. And the fall is traditionally a slow time for travel, which means that revenue will be down at a time when UAL needs to add to its coffers.

Also Thursday, a bankruptcy-court judge approved the Retirement Systems of Alabama's $240 million purchase a 37.5% stake in US Air. The deal topped a $200 million offer from the Texas Pacific Group, which has a history of investing in troubled airlines. In over-the-counter trading, US Air rose 12% to 56 cents.