Adobe AIR exposes five static refreences that point to common filesystem locations:

File.userDirectory
File.documentsDirectory
File.desktopDirectory
File.applicationStorageDirectory
File.applicationDirectory

Content stored under File.applicationDirectory is protected by the runtime sandbox and is read-only by default. Using the standard AIR reference to delete, rename, or write to these entries triggers a security exception.

Reading bundled assets through the resolved reference remains permitted:

var manifest:File = File.applicationDirectory.resolvePath("config/settings.xml");

To bypass the sandbox restriction for mutating operations, construct the File object from the underlying native path rather than the restricted AIR reference:

var target:File = new File(File.applicationDirectory.nativePath + "/config/settings.xml");
target.deleteFile();

For general read-write tasks, target a user-writable location such as the documents directory. The runtime creates the file automatical when opened in write mode if it does not already exist:

var outFile:File = File.documentsDirectory.resolvePath("HelloWorld.txt");
var fs:FileStream = new FileStream();
fs.open(outFile, FileMode.WRITE);
var payload:String = "Sample text written through AIR.";
fs.writeUTFBytes(payload);
fs.close();

When extracting an archive or recursively deploying nested assets, iterate over the payload and branch between directory markers and file blobs:

private var cursor:uint = 0;
private var pipe:FileStream;

private function flushBundle():void
{
    if (cursor >= batch.length)
    {
        trace("Write operations finished");
        return;
    }

    var item:Array = batch[cursor];
    var raw:ByteArray = item[0];
    var entryName:String = item[1];
    var destination:File = item[2];
    cursor++;

    if (entryName.charAt(entryName.length - 1) == "/")
    {
        if (!destination.exists)
        {
            destination.createDirectory();
        }
        flushBundle();
    }
    else
    {
        pipe = new FileStream();
        pipe.open(destination, FileMode.WRITE);
        pipe.writeBytes(raw);
        pipe.close();
        flushBundle();
    }
}