UPDATE 5-AMR cancels 1,094 flights for inspections

(changes first paragraph and headline to give specific number of cancellations, also updates and adds figures provided by AMR late Wednesday)

By Kyle Peterson

CHICAGO, April 9 (Reuters) - American Airlines canceled 1,094 flights, or nearly half its schedule, on Wednesday to reinspect aircraft, a disruption that affected about 100,000 passengers and triggered chaos at the busiest U.S. airports.

The airline said it expects more than 900 cancellations on Thursday.

The disruption at the No. 1 domestic airline, a unit of AMR Corp, follows 460 cancellations on Tuesday and hundreds of cancellations two weeks ago. The March disruption was for the same reason as this week's problem -- to ensure compliance with a Federal Aviation Administration safety directive on wiring inspections for MD-80 aircraft.

"We have obviously failed to comply with the airworthiness directive to the precise standards that the FAA requires," AMR (AMR.N) Chief Executive Gerard Arpey said at a news conference in Los Angeles. "I take full personal responsibility."

Delta Air Lines Inc (DAL.N) canceled about two dozen flights on Wednesday and Alaska Airlines, 14, to address the same situation on their MD-80s. Delta canceled hundreds of flights at the same time as American in late March.

Dan Garton, American's marketing chief, told reporters in a conference call the carrier hoped to have full operations by Saturday. "We're working hard to get the airline back to normal," Garton said.

Airline officials could not estimate the hit financially but Arpey said the episode would be "costly." A spokesman estimated about 100,000 passengers were affected by the 1,094 cancellations.

Shares of AMR fell more than 11 percent in regular trade, outpacing losses by stocks of other U.S. airlines. However, AMR gained about a third of that back after-hours to $9.51.

FAA CONCERNS

American said in a statement on Tuesday the FAA raised new concerns about recent wiring inspections and related work on the narrowbody MD-80 aircraft. The airline's 300 aging MD-80s make up nearly half of AMR's fleet.

The inspections stem from an industrywide FAA review of airline compliance with agency safety directives. In addition to American and Delta, several others have grounded aircraft as a result of the audit, which was triggered by inspection and maintenance lapses at Southwest Airlines Co (LUV.N).

Inspections at American relate to a 2006 FAA order to ensure that wiring in the right MD-80 wheel well is properly installed and secured to guard against electrical shorts and possible fire.

AMR first performed the work two weeks ago but an FAA review of that effort found some wire bundles were not secured exactly as the directive specified.

The FAA is under enormous pressure from Congress and government watchdogs for not closely overseeing compliance with its safety orders.

American said late on Wednesday that it had so far inspected 179 MD-80 planes, of which 119 still needed more work. The company said 60 were returned to service, and 121 remained to be inspected. Each MD-80 must be cleared by an FAA inspector before returning to service.

American said it would hire an outside company to review compliance with FAA requirements.

No. 3 Delta voluntarily reinspected about half of its 117 MD-80s Tuesday night and canceled about two dozen flights on Wednesday. About 20 planes required extra work. The airline was to recheck the other half of that fleet on Wednesday night. It rebooked passengers on other Delta flights and expects no additional customer impact, a spokeswoman said.

Delta said it was working directly with the FAA on the new inspections.

Alaska Air Group Inc (ALK.N), the parent of Alaska Airlines, also inspected its MD-80s, resulting in 14 cancellations on Wednesday.

TRAVEL HEADACHES

American's cancellations angered travelers at several airports where agents struggled to book passengers on other flights. Dallas was hardest hit with 208 cancellations, followed by Chicago O'Hare with 138.

American offered vouchers to travelers willing to take a later flight. Garton said American also provided meals, hotels and ground transportation.

Terry Trippler, travel expert at TripplerTravel.com, said the inspections did not raise safety concerns for him. Rather, the disruption itself is a bigger worry and the airline should have performed the inspections correctly the first time, he said.

"Somebody at American should be on the unemployment line," Trippler said. "Do you know how many people they're disrupting? This is unbelievable."

He said the financial cost to the airline would be high but the carrier also would have a lot of work to do to improve its relations with infuriated passengers. (Additional reporting by Nick Carey in Chicago, John Crawley in Washington, D.C., Deena Beasley in Los Angeles, and Ilaina Jonas in New York; editing by Gary Hill and Carol Bishopric)