Northwest Airlines Corp. (NYSE: NWA) is feeling the heat of high oil prices like most of us, and announced 2,500 job cuts (8.3% of its workforce) yesterday evening. In addition to the job cuts, the regional air carrier will now charge $15 for a single piece of carry-on luggage. Want to redeem some frequent-flier rewards? It'll cost you another $100.

Northwest isn't the first (and won't be the last) to charge for almost any luggage brought on board by customers. With all the other (undisclosed) fees it will be adding to its services, the carrier said that it expected to add $250 million to $300 million a year in revenue. Sounds like what the telecom companies have been doing for years sliding in fees to prop up profits.

Northwest CEO Doug Steenland said, "These reductions are the direct result of our extraordinary fuel costs and the necessary actions we must take to right-size our airline and eliminate unprofitable flying." Regarding the frequent-flier redemptions, Steenland indicated that Northwest would charge $25 for domestic tickets, $50 for trans-Atlantic tickets and $100 for trans-Pacific tickets -- but did call the new frequent-flier service fees "temporary."

Fuel prices seem to be the number one concern on just about everyone's mind lately, and it seems like things are not going to be getting better any time soon. As prices have risen to record levels, many of us have decided to cut back on our driving, especially on long trips in order to save a little on our fuel prices. Well, the airlines are no different, and there's an interesting report today in The Wall Street Journal showing how airlines are cutting back on long flights in order to save a little on fuel consumption.

It is a pretty nasty cycle we are seeing with the airlines. The higher fuel costs have led to higher tickets prices and extra fees. These higher prices have led to less air traffic, and that has led to an even greater need to find more ways to cover rising costs. Definitely a tough situation.

The new way they are starting to combat the high costs of flying is by cutting back, or postponing long international flights, in particular flights that are in excess of 12 hours.

The weak market conditions have caused many stock prices to fall under $10. Not only smaller -- and perhaps lesser known -- stocks trade under $10 these days, but also some big and famous names such as Ford Motor Co. (NYSE: F), Motorola Inc. (NYSE: MOT), Sprint Nextel Corp. (NYSE: S), Washington Mutual Inc. (NYSE: WM) and Del Monte Foods (NYSE: DLM), as well as many airline companies like Northwest Airlines (NYSE: NWA) and JetBlue (NASDAQ: JBLU).

While those names could sound tempting for investors who may think they are cheap, BusinessWeek's Karyn McCormack reminds us that not everything that is cheap is a good bargain, and there are some risks that need to be taken into account.

One common problem for most of these stocks is that they trade under $10 for a reason. That reason is usually hardly any earnings growth, if any at all. And with a weak economy, these companies would have an even harder time to stimulate growth. Add to the mix the fact that institutional investors don't like to touch stocks under $10 and the potential for recovery is not good.

Another day. Another merger of two struggling airlines.

This time it''s UAL Corp.'s (NYSE: UAUA) United Airlines and US Airways Inc. (NYSE: LCC), which together lost more than $773 million in the first quarter are reportedly in are "advanced" merger talks, two sources familiar with the situation told The Associated Press. These "sources" may be public relations people who are leaking details of the deal at the direction of the investment bankers and the companies themselves.

Wall Street is reacting positively to the news sending shares of US Airways in mid-afternoon trading. I am not so sure a celebration is in order. For one thing, as Reuters and the Associated Press both have noted this is a marriage of necessity.

"The discussions intensified over the weekend after Continental Airlines Inc, which had been in negotiations with United, pulled out to explore a potential marketing alliance with AMR Corp's American Airlines and British Airways Plc," according to Reuters.

The combined company would have to compete against the combined Delta Airlines Inc. (NYSE: DAL) and Northwest Airlines Corp. (NYSE: NWA) which will create the largest airline.

Airline mergers have had such a lousy track record, what makes people think these will be any different?

