After 18 months of speculation and $4.5 billion in losses over the last two years,

UAL

(UAL) - Get Report

, parent of United Airlines, filed for Chapter 11 bankruptcy protection Monday morning.

"We have begun the hard work of transforming our airline, and over the last several months have made progress in responding more effectively to changes in the marketplace and reducing the size of our airline to match demand," said Glenn F. Tilton, chairman, president and chief executive officer of UAL, in a statement. "However, at this stage, reorganization through Chapter 11 offers the best way to provide uninterrupted service to our customers around the world, safeguard the value of our businesses and assets, and, ultimately, emerge as a stronger, healthier and more competitive airline."

The reorganization will not be a cakewalk. In the last 13 years, eight major carriers have filed for bankruptcy protection, including such long-lost names as Braniff, Eastern and TWA, but only

Continental

and

America West

have emerged from that process as viable companies. And so although United said it expects to have some kind of a reorganization plan in place soon, delivering on those promises can take months, even years.

The bankruptcy filing is the largest in the history of commercial aviation, putting the nation's second-largest carrier in bankruptcy at the same time as

US Airways

, the nation's seventh-largest carrier. Judge Eugene Wedoff will hear UAL's case in the U.S. Bankruptcy Court in the Northern District of Illinois.

The filing was all but inevitable after the Air Transportation Stabilization Board, which was created after Sept. 11 to help the industry recover, rejected the company's request for a $1.8 billion loan guarantee last week. Although United fought to secure $5.8 billion in cost cuts over the next five-and-a-half years from its labor unions, the ATSB rejected the company's proposal because it felt the cost cuts wouldn't be enough and that UAL's revenue projections were too optimistic.

Feeling the Pinch

Bankruptcy will certainly pinch UAL creditors like Boeing Capital, aircraft lending unit of

Boeing

(BA) - Get Report

; and UAL employees, who will likely lose their 55% ownership stake in the company. But the carrier stressed that customers will not lose out under restructuring, with United continuing to operate most of its flights while honoring frequent-flier miles and other customer perks.

"United Airlines will continue to provide customers with the same experience and level of service they have come to expect. We stand by our commitment to provide customers with convenient schedules, quality onboard services and the most extensive route network in the U.S. and abroad," said Tilton. "Most importantly, throughout this process, customer safety will continue to be our number one priority. We have a solid record as a safe and reliable airline, and we intend to maintain and build upon that record."

In order to file for bankruptcy protection, UAL secured $1.5 billion in debtor-in-possession financing, which will allow the company to pay its bills and continue operations. The DIP financing includes a $300 million facility from

Bank One

(ONE) - Get Report

and a $1.2 billion credit facility from a group led by

J.P. Morgan

(JPM) - Get Report

and

Citigroup

(C) - Get Report

, which also includes

CIT Group

(CIT) - Get Report

.

A New Chapter?

Access to $700 million of the DIP money is predicated on UAL meeting performance milestones, including cost savings far in advance of what it had already planned. This means UAL will need to keep working with its employees and the courts to avoid having to file for Chapter 7, which would liquidate UAL's operations.

"During the Chapter 11 process, we will go further and deeper in our efforts to reduce our costs," said Tilton. "We are developing a very compelling plan of reorganization that will enable us to successfully emerge as a stronger company with a competitive cost structure. It is our goal to complete this process within 18 months. I am confident that we can restore profitability and reestablish United as the world's premier global carrier. Our best days are ahead of us."

Hemorrhaging more than $7 million a day, bankruptcy will certainly help UAL control its fixed costs, which are among the industry's highest. And so the carrier's first order of business will be the most contentious and critical, forcing labor to make some big sacrifices, such as thousands of jobs, years and years of wage negotiations, and their aforementioned 55% stake in the company. A strike, like the one that crippled Eastern while it was in Chapter 11, could force UAL into Chapter 7.

Because employees are demoralized and angry after years of bitter negotiations, a potentially explosive situation is unfolding at a time when United needs its 83,000 employees to present a united front. Employees are already fuming at company management for refusing to cut their own wages and bonuses once business began to slump. Specifically, they chafe at the fact Tilton took a $3 million signing bonus when he took the CEO job in late summer.

This week, most market-watchers and Wall Street analysts expect UAL shares to go to zero, since equity shares will likely be canceled under bankruptcy. Just three sessions ago, a combination of optimism and short-covering pushed shares above $3. On Monday morning, UAL shares fell 12 cents, to 81 cents.