Given the threat of bankruptcy, underfunded pensions, possible credit downgrades, and oil prices' seemingly relentless march toward $70 per barrel, shareholders of "legacy" airline stocks may be as jittery as anxious travelers on the standby list in a crowded terminal. One thing the industry has not had to contend with in recent years, though, is a full-blown strike. There have been some close calls: One was narrowly averted at American Airlines (NYSE:AMR) in 2003.

However, Northwest Airlines (NASDAQ:NWAC) management and the 4,400 members of the Aircraft Mechanics Fraternal Association, or AMFA, have been unable to resolve their differences and are in the fourth day of a strike. Yet the airline has barely skipped a beat because it prepared for this contingency for the last 18 months, and with the help of replacement mechanics and outside contractors it has kept its planes in the air and prevented any widespread disruptions.

Not surprisingly, there have been some delays, but Northwest hasn't released any actual figures, and just how smoothly things are running depends largely on whom you ask. The company estimates that 96% of the scheduled flights in this seasonally busy week will be completed as planned. The relatively minimal impact of the strike is a major setback for the AMFA. The union was already dealt a severe blow over the weekend when Northwest's pilots -- who have already agreed to a 15% pay cut -- its flight attendants, and its gate agents and baggage handlers all voted against staging a sympathy strike.

The company wants $176 million in annual cost savings from its mechanics, part of an overall plan to reduce its budget by $1.1 billion. Other carriers have secured concessions from their unions, and unless Northwest, weighed down by some of the heaviest operating expenses in the industry, can find similar ways to cut some red ink, it appears to be heading for Chapter 11 -- possibly as soon as mid-October, when new bankruptcy legislation takes effect.

This fact is apparently lost on the AMFA, whose soft counterproposal suggests that it lacks a firm grasp of just how tenuous Northwest's deteriorating financial position is. Through June, the company had paid more than $1.4 billion for jet fuel, a 50% spike from the same period last year. Furthermore, its pension is underfunded by about $3.8 billion, another problem looming for the cash-strapped company. Playing hardball under these conditions is a gamble; bankruptcy could mean the loss of pensions. If nothing else, recent events underscore the fact that industry cutbacks have created a pool of seasoned applicants willing to work for less than the $70,000 that Northwest's average mechanic takes home.

Possibly not since President Reagan fired -- and then replaced -- more than 11,000 of the nation's air traffic controllers in 1981 has a bitter labor showdown put the airline industry at such a crossroads. With each passing day that Northwest's flights continue unimpeded, the influence of the AMFA will gradually weaken. Of course, the repercussions will likely be felt beyond just future contract discussions at the nation's No. 4 carrier.

Odds are good that rivals such as Delta (NYSE:DAL), whose shares nose-dived more than 20% on Aug. 15 on news that the company might be lining up Chapter 11 financing, will be watching this dispute closely. Even after dramatic restructuring, though, the larger carriers are still at a distinct disadvantage to more nimble, low-cost fliers such as Southwest (NYSE:LUV) and Motley Fool Stock Advisor recommendation JetBlue (NASDAQ:JBLU).

Reportedly, the airline sector has drawn the interest of many hedge funds banking on a turnaround, though I would hesitate to follow their lead. Northwest's shares gained ground yesterday, but regardless of the outcome of this dispute, there's likely to be more turbulence ahead.

Fool contributor Nathan Slaughter owns none of the companies mentioned.