"PAL is gone by midnight," presidential spokesman Jerry Barican told Philippine television station SNN. The airline had a fleet of of 54 aircraft, flying to 36 domestic destinations and 28 foreign cities.

The Estrada administration, facing a huge budget deficit this year, would struggle to keep the planes flying for long, PAL officials and analysts said.

The government might even lose more money trying to prop up the strike-ravaged airline, they said.

The fate of the 57-year old carrier, Asia's oldest national airline, was sealed after employees on Tuesday rejected PAL's proposal that they agree to suspend labour bargaining for a decade in exchange for 20 per cent equity.

The acceptance of the offer by the workers was a condition set by creditors and potential investors before they could agree to a rehabilitation programme for the battered airline.

On Tuesday, officials said government financial institutions might lend PAL 1.5 billion pesos ($34million) to ensure domestic routes are serviced in the next three months until it finds a "white knight" to bring PAL back to life.

But on Wednesday, finance secretary Edgardo Espiritu said the union vote meant that money was no longer available.

"The 1.5 billion was dependent on the result of the referendum," he said. "So that is out of the question...unless the union themselves initiate to reverse their own decision."

The government would probably encourage the other surviving airlines to upgrade their capacity to fill in the vacuum left by PAL, he said. There are three other major domestic airlines.

Estrada and PAL officials are set to make an announcement later on their options to keep domestic routes serviced in order to avert a paralysis of domestic trade in the archipelago, whose domestic air links are a vital means of transport.

Analysts said it would be a better option to let PAL's demse push through.

"Despite the ill effects of a PAL closure, it would be worse should government decide to bail the company out, even as a stop-gap measure running into a couple of weeks," said Noel Reyes, vice-president for research at Anscor Hagedorn Securities Inc.

"The company is a losing proposition and will likely remain so for the rest of its remaining corporate life, precisely because it's highly unionised," Reyes said.

Other analysts said any revival of PAL hinges on how fast the Philippine economy and the rest of its neighbours recover from the Asian financial crisis. The devaluation of Asian currencies, including the Philippine peso, has pushed airline costs sharply up, as most of them are normally denominated in US dollars.

"No matter how good you are, if there is a crisis, it's difficult," said a prominent aviation expert who asked not to be identified. PAL, which was already bleeding from high operating expenses and a bloated work force, broke its wings under the weight of the year-long Asian currency crisis.

It was finally brought to its knees in June after its 600 pilots went on a 22-day strike. A PAL official said the government would have to pour more funds in if they want to bring the airline back to life.

"If you just open the domestic operation, you would not be able to cover all your fixed costs," said Manolo Aquino, vice-president for administration and services. "In the process, you would just lose more."

PAL needs up to five billion pesos of working capital a month to ply both its domestic and international routes. The airline was privatised in 1992. A group controlled by Philippine businessman Lucio Tan now controls the airline, with a stake of 56.63 per cent.

The government and financial institutions still hold around 23 per cent. The Bank of the Philippine Islands has around 10 per cent and other minor shareholders hold the remainder.