The plan, announced by Bob Crandall, the chairman of American's parent company, AMR, involves scrapping heavily loss- making routes, slimming down the airline's operation and cutting the size of the aircraft fleet, starting with the return of dollars 2bn worth of jets to the European consortium Airbus Industrie.
The 5-10 year 'transition plan' is being spelt out to American's 95,000 employees this week and is certain to mean heavy job losses.
Warning that the airline industry was now 'deep in very real crisis' with little sign of how and when the upturn would come, Mr Crandall said: 'Our general plan is to be a smaller airline but hopefully a more profitable one. In markets where we cannot compete because our costs are much too high we are going to withdraw.'
The Airbus cuts come in the wake of President Bill Clinton's attack on alleged 'subsidies' to the aircraft manufacturer.
However, an Airbus spokesman said yesterday that repayments of any launch aid from European governments were being stepped up to about dollars 1bn a year over the next few years, from dollars 700m last year.
In common with other US carriers, American, which flew 86 million passengers last year, has been hit badly by the economic downturn, foreign competition and a fare-cutting war that has driven two rivals out of business, pushed a further three - TWA, Continental and America West - into Chapter 11 bankruptcy protection, and left another, Northwest Airlines, teetering on the brink.
The first casualty of the cuts is likely to be American's dollars 3bn fleet of 34 Airbus A300 jets. The airline is expected to cancel leases on all but nine. Airbus has already suffered cancellation of orders worth more than dollars 4bn by Northwest and the leasing group GPA.