American Airlines' bankruptcy could create some collateral damage for Citigroup Inc., which runs the airline's large rewards credit card program.

The New York bank has long relied upon the prestigious and lucrative rewards partnership, which helps it attract wealthy and high-spending customers who are willing to pay annual fees and use their credit cards heavily in exchange for frequent-flier miles.  

The Citi AAdvantage program is the oldest in the frequent-flier sector, dating back to 1987, and both companies have weathered major crises since then. Now that Citigroup has largely recovered from its near-failure during the financial crisis, American Airlines is veering closer to the abyss. Parent company AMR Corp. said Tuesday that it had filed for Chapter 11 bankruptcy in New York, in a process that will allow the carrier to continue with its normal business operations.

The airline's bankruptcy filing has been largely seen as a strategic  effort to remove its debt, and a process that most other major carriers have gone through and survived.

"If [American Airlines] totally disappears the program will be gone. … but it's hard to see American Airlines not coming back from bankruptcy at some point, one way or the other. It's not the first time that a carrier went into Chapter 11," says Gwenn Bezard, co-founder and research director at Aite Group in Boston.

But the maneuver could still create some turbulence along the way for Citigroup and its relationships with its most valuable customers. The uncertainty and reputational risks of the situation could lead some AAdvantage customers to defect to a different airline, a different frequent-flier program - and a different credit card.

Both companies seemed to tacitly acknowledge that threat in communications with customers Tuesday.

"We want to assure you that your AAdvantage miles are secure," the airline told frequent fliers, in bold type, in an email message on Tuesday. In less emphatic type, the message assured customers that American Airlines "will have a successful future."

Citigroup also stood fast, saying in an emailed statement that the bank's "long-standing relationship with American Airlines has generated tremendous loyalty and continues uninterrupted."

Spokeswoman Emily Collins added in the statement, "Our shared customers are Citi's top priority, and we are confident that they will continue to enjoy full American Airlines AAdvantage benefits."

Any prolonged uncertainty could jeopardize Citigroup's relationship with tens of millions of customers, according to analyst estimates. The bank does not break out how many of its credit card customers have American Airlines rewards cards. But Gary Leff, co-founder of frequent-flier site MilePoint.com, estimates that the airline has between 50 million and 70 million AAdvantage program members. (Only some of those frequent fliers have credit cards.)

Despite the companies' reassurances, analysts said the rewards program might not exit the bankruptcy proceedings unscathed. At some point, they said, American Airlines will have to go before a judge and ask for approval to continue the program.

"The argument they would make is that it's in the interest of many consumers" who would lose the points they have accumulated, says Brian Riley, a research director in the bank cards practice at Towergroup. "The big question is, Will they devalue what a point looks like, so it [relatively] looks like a peso, or will they keep it at the same level?"

But the situation could also end up bringing Citigroup and American Airlines even closer together.

In 2004, when Delta Air Lines Inc. restructured its balance sheet, American Express Co. lent the airline money that was backed by future purchases of rewards miles, says John Stilmar, who follows credit card issuers for SunTrust Robinson Humphrey in Atlanta.

"In the past, financial restructuring has not impacted the long-term value from card relationships," he said. "The only way that it's impacted is if the company goes away, or if there is degradation in service, or if the company is merged."

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