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American Airlines files for Chapter 11 bankruptcy protection

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American Airlines aircraft sit at Terminal D gates at Dallas-Fort Worth International Airport, in Grapevine, Texas. American Airlines and American Eagle's parent companies are filing for Chapter 11 bankruptcy protection Tuesday

DALLAS >> The parent company of American Airlines filed for bankruptcy protection today, seeking relief from crushing debt caused by high fuel prices and expensive labor contracts that its competitors shed years ago.

The company also replaced its CEO, and the incoming leader said American would probably cut its flight schedule "modestly" while it reorganizes. He did not give specifics. American said its frequent-flier program would be unaffected.

AMR Corp., which owns American, was the only major U.S. airline company that did not file for bankruptcy protection after the Sept. 11 attacks, which caused a deep slump in the industry.

Bankruptcy filings allowed American’s competitors to shed costly labor contracts, unburden themselves of debt and start making money again. American was stuck with higher costs, and had to match its competitors’ lower fares or lose money.

Other airlines also grew by pursuing acquisitions and expanding overseas. American was the biggest airline in the world in 2008, but has been surpassed by United, which combined with Continental, and Delta, which combined with Northwest.

Delta was the last major airline to file for bankruptcy protection, in 2005.

In announcing the bankruptcy filing, AMR said CEO Gerard Arpey, a veteran of the company for almost three decades, had stepped down and was replaced by Thomas W. Horton, the company president.

Horton said the board of directors unanimously decided to file for bankruptcy after meeting Monday in New York and again by conference call on Monday night.

In a filing with federal bankruptcy court in New York, AMR said it had $29.6 billion in debt and $24.7 billion in assets.

In addition to reducing the flight schedule, Horton said there would probably be corresponding job cuts. American has about 78,000 employees and serves 240,000 passengers a day.

The company will delay the spinoff of its regional airline, American Eagle, which was expected early next year. The holding company for that airline also filed for bankruptcy.

AMR stockholders will be wiped out. The stock had already lost 79 percent of its value this year on fears of bankruptcy. The stock fell to 33 cents this morning, down $1.29 from the day before.

The stock had risen from about $1.50 in 2003 to more than $40 in 2007.

Speculation about an AMR bankruptcy grew in recent weeks as labor negotiations with pilots and other workers seemed to stall. The company said it was spending $600 million more a year than other airlines because of labor-contract rules.

Today, Horton said no single factor led to the bankruptcy filing. He said the company needed to cut costs because of the weak global economy and high, volatile fuel prices. The price of jet fuel has risen more than 60 percent in the past five years.

Ray Neidl, an analyst with Maxim Group LLC, an investment banking company, said AMR was wise to file for bankruptcy while it still had about $4 billion in cash. He said the company has strong assets but needs to find labor peace and more revenue. He said American might be pushed into a merger with US Airways.

The president of the pilots’ union, Dave Bates, said his members were concerned about what the bankruptcy will mean for them. Other airlines used bankruptcy to terminate pension plans.

"While today’s news was not entirely unexpected, it is nevertheless disappointing that we find ourselves working for an airline that has lost its way," Bates said in a message to pilots.

Darryl Jenkins, a consultant who has worked for the major airlines, said that AMR will be able to cut costs in bankruptcy and that employees and stockholders would be the big losers.

"Labor is going to take a major hit," Jenkins said. "Their pensions are in danger."

AMR, which has headquarters in Fort Worth, Texas, lost $162 million in the third quarter and has posted losses in 14 of the past 16 quarters. It has announced plans to order 460 narrow-body planes, primarily for the U.S., plus other jets for longer flights.

American was founded in 1930 from the combination of more than 80 smaller airlines. Its hubs are New York, Los Angeles, Dallas-Fort Worth, Chicago and Miami. Itts major international partners are British Airways and Japan Airlines.

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Bomkamp reported from New York.

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