US Air (LLC) drops as oil spikes and investors fear huge losses in airline sector. Falls to $5.60 from 52-week high of $36.81.

Continental (CAL) Falls to $14.06 from 52-week high of $40.91.

Delta (DAL) Sells down to $5.95 from 52-week high of $21.80.

Northwest (NWA) Slips to $6.59 from 52-week high of $26.50.

United (UAUA) Dives to $6.47 from 52-week high of $51.60.

Douglas A. McIntyre

Reuters writes that the Senate has reached an agreement on a housing rescue.

Reuters reports that Warren Buffett will pul out of the RBS (RBS) insurance sale.

Reuters writes that Fannie Mae (FNM) will change its down payment policy.

Reuters reports that the Fed is seeing some healing of the credit markets.

Reuters writes that Yahoo and WPP has entered into an agreement for the ad agency to buy from the portal’s ad inventory.

The Wall Street Journal reports that the FAA is looking to why AMR (AMR) skipped certain safety inspections.

The Wall Street Journal writes that US refineries are producing more diesel because of its profit margin and demand is growing in the developing world.

The Wall Street Journal writes that an Eli Lilly (LLY) drug has been shown to slow lung cancer.

The Wall Street Journal reports that RIM (RIMM) is producing a product to compete with the Apple (AAPL) iPhone.

The Wall Street Journal writes that a home building recover is still on hold.

The Wall Street Journal writes that airline mergers are being considered riskier but United (UAUA) and US Air (LCC) are still talking.

The New York Times writes that oil moved up after a volatile session.

The FT writes that Blackstone (BX) has begun to focus on depressed assets.

Bloomberg writes that profits at British Airways almost doubled.

Bloomberg also reports the the price of rice dropped sharply as supplies increase.

Douglas A. McIntrye

Most Wall St. observers believed that the unions were the largest barrier to the Delta deal. The pilots have not given the marriage their imprimatur. The captains may be able to hurt the merger by threatening a strike which could shut down the new carrier. Regulatory questions could be the other roadblock, but, as Reuters, points out "While the U.S. Justice Department is expected to work carefully, the agency’s track record on consolidation favors approval."

If the airlines can solve their labor issues, the merger, meant to offset the rise in fuel prices and fall in passenger revenue, is likely to happen.

All of that looked good until word began to get out yesterday that United and Continental do not think they can go it alone in the face of the Delta merger. It would put them at too much of a disadvantage as they maintain overlapping routes and duplicate costs for employees, planes, and maintenance. So, the boards of both companies are well along in the process of approving their own business combination.

The move by all four airlines to create two would be the straw that breaks the back of regulatory rubber stamping. Activist groups and members of Congress are likely to oppose the deal, perhaps appropriately, because having only four large airlines in the US, including AMR (NYSE: AMR) and US Air (NYSE: LLC), instead of six, might well hurt consumer choice and cause much higher ticket prices.

The mergers of four airlines would almost certainly lead to many cities having only one major carrier, a move that almost always spikes up ticket prices. It would also cause tremendous lay-offs at a time when unemployment will be up anyway. The Justice Department would have to look long and hard at those factors and that significantly hurts that chances of either merger going though.

Unless, of course, all four airlines want to get together and form just one carrier.

Douglas A. McIntyre

US Air (LLC) down to $13.50. Northwest Air (NWA) down to $13.80. American (AMR) down to $13.40. Delta (DAL) down to $13.73. JetBlue (JBLU) down to $5.58.

AMD (AMD) down to $7.04. LSI Logic (LSI) down to $4.90. National Semiconductor (NSM) down to $21.18.

National City Corp (NCC) down to $15.57.

Starbucks (SBUX) down to $19.37.

Ford (F) down to $6.53.

Douglas A. McIntyre