AMR Corp., parent of American Airlines and American Eagle, in a move that had long been rumored in the stock markets and predicted by some airline analysts, voluntarily filed Tuesday for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of New York. The airline emphasized that it $4.1 billion in cash to ensure uninterrupted operations, but at the same time it said Gerard Arpey, its chairman and CEO, had stepped down and Thomas Horton was named chairman, CEO and president of AMR. Horton previously served as president of AMR.

AMR reported a $162 million loss in the third quarter, the only major domestic carrier to record a loss during the quarter. Before reporting that loss, the airline had been subject to numerous rumors on Wall Street that it would file for bankruptcy protection. The airline said its board of directors had determined that Chapter 11 reorganization was in the best interests of the company and its stakeholders. The company said American Airlines and American Eagle would continue to operate normal flight schedules as they restructure their debt and cost structures.

"This was a difficult decision, but it is the necessary and right path for us to take -- and take now -- to become a more efficient, financially stronger, and competitive airline,” said Horton. "We have met our challenges head on, taking all possible action to secure our long-term position. In recent years, even as the airline industry faced unprecedented challenges, American strengthened our domestic and global network; fortified our alliances with the best partners around the world; launched a transformational fleet deal that will give American the youngest and most efficient fleet in the industry; and invested in our product, service and technology to build a world class customer experience.”

For their part, however, airline analysts have long suggested that American was the weakest of domestic carriers because it had not successfully merged with another major U.S. airline. Over the past two years, United Airlines merged with Continental Airlines under the United banner, and Delta Air Lines merged with Northwest under the Delta brand.  Before their mergers, these airlines also had filed for Chapter 11 bankruptcy protection themselves. American also had thought the strength of its oneworld alliance, of which it is a founding member along with British Airways, would help mitigate the fact that it had been unable to find a merger partner in the U.S.

Horton said AMR had made it clear with increasing urgency in recent weeks that it needed to address its cost structures, including labor costs, to enable it to capitalize on what he called “foundational strengths.” He said AMR had a very substantial cost disadvantage compared its larger competitors, all which restructured their costs and debt through Chapter 11.

“Our board decided that it was necessary to take this step now to restore the company's profitability, operating flexibility, and financial strength,” Horton said. “We are committed to working as quickly and efficiently as possible to appropriately restructure American so that it can emerge from Chapter 11 well-positioned to assure the company's long term viability and its ability to compete effectively in the marketplace.”

Horton emphasized that throughout the restructuring process AMR’s customers will remain the company’s top priority. “We intend to maintain a strong presence in domestic and international markets, including our cornerstones in Dallas/Fort Worth, Chicago, New York, Miami and Los Angeles,” he said. “As we and all airlines routinely do, we will continue to evaluate our operations and service, assuring that our network is as efficient and productive as possible.”

At the same time, AMR apparently will seek additional concessions from its unions, which could lead to labor unrest in the future if an agreement cannot be reached. "Achieving the competitive cost structure we need remains a key imperative in this process and, as one part of that, we plan to initiate further negotiations with all of our unions to reduce our labor costs to competitive levels,” Horton said.

Armando Codina, lead independent director for AMR, said Arpey had been asked to continue to lead American, but had decided to retire instead. "This is a difficult business in the best of times, and I cannot think of anyone I would rather have worked with or had as a friend for over two decades than Gerard Arpey,” said Horton. “He is not only a great business leader; he is also a man of honor. With characteristic selflessness, he decided it was time for a new leader to take the company forward and I am grateful for his --- and our board's -- confidence. I know we can all count on Gerard's friendship and encouragement as we work to reaffirm American's place among the world's premier airlines.”

For his part, Arpey said the reorganization will no doubt require far-ranging and sometimes difficult change, but it represents an opportunity to rebuild American in a way that assures its ability to compete in a changed world. “I appreciate the board's confidence in me, but I also believe that executing on this plan requires a new leader for a new time,” he said. “That is why I informed the board of my decision to retire and, with my enthusiastic support, the board decided to appoint Tom as CEO.”

Horton was named president of AMR and American in July 2010. Previously, he served as executive vice president-finance and planning and chief financial officer of AMR and American. He was named to that post in March 2006 upon returning to American from AT&T Corp., where he had been vice chairman and CFO. Horton initially joined AMR in 1985 and held a range of senior financial positions with AMR, including vice president and controller. From 1998 to 2000, he was vice president responsible for the airline's Europe business, based in London. In January 2000, Horton became senior vice president and CFO of AMR.

AMR said it approximately $4.1 billion on hand in unrestricted cash and short-term investments. It said this cash, as well as cash generated from operations, would be more than sufficient to assure that its vendors, suppliers and other business partners will be paid timely and in full for goods and services provided during the Chapter 11 process.  Indeed, the airline said debtor-in-possession financing is neither considered necessary nor anticipated.

American said it is filing motions on Nov. 29 with the bankruptcy court seeking interim relief that will ensure the company's continued ability to conduct normal operations. AMR's lead counsel for its Chapter 11 reorganization is Weil, Gotshal & Manges, a noted specialist in bankruptcy law, and its financial advisor is Rothschild, Inc. For more information about American Airlines Chapter 11, suppliers and vendors can call 866-736-9011 or 703-286-2757 or email amr.supplier@aa.com.