AMR (NYSE: AMR) may have skipped key inspections of some of its planes to keep them in service. According to The Wall Street Journal, "American made the procedural changes and revised its maintenance manual in an effort to prevent planes from being pulled out of service." The inspections were meant to look over planes that may have been hit by lightning.

American's defense for skipping the procedures is that, if a pilot reported that his plane was hit by lightning, mechanics will look into it. What if the pilot is napping? Further, the airline says no plane has crashed from a lightning strike in over 30 years. How convenient.

The airlines have one, weak reason for cutting back on inspections. They cannot afford them. The federal government has to deal with the fact that some carriers are near bankruptcy because of high fuel prices. The FAA may have to supply financial support for extra work by mechanics, or watch the industry fall apart.

Douglas A. McIntyre is an editor at 247wallst.com and the editor of Ten Stocks Under $10.

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MAJOR PAPERS:

• According to internal company and agency documents, the Wall Street Journal reported that the FAA is investigating into why AMR Corporation's (NYSE: AMR) American Airlines ordered mechanics to skip specific safety instructions to detect damage to planes from potential lightning strikes.
• In order to compete more effectively against Apple Inc's (NASDAQ: AAPL) iPhone, the Wall Street Journal reported that Research in Motion Limited (NASDAQ: RIMM) is planning to introduce "Thunder," a touch-screen version of its BlackBerry device.

• Yahoo! Inc (NASDAQ: YHOO) is trying to quickly put the finishing touches on a search advertising deal with Google Inc (NASDAQ: GOOG) as billionaire Carl Icahn launches a proxy fight for control of Yahoo's board, according to the New York Post. Yahoo! hopes to announce a deal with Google to create an open platform system within the next week, two inside sources said.
• The New York Post reported that a partnership of MGM Mirage (NYSE: MGM) and investment company Dubai World may seek to buy the Drake Hotel site from developer Harry Macklowe. If a deal is reached, MGM and Dubai World would assume $580M in defaulted debt and interest, inside sources said.

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MOST NOTEWORTHY:

• Merrill downgraded AMR Corp (NYSE:AMR), Delta Air Lines (NYSE:DAL), Continental Airlines (NYSE:CAL), US Airways (NYSE:LCC) and UAL Corp (NASDAQ:UAUA) to Neutral from Buy citing earnings risk this year from higher energy costs.
  
• Oppenheimer downgraded shares of Chelsea Therapeutics (NASDAQ:CHTP) to Perform from Outperform after their survey suggested physicians believe currently available generic treatments are adequate in neurogenic orthostatic hypotension, which could impact the company's lead drug Droxidopa.
  
• Clearwire (NASDAQ:CLWR) was cut to Sell from Hold at Citigroup on valuation, as they estimate fair value at $13.

• Goldman downgraded Kellogg (NYSE:K) to Neutral from Buy and Hershey Foods (NYSE:HSY) to Sell from Neutral.
  
• Piper lowered Orbitz Worldwide (NYSE:OWW) to Neutral from Buy.

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Merrill Lynch downgraded shares of Delta (NYSE: DAL), United (NASDAQ: UAUA), US Airways (NYSE: LCC), AMR (NYSE: AMR), and Continental (NYSE: CAL) from "buy" to "neutral," according to Briefing.com.

Deutsche Bank maintained a "buy" on News Corp (NYSE: NWS) saying the company is less expensive than its peers, according to the AP.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.

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Before the bell: Futures higher after Fed move and ahead of data, Exxon

According to The Wall Street Journal, Microsoft Corp. (NASDAQ: MSFT), attempting to avoid a huge hostile takeover bid, indicated it may be willing to raise its bid to as much as $33 per Yahoo Inc. (NASDAQ: YHOO) share. Microsoft's board had failed to reach a final decision on how to proceed with its bid for the Internet search group. Yahoo!, though, may want $35-37 per share. And I thought Ballmer said he would lower the bid ... Don't they know by now these negotiating tactics are well known? In any event, it's starting to look more and more like the deal is closer than ever and the parties are willing, despite each showing off some muscle first.

