UAL Corporation (NDAQ: UAUA) shares dropped nearly 40 percent after the carrier was slammed with skyrocketing fuel costs. As a result, the United Airlines parent was forced to reduce its domestic business to maintain adequate liquidity. Analysts also expressed doubts on a conference call that debt covenants may experience problems, although this was quickly dismissed by the airline's Chief Financial Officer.

The quarterly decline also prompted the troubled airline to revise its five-year plan that it was forced to make when it emerged from bankruptcy. Now, UAL plans to reduce its domestic capacity by 9% by the end of the year; eliminate 30 older aircraft from its operations; target another $200 million in nonfuel cost savings; cut another 1,100 jobs; and reduce planned capital spending in 2008 by about $200 million.

The trouble airline carrier also commented that it would participate in mergers and acquisitions when and if the right deals became available and it made sense for employees, customers and shareholders. However, UAL did not comment on reports that it is involved in a potential combination with Continental Airlines. Although, investors already know that the two parties have held advanced talks in the past!

The argument for consolidation in the industry lies on the fact that a larger entity will be able to collectively bargain for more favorable terms for fuel and other expenses. Meanwhile, the larger capital base will give it the ability to raise more financing on better terms and remain better capitalized. Combined, these factors have convinced many analysts that mergers like the proposed one between Delta and Northwest may give them a shot at sustainable profitability.

In the end, UAL Corporation still has a long way to go before it gets out of this mess. Any consolidation may be welcomed by shareholders who are now sitting on substantially greater losses. However, absent of any such deals, the airline may have to continue cutting while it waits for fuel prices to lower in the future to relieve pressure on its margins.

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AT&T Inc. (NYSE: T) announced a 22% increase in first quarter net income due to strong growth in wireless operations.

The country's largest telecommunications company had net income of $3.46 billion up from $2.85 billion last year. The highlight was earnings of nearly $3 billion by AT&T's wireless unit - double the unit's profit first quarter last year - on an 18% increase in revenue. Strong subscriber growth and increased revenue per subscriber, due to more expensive plans that feature Apple Inc.'s (NDAQ: AAPL) iPhone for instance, are driving AT&T's wireless resurgence.

The wireless unit added 1.3 million new subscribers to reach over 71 million total subscribers as of the end of March, all while increasing average revenue per user by 2% to over $50. Nearly half of this increase in subscribers were prepaid customers that are generally not as desirable because they use less expensive plans and are prone to switch carriers more often.

This wireless strength is needed to balance the continued decline of the company's landline business. The so-called "wireline" business unit posted a 2% drop in earnings and revenue. In a sign of the shifting business environment, the company recently announced plans to lay off 4,600 employees in an attempt to streamline its wireline business - approximately the same number of employees the company plans to hire back for its other units.

The real question moving forward is whether AT%T wireless, in a cutthroat sector, can continue to buttress the wireline business as it fades to obsolescence.

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Caterpillar Inc. (NYSE: CAT) who produces heavy industrial equipment reported last Friday the company’s record first-quarter sales and profit. The Peoria, Illinois-based company had seen a 13% rise this past March in its net income.  As well, the company’s overall business is doing very well abroad, despite rising material costs and currency issues with the ever so weak dollar.  The company today has seen an increase around 6% among its share value, which nowadays is a rare feat in the US market.
 
However, as Caterpillar, Inc. is doing very well for itself outside of the US, it has seen a slight trim in both it US and global forecast.  Caterpillar is still bulldozing through the rubble as Caterpillar’s Chief Executive Jim Owens wrote that there is a "robust demand for products used in the global mining and energy industries and for machines used by our customers to build infrastructure, particularly in emerging markets."

"Even though North America, our largest geographic market, is depressed, we are investing for growth," Owens said, adding that the company is "significantly" increasing capital expenditures.  The company, however, has trimmed its forecast for global economic growth to below 3% for 2008.
 
Caterpillar is playing in the sandboxes of Russia, China, and India to benefit their long-term strategies.  Despite the company did see a 3% rise in machinery and engine sales in North America in the first quarter, Caterpillar’s European revenues climbed 30% and Asian business was 37% higher.  Sales outside of North America accounted for 58% of total revenue, versus 53% of the total a year ago.

The Illinois-based group reported net income of $922 million, or $1.45 a share, up from $816 million, or $1.23 a share, a year earlier. Net sales rose 18% to $11.8 billion. The latest mean estimates of analysts polled by Thomson Financial were for earnings of $1.33 a share on revenue of $10.77 billion.  Currently, the company’s shares are trading just under 8% and trading at $84.80, nearing its 52-week high of $87.

Caterpillar still foresees its earnings for 2008 to grow 5% to 15% on revenue increasing 5% to 10%. It lowered its outlook for North America sales, but the company strongly believes that the demands and business abroad are going to hold the company above water, as the rest of the US economy seems to have slowed immensely due to construction zones.

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