NEW YORK (CNN/Money) - United Airlines parent UAL Corp. must prove to its bankruptcy lenders at the end of this week that it has made progress on turning around the embattled No. 2 airline's fortunes.

The loan agreements with the so-called "debtor in possession," or DIP, lenders require the company to have made certain progress in stemming losses by the end of this month in order to be in compliance with the loans' provision. The banks potentially could pull the plug on about $700 million in that financing if the airline is found not to be in compliance.

While the airline, through negotiated agreements and court-imposed contracts, has made progress in cutting its labor costs, it has seen jet fuel prices soar by just over 50 percent since the time of the Dec. 9 bankruptcy filing. And due to its shaky credit, United has been unable to buy any of the long-term fuel contracts, known as hedges, which are used by airlines to cushion the blow of fuel price hikes. Fuel is the second-largest cost for an airline behind labor.

Asked if the airline is confident that it would be in compliance with the DIP financing agreements, a spokesman for UAL (UAL: up $0.04 to $1.10, Research, Estimates) would only say, "We are working to comply with those covenants."

United's leading DIP lenders, Citibank (C: Research, Estimates) and J.P. Morgan Chase (JPM: Research, Estimates), did not have any immediate comment on UAL's outlook. The Financial Times quoted one lender on a not-for-attribution basis Monday as saying that the airline probably would be in compliance at the end of this first assessment period, and that the lenders would probably be open to renegotiating terms of the deals if United came up short on the numbers.

"They have been outperforming the plan since the bankruptcy filing, so they have got some cushion," the FT quoted the lender as saying. "Their cushion of a couple of hundred million could end up being a major issue if there is a protracted war, which they would start burning through. But that does not mean we would be aggressive to pull the rug from beneath them."

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Industry analysts said that even if UAL clears this month's hurdle, it faces progressively steeper obstacles in the coming months. The airline will face monthly reviews from this point on, and those reviews will require it to make further progress to stem losses in each period, said Phil Baggaley, managing director for airlines and aerospace companies at credit rating agency Standard & Poor's.

"They built in some room in the first period running up to Feb. 28, so they have more cushion relative to forecast than is true in subsequent months," said Baggaley. "And the way the covenants work, as you proceed through March, April and May, that's when they anticipated the cost savings would kick in."

The airline has proposed a plan to start a separate low-cost, low-fare carrier with about 30 percent of its assets and a separate staff, in order to compete with successful low-cost carriers such as Southwest Airlines (LUV: Research, Estimates). But the plan strongly opposed by the airline's powerful labor unions. One industry consultant said the lack of support for the plan could be a major factor with lenders when deciding whether to pull the plug on UAL early next month or in subsequent months.

"I think one of their big problems now is they're trying to sell their lenders as well as labor and everyone else that they have this plan, but I don't think anyone is buying it," said the consultant, who spoke on condition that his name not be used. "If they can't sell it to labor, they're not going to sell it to bankers, either."

If a U.S.-Iraq war ends quickly or is avoided, it could send fuel prices sharply lower, and give UAL the cost relief it needs to build more support for its plan. But analysts say that an extended war or another major act of terrorism in the United States in response to the war could lead the banks to pull the plug out of concern for the airline's prospects. The 1990-1991 Iraqi invasion of Kuwait helped topple several already shaky airlines. Eastern Airlines ceased operations two days after the United States started its air attack on Iraq, and within 10 months of the end of the war two other carriers -- Midway Airlines and Pan Am Airways -- both halted operations.