Mexico's biggest airline, Mexicana de Aviacion, has filed for bankruptcy protection after failing to reach a deal with trade unions on cost cutting.
The heavily-indebted airline said flights would continue while it restructured its finances.
Mexicana had proposed deep pay cuts for pilots and crew, as well as a 40% reduction in the workforce.
The firm suffered heavy losses during Mexico's recession in 2009, as well an outbreak of swine flu the same year.
The outbreak caused a sharp fall in tourism in the country.
Mexicana said it had filed for bankruptcy in a Mexico City court "to restructure its costs and ensure the viability of the company".
It has also filed for Chapter 15 bankruptcy protection in New York to fend off legal action from creditors.
The 89-year-old airline has debts of about $800m (£500m).
Managers said on Monday that wages for pilots and crew as well as staff numbers would have to be cut by about 40% to keep the company running.
Workers, who gave up a range of benefits in 2006, have refused to accept the cuts, but have also ruled out a strike.
"We don't have any other option than to continue negotiating," Fernando Perfecto, the head of the pilot's union, told Reuters news agency.
Mexicana has flights to 65 national and international destinations, including the US, Canada, South America and Europe.
The company says it carried 1.1 million passengers in 2009.