American said the civil penalty was unwarranted and it would appeal.
The dispute dates to 2008, when American had to cancel more than 3,000 flights -- inconveniencing 350,000 passengers -- until wiring could be fixed to the satisfaction of the Federal Aviation Administration.
The FAA said Thursday that the improper harnessing of wires on American's McDonnell Douglas MD-80-series jets -- about half its fleet at the time -- could have led to fires and even fuel-tank explosions. It said American flew more than 14,000 flights with planes that didn't meet the wiring requirements.
American has claimed that the FAA's concerns were overblown, and that passenger safety was never jeopardized.
"We believe this action is unwarranted," said American spokesman Tim Smith. "We are confident we have a strong case and the facts will bear this out."
Airlines routinely challenge FAA penalties or negotiate to reduce them.
American officials have said the current dispute is over a minor matter of leaving too much space between sleeves that hold bundles of wire together.
The FAA imposed the wiring rule after three operators reported electrical shorting in wires looped through the MD-80's wheel wells. The rules required mechanics to follow a 28-step process for clamping and securing wires to prevent them from rubbing together.
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 is also beset by labor issues, with unions representing mechanics and flight attendants talking about going on strike, and pilots openly criticizing the company.
The new penalty stems from early 2008, when FAA inspectors said they spotted problems with the wiring on two MD-80 planes. The FAA says American failed to correctly fix the problem, and inspectors found improper work on most of the planes they checked during follow-up visits to American maintenance facilities.
The airline ended up grounding its entire fleet of MD-80s for several days in April 2008 while mechanics worked on the planes.
The FAA said Thursday that American operated 14,278 passenger flights on 286 planes that didn't meet the wiring standards.
"We expect operators to perform inspections and conduct regular and required maintenance in order to prevent safety issues," said Transportation Secretary Ray LaHood, whose department includes the FAA. "There can be no compromises when it comes to safety."
American has since been retiring some of the gas-guzzling MD-80 planes and replacing them with more fuel-efficient ones.
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.