Hemorrhaging millions of dollars in cash daily, debt-riddled U.S. Airways ( U) announced on Sunday that it would seek
Chapter 11 bankruptcy protection from creditors. Bankruptcies are no shock in an industry that's racked up nearly $10 billion in losses over the last six quarters. But while it's the worst possible news for US Air shareholders, the news also raises pressing questions for investors in UAL ( UAL), parent of rival United Airlines. Does UAL have a leg to stand on? It's a question investors were asking as they offered the company's shares down 25% Monday to $3.92. Righting the second-largest carrier's ship is a sticky situation, involving the government, bondholders, unions and shareholders, all of which could influence the outcome. "This isn't going to affect travelers at all," said Jonathan Schrader, equity analyst for Morningstar. But in the event UAL does go bankrupt, "if you're a shareholder, you're going to be left with nothing." Despite the fact that UAL secured a round of private financing in the first quarter, the company claims its access to credit markets is restricted and that it needs the loan guarantee to help meet debt obligations. To receive the much-needed guarantee, which was offered by the newly created Air Transportation Stabilization Board in the wake of Sept. 11 to provide credit for cash-strapped carriers, UAL must prove it can pay back the federal government. The ATSB hasn't been handing out the money, however. Only America West ( AWA) has received a cent of the $10 billion set aside for guarantees -- and that vote was far from unanimous. And even though US Airways was the airline most directly affected by the events of Sept. 11, with its Washington hub closed for an extended period, the ATSB merely gave it conditional approval on its loan, contigent on US Airways' receiving concessions from labor. Few expect that US Airways' bankruptcy will do much to influence the ATSB's decision. "It will be tough for the ATSB to disregard US Airways' bankruptcy, but ultimately they'll base their decision on UAL's application. And I don't think they'll approve it, based on the fact UAL accessed the private capital markets in the first quarter," says Schrader.