UPDATE 3-Liquidations possible for bankrupt airlines - S&P

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NEW YORK, July 25 (Reuters) - Liquidations may be more likely at U.S. airlines if they undergo another round of bankruptcies, as it would be harder to squeeze out cost cuts through reorganization, a Standard & Poor's airline analyst said on Friday.

It may be more difficult to reorganize because there is "less left to fix" after the restructurings that came in the wake of the Sept. 11, 2001 attacks, S&P credit analyst Philip Baggaley said on a conference call.

Unsecured debt has been trimmed, fleets cut back and pension obligations either offloaded on the government or stretched out over a longer period, Baggaley said.

"Labor already has given quite a bit and was hoping just a year or two ago for some big pay increases," Baggaley said. "I think it would be harder to make the sort of labor cost reductions in bankruptcy that were done before."

High fuel costs, the major problem facing airlines now, cannot be fixed by Chapter 11 reorganization, he said.

Earlier on Friday, S&P cut its ratings on AMR Corp's AMR.N American Airlines, UAL Corp's UAUA.O United Airlines and Northwest Airline Corp's NWA.N Northwest Airlines Inc deeper into junk territory, citing pressure on earnings and cash flow from high fuel prices.

Baggaley said the airlines S&P had reviewed were "viable," though he could not rule out bankruptcy at a legacy carrier.

S&P cut its long-term corporate ratings on AMR and its American Airlines unit and UAL Corp and its United Airlines unit by one notch to "B-minus," the sixth-highest junk rating, from "B." It cut Northwest Airlines Corp and its airline unit to "B," the fifth-highest junk rating, from "B-plus."

S&P put nine U.S. airlines on review for possible downgrade in May, citing potentially severe financial damage from high fuel prices. Friday's downgrades are the first three actions to result from the review, and more decisions are likely in the coming weeks, Baggaley said.

Over the past several months, seven small U.S. airlines have stopped operating due to record high fuel prices and softening travel demand.

"We do think the significant capacity reductions that are planned by various airlines later this year should have some benefit," Baggaley said, though that may not be enough to offset higher fuel costs.

Moreover, fallout from financial market turmoil is still rippling through the economy, creating concerns about how much air traffic will fall off after the summer season, he said. (Reporting by Dena Aubin; Editing by James Dalgleish)