American Airlines, the US airline which is close to seeking a merger with British Airways, has told staff thta it will cut 7,000 jobs by the end of the year, as it grounds aircraft in a bid to mitigate the impact of soaring fuel prices.

American said in a regulatory filing that it expected to record a second-quarter charge of up to $1.3 billion to account for the job reductions. It also plans to write down the value of the MD-80 and Embraer 135 regional jets that it is retiring as it eliminates flights, according to a report in The New York Times.

Job cuts on this scale would be twice as big as those announced so far by any other carrier.

The Association of Professional Flight Attendants' website said yesterday that it had received a so-called WARN (Worker Adjustment and Retraining Notification) from American of its intent to lay off union members.

The job cuts, which could affect as many as 900 of American's 18,000 cabin crew, will begin with voluntary retirement packages for older flight attendants however where compulsory redundancies are necessary staff with the least seniority will leave first.

In an e-mail to employees, Jeffrey Brundage, American’s senior vice president for human resources, said the airline expected its job reductions to mirror the 8 per cent cut in worldwide flights it plans by the end of the year.

American said in May that it would cut flights by 11 per cent to 12 per cent in the United States, and by about 8 per cent overall. The airline currently has about 85,500 employees, so an 8 per cent cut would equate to about 6,840 jobs.

"These are difficult by necessary changes given the unprecedented challenges we face with overcapacity in the industry, skyrocketing fuel prices and a worsening US economy, " Tim Wagner, an American spokesman, said.

BA is understood to be close to seeking clearance from competition authorities for a three-way operational merger with American and Iberia.

The deal would allow the companies to combine nearly all aspects of their operations, including sales, purchasing and marketing, leading to lower costs and greater economies of scale. Legal sources in the United States said that a submission to the US Department of Transport was expected as soon as next week.

The operational partnership may also provide a foundation for a full merger of the carriers should foreign ownership rules in the United States and Spain change.

BA said last night that its talks with AA were continuing but a decision had yet to be made.

Airlines have been hit by a rise in the price of jet fuel, which is up more than 80 per cent over 2007. They have raised fares, imposed surcharges and introduced new fees such as a $15 charge that American introduced for putting luggage in the hold.

United Airlines said last month that it would cut 1,100 jobs, laying off 950 pilots, as part of its move.

Continental Airlines also announced plans to cut 3,000 jobs.

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