The company has said it would accept binding arbitration now that the National Mediation Board has declared an impasse in the talks. Union leaders, meanwhile have drafted a new pay proposal that is to be taken to the company Wednesday.

The NMB's decision to declare an impasse means that if either side rejects binding arbitration, a 30-day "cooling off" period begins. At the end of that period, the union can strike and the company can impose a contract.

"If during those 30 days the company and the (Allied Pilots Association) fail to reach agreement, then the prospects of a strike at our company are very real," Robert Crandall, American's chairman, and Donald Carty, the airline's president, said in a letter to employees.

(American is a significant player in mainland-Hawaii travel, running five daily round-trip mainland-Honolulu flights - two from Dallas and one each from Chicago, Los Angeles and San Francisco. Those flights use DC-10 jets.

The airline also runs a daily Los Angeles-Maui round trip and a daily Honolulu-Maui round trip, using Boeing 757 aircraft.)

A majority of the airline's pilots last week rejected a four-year deal that offered modest pay increases. The vote put on hold American's plans to buy 103 Boeing jets, worth $6.6 billion.

The union board's new proposal, disclosed late Friday, calls for 3 percent pay raises each year through 1999 and a 2 percent increase in 2000. The rejected contract would have given a 3 percent increase this year and a 2 percent increase in 1999.

The proposed contract would also give pilots options to buy 7.25 million shares of parent AMR Corp. stock, at a price $10 less than market value. That's meant to serve as retroactive pay for the period since the last pay increase in 1993.

APA board members also want any regional jets to be flown by American Airlines pilots. The rejected pact would have allowed AMR's American Eagle commuter airline pilots to fly small jets.