Updated from 7:49 a.m. EDTInvestors' faith in US Airways' ( U) ability to avoid a bankruptcy filing was evident as recently as Friday, when the shares ticked up 5 cents after the airline disclosed progress in labor negotiations. It's a nickel investors will never see again. The nation's seventh-largest airline sought Chapter 11 bankruptcy protection Sunday, the first filing by a major carrier in the wake of the Sept. 11 attacks. The move will allow the carrier to move ahead with restructuring plans without disrupting business, but will almost certainly leave stock investors with nothing. The announcement wasn't a major surprise; even as it was announcing that flight attendants had ratified a contract proposal Friday, the company warned a bankruptcy filing remained a possibility. But the news was a disappointment for airline investors, many of whom hoped the company could avoid bankruptcy after securing a government loan guarantee just one month ago. "While the Chapter 11 filing should mean business as usual for U.S. Airways' customers, employees and the communities it serves, we don't think that's the case for current shareholders," wrote Michael Linenberg, airline analyst for Merrill Lynch. "In fact, we can only think of one airline Chapter 11 bankruptcy during the last 15 years in which equity holders received some form of consideration post-restructuring." The bottom line? "U.S. Airways' current shareholders' equity will be wiped out entirely," he concluded. Linenberg was only echoing the US Air press release, which conceded that "one of the elements of any plan of reorganization may be the cancellation of the company's existing equity securities without the prospects of any distribution to existing holders." In recent weeks, investors had grown hopeful as US Airways announced its restructuring plans, securing not only a $900 million government loan guarantee from the Air Transportation Stabilization Board, but concessions from labor. But bankruptcy proved unavoidable for the carrier, which burns $3 million in cash a day and listed $7.81 billion in assets in the filing against $7.83 billion in liabilities. As a result, investors jettisoned airline stocks in early morning trading. The American Stock Exchange Airline Index, an overall barometer of industry stock performance, was down 6.4%. US Airways was halted, unchanged at $2.45. But UAL ( UAL), parent of United, was the biggest loser, as fears spread that it would also have to seek bankruptcy protection in the near future. Its stock dropped $1.24 to $3.96. Continental ( CAL) was off 52 cents to $8.60, Delta ( DAL) was off 90 cents to $13.70, and AMR ( AMR), parent of American Airlines, was down 69 cents to $8.90. Low-cost carrier Southwest ( LUV) was down 54 cents to $12.72, while rival JetBlue ( JBLU) was off 98 cents to $44.77. The shockwaves hit not only carriers, but suppliers as well. Boeing ( BA) was off $1.03 to $39.97 while Lockheed Martin ( LMT) was down $1.10 to $64.50. Among major airlines, US Air took a disproportionate hit from the Sept. 11 terrorist attacks given the shutdown of Washington's Reagan National Airport and reduced air travel on the East Coast. The company, which already was struggling before the attacks, named David Siegel chief executive in March with a mandate to cut costs, primarily through negotiations with its unions, vendors and creditors. "While US Airways was able to successfully negotiate cost-savings from many of its employee groups, the company determined that it was unlikely to conclude consensual negotiations with certain vendors, aircraft lessors and financiers in a timeframe necessary to complete an out-of-court restructuring," the company said in a release. The company has secured $500 million in post-petition financing and says it has an agreement under which private equity firm Texas Pacific Group will invest $200 million for a 38% stake in the airline when it emerges from bankruptcy, expected to be in the first quarter of 2003.