DALLAS TheStreet) -- Bankruptcy has reshaped the airline business so dramatically that today, despite historically high fuel prices and a slowing economy, only AMR Corp. ( AMR - Get Report), the parent company of American Airlines, is viewed as a potential bankruptcy candidate.

Still, it is not at all clear that American will seek bankruptcy protection. In fact, American is the only major network carrier that has never filed, its CEO is morally opposed to the concept and it's easy to make the case that American is addressing its financial problems.

However, applying the Altman Z-Score, a formula developed by New York University professor Edward Altman in 1968, puts American at the top of the list of potenital industry bankruptcy candidates. In fact, according to the Altman Z-Score formula, each of the nine largest U.S. airlines remains a bankruptcy candidate, despite all the improvements in the industry.

The Altman Z-Score measures several aspects of a company's financial health to forecast the probability of it going bankrupt. Since its inception, the formula has been 72% accurate in predicting corporate bankruptcies two years prior to the filing.

On a general basis, companies with a Z-Score higher than 3 are considered safe, while those with a score of 1.8 or lower are considered distressed. Anything in between is a gray area. Using Edgar Online's I-Metrix, TheStreet found that all nine of the largest U.S. airlines have a score below 3, and four of the nine are residing in the danger zone, with a score lower than 1.

The Z-score compiles four or five common business ratios, weighted by coefficients, which were selected by identifying companies that previously sought Chapter 7 bankruptcy protection. The ratios include working capital/total assets; retained earnings/total assets; earnings before interest and taxes/total assets; market value/book value of total liabilities and sales/total assets.

While the formula isn't the only indicator of the financial health -- and is by no means a guaranteed barometer of a company's bankruptcy risk -- it may be a metric worth considering for those airlines that fall below the safety zone. Those whose Z-Score is declining year-over-year may also raise a red flag.

It's always interesting to speculate on the possibility of bankruptcies in the airline business. In the past decade, the speculation proved accurate as four major carriers filed.

Today, though, the combination of restructuring, reduced capacity and the implementation of fees, which have added billions of dollars in new annual revenue, has transformed U.S. airlines from a basket case of an industry into one that seems capable of profitably surviving an economic slowdown, even in the face of historically high fuel prices.

At a recent investor conference, Delta ( DAL - Get Report) President Ed Bastian declared that the airline industry has remade itself. "We believe that we truly are in remarkable times in the airline industry from both a financial and investment perspective," Bastian said.

"Usually, when someone tells you that this time is different, it's a good time to hold your wallet," Bastian added. "But we really believe that this time is different."

Taking this into account, here are the nine largest airlines and their Z-scores, based on performance for the trailing twelve months, as compiled by I-Metrix, from the least risky to the most risky.

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Spirit Airlines

Altman Z-Score, Trailing 12 Months: 2.42

Spirit Airlines ( SAVE) is a rare case, an airline that is growing in an era of capacity control.

Spirit staged an IPO on May 26 at $12 a share. On its first day of trading, it closed at 11.55. The stock finished Tuesday at $12.20.

In its fiscal second quarter ended in June, Spirit earned $26.8 million or 37 cents a share, excluding items. In the same quarter a year earlier, as a private company, Spirit lost $10.1 million, or 38 cents a share.

While the industry has been shrinking, Spirit is headed the other way. Its capacity grew 27.3% in the second quarter, with full-year growth pegged at 16%. It envisions growth of 15% to 20% for several years. The carrier's pricing philosophy is also unique: It charges the lowest possible fares, but makes money by charging fees.

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Southwest Airlines

Altman Z-Score, Trailing 12 Months: 1.70

Altman Z-Score 2009: 2.12

Southwest ( LUV - Get Report) has long been an airline industry leader, profitable even when competitors are not.

While most of the largest airlines have historically operated hubs, Southwest has relied on point-to-point service, although it has implemented schedules that allow more and more passengers to make connections as it's grown.

Southwest shares closed Tuesday at $8.53, down 34% for the year.

During the second quarter, Southwest earned $161 million, or 21 cents a share. Revenues were $4.1 billion Excluding special items, earnings per share dropped 48% from the same quarter a year earlier.

The carrier announced a share buyback in August. It is currently integrating AirTran's operations after completing its acquisition of the company in early May.

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Alaska Airlines

Altman Z-Score, Trailing 12 Months: 1.63.

Altman Z-Score 2010: 1.55

Alaska Airlines ( ALK) has been a Wall Street darling for much of the year.

In fact, Alaska is the only carrier to show a year-to-date share price increase. The stock closed Tuesday at $58.68, up 2% in 2011.

In the second quarter, excluding after-tax fuel hedging losses of $44 million, Alaska reported net income of $89.6 million or $2.44 a share, up slightly from year-ago equivalent earnings of $84 million or $2.29 a share. The company said quarterly fuel costs rose by 50% from last year.

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US Airways

Altman Z-Score, Trailing 12 Months: 1.34

Altman Z-Score 2010: 1.49

The Altman Z-Score ranks US Airways ( LCC) as the strongest of the legacy carriers.

This is among the most notable findings in the survey, because a few years ago the carrier's name would occasionally come up in the industry's bankruptcy chatter -- always to be denied by the carrier's executives.

Shares closed Tuesday at $6.11, down 39% this year.

