NEW YORK (CNN/Money) - The rejection of United Airlines' request for $1.8 billion in federal loan guarantees highlights how difficult it will be for the world's No. 2 airline to stem its losses, if it is ever able to do so.

Thursday, the day after the rejection of the loan guarantee request by the Air Transportation Stabilization Board, the airline appeared to be flying towards bankruptcy court, likely before Monday, when a grace period for a missed $300 million debt payment comes to an end. (Click here for more news on a possible United bankruptcy)

However, United parent UAL Corp. CEO Glenn Tilton told a Chicago television station that a bankruptcy filing is "not a foregone conclusion."

An airline spokesman said company executives were meeting with the unions and other "stakeholders" such as suppliers and overseas airline partners Thursday.

Despite the deepening financial crisis, the world's No. 2 airline was operating its normal schedule of flights Thursday, and Tilton vowed Wednesday to continue operations no matter what steps it takes next. Competitor US Airways Group has functioned normally in bankruptcy since the summer.

But for the airline to survive, it'll take radical changes in its costs and likely its fare and route structure. The Air Transportation Stabilization Board, which Wednesday rejected the airline's loan guarantee request, said that even with the projected $5.2 billion savings from labor concessions over the next 5-1/2 years, the airline's business plan wasn't workable because it was too optimistic about a rebound on revenue.

"United's business plan is predicated upon a significant near-term rebound in revenue," said the board's letter to the airline Wednesday. "This forecast for revenue growth in the next few years is substantially more optimistic than forecasts of industry observers and the board's consultants. The board also believes that the company's revenue forecast does not make sufficient allowance for the likely effects of continued expansion by low-cost carriers in United's markets as well as other potential structural changes affecting industry revenue."

Credit rating agency Standard & Poor's downgraded UAL's debt Thursday to its lowest possible level, a "D" rating, saying that default on $920 million in debt payments the company missed Monday is now certain, as is a bankruptcy filing.

"UAL and United should be able to reorganize in Chapter 11 [of bankruptcy, which allows continued operations], assuming no serious damage to airline revenues relating to a war in Iraq or terrorism, but the bankruptcy process could be long and difficult," the S&P report said.

United had previously confirmed it was in negotiations on up to $1.5 billion in debtor-in-possession financing to fund operations during a court-supervised reorganized. A source with one of United's banks told CNNfn Thursday evening that the airline was close to agreeing to such a package of financing. Some industry executives and consultants, who spoke on the condition their names not be used, said United executives face a challenge to wrap up the financing.

"If they get it, it's not the package they would have liked. It's not going to be on favorable terms," said one industry executive.

David LeMay, a bankruptcy attorney with Chadbourne & Parke who has worked on past airline bankruptcies, says that DIP financing is easier to get than normal financing, because of assurance that the lenders will be paid before other creditors.

"Generally companies that are unfinancable become instantly financable under bankruptcy," he said.

United's cost structure has gotten so out of balance with its costs that United's third quarter earnings report said that it needs to fill 90 percent of its capacity just to break even, while it is only filling about 69 percent of capacity. That 90 percent level is roughly equal to the record the airline set for percentage of capacity filled on Dec. 1, the Sunday of the most recent Thanksgiving holiday. The ATSB said even with the benefit of United's proposed cost reduction initiatives, United would remain among the highest cost carriers in the industry. And United's major competitors, including AMR Corp.'s (AMR: Research, Estimates) American Airlines, and Delta Air Lines (DAL: Research, Estimates), have announced new cost-cutting efforts that could put United at an even greater cost disadvantage.

The bankruptcy court will have the power to void various labor contracts and impose lower salaries on employees than those agreed to by union leaders. But the union-approved concessions, which United needed immediately to help stem losses, are now void with the rejection of the loan guarantee application, meaning that the employees will continue to be paid industry-leading wages while the company loses more than $7 million a day. LeMay said voiding contracts is now a tougher legal hurdle than it used to be, and that it could take a good two months to have a court void the contracts.

And voiding contracts will not be an easy path to take, given hard feelings that already exist between employees and management. The powerful Air Line Pilots Association and International Association of Machinists have seen their members' 45 percent stake in the airline likely wiped out by a bankruptcy filing and cooperation could be difficult.

"You need cooperation because this is a service business," said Ray Neidl, analyst with Blaylock & Partners.

David LeMay, partner at Chadbourne & Parke, talks about how airline bankruptcy works and comments on United's future. Play video (QuickTime, Real or Windows Media)

But another basic problem facing United is questions about whether any amount of cost cuts will be enough to turn around the carrier in an era when low fare carriers are the only ones growing and earning profits.

"They're going about trying to remake themselves largely by making cost cuts. I don't think that'll be enough," said one airline industry consultant who spoke on a not-for-attribution basis. "I think there's a chance they don't emerge from bankruptcy, unless they have an entirely new business model, a new fare structure. I would say they have a worse chance of coming out of bankruptcy than U.S. Air."

The carriers that have been growing market share have been lower-cost, low fare competitors such as Southwest Airlines (LUV: Research, Estimates) and JetBlue Airways (JBLU: Research, Estimates).

"You have to understand trans-continental routes were United's bread and butter, and right now that's where low cost expansion is," said one industry official, speaking on a not-for-attribution basis.

But even analysts who see a difficult bankruptcy process ahead for United say they think it will be able to emerge as an independent carrier. But its long-term success, and its ability to avoid a second bankruptcy in the next airline downturn, depend on it making significant changes this time around.

"This bankruptcy, they'll emerge from," said Neidl. "The question is do they emerge stronger or weaker."