US Airways ( UAIRQ) is throwing itself at the mercy of a bankruptcy court, warning that it will be forced to liquidate in mid-February if employees don't immediately cut their pay by 23%.

In a court filing, the beleaguered airline asked U.S. Bankruptcy Court Judge Stephen Mitchell to sign off on its Section 1113(e) motion, which would temporarily rewrite the company's labor contracts, enabling it to cut costs immediately. US Airways wants to have these new agreements -- which include 23% pay cuts, lower pension obligations and the ability to fire employees regardless of seniority -- in place by Oct. 14.

With a weak balance sheet and heavy losses, US Airways entered bankruptcy without debtor-in-possession lending, which means the carrier is using cash to fund operations. But with high labor costs and oil above $50 a barrel, the airline is burning through its lifeblood and warned that it may have to liquidate in five months if it can't generate $200 million in cash to keep going.

The company said it anticipates "a neutral cash position through the end of 2004, but a substantial decline in available cash during January and February 2005 due to aircraft debt and lease payments and the seasonal decline in passenger revenue," US Airways said in a filing with the Securities and Exchange Commission. "With the immediate relief requested, however, the company expects to maintain sufficient cash to survive."

The court will hold a hearing Oct. 7 on management's motion to dismiss its labor contracts. Under the accelerated process, labor and management will present their cases to the judge. Specifically, management must prove that it will be dealt "irreparable harm" if the court does not impose new labor contracts.

"It's clear ... the company needs what they've asked for. Given that, the judge should -- and in my opinion will -- grant the relief the company requires," said Jon Ornstein, CEO of Mesa Airlines ( MESA), which generates 35% of its revenue flying for US Airways. "If, for some reason, the unions that oppose this are successful, they will have basically shot themselves in the head."

Others on Wall Street agree.

"Some union heads are still dismissive, but absent labor cost cuts, US Airways' prospects are very dim," said Robert Ashcroft, analyst at UBS Warburg. "We expect this to be apparent to the bankruptcy court judge. ... The only union recourse would be to strike, almost certainly killing the airline in our view."

No matter which way it goes, the decision is a monumental one for the industry. If the court agrees with US Airways, and dismisses employee contracts, it will essentially establish new pay scales for the entire industry and break from the government's tradition of honoring legal agreements. But if the court disagrees with the carrier, it will likely spell the end of US Airways and its nearly 30,000 employees.

That is, unless US Airways can somehow save itself.

The carrier is in round-the-clock negotiations with two unions, hoping to win concessions without using the court to impose them. The Communications Workers of America, which represents 5,800 customer service and reservation agents, and the Air Line Pilots Association, which represents 3,200 pilots, are both in talks to cut their pay.

"Clearly, there are consequences if we can't get a deal done," said Jack Stephan, spokesman for the pilots union. "We're still negotiating."

But other work groups are not even at the negotiating table, which means the airline will almost certainly need the court to impose lower labor costs on some groups. The Association of Flight Attendants, which represents 5,500 employees, and the International Association of Machinists, which represents 4,800 employees, have rejected management's last proposal on wage concessions.

As the days pass, the situation at US Airways grows more dire and management's demands for concessions increase. With the 1113(e) motion, the company hopes to achieve $38 million in monthly cost reductions from work groups. And it needs that cost savings fast -- by Oct. 14 -- to keep in line with the terms of an interim financing agreement with the government.

Through Oct. 15, the carrier can tap the $750 million in cash that serves as collateral for a $900 million loan guarantee from the Air Transportation Stabilization Board. As a result, the ATSB is closely monitoring US Airways, forcing it to keep a weekly minimum cash balance or run the risk of defaulting on the loan and potentially forcing the airline to cease operations.

According to union documents, the carrier must have $550 million in cash for the week ending Oct. 1. But in October, US Airways must stop the bleeding and begin generating cash -- no mean feat during a seasonally slow fall period. For the week ending Oct. 8, it must have $575 million in cash on hand, with $585 million the week ending Oct. 15, when the carrier's interim agreement with the ATSB expires.

What happens after the agreement expires is up in the air. In the meantime, US Airways' future is in the hands of a bankruptcy court judge.