American Airlines files for bankruptcy protection; most travelers won’t be affected

DALLAS — The parent company of American Airlines filed for bankruptcy protection Tuesday, 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. The new CEO, Thomas W. Horton, did not give specifics.

For most travelers, though, flights will operate normally and the airline will honor tickets and take reservations. American said its frequent-flier program would be unaffected.

AMR Corp., which owns American, was one of the last major U.S. airline companies that had avoided bankruptcy. Rivals United and Delta used bankruptcy to shed costly labor contracts, reduce debt, and start making money again. They also grew through mergers.

American — the nation’s third-largest airline and proud of an 80-year history that reaches back to the dawn of passenger travel — was stuck with higher costs that meant it lost money when matching competitors’ lower fares.

In announcing the bankruptcy filing, AMR said that Gerard Arpey, 53, a veteran of the company for almost three decades and CEO since 2003, had retired and was replaced by Horton, 50, the company president.

Horton said the board of directors unanimously decided on Monday night to file for bankruptcy. 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 hearing in a packed bankruptcy courtroom on Tuesday in New York, a judge granted the airline permission to pay for fuel, labor, and other critical expenses to keep it flying. The hearing was an indication of how American will now need to run all of its financial decisions past a bankruptcy judge and, ultimately, creditors.

With reductions to the flight schedule, Horton said there would probably be corresponding job cuts. American has about 78,000 employees and serves 240,000 passengers per day.

AMR’s move could also trigger more consolidation in the airline industry. Some analysts believe American is likely to merge with US Airways to move closer to United Continental Holdings Inc. and Delta Air Lines Inc. in size. Such a merger would leave five large U.S. airlines compared with nine in 2008.

US Airways declined to comment.

American will delay the spinoff of its regional airline, American Eagle, which was expected early next year.

AMR, however, wants to push ahead with plans to order 460 new jets from Boeing and Airbus and take delivery of more than 50 others already ordered. New planes would save American money on fuel and maintenance, but the orders will be subject to approval by the bankruptcy court.

Analysts said all airlines will benefit if American reduces flights — especially if the cutbacks are more severe than American’s new CEO is letting on. They said the chief winners were likely to be United and Delta, which compete for the same business travelers and have global networks like American’s.