MAJOR PAPERS:

• According to people familiar with the matter, the Wall Street Journal reported that home-furnishings retailer Linens 'n Things, acquired by Apollo Management in 2006 and caught by a shrinking housing market and increasing debt load, is expected to file for Chapter 11 bankruptcy-court protection by Tuesday.

OTHER PAPERS:

• The Detroit News reported that Delta Air Lines Inc (NYSE: DAL) pilots have agreed to a contract revision that clears the way for Delta and Northwest Airlines Corporation (NYSE: NWA) to announce a merger next week, according to sources close the matter.
• The United Auto Workers union notified General Motors Corporation (NYSE: GM) of its deadline to strike three factories in Michigan if the two are unable to agree on local labor pacts, the Detroit News reported.
• The Business Standard reported that Toyota Motor Corporation (NYSE: TM) is planning to invest Rs 1,400 crore in Toyota Kirloskar Motor, its India subsidiary to set up its second plant in the country.

The on again, off again merger talks between Delta (NYSE: DAL) and Northwest (NYSE: NWA) have started again according to the Financial Times. They are being driven by an up-turn in fuel costs and a potential down-turn in traffic. The pilot's union, which had blocked earlier attempts at a merger, may be left on the sidelines for now. The boards of the two companies believe that they are bargaining for the survival of their respective companies.

While the last set of talks broke down in February, according to the FT, "Executives at Minnesota-based Northwest have since put pressure on their counterparts at Delta to proceed without the pilots' support."

A merger will not help with fuel costs and unions are not likely to give in to job cuts, raising the issue of strikes. Yet the big airlines feel that they must act even if it only saves them a dime. Most of the large airlines have big debt loads and falling cash-flow. Mergers often cause problems with customer service while the parties try to mesh their reservations systems and IT.

If fuel costs keep marching up and a deep recession keeps people off planes, Northwest and Delta can go into Chapter 11 as a combined company instead of separately.

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

MAJOR PAPERS:

• Troubled savings and loan giant Washington Mutual Incorporated (NYSE: WM) will receive a $5B investment from private equity firm TPG and other investors, the Wall Street Journal reported. For now, this eliminates the possibility that it will be acquired by another financial institution such as J.P. Morgan Chase & Co (NYSE: JPM).
• The Wall Street Journal also reported that music downloading copyright infringement lawsuits against Baidu.com Inc (NASDAQ: BIDU) and Sohu.com Inc (NASDAQ: SOHU) may be heard by a Chinese court.
• People close to the situation said that Delta Air Lines Inc (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) have revived merger talks. It is speculated, the Financial Times reported, that weak demand and high fuel costs are urging the airliners back to the table to work out a merger arrangement.

OTHER PAPERS:

• Evergreen Solar Inc (NASDAQ: ESLR) is expected to announce today that it will double the size of its manufacturing facility in Massachusetts and add about 350 new jobs as part of its ongoing expansion, according to the Boston Globe.

WEB SITES:

• Bloomberg reported that The Goldman Sachs Group Inc (NYSE: GS) has been the only major investment bank that has refused to reduce its leverage. In fact, Goldman's adjusted leverage ratio of assets rose to 18.6 at the end of February, from 17.5 at the end of November.

MAJOR PAPERS:

• Following the collapse of The Bear Stearns Companies Inc (NYSE: BSC), the industry is rampant with rumors wondering about the financial well being of scores of other institutions, according to a Wall Street Journal report called "The Credit Crisis Hits Wall Street". True or not, its giving fits to the companies, regulators, and investors.
• Skyrocketing fuel prices and a weakened economy are taking their toll on the airline industry, reported the Wall Street Journal. Additionally, the proposed Delta Air Lines Inc (NYSE: DAL) merger with Northwest Airlines Corporation (NYSE: NWA) has lost its momentum as airline pilots cannot agree on a structured seniority system.

