A bankruptcy judge gave US Airways Group Inc. (UAIR) temporary permission Monday to use a government loan to fund daily operations — a move expected to allow the airline more time to find alternative financing.

U.S. Bankruptcy Judge Stephen Mitchell's ruling came a day after the nation's seventh largest airline filed for bankruptcy protection for the second time in two years. The filing came after US Airways was unable to obtain $800 million in annual cost cuts from its workers' unions that the airline said it needed to stay afloat.

An attorney representing US Airways said at the hearing Monday that the airline had no intention of liquidating.

"This management team isn't here to preside over a liquidation," Brian Leitch said, adding that the plan is to transform "into a vibrant competitor."

But Wall Street was skeptical. In trading Monday, US Airways shares plunged 60 cents, or 41 percent, to 86 cents per share on the Nasdaq Stock Market (search).

The company said financial deadlines looming Sept. 30 forced it to file now to conserve cash to navigate bankruptcy. The airline also had a $110 million pension payment due Wednesday if it had not sought protection.

The bankruptcy filing could cost federal taxpayers. The government loaned the airline $900 million last year as part of a special program to assist airlines after the Sept. 11 attacks, and the airline still owes Uncle Sam $718 million.

US Airways said Sunday it has an agreement in place with the government and with other lenders to use some of its cash reserves to continue operations while in bankruptcy. In its filing, the company listed $8.8 billion in assets, including $1.45 billion in cash and $8.7 billion in liabilities.

However, the airline does not have a new investor lined up to provide additional financing.

US Airways said customers would notice no operational changes as a result of the bankruptcy.

US Airways Chairman David Bronner had warned several weeks ago that the airline would most likely have to liquidate if it filed for bankruptcy. Lakefield subsequently backed off those comments, and on Sunday again sought to assure customers that the airline faced no immediate danger of shutting down.

"I believe that the light of day will convince our employees that sacrifices are needed to keep the airline flying," Lakefield said in a telephone interview.

Last Monday, a deeply divided pilots union refused to allow its membership to vote on a company proposal that would have cut pay by 20 percent and retirement plan contributions by 50 percent.

As recently as Friday, US Airways made a last-ditch effort to reach a deal with the pilots, offering a proposal with minimum pay cuts that would have required more flight hours each month, putting more pilots at risk of furlough.

Some pilot representatives who opposed the new deal said the pilots and other US Airways workers had made enough concessions during the company's first trip into bankruptcy in August 2002. Then, the unions collectively agreed to contract concessions of more than $1 billion a year.

Fred Freshwater, a pilots' union representative from Pittsburgh who opposed management's latest contract offer, said he wasn't surprised the company was unable to reach deals with labor and that it sought bankruptcy protection.

"When you look at the behavior of management, when you look at their proposals, they were seeking the total capitulation of labor," Freshwater said.

Freshwater said he expects the union to continue negotiations.

Lakefield said Sunday that US Airways likely will need to find an investor to provide additional financing, but with new labor deals, "we won't have any problem finding our way out" of bankruptcy.

When the US Airways first filed for bankruptcy in August 2002, investment firm Texas Pacific Group (search) had already agreed to invest $200 million in the airline. That plan was supplanted by the Retirement Systems of Alabama, a pension fund for state workers, which invested $240 million for a 36 percent stake in the carrier and eight seats on its board.

Bronner acknowledged the Alabama fund could lose its entire investment, which amounts to less than 1 percent of the fund's portfolio.

US Airways actually turned a small profit — $34 million — in the last quarter. But the April-June period is typically an airline's strongest, and its prospects appeared poor because of relatively high labor costs, expensive fuel costs and intense new competition from low-cost carriers.

When US Airways emerged from its first bankruptcy in March 2003, the airline made numerous changes as it sought to become a low-fare carrier. It de-emphasized its hub-and-spoke system, eliminating its Pittsburgh hub altogether. It implemented a lower, simplified fare structure along parts of its network, including its hub in Philadelphia, where it faces a severe new challenge from Southwest Airlines.

The company's return to bankruptcy comes as several of its larger rivals also confront weak finances. UAL Corp.'s (UAL) United Airlines has been operating under bankruptcy for nearly two years, AMR Corp.'s (AMR) American Airlines was on the brink of a filing 18 months ago, and Delta Air Lines Inc. warned it might seek protection soon if it cannot trim its labor costs