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American Airlines files for bankruptcy
NEW YORK (CNNMoney) -- American Airlines' parent company, AMR Corp., announced Tuesday that it has filed for chapter 11 bankruptcy.
AMR said American Airlines, American Eagle and all other subsidiaries will honor all tickets and reservations and operate normal flight schedules during the bankruptcy filing process, using its $4.1 billion in cash.
The airline also announced that Gerard Arpey, its chairman and CEO, is retiring. He is being succeeded by Thomas Horton, who was named president of the company in July 2010.
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.
As recently as last month, company spokesman Andy Backover, responding to questions about a possible bankruptcy, said "Regarding rumors and speculation about a court-supervised restructuring, that is certainly not our goal or our preference. We know we need to improve our results, and we are keenly focused as we work to achieve that."
But the airline said that a bankruptcy reorganization is necessary to give it the competitive cost structure it needs and return to profitability. It signaled that it may try to use the bankruptcy process to force lower-cost contracts on its unions.
"As we have made clear with increasing urgency in recent weeks, we must address our cost structure, including labor costs," it said.
The airline even announced a massive order for 460 jets from Boeing (BA, Fortune 500) and Airbus in July in an effort to modernize its fleet.
American was the world's largest air carrier as recently as 2006. But mergers have dropped it to third in terms of miles flown by paying passengers, behind United Continental (UAL, Fortune 500) and Delta Air Lines (DAL, Fortune 500).
Before Tuesday's filing, American and Southwest (LUV, Fortune 500) were the only major U.S. airlines that had not filed for bankruptcy reorganization.
"Our very substantial cost disadvantage compared to our larger competitors, all of which restructured their costs and debt through Chapter 11, has become increasingly untenable," said the airline's statement.
The airline said that its cash reserves, coupled with the cash from ongoing ticket sales, should give it the funds it needs during reorganization, and that it will therefore 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 through Monday's close, tumbled another 63% to 60 cents a share in pre-market trading. Shareholders are typically wiped out during the bankruptcy process. 
First Published: November 29, 2011: 7:18 AM ET
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