American Airlines files for bankruptcy

@CNNMoney November 29, 2011: 11:44 AM ET

NEW YORK (CNNMoney) -- American Airlines parent AMR, one of the few major U.S. airlines to avoid bankruptcy, finally succumbed Tuesday and filed for chapter 11.

AMR said that all of its subsidiaries will honor tickets and reservations and operate normal flight schedules during the bankruptcy process.

The airline also announced that Gerard Arpey, its chairman and CEO, is retiring. He is being succeeded by Thomas Horton, who said at a press conference that Arpey had opposed the bankruptcy filing.

In an interview with CNN's Richard Quest, Horton said the airline was forced into bankruptcy because of cost disadvantages it faced compared to rivals that had already gone though bankruptcies.

"Folks at American have worked very hard and honorably to avoid that path over the last decade, but it became clear that gap had become too wide now, it had become untenable, and it was time to turn the page," said Horton, who was named president of AMR in July 2010.

Before Tuesday's filing, American, Southwest (LUV, Fortune 500) and JetBlue (JBLU) were the only major U.S. airlines that had not filed for bankruptcy reorganization.

The timing surprised airline analyst Jeff Kaufman of Sterne Agee, since AMR had enough cash to ride out losses probably through next year.

At the same time, he said the filing makes sense because of several factors, including increased fuel prices, AMR's loss of business travel customers to competitors and tough labor union negotiations.

American was the world's largest carrier as recently as 2006. But mergers have pushed it to third in terms of miles flown by paying passengers, behind United Continental (UAL, Fortune 500) and Delta Air Lines (DAL, Fortune 500).

American has been widely seen as the weakest of the major airlines for some time now. It has reported a profit in only one quarter since 2007, and it lost $4.8 billion over those 3-1/2 years. Analysts surveyed by Thomson Reuters expect its losses to continue through at least 2012.

Still the company officials had been insisting that it was not looking at bankruptcy.

On Tuesday, Horton told CNN that bankruptcy "never has been a goal or preference."

He said that American is paying $800 million a year more in labor costs than it would be if it had labor contracts comparable to its competitors.

"Clearly it was our preference to do this in consensual fashion," he said. "Unfortunately, we were not successful in that regard." American will now gain significantly greater leverage in those talks given the bankruptcy court's power to void contracts.

Kaufman, the industry expert, said American needs contracts that would allow it the greater flexibility and lower staffing levels that other carriers have.

Horton also told CNN that it planned to move ahead with a massive order for 460 jets from Boeing (BA, Fortune 500) and Airbus it announced in July.

American's current fleet includes 247 MD-80 planes that haven't been made since 1999 and are considered to be fuel guzzlers.

The airline said that its cash reserves, coupled with the cash from ongoing ticket sales, should give it the funds it needs during reorganization. Therefore, it will not need what is known as a debtor-in-possession loan that bankrupt companies typically use to operate under Chapter 11.

Shares of AMR (AMR, Fortune 500), which had already plunged nearly 80% since the start of the year, tumbled another 81% to 30 cents a share on Tuesday. Shareholders are typically wiped out during the bankruptcy process. To top of page

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