(Reuters) - American Airlines and its parent company AMR Corp filed for bankruptcy on Tuesday to cut costs and combat soaring fuel prices and dampened travel demand.
American Airlines was once the largest U.S. carrier, but is now third behind United Airlines and Delta Air Lines. It had been the only major U.S. airline to avoid a bankruptcy filing in the last decade and consequently has the industry's highest labor costs.
The filing also leaves AMR vulnerable to unsolicited takeover bids by rival airlines in the rapidly shrinking airline industry.
"It completes the cycle," said Helane Becker, an analyst with Dahlman Rose & Co. "Every major airline in the united States has filed for Chapter 11."
AMR's move comes on concerns of weaker travel demand, leading airlines to cut back service.
In its bankruptcy filing, AMR said its cost-cutting in recent years had been insufficient and that it could not continue without changing its "uncompetitive cost structure."
"Without addressing the realities of the marketplace, AMR cannot be competitive with its peers," it said.
Shares of AMR, whose passenger planes average 3,000 daily U.S. departures, have tumbled 45 percent since the end of September.
Shares of AMR tumbled 1.39 percent in early trade to 23 cents on the New York Stock Exchange. Stock in bankrupt companies typically is wiped out when a company exits Chapter 11 and new shares are issued, making the old shares worthless.
Last week the AMR shares hit their lowest level since 2003, when AMR skirted bankruptcy by winning wage concessions from its unions.
Shares of rival airlines rallied in early trade on expectations that fares industry wide could rally if American Airlines sheds some of its cost burdens. Experts said the carrier has kept fares low and spoiled industry-wide fare hikes as it struggled to keep its airplanes full.
Shares of United Continental were up 7.7 percent at $17.86 on the New York Stock Exchange. Shares of US Airways Group were up 10 percent at $4.70 on NYSE. Shares of Delta Air Lines rose 4.44 percent to $7.76 on NYSE.
AMR said last month it was also suffering from soaring fuel prices that sent its costs up 40 percent in the third quarter compared with a year earlier.
International Airlines Group expects its transatlantic joint venture with AMR to continue as normal during the proceedings.
AMR named Thomas Horton as chairman and chief executive on Tuesday, replacing Gerard Arpey, who retired.
Under its Chapter 11 bankruptcy filing in a New York court, the company listed assets of $24.72 billion and liabilities of $29.55 billion. The company has $4.1 billion in cash.
AMR said both American Airlines and its regional carrier American Eagle were expected to fly normal schedules throughout the Chapter 11 process.
The airlines says to expect business as usual during this process
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