Lately, US Airways President Scott Kirby has been among the industry's most outspoken executives. On Sept. 16, US Airways shares rose 16% after Kirby proclaimed at an investor conference that from the airline industry's point of view: "I would think we are in the middle of a pretty strong economy.

"It's completely disconnected from the headlines," Kirby said.

In the second quarter, US Airways reported a net profit of $106 million, or 56 cents, despite a 47% increase in fuel costs. In the same period a year earlier, the carrier reported net profit excluding special items of $265 million, or $1.34 a share.

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Hawaiian Airlines

Altman Z-Score, Trailing 12 Months: 1.17

Altman Z-Score 2010: 1.84

Recently, Hawaiian Airlines ( HA) has come to be viewed as not just an airline investment, but also as a currency play.

Hawaiian is benefiting from the strong yen because its Honolulu/Japan flights tend to be filled almost entirely by Japanese tourists. They buy tickets with yen, while Hawaiian pays its bills in dollars. Asia flights account for about 10% to 12% of Hawaiian revenue, but the number is rising as the carrier takes delivery of new A330s and expands its Japan service.

Hawaiian shares closed Tuesday at $4.47, down 43% this year.

In the second quarter, excluding a $42 million after-tax charge related to lease terminations, the carrier reported a loss of $8 million or 16 cents a share, compared to net income of $9 million or 17 cents a share in the same quarter a year earlier.

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JetBlue Airlines

Altman Z-Score, Trailing 12 Months: 0.95

Altman Z-Score 2010: 0.96

After just 10 years in existence, JetBlue ( JBLU) has built itself into the major domestic carrier at New York's Kennedy International Airport and one of the four major carriers in New York, the world's biggest commercial aviation market.

Now the carrier is seeking to replicate that success at Boston's Logan International Airport, where it plans to boost service to about 150 daily flights, up from 100.

JetBlue shares closed Tuesday at $4.23, down 36% this year.

In the second quarter, JetBlue reported net income of $30 million or 10 cents a year, compared with $20 million or 7 cents a share in the same quarter a year earlier. Operating income was $94 million, the highest total in the carrier's history, resulting in a 10.1% operating margin.

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United Continental

Altman Z-Score, Trailing 12 Months: 0.76

Altman Z-Score 2010: 0.46

United Continental ( UAL - Get Report) is the highest rated of the Big Three U.S. airlines, and its rating is not particularly high. However, no one within the airline industry has suggested that United is remotely close to bankruptcy.

The carrier is the world's largest, the result of its merger with Continental that still gradually being implemented.

United shares closed Tuesday at $20.43, down 15% for the year.

In the second quarter, United reported net income of $577 million, or $1.49 a share. The gains came even though consolidated fuel expense, excluding the impact of hedges, increased by $1.1 billion over the previous year.

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Delta Airlines

Altman Z-Score, Trailing 12 Months: 0.45

Altman Z-Score 2010: 0.51

Like United, Delta has benefited from a post-bankruptcy merger and is now the world's second largest carrier. It operates the world's largest hub in Atlanta and, like United, is generally felt to be financially stable.

Wolfe Trahan analyst Hunter Keay told TheStreet: "The fact that Delta has a very similar score to American probably devalues the entire equation.

"It's very hard to run these generic 'screens' on an industry like airlines where there tends to be so many exogenous events," Keay said. "(And) it says nothing about unencumbered assets, revolver availability, access to unsecured debt lending, etc."

"But having said that, if the model has been back tested and proven effective then I suppose there is some merit," he said.

Delta shares closed Tuesday at $8.14, down 35% this year.

In the second quarter, Delta reported net income excluding items of $366 million or 43 cents a share, representing a 58% decline as higher fuel prices added $1 billion in costs.

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American Airlines

Altman Z-Score, Trailing 12 Months: 0.40

Altman Z-Score 2010: 0.46

In the case of American, the Altman Z-Score does reflect industry perception, because it ranks American as the most likely bankruptcy candidate.

In the past two weeks, chatter involving a potential American bankruptcy has increased.

On Sept. 13, American's Treasurer Bev Goulet addressed the bankruptcy question in a meeting with analysts. She specifically denied that American would seek Chapter 7 bankruptcy protection, but made no mention of Chapter 11.

On Sept. 20, in a filing, American said its cash level had declined to $4.3 billion. In a weekly industry report on Sept. 23, Wolfe Trahan's Keay wrote: "We expect American's liquidity problems to worsen before they improve."

On Sept. 23, in an update to American pilots, reported in The Dallas Morning News, the negotiating team for the Allied Pilots Association discussed the bankruptcy question.

"While AMR does not have an imminent liquidity crisis, the company is struggling to be profitable and the longer the enterprise loses money, the more concerns arise about where things are headed," the letter said, adding: "Bankruptcy is not inevitable. It is just one of several possibilities during the current economic downturn."

American shares closed Tuesday at $3.28, down 58% for the year. It seems clear that bankruptcy fears are affecting the price. The carrier's market capitalization is $1.1 billion.

American reported a loss of $286 million for the second quarter, the only loss reported by a major airline. American has not made money since 2007. Going back to 2001, it has lost a total of $12.4 billion.

-- Written by Ted Reed in Charlotte, N.C., and Jeanine Poggi in New York

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