Early today, JP Morgan downgraded some airlines and commented that there would be a possible Chapter 11 among the industry's largest companies. "There will be blood," wrote analyst Jamie Baker in the research report, forecasting a 2008 operating loss for the industry of $7.2 billion," reports MarketWatch.

Several airlines were hit by the news, but United (NASDAQ: UAUA) sold off late on rumors and ended the day down 10% at $12.42. Continental (NYSE: CAL) also got squeezed by investors and was down almost 6% to $16.90.

The industry may be in a better position than investors think. This has nothing to do with rising fuel costs, which will keep operating costs very high or a recession, which could decrease traffic. It has everything to do with whether big banks want to write-off hundreds of million of dollars in losses in loans. They don't, especially not with poor balance sheets of their own. That should make it more likely the airline debt terms will be extended until the industry moves back in the direction of positive operating income.

Banks don't want to own airlines. Aviation is a bad business.

Douglas A. McIntyre is an editor at 247wallst.com.