On his last day as president of the Allied Pilots Association, John Darrah shared what he considers the ugly truth about the year-old turnaround plan that has made AMR's ( AMR) American Airlines a Wall Street darling.

The turnaround has run aground.

"In the first year of our agreement, AMR's financial returns are nearly $1 billion less than what they had forecast in the model used in concessions talks," Darrah wrote in a 14-page goodbye letter to his fellow pilots on June 30. "For the remainder of this year, that loss is expected to increase to a total of nearly $1.8 billion."

That American's turnaround has gone off track, despite $2 billion in annual wage concessions, is not surprising. In the last year, the airline industry has dealt with the war in Iraq, a major spike in the price of oil, an international outbreak of SARS, a sluggish return of business travel and fare wars with low-cost carriers. But even without these issues, Darrah said American's revival would have still fallen short of internal projections, putting the carrier's long-term viability into question.

"Our concessions strategy gave management enough to avoid bankruptcy last April and buy a few years' time," Darrah said. "What our concessions didn't do is guarantee our long-term survival. That challenge is up to management."

In response, Tim Wagner, a spokesman for American, said the carrier was up to the challenge. He called last spring's financial targets "aggressive" and stressed that the company's turnaround plan, which has cut $4 billion in costs annually, was performing well.

"Other than some unforeseen barriers, like rising oil prices, we feel like the turnaround plan is making tremendous strides," said Wagner. "We're continuing our cost cutting on the operation side and increasing efficiencies. We're comfortable with our progress. Obviously, $600 million to $700 million in extra fuel costs hurts."

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