American Airlines' parent company is seeking bankruptcy protection as it bids to unload massive debt built up by years of accelerating fuel prices and labour struggles.
The third largest US airline also said its chief executive Gerard Arpey will step down and be replaced by Thomas Horton, currently the company's president.
AMR Corporation, along with its regional affiliate AMR Eagle Holding Corporation. said that they filed voluntary petitions to reorganise.
American says it sought protection to reduce its costs and debt to remain competitive and that it will continue normal flight operations during the reorganisation.
American was the only major US airline that did not file for bankruptcy protection after the 2001 terrorist attacks. The last major airline to file for bankruptcy protection was Delta in 2005.
American said employment rules force it to spend at least $600m more than other airlines.
Besides higher labour costs, American also struggled with rising jet fuel costs. Jet fuel cost an average of $3 per gallon so far this year - a record according to government data that goes back to 1990. It has risen 56.4% in the past five years.
American Airlines lost $162m in the third quarter and has lost money in 14 of the last 16 quarters.