OTHER PAPERS:

• According to people close to the situation, the New York Times reported that before the end of the month, Citigroup Incorporated (NYSE: C) is planning to lay off another 2,000 investment bankers and traders.
• The Detroit News reported that Ford Motor Company (NYSE: F) appears to have fallen short of its goals in the latest, and possibly last, round of company-wide buyouts for hourly workers.

MAJOR PAPERS:

• To help stabilize the housing market, the Wall Street Journal reported that the Bush Administration is planning to help create fresh funding for mortgages. The plan, which still requires final approval, is said to ease an excess-capital requirement for government sponsored organizations Federal National Mortgage Association (NYSE: FNM), or Fannie Mae, Federal Home Loan Mortgage Corporation (NYSE: FRE), or Freddie Mac, and the Federal Housing Administration.
• The Wall Street Journal also reported that a merger between Northwest Airlines Corporation (NYSE: NWA) and Delta Air Lines Inc (NYSE: DAL) may be derailed after Delta pilots notified executives they remain unable to reach an agreement with Northwest pilots on how to integrate pilot ranks should the two combine.
• The Financial Times reported that BAE Systems Plc (OTC: BAESY) won a $715M order to supply nearly 1,500 mine-resistant vehicles from the U.S. government.

OTHER PAPERS:

• The Chinese government has locked out Australian mining giants BHP Billiton Limited (NYSE: BHP) and Rio Tinto Plc (NYSE: RTP) from selling iron ore into its daily spot market, the Sydney Morning Herald reported. Mining sources said that the decision may have already cost Australia up to $300M in export profits.

MAJOR PAPERS:

• A memo sent by Delta Air Lines Inc (NYSE: DAL) to the company's employees regarding Delta's merger talks with Northwest Airlines Corporation (NYSE: NWA) stated that that no "potential transaction meets all [of Delta's] principles." The memo, the Wall Street Journal reported, is seen as a sign that merger talks between Delta and Northwest have stalled.
• A group of 14 hospitals and the Securities Industry and Financial Markets Association, a Wall Street trade group, asked the SEC to buy back the debt they had issued, the Wall Street Journal also reported.
• German lender HSH Nordbank has filed a lawsuit against UBS AG (NYSE: UBS) for allegedly maneuvering to saddle the German bank with troubled securities. HSH Nordbank contends that UBS sold it $500M in complex investments, which a UBS hedge fund later used as a receptacle for troubled subprime-mortgage securities, according to the Wall Street Journal.

WEB SITES:

• According to FAO Newsroom, world fertilizer production is expected to outstrip demand over the next five years and will support higher levels of food and biofuel production.

MAJOR PAPERS:

• The Wall Street Journal reported that KKR Financial Holdings LLC (NYSE: KFN), a unit of Kohlberg Kravis Roberts, revived concerns of a credit crunch after it asked for a restructuring of billions of dollars in short-term debt.

OTHER PAPERS:

• According to sources, the Chicago Tribune reported that Deutsche Lufthansa AG (OTC: DLAKY) could look to take an equity stake in a merger between Continental Airlines Inc (NYSE: CAL) and UAL Corporation's (NASDAQ: UAUA) United Airlines.
• The Associated Press reported that the pilots' unions of Delta Air Lines Inc (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) are unable to agree on how seniority for the companies' pilots would work under a combined carrier. The impasse puts the deal in "serious jeopardy," inside sources reported.

WEB SITES:

• Electronics retailer Sharper Image Corporation (NASDAQ: SHRP) has filed for bankruptcy, citing declining sales and profitability, Bloomberg reported.

Continental (NYSE: CAL) closed at $28.70 Thursday.

CAL and United Airlines (NYSE: UAUA) are in advanced negotiations and could complete a combination quickly if Delta (NYSE: DAL) and Northwest Airlines (NYSE: NWA) strike a deal, says Dow Jones.

WTI Crude oil is recently up .12% to $95.57 according to Bloomberg.