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After hitting a one-year high of $29.32 in July, the stock hit a one-year low of $6.81 last week. AMR opened this morning at $8.00. So far today the stock has hit a low of $7.95 and a high of $8.63. As of 12:20, AMR is trading at $8.50, up $0.76 (9.8%). The chart for AMR looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $6 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in just seven weeks as long as AMR is above $6 at June expiration. American would have to fall by more than 29% before we would start to lose money. Learn more about this type of trade here.

AMR hasn't been below $6.80 at all in the past year and has shown support around $7.40 recently. This trade could be risky if the cost of fuel continues to sky-rocket, but even if that happens, this position could be protected by the support the stock might find around $7, where it bottomed out over the past month.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in AMR.

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Eos was an improbably candidate for success in the airline industry. It flew one route, from New York's JFK to London. It was an all-business-class carrier.

Now, Eos is bankrupt. Having only one route, added to the rising price of jet fuel, cut the carrier down.

According to the AP, "The company, based in Purchase, N.Y., said it intended to eliminate most of its work force."

The news raises the question, once again, whether small and large airlines alike can make it though the current increase in fuel prices and a recession without having to file for Chapter 11. It was only four years ago that most U.S. carriers had to seek protection in the courts. AMR (NYSE: AMR) was one exception. That hurts it now because it did not use bankruptcy to cut its debt and the costs of its workforce. That may make it the most likely candidate of any American carrier to hit the air pocket of insolvency.

The oil price crisis my be so bad that, coupled with falling passenger revenue in a sharp and prolonged downturn, even mergers like the one planned by Delta (NYSE: DAL) and Northwest (NYSE: NWA) will not save them.

That will leave the banks, who hold most of the debt on airline balance sheets, holding the bag.

Douglas A. McIntyre is an editor at 247wallst.com.

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Fort Worth-based AMR Corp. (NYSE: AMR), parent of American Airlines, was the first major U.S. airline company to report first-quarter results, and it posted a loss of $1.32 per share. Revenue rose 5% to $5.7 billion. Analysts surveyed by Thomson Financial had expected a loss of $1.34 per share on revenue of $5.73 billion.

Filling seats wasn't American's problem -- average occupancy hit a record 79.1% percent in the quarter. Average fares paid rose 5.1%, as airlines raised ticket prices. But executives said they were concerned about the weakening economy and even more worried about skyrocketing fuel costs. American's fuel spending jumped 45%, offsetting further increases in revenue.

American announced that it will be cutting U.S. capacity by 3.6% this year and selling 90% of its investment arm, American Beacon Advisors. The company also expects to sell or spin off its American Eagle regional airline this year to raise additional cash.

American is also speeding the replacement of its fleet with more fuel-efficient Boeing (NYSE: BA) 737-800s, taking delivery of 30 new planes in 2009 and 2010 instead of the previously planned 23.

AMR shares rose 35 cents, or 4.1%, to $8.92 in trading Wednesday.

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What works for two airlines should work for two others. At least that is the thought process behind a possible merger of United (NASDAQ:UAUA) and Continental (NYSE:CAL). They believe that if there are financial and marketing advantages to the Delta (NYSE:DAL) merger with Northwest (NYSE:NWA) that they should go next.

According to Reuters the two carriers "have laid most of the groundwork for a merger, two people briefed on the matter said, and could have a deal ready "pretty quickly" if Delta Air Lines and Northwest Airlines announce a tie-up." Now that the Delta/Northwest deal is done, they are likely to speed up that process.

While the value of airline mergers is dubious, two big mergers could cause regulators to turn down both. The marriages are based on the idea that airlines can cut costs in personnel, marketing, and route consolidation. If the is true, it means lay-offs and service to fewer cities. It also could help an airline to raise ticket prices as it becomes the sole providers to air travel out of some cities.

