The fine, the largest in FAA history, comes from maintenance and inspection violations that forced the cancellation of thousands of flights in the spring of 2008. The airline said it will appeal.
"These events happened more than two years ago, and we believe this action is unwarranted," the company said in a statement. "We plan to follow the FAA’s process and will challenge any proposed civil penalty."
At the time, federal inspectors found problems with inspections and repairs of wiring on the airline's MD-80 planes that forced the company to ground hundreds of its planes. It created a spring break nightmare, stranding 300,000 travelers across the country.
“We put rules and regulations in place to keep the flying public safe,” said U.S. Transportation Secretary Ray LaHood in a news release. “We expect operators to perform inspections and conduct regular and required maintenance in order to prevent safety issues. There can be no compromises when it comes to safety.”
The FAA alleges that American did not follow steps outlined in a 2006 order requiring operators to inspect wire bundles located in the wheel wells of MD-80 aircraft.
American has claimed all along that the FAA's concerns were overblown, and that passenger safety was never jeopardized.
"We are confident we have a strong case and the facts will bear this out," the airline said in a statement. "Receipt of the FAA proposed penalty will give us the chance to present the facts, which will support our actions taken back in early 2008."
Airlines routinely challenge FAA penalties or negotiate to reduce them.
American has 30 days to appeal.
A large safety penalty would add to American's financial and image problems. Parent AMR Corp. was the only major U.S. airline company to lose money in the second quarter, and it has lost more than $4 billion since the start of 2008 as it struggled against high fuel costs and a slump in travel.
American has since been retiring some of the gas-guzzling MD-80 planes and replacing them with more fuel-efficient ones. The FAA said safety officials have made progress working with American to improve the airline's "maintenance culture."
If upheld, the penalty against American would top the previous record of $9.5 million that the FAA levied against Eastern Airlines in 1987 for delaying required maintenance work. Eastern went out of business after paying only about $1 million.
As the FAA was focusing on American in 2008, it also proposed a $10.2 million penalty against Southwest Airlines Co. for operating about 1,400 flights before inspecting the planes for cracks. Southwest negotiated that down to $7.5 million.
The actions against American and Southwest came after whistle-blowers in the FAA and members of Congress criticized the agency for being too cozy with the airlines.
NBCDFW's Julie Tam contributed to this report.