American Air mulls bankruptcy - sources = = = = Thursday March 27, 4:18 PM EST = (Recasts, updates with U.S. sector activity, American Airlines preparing = bankruptcy filing, changes dateline, byline) By Kathy Fieweger CHICAGO, March 27 (Reuters) - The war in Iraq was close to claiming its f= irst major U.S. airline casualty as American Airlines stepped up talks to= secure $1.5 billion in financing for a bankruptcy filing that could come= as early as next week, sources familiar with the matter said on Thursday= =2E American, a unit of AMR Corp. (AMR), has intensified its preparations for= a Chapter 11 filing as bookings have been "terrible" since the Iraq war = started, one source said. Two major U.S. airlines, United and US Airways, are already in bankruptcy= protection, along with a smaller carrier, Hawaiian Airlines (HA). = Shares of AMR, the world's largest airline, plunged 18 percent on news of= the possible filing, ending down 40 cents at $1.79 on the New York Stock= Exchange. The stock has lost more than 90 percent of its value since the= Sept. 11, 2001, hijackings. Two of the four planes used were American Ai= rlines' flights. Other U.S. airline shares also fell as renewed indications the war would = not be short-lived weighed on the beleaguered sector. The American Stock = Exchange's airline index (XAL) fell 3 percent to 30.45. The Air Transport Association said on Wednesday bookings on some internat= ional routes from the United States were off more than 40 percent and on = U.S. domestic routes were down 20 percent for the next two or three month= s. Already in fragile financial condition with debt-laden balance sheets, U.= S. airlines are ill-equipped to deal with such a dramatic downturn. LOSSES SNOWBALLING AMR, based in Fort Worth, Texas, posted a record $3.5 billion loss in 200= 2, nearly a third of the more than $11 billion in losses posted by the to= p eight U.S. carriers. Meanwhile, UAL Corp.'s (UAL) United Airlines, already in Chapter 11 bankr= uptcy protection since December, reached a tentative cost-cutting deal on= Thursday with its highest-paid union workers, the pilots. Details were n= ot immediately available. The pilots are currently working under 29 perce= nt interim pay cuts that are expected to become permanent. Shares of another bankrupt carrier, US Airways Group (UAWGQ), dropped as = the No. 7 U.S. airline announced its own series of war-related service cu= ts amounting to about 4 percent of its flight schedule. The cuts were just the latest to emerge from airlines around the globe, b= ut mostly in the United States, as the Iraq war wreaks havoc on an alread= y bleeding industry. FRENCH NEWS In Europe, Air France (AIRF) also cut its flight schedule, cutting April = capacity by 7 percent and postponing seven new aircraft deliveries. Air France shares closed 5 percent lower at 9.25 euros. British Airways (BAY), whose shares closed down 4.7 percent at 112-1/2 pe= nce, cut its April and May flights by 4 percent Wednesday and brought for= ward plans to axe 3,000 jobs. Shares in Germany's Deutsche Lufthansa (LHAG), which is also cutting flig= hts and grounding planes, fell 1 percent to 8.42 euros. VIRUS SHAKES ASIA In Asia, the spread of a mystery virus added to market woes for Asian air= lines. Cuts to flights in Asia reflected the additional impact of a deadly flu-l= ike virus spread partly by air travelers that has caused trips to be canc= eled in Singapore, Hong Kong and southern China. Asia's largest carrier, Japan Airlines System Corp. (9205), joined global= rivals by cutting its international flights for April by 8 percent on We= dnesday. Shares in Japan Airlines closed down 2.8 percent at 248 yen in Tokyo on T= hursday after Moody's Investors Service placed on review for possible dow= ngrade senior unsecured long-term debt ratings at Japan Airlines Co. Ltd = (JAL). JAL merged with Japan Air Systems last October to form Japan Airlines Sys= tem Corp. Shares in Cathay Pacific Airways (0293) fell 4.6 percent to 10.50 Hong Ko= ng dollars after UBS Warburg lowered its rating on the Hong Kong-based ai= rline to "reduce" from "neutral," citing the impact of the mystery virus.= "Only now are we beginning to feel the twin effects of travel avoidance t= ypically associated with war and cancellations caused by a bout of Asia-o= riginating respiratory disease," said Timothy Ross, UBS Warburg's Asian t= ransport analyst. The outbreak of severe acute respiratory syndrome has been reported to ha= ve killed 50 people worldwide and made more than 1,300 sick. Global airlines have lost $30 billion in the last two years and risk $10 = billion in losses from war in Iraq, the Geneva-based International Air Tr= ansport Association said. (Additional reporting by Jason Neely in London,= Meredith Dubner and David Bailey in Chicago, Daisuke Wakabayashi in Toky= o and Peh Soo Hwee and Jennifer Tan in Singapore) = =A92003 Reuters Limited. = Roger EWROPS