Editor's note: This was originally published on RealMoney earlier this month. With the Delta-Northwest merger back in the news, it is being republished as a bonus for TheStreet.com readers.

For much of the last two decades, airlines have consumed massive amounts of capital. Yet that cash no longer sits on their balance sheets, thanks to a nearly uninterrupted string of operating losses.

As a result, the carriers have continually looked to replenish their coffers, through a combination of fresh debt and equity. These carriers are making the rounds again, hat in hand, and praying that the current hurricane season spares the Gulf Coast oil complex.

Simply put, any new spike in oil will make it harder to pull off equity or debt deals on favorable terms. But if oil falls toward $100, fresh financing should be quite easy to accomplish.

So where do the carriers stand in terms of their cash balances and burn rates? We can dispense straight away with a discussion of the one cash-rich operator in the industry: Southwest Airlines ( LUV). The carrier ended the June quarter with more than $5.8 billion in cash. As I'll note in my third piece, Southwest is likely to use that heap of money as a key competitive advantage.

Just about every other domestic carrier is in a state of financial distress. So it is instructive to look at their current cash balances and their sensitivity to oil prices.

Even after a recent equity infusion, U.S. Airways ( LCC) is clearly the most troubled carrier. The carrier in on track to post more than $400 million in negative operating cash flow this year. Yet while other carriers can move aggressively to trim capacity to save costs, U.S. Airways has much less flexibility.

Northwest Air ( NWA) is also in a fairly tenuous financial position, but the imminent merger with Delta Airlines ( DAL) implies that any major liquidity concerns are unlikely to materialize. Update: " Delta, Northwest Holders to Vote on Merger"

American Airlines' parent AMR ( AMR) appears to be in decent shape on the surface, with nearly $6 billion in liquidity. Trouble is, that carrier has been deferring badly needed investments for quite some time and would need to burn through much of that liquidity to upgrade its aging and inefficient fleet. Until that happens, AMR's fuel-thirsty planes will likely keep the carrier from operating flights profitably, even as others might slip into the black as oil inches toward $100. Conversely, a big spike in oil would dole out an especially painful hit to AMR.

On the other end of the spectrum, UAL ( UAUA), parent of United Airlines, and JetBlue ( JBLU) appear to be in fairly strong financial shape. Both carriers are generating positive operating cash flow and have made sure to keep their balance sheets from becoming too debt-laden.

In fact, UAL gains very high marks for trying to squeeze out every cost in its system and constantly tweaking its route network. JetBlue, for its part, could soon see the benefits from a trans-Atlantic integration with Lufthansa. (However, neither of those firms have done a great job in terms of hedging fuel prices, and another big spike would be painful -- but not lethal.)

As I write this, oil is around $110. As the accompanying table shows, the various carriers hit break-even -- in terms of 2009 profit levels -- at various price points due to the efficiency of their fleet and the degree to which they have hedged their fuel prices. (A nod to Morgan Stanley research for help in generating this data.)

In sum, if oil prices spike back to recent highs, Southwest will likely be the only carrier to generate a profit in 2009 -- and a modest one at that. If oil prices stay around the current $110, carriers are likely to breathe a sigh of relief but remain under duress, especially if the economy weakens, as many increasingly suspect.

But if oil falls below $100, look for carriers to add planes back to the mix. If that happens, profit-sapping price wars may not be far behind.

This was originally published on RealMoney on September 5, 2008. For more information about subscribing to RealMoney, please click here.

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  • David Sterman has been an equity analyst and financial journalist for 15 years, most recently serving as Director of Research at Jesup & Lamont Securities.