CAL March option implied volatility of 71 is above its 26-week average of 58 according to Track Data, suggesting larger price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

MAJOR PAPERS:

• Within two weeks a merger between Delta Air Lines Inc (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) is expected to be announced. Not far behind may be one between UAL Corporation's (NASDAQ: UAUA) United Airlines and Continental Airlines Inc (NYSE: CAL), the Wall Street Journal reported.

WEB SITES:

• Bloomberg reported that Berkshire Hathaway Inc (NYSE: BRK.A) Chairman Warren Buffett forecast that the dollar's value is likely to decline if policies remain unchanged and said he believes a credit crunch is not under way.
• Tech Crunch reported that either Google Inc (NASDAQ: GOOG) or News Corp's (NYSE: NWS.A) MySpace is likely to announces a social space acquisition in the near-future. According to industry sources, the acquisition could be in the $1B-$1.5B range and may involve Bebo.

MAJOR PAPERS:

• Although Delta Air Lines Inc (NYSE: DAL) would like to merge with either UAL Corporation's (NASDAQ: UAUA) United Airlines or Northwest Airlines Corporation (NYSE: NWA), the company is close to Air France-KLM (NYSE: AKH), and together the two may be able to better shape a deal, the Wall Street Journal's "Heard on the Street" reported.
• The Wall Street Journal also reported that recent acquisitions by Sun Microsystems Inc (NASDAQ: JAVA) and Oracle Corporation (NASDAQ: ORCL) have suggested factors like a slowing economy could kick the high-tech deals into a "higher gear".
• Following a risk/reward reassessment, UBS AG (NYSE: UBS) decided to wind down its Switzerland-based private banking business for rich U.S. clients; the decision was announced internally in late December, but confirmed publicly this week, the Financial Times reported.

OTHER PAPERS:

• According to the Economic Times, after the dissolution of a proposed joint venture with Rajesh Exports, Fossil Incorporated (NASDAQ: FOSL), the U.S. fashion accessories giant, is set to enter India on its own.

MOST NOTEWORTHY: Aerospace stocks, WuXi Pharma, Myriad Genetics, Cypress Bioscience and Knology were today's noteworthy initiations:

• LYON initiated shares of aerospace stocks including Goodrich Corporation (NYSE: GR), TransDigm Group Inc (NYSE: TDG) and Triumph Group Incorporated (NYSE: TGI) with Add ratings and a $74 target, $45 target and $90 target, respectively.
  
• WuXi Pharmatech (NYSE: WX) was started with a Hold rating and $29 target at Jefferies on valuation. JP Morgan started shares with a Neutral rating and Credit Suisse initiated shares with an Outperform rating.
  
• Myriad Genetics Inc (NASDAQ: MYGN) was started with a Hold rating and $50 target at Citigroup, as the firm is cautious on the Phase III Flurizan results and does not recommend putting new money here at these levels.
  
• Citigroup also initiated shares of Cypress Biosciences Inc (NASDAQ: CYPB) with a Buy rating and $22 target as the firm believes Milnacipran has sufficient database for approval and is capable of gaining meaningful market share as firstline therapy.
  
• Knology Inc (NASDAQ: KNOL) was initiated with a Buy rating and $25 target at BWS Financial, as the firm believes the company's growth potential is greater than other cable companies through a business plan that allows it to have operations in all regions of the U.S.

OTHER INITIATIONS:

• Wachovia resumed coverage of Liberty Media Corporation (NASDAQ: LCAPA) with an Outperform rating.
  
• Northwest Airlines Corporation (NYSE: NWA) and Delta Air Lines Inc (NYSE: DAL) were initiated with Overweight ratings at JP Morgan.
  
• Thomas Weisel started shares of Tyco Electronics (NYSE: TEL) with a Market Weight rating.
  
• Goldman initiated shares of Electronic Arts Inc (NASDAQ: ERTS) and Activision Inc (NASDAQ: ATVI) with Buy ratings and THQ Inc (NASDAQ: THQI) with a Neutral rating.