CHICAGO – Three years after the terrorist attacks of Sept. 11 sent the airline industry into a tailspin, several U.S. carriers remain in crisis and some fear the contagion is spreading.

All U.S. airlines are struggling with high fuel prices and too many seats chasing too few passengers, who are no longer willing to pay what they used to for air travel.

United Airlines has spent the past 21 months in bankruptcy. Two other major carriers – US Airways and Delta Air Lines – are teetering dangerously close to filing for Chapter 11 protection. A fourth, low-fare carrier ATA Airlines, has warned that it may not be able to pay its bills and could be forced into bankruptcy early next year.

Many industry experts worry that one or two more bankruptcy filings by major carriers could start a domino effect that would send others scurrying to the courts for protection.

“If they really drastically cut back on their costs, the other guys will have to match that or eventually they will be facing bankruptcy,” said Ray Neidl, an aviation analyst at Calyon Securities.

The scene resembles that of the 1980s, after airline deregulation, when carriers went bankrupt or narrowly escaped failure through mergers with stronger partners.

Once important names such as Braniff, Eastern Airlines and Pan Am are barely remembered today.

Today’s big carriers could become ghosts or be gobbled up by competitors if they cannot keep pace with the cost cutting available to bankrupt airlines.

During nearly two years in Chapter 11, United Airlines has slashed $5 billion in expenses, half of them through employee wage and benefit cuts.

Since losing its bid for a federal loan guarantee this summer, United has gone back for another round of cuts and said it is likely to terminate its pension plans.

Government officials are worried that the move on pensions might force other carriers to end their plans, causing more trouble for the already debt-laden agency that insures pensions.

Still, the airline industry’s track record in bankruptcy does not indicate that carriers who have been through Chapter 11 will necessarily set the standard for competitors.

“It’s a tool that can be used wisely or unwisely,” airline consultant Ron Kuhlmann said.

“US Airways used it, and it looks like they’re going back into bankruptcy.”

By contrast, American Airlines restructured and made major cost cuts without filing for bankruptcy, and now is considered the nation’s strongest mainline carrier.

Labor relations make all the difference in whether an airline can restructure without the benefits of bankruptcy, and in its success after a bankruptcy, said Kuhlmann, vice president of Unisys R2A Transportation Management.

Filing for bankruptcy is “an admission that you cannot rally the troops,” he said. “It’s a sign of a weak company, whether because of management or labor or both.”

And while it allows companies to make cuts that they might not achieve otherwise – with employees, lessors and other vendors – it often leaves airlines in worse shape, Kuhlmann said.

“The track record of it saving companies is not terribly good,” he said, naming America West and Continental Airlines’ second bankruptcy as exceptions.

Indeed, United Chief Executive Glenn Tilton emphasized this week how important it is for the airline’s employees to work together.

“If we are not all dedicated to creating a truly competitive United, there really is little point in doing the rest of the work that we need to do,” Tilton said in a recorded message to employees.

Kuhlmann and others refuted the idea that airline executives enjoy the idea of bankruptcy and the freedom it allows to cut costs.

Henry Harteveldt, an airline and travel analyst with Forrester Research, said no business wants to have outside parties watching its every move.

The executives of bankrupt companies must run major business decisions by judges and creditors.

Harteveldt said that another bankruptcy for US Airways could persuade labor unions and lessors at competing airlines to make concessions.

“They’d say, “We can’t mess around anymore,”‘ he said.

But if that does not happen and Delta follows United and US Airways into bankruptcy, “I could see Continental and others like that follow,” he said.

“If they feel the only way they can change their business is through a Chapter 11, that’s a very last and extremely reluctant step to take.”

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(c) 2004, Chicago Tribune.

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AP-NY-09-10-04 2054EDT