Two big airline mergers have to make the US government looks at whether it is good to have only three large airlines in the US, including AMR (NYSE:AMR) instead of five.

Douglas A. McIntyre is an editor at 247wallst.com.

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American Airlines, a subsidiary of AMR Corp. (NYSE: AMR), has announced that it received the green light from aviation officials to return all of its 300 grounded jets to service. The jets were temporarily grounded as the Federal Aviation Administration surprised the airlines as officials thought the required repairs had been made weeks ago . Officials said that "the wiring still was not secured and stowed properly in wheel wells."

American, the U.S.'s largest airlines, resumed flying the MD-80s today after canceling more than 3,000 flights this week. The AP story linked to above quoted an S&P analyst who reckoned the cancellations cost the struggling airlines at least $30 million.

There is quite a row going on at SeekingAlpha (warning: foul language) where top media blogger, Jeff Jarvis, has recently turned his sights on the airline industry as a whole. Jarvis, well-known for his views on the death of old media, Jarvis augers that without change the whole industry is in a death-spiral.

Says Jarvis, "I think the essence of their future is: They [the airlines] have to explore new value by having a decent relationship with us, using that new value to improve the experience so they can have a decent relationship. Screwing your customers is the least sustainable business model."

Them's fightin' words...

Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.

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Another US airline has gone into Chapter 11. This time it was Frontier (NASDAQ:FRNT). According to MarketWatch, "The airline said the decision was taken after its principal credit card processor unexpectedly said it would start withholding 'significant proceeds' received from the sale of Frontier tickets." That may have been the most immediate reason but rising fuel prices and falling passenger receipts are eating at all carrier profits and Frontier joins ATA and Aloha Air in bankruptcy.

Frontier will attempt to continue its scheduled flights.

The news comes along with word that the Delta (NYSE:DAL) pilots union has agreed to terms which will allow the airline to merge with Northwest (NYSE:NWA). Whether that merger is too late to save both companies can only be a matter of speculation.

The airline in the most trouble now is AMR (NYSE:AMR), parent of American. The company has the largest debt-load among major carriers at over $11 billion. Cash flow at the firm has been dropping and management has said that flight cancellations due to FAA inspections will cost tens of millions of dollars.

With a dicey balance sheet and growing revenue problems AMR is the most likely candidate to be the next bankruptcy victim in the industry.

Douglas A. McIntyre is an editor at 247wallst.com.

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The New Espionage Threat
A BusinessWeek probe of rising attacks on America's most sensitive computer networks uncovers startling security gaps at key US government agencies and critical government contractors, especially defense contractors. The perpetrators of these attacks are often impossible to track down, and likely include foreign governments. And quietly, the US government is moving towards spending billions of dollars to better protect their interests in cyberspace.
The New E-spionage Threat - BusinessWeek


6 Stocks to Buy and Hold
Sick of the market's gyrations? A master analyst identifies stocks that are safe bets for the next ten years. They include Alberto-Culver, Ansys, Inc., AptarGroup, Inc., Dentsply International, Stericycle, Inc. and Stryker.
Six Stocks to Buy and Hold - Kiplinger.com


Surviving Flight Cancellations
Emergency repairs and defunct airlines have stranded hundreds of thousands of travelers in recent weeks, sending the industry into a tailspin. With hundreds of flights grounded, here's how to salvage your trip or get money back.
Salvaging Your Trip When the Flight Is Cancelled- SmartMoney.com


America's Most Congested Cities
The D.C. Beltway is legendary for its ability to cause residents frustration. What has made things worse over the last few years is increased suburban sprawl so it should be no surprise to D.C. residents that Washington tops the list. Others ranking highly include Atlanta, Los Angeles, San Francisco, Houston and New York.
In Pictures: America's Most Congested Cities - Forbes.com


