UAL

(UAL) - Get Report

looks set to file for bankruptcy in the next week, as the Air Transportation Stabilization Board rejected its application for a $1.8 billion federal loan guarantee on Wednesday.

The rejection of UAL's application makes a Chapter 11 filing all but inevitable. Although company management had fought hard to gain wage concessions from employees to get the government guarantee, the ATSB voted 2 to 1 to reject the company's application, saying the company is "not financially sound."

"That is the final nail in the coffin. United will have to file for bankruptcy very soon," said Philip Baggaley, debt analyst for Standard & Poor's. "It could happen within days -- I would assume as soon as the debtor-in-possession facility has been arranged. This seems to be the end of the runway for UAL."

Despite the fact that political pressure had been mounting on the ATSB to bail out UAL, a lobbying effort led by House Speaker Dennis Hastert (R., Ill.) two weeks ago, the government organization felt that UAL wouldn't be able to repay the loan. In Baggaley's view, UAL ran out of time and put forth a loan application that paled in comparison to USAir's, which offered an equity stake and far more in the way of cost cuts.

"I think that in the end, because of all the different constituencies, with the unions, the creditors, and the government, time ran out. They couldn't pull together concessions to satisfy the ATSB," Baggaley said.

While the rejection was expected by Wall Street analysts, the timing of the ATSB's decision was a surprise, coming just one day before the International Association of Machinists was preparing to vote on labor concessions. Without the loan guarantee, the vote is now a moot point, because the labor contracts will likely be voided under bankruptcy.

On Wednesday, UAL, the parent of United Airlines, the nation's second-largest carrier, gained 7 cents to $3.12, but it was recently trading near $1.50 on Instinet. Because equity stakes become worthless when a parent company enters bankruptcy, UAL likely will be one of the market's biggest losers when it opens for trading on Thursday morning.