The UAL Corp., parent company of United Airlines, has filed for corporate reorganization under the U.S. federal bankruptcy code. The world's No. 2 airline operates a vast trans-Pacific network and is a familiar name also to Japanese travelers. Its collapse represents the largest-ever bankruptcy case in the history of commercial aviation

The world's airline industry has been pummeled by sharp drops in both passengers and freight due to the weakening world economy and the aftereffects of the Sept. 11, 2001, terrorist attacks in the United States. United, in particular, bore the brunt of the business slump mainly because its operations are centered in San Francisco on the West Coast and Washington on the East Coast, where information technology industries were growing rapidly before the IT bubble burst, producing a harsh downdraft in the sector.

In an effort to slash the huge debt weighing down the airline, the United management sought unions' agreements to wage and benefit cuts. But radical restructuring with massive job cuts was anathema to the company, which is 55 percent owned by its employees.

The airline's fate was sealed when its last-ditch bid to avoid bankruptcy by seeking federal loan guarantees was foiled by the government's rejection. Even if the Republican White House had been more eager to bail out the company, which has labor unions among its leading shareholders, it would have been difficult for the administration to throw a large amount of taxpayers' money at the troubled carrier under the current grim economic conditions.

The good news is that the airline is expected to maintain its operations under bankruptcy protection as banks and investors have agreed to provide financing for the time being.

The bankruptcy filing has paved the way for the company to take drastic restructuring steps like closing unprofitable routes and cutting payrolls under the supervision of the U.S. bankruptcy court. The company's stock, which once traded at $100, has become worthless, and the lending banks will find themselves unable to recover a large portion of their loans to the airline.

The American-style bankruptcy of this mammoth carrier can serve as a model for Japanese as it shows how efforts are focused on reorganizing and revising a failed company without using taxpayers' money. This is a process in which the employees, the shareholders and the banks all share the financial burden.

Since the collapse of the asset-inflated economy, Japanese banks have bailed out many hopelessly troubled firms through dubious half measures such as continued lending to virtually insolvent companies to avoid pulling the plug on them and making arrangements for partial debt forgiveness. The consequences of this approach are swollen bad loans on banks' books and a slew of companies that are kept alive on a life-support system without prospects of making a full recovery.

When a company files for bankruptcy in the United States, it is quite common for investor groups and other interested parties to immediately embark on the task of corporate rehabilitation. In doing so, they are betting on the possibility that the company can be refashioned into a profitable business that can attract investors once its heavy debt burden and labor costs have been reduced through bankruptcy proceedings.

In Japan, the government has decided to create a new semi- public organization called Industrial Revitalization Agency as part of its effort to accelerate write-offs of bad loans by banks. This is a Japanese-style attempt to revive troubled firms without forcing them into bankruptcy.

The success of this formula for corporate rehabilitation, however, depends to a large extent on the scale of the debt relief the lenders provide to their borrowers.

If the lenders to a troubled company try to sell their non- performing loans to the new body at prices far higher than the market evaluation, the company's chance of recovery will significantly diminish, increasing the risk of eventual losses for taxpayers.

In the United States, the government has refused to rescue large companies like United, leaving it to be reorganized under the bankruptcy code. While the ultimate fate of the airline is still in the air, the entire drama may eventually prove that the American approach to corporate bankruptcies is a good model of the capitalist ethos that supports the country's economic dynamism.