Record $24.2 million fine proposed for American Airlines

American Airlines passengers line up at the ticket counter at Chicago's O'Hare International Airport April 9, 2008.

WASHINGTON (Reuters) - The U.S. government on Thursday proposed to fine American Airlines $24.2 million for alleged maintenance violations that led to thousands of flight cancellations two years ago.

It is the biggest-ever fine against an airline proposed by the Federal Aviation Administration.

"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," said Transportation Secretary Ray LaHood in the ruling.

The FAA said the planned civil penalty stemmed from inspection and repair lapses flagged in April 2008 that prompted the airline to ground 300 MD-80 series planes, disrupting flights for several days.

American, a unit of AMR Corp and the second-largest U.S. airline, canceled 3,000 flights, affecting 300,000 travelers.

The previous biggest proposed fine was $10.2 million against Southwest Airlines for alleged inspection shortcomings on certain Boeing Co 737s in 2006 and 2007. Southwest appealed and eventually settled the case with the FAA by agreeing to pay $7.5 million.

American has 30 days to appeal the proposed fine.

"These events happened more than two years ago, and we believe this action is unwarranted," AMR said in an e-mailed statement. "We plan to follow the FAA's process and will challenge any proposed civil penalty. We are confident we have a strong case and the facts will bear this out."

"American Airlines has always maintained its aircraft to the highest standards, and we continue to do so," the airline said.

The company has said it addressed the concerns of safety regulators over problems with wiring in the wheel well before putting the workhorse narrow-body MD-80s back into service.

Industry insiders had long expected a stiff fine for American. The case is the most notable from a period marked by sharp congressional and expert criticism that safety regulators had become cozy with carriers they oversaw.

Additionally, the FAA under the Obama administration has stepped up fines and other enforcement action against passenger and cargo air carriers and related businesses.

Shares of American and other major airlines have been under pressure all week as part of the broader market slide on worries about the U.S. economy.

AMR stock was little changed at $6.07 in afternoon trade on the New York Stock Exchange.

(Reporting by John Crawley and Kyle Peterson; editing by John Wallace and Gunna Dickson)