Tax Nightmare: More Filers Are Falling Victim to Identity Thieves
Federal Trade Commission complaints involving tax returns linked to identity theft have risen 158% since 2003. Similar complaints to the IRS Taxpayer Advocate jumped to 3,327 in federal fiscal year 2007, up 644% in three years. Identity theft has emerged as one of the top problems facing taxpayers. Often, the goal is to collect an undeserved tax refund. File with one stolen identity, claim multiple dependents and apply for the federal Earned Income Tax Credit, and an identity thief can snag a tax refund worth thousands of dollars, or more.
Identity thieves tax the system - USATODAY.com


Metro Areas with Biggest Home Price Gaps
Here are some U.S.enclaves where the lofty house prices are in sharpest contrast to those of ordinary homes in the same metropolitan area.
http://images.businessweek.com/ss/08/04/0410_luxury_realestate/index_01.htm?technology+slideshows Full Story: Brisk Market for Palatial Pads


Slash Your Grocery Bills
Here are Consumer Reports 10 steps to a lower supermarket bill.
ConsumerReports.org - Best everyday products, slash your grocery bill

Are You a Tax Procrastinator?
Why do we procrastinate, foot-drag, dither and delay filing our income tax, even when we owe nothing or can claim a refund? After all, as Ben Franklin observed, taxes rank right up there with death in life's short list of inevitabilities.
The psychology behind tax procrastination - Bankrate.com


Best Lawn Gear: Mowers and Trimmers
It's the time of year when people start caring for their yards. Consumer Reports is here go help guide.
Best Yard Gear - Lawn Mower Review Best Yard Gear - Lawn Tractor Review

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Stock futures were lower this morning amid fears of weak earnings reports and jitters about oil prices, which continue to rise today.

Stocks fell Wednesday after a lowered outlook from UPS, seen as an economic bellwether, and oil briefly topping $112 a barrel, bringing the Dow industrials down 49 points or 0.4%, the Nasdaq Composite down 26 points or 1.1%; and the S&P 11 points or 0.8% lower.

On the economic calendar today, the weekly jobless claims data for the week ending April 5 is due out this morning at 8:30 a.m. EDT. According to Bloomberg, claims are expected to be around 386,000, and anything above 400,000 will fuel concerns about the weakening of the job market. Investors will also be watching March chain store sales reports. The day began with an upbeat report from Costco (NASDAQ: COST), whose sales rose 7%. Wal-Mart (NYSE: WMT) then reported its same-store sales rose 0.7%, which was below analysts' estimates of 1%, but said it expects better April figures. The company said its inventory in US stores is well managed.

Dupont (NYSE: DD) said in a statement today that its first quarter earnings topped forecasts.

In the news, the New York Times reports News Corp. (NYSE: NWS) may be joining forces with Microsoft (NASDAQ: MSFT) in its bid for Yahoo! (NASDAQ: YHOO). The two companies are said to be in talks to combine News Corp.'s MySpace, Microsoft's MSN and Yahoo! to create an internet giant. Meanwhile the Wall Street Journal reports Yahoo! is in talks with Time Warner (NYSE: TWX) to combine with AOL in order to foil Microsoft's bid. Separately, Yahoo confirmed it would test Google's AdSense search service.

In other deal news, Japan's Takeda Pharmaceuticals said it would buy Massachusetts-based Millennium Pharmaceuticals (NASDAQ: MLNM) for $8.8 billion. Takeda's $25-a-share offer represents a 53% premium to Millennium's closing price Wednesday.

American Airlines plans to cancel 900 more flights today, following over 1,000 yesterday. AMR Corporation (NYSE: AMR), parent company of American, closed down over 11% yesterday.

European stocks continued to decline for a third day in a row and, as expected, the Bank of England cut interest rates by 25 basis points to 5% this morning.

Earnings are expected today from Genentech Inc. (DNA) and Rite Aid Corp. (RAD).

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