AMERICAN Airlines, which flies more passengers to and from Jamaica than any other carrier, and its parent AMR went into Chapter 11 bankruptcy yesterday seeking protection from creditors who are owed US$29.6 billion ($2.5 trillion).

The company also announced that their chairman and CEO, Gerard Arpey, 53, who earned US$5.2 million last year, was retiring, to be replaced by president Thomas Horton, 49.

The airline will continue to ferry passengers around the world while its attempt to restructure its financial obligations wends its way through a Manhattan court.

And passengers’ air miles are expected to be safe.

However, it is likely to cut both routes and jobs before it emerges from Chapter 11 of the US Bankruptcy Act in 18 months’ time, Horton said.

Although most analysts think the company will return fitter than before, it is also possible that it could be wound up and its US$24.7 billion in assets sold off.

“You would expect a leaner, stronger company to emerge from bankruptcy,” Chris Logan, an analyst at Echelon Research & Advisory, told Bloomberg.

Horton said: “When we’re completed with this process, our company will be competitive and poised to grow and prosper.”

The dramatic move came after American failed in its attempts to negotiate cost-cutting agreements with its unions.

Every other major US airline went into Chapter 11 protection after the September 11, 2001 terrorist attacks sent the aviation industry into a tailspin.

Emerging with lower debt and pension obligations, they were able to out-compete American, which claimed to have a US$800 million wage gap.

From being the world’s largest airline in 2008, American fell to third place in the US alone behind United Continental and Delta after being forced to sit out a round of international mergers.

AMR said in its bankruptcy filing that its cost-cutting efforts had been insufficient. “Without addressing the realities of the marketplace, AMR cannot be competitive with its peers,” it said.

Among the most serious realities were labour relations. American is the only major US airline that still funds its worker pensions.

The unions, including those representing flight attendants, mechanics and baggage handlers, have been trying to win back some of the US$1.6 billion in concessions they gave up to help the company avoid bankruptcy in 2003.

Contract talks with the airline’s pilots, which had been ongoing for five years, stalled a fortnight ago. David Bates, the president of the Allied Pilots Association, said: “While today’s news was not entirely unexpected, it is nevertheless disappointing that we find ourselves working for an airline that has lost its way.”

Speculation that the airline might be on the verge of bankruptcy mounted last month after an unusually large number of pilots took early retirement, locking in pensions and benefits that are now threatened for those who stayed in their jobs.

But the company was in trouble long before that. Forbes magazine listed the company 38th on its “Risk List” in 2010.

The airline’s fleet was older and less fuel-efficient than those of its rivals. “Higher fuel prices and the weaker US economy would have given them the final push,” said John Strickland, an aviation analyst at JLS Consulting in London.