Apple takes investors on a wild ride

SAN FRANCISCO — With only modest expectations, Robert Leitao of Santa Clarita made a decision in 1994 that would change his life. He bought Apple stock.

This was several years before Steve Jobs returned to resurrect Apple, long before the iPod, the iPhone or the iPads that would make Apple the most valuable company in the world. A $1 investment in Apple at the start of 1994 is now worth about $70.

"Even with the recent sell-off, I'm still doing very well with the stock," said Leitao, who works as director of operations at a Catholic church in Burbank. "Apple provided for a down payment on our home for our blended family of four kids."

Leitao is one of the countless people whose lives have been touched by Apple's stock, which has become a global economic force. It is now one of the most widely held stocks, and the most valuable. Even as Apple Inc.'s market value fell to $480 billion on Friday, it was still larger than the gross domestic product of Norway or Argentina, and more than the combined value of Google Inc. and Microsoft Corp.

Yet that astonishing size and economic influence is also what, many analysts believe, contributes to the extraordinary volatility that can make owning Apple's stock a hair-raising experience.

It was inevitable, analysts say, that after Apple's stock rose 74% in the first nine months of this year, a huge wave of selling would occur as fund managers locked in their profits. And yet, in recent years, these huge dips have been followed by even bigger run-ups that led to new record highs, a dynamic that one trader refers to as the "Apple slingshot."

That pattern has some analysts betting Apple will soar above $1,000 a share in 2013, a scenario almost guaranteed to drive the global obsession with the company's stock into an even greater frenzy.

"The impact on shareholders and on the economy is incredible," said Howard Silverblatt, senior index analyst for S&P Dow Jones Indices. "We've not seen anything like this in the modern trading era. Ever."

Even after the remarkable decade of Apple's revival, the company's stock managed to reach new milestones this year. Early in 2012, Apple became the sixth company ever to surpass $500 billion in market value. In August, it became the only company in history with a market value topping $622 billion.

That performance affects just about anyone who has a 401(k) account or a pension. According to FactSet, a research firm that tracks investment funds, 2,555 institutional investors — mutual funds, hedge funds and pension funds, among others — owned stock in Apple, just behind the 2,590 that held Microsoft stock, as of Sept. 30, the most recent date funds had to disclose their holdings. However, the value of that Apple stock held by institutional investors on that day was $427 billion, compared with $172 billion for Microsoft, according to FactSet.

Silverblatt said the only company that has come close to having such a strong influence on the broader stock markets since World War II is IBM in the early 1980s, when the PC revolution was just getting started. But not only is the value of Apple's stock remarkable, so is its volatility. Such large stocks rarely have such big, quick swings.

Apple shares peaked at $702.10 on Sept. 19, up from $401.44 at the start of the year, a run that astonished analysts. But just as remarkable has been its collapse, falling as low as $505.75 in intra-day trading Nov. 16.

"It's just amazing because it's such a large company," said Brian Colello, a senior research analyst at Morningstar. "The company lost about $35 billion in market cap in one day. That's the size of some large-cap stocks."

Yet such swings have become commonplace for Apple stock. Before its latest swoon of 23.4% since its September high, Apple had experienced three previous corrections of more than 10% over the last two years.

The value of Apple's stock and its extreme swings have made researching it and trading it almost a full-time job for some people. Jason Schwarz of Marina del Rey edits EconomicTiming.com, which sends out up to five newsletters each week to its 1,000 clients that focus in large measure on Apple. He also helps run Lone Peak Asset Management, which has about $500 million in assets.

Schwarz says that what he calls the "Apple slingshot" is actually a virtue of the shares.

"The extraordinary volatility is the result of Apple's strength," Schwarz said. "People try to blame the volatility on Apple's weaknesses."

Schwarz and many other Apple believers argue that people are making a big mistake when they try to understand the stock's behavior by focusing on various bits of bad news such as an executive shake-up, the Maps controversy or questions about market share or competition. They have almost nothing to do with the regular hits taken by Apple shares, the argument goes.

Instead, folks like Schwarz say more technical factors are at work, such as the fact that the fiscal year for many stock funds ends Oct. 31. When the stock peaked in September, many fund managers rushed to sell to lock in profits for the year. Apple stock makes so much money for so many people, then plummets when shareholders pause to reap their profits, Schwarz says.

The volatility has continued in recent weeks, the argument goes, because fears of higher taxes next year have many fund managers trying to take advantage of short-term swings to make bigger profits. That volatility offers tantalizing windows for huge, short-term profits for investors willing to take the risk.

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Huge Wave of Google App Updates Hits iOS, Android

Google just brought iPhone and Android phone users a holiday gift. Google Maps has returned to the iPhone, this time in the form of its own separate app, while Google Currents — the company’s Flipboard-style online magazine app for Android — received a substantial update as well.

Besides the two big updates, about a half-dozen other apps for Android and Google TV received bug fixes and new features, according to Android Police blogger Ryan Whitwam. Here’s a look at what to expect, and where the rough edges still lay.

Google Maps is back

It was technically never there to begin with; the iPhone simply had a “Maps” app included, which used Google Maps’ data. But a few months ago, Apple switched from using Google’s map data to its own, which caused no end of problems as Apple’s data was incorrect much more often. These problems were sometimes hilarious, but in at least one case they were dangerous, as several motorists had to be rescued after becoming stranded inside an Australian national park (where Apple’s maps said the town they were trying to get to was).

Google Maps has also received a thumbs-down from the Victoria police in Australia, but is regarded as more reliable overall. It’s a completely new app this time, and while it has at least one “Android-ism” according to tech expert John Gruber (an Ice Cream Sandwich-style menu button), it’s reported to work well and doesn’t show ads like the YouTube app does.

It does, however, keep asking you to log in to your Google account so that it can track your location data.

Google Currents has a new look and new features

The update to digital magazine app Google Currents brings its features more in line with Google Reader, the tech giant’s online newsreader app which can monitor almost any website for updates. Like Google Reader, Currents can now “star” stories to put them in a separate list, can show which stories you’ve already read, and has a widget to put on your Android home screen. Other added features include new ways to scan editions and stories, and filter out sections you aren’t interested in.

Bugfixes and updates for other Google apps

Google Earth and Google Drive received miscellaneous bugfixes “and other improvements,” while Google Offers (a Groupon competitor) now features a “Greatly improved purchase experience.”

The Google Search app received a slew of additions to its Siri-like Google Now feature, including new cards to help while you are out and about and new voice actions (like asking it to tell you what song is playing nearby). The Field Trip augmented reality app now uses less battery life, and lets you “save cards” and favorite places you visit, as well as report incorrect data to Google. Finally, Google TV Search and PrimeTime for Google TV both received performance and stability updates.

Jared Spurbeck is an open-source software enthusiast, who uses an Android phone and an Ubuntu laptop PC. He has been writing about technology and electronics since 2008.

Linux/Open Source News Headlines – Yahoo! News

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Pasadena heats up as a culinary hub

Julia Child, who would have turned 100 this year, found her life's calling only by leaving her hometown of Pasadena for China and France.

Had the pioneering celebrity chef stayed in her "parochial" Pasadena, she once confided to a biographer, she might have "become an alcoholic."

Today, she would have been able to graduate from Le Cordon Bleu, the American version, without going all the way to Paris — or even leaving her hometown. In recent years, the famed culinary school has colonized more than 100,000 square feet near downtown Pasadena. It's just one sign of the frenzy of culinary activity in a city that has grown and changed drastically since Child's upbringing.

Today, with 550 eateries, Pasadena has more restaurants per capita than New York City. And it has attracted name-brand Westside chefs who once would not have considered setting up shop this far east.

The city's emergence as a culinary hub owes to a larger revitalization of Old Pasadena, along with that of downtown Los Angeles, encouraging an eastward migration of culinary culture. The rise of Asian food meccas still farther east has made substantial drives inland more appealing to foodies. Pasadena also draws sophisticated diners from San Marino, one of the country's wealthiest communities, but one with comparatively few dining options.

More broadly speaking, Child's lifelong campaign to elevate Americans' dining standards has affected her hometown as much as anywhere else. Many of Le Cordon Bleu's students enroll after years spent watching the Food Network. Many local chefs grew up using Child's cookbooks.

The local palate has also grown more adventuresome with an influx of immigrants from Asia and Europe, often drawn by Caltech.

"After living so long in Hollywood and on the Westside, here it's a total paradise," says Laurent Quenioux, who came to Pasadena in 2006 after 22 years in West Hollywood.

He is the French-born executive chef at Vertical Wine Bistro, situated atop a quaint 100-year-old courtyard on Raymond Street in Old Pasadena and owned by Hollywood producer Gale Anne Hurd (of "Terminator" fame, and also a local). "For a restaurateur, for a chef, this is where you want to be."

West comes east

Like Vertical, a number of other inspired eateries run by established or up-and-coming chefs have come to Pasadena. That includes the Basque tapas restaurant Ración on Green Street — the favorite local spot of legendary restaurateur Joachim Splichal, of Patina Group — along with the French bistro Noir Food & Wine on Mentor Avenue and the new Trattoria Neapolis on South Lake Avenue.

Newcomers from the Westside include the highly rated sushi chef Hiroshi Ikeda, who opened Sushi Kimagure near the Del Mar Metro stop last year after selling his location of 25 years at Hollywood Boulevard and Gower Street. Vegan mecca Real Food Daily, of Santa Monica and West Hollywood, opened a new location this year in the South Lake shopping district, following Lemonade and Tender Greens. Urth Caffe, which packs in patrons in Santa Monica, Beverly Hills, West Hollywood and downtown, is building its "most beautiful location yet" on Colorado Boulevard, to open in 2014, says owner Shallom Berkman.

Urth's new California-Spanish style structure, with lots of balconies and curving wrought iron, will sit a few paces from Le Cordon Bleu. "I hope we can hold events together," Berkman says.

The presence of the cooking school means that chefs in tall white toques blanches and students in white skullcaps regularly stream down the sidewalks of Colorado Boulevard like some new migratory species: the wannabe celebrity chef. All wear white jackets with the blue logo of the 117-year-old institution stitched on the left shoulder. You'll find graduates or externs sweating in the kitchens of most of the city's restaurants.

"I get students from there all the time," says Chef David Féau, executive chef at the Royce restaurant, the highest-end establishment in town at the Langham Huntington Hotel, formerly the historic Huntington Hotel. Féau, who also owns a bistro in the St. Germain des Prés neighborhood of Paris, has stocked his kitchen with seven Cordon Bleu Pasadena alumni.

When the day comes for him to leave the hotel, Féau says he won't return to Paris or New York. Instead, he hopes to open a bistro in Pasadena, or maybe neighboring South Pasadena near Mission Street, where he can translate the high standards of the Royce's French cooking for diners with smaller pocketbooks.

"I really believe there will be more and better restaurants here than there will be in downtown Los Angeles," Féau says.

Splichal, who lives in San Marino, says everyone thought he was crazy when he opened Cafe Pinot downtown 18 years ago, when the area was a comparative wasteland. "Now we have 50 restaurants more than we did 20 years ago downtown," Splichal says. Of Pasadena, he says, "We will get there as well."

'It is really hot and horrible work'

Le Cordon Bleu's presence has not been without controversy. Many local chefs and restaurateurs are unimpressed with its graduates and think it promises its students too much.

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Connecticut shooting: 20 schoolchildren among the 28 dead

The toll in the Connecticut shooting stands at 28 dead, including 20 children and the gunman, Connecticut State Police said Friday.

Speaking at a televised news conference from Newtown, Conn., State Police spokesman Paul Vance confirmed the death toll, making this the deadliest shooting since the Virginia Tech rampage in 2007.

According to Vance, the gunman entered the school and fired at students and staff in one section – two rooms – at the school, he said.

PHOTOS: Shooting at Connecticut elementary school

Eighteen children were pronounced dead at Sandy Hook Elementary School in Newtown. Two pupils were taken to hospitals and pronounced dead there.

Six adults were dead at the scene as was the gunman. Another person was found dead at what Vance described as “a secondary crime scene” in Connecticut, bringing the total to 28.

One person was injured.

None of the victims were identified pending identification, Vance said.

“It’s still an evolving crime scene and it’s just hours old,” Daniel Curtin, a FBI special agent in Connecticut, said. “And it’s obviously very tragic. All we’re saying is that the FBI and our agents have a presence there to assist in any way possible. Because right now it’s a Connecticut state and local investigation at this point. But in times of trial like this we work together.” A weapon was recovered at the scene.

According to sources, the event began with an argument with the principal. Some of the staffers were shot first, then the gunman advanced on a classroom, shooting.

TIMELINE: Deadliest U.S. mass shootings

The incident began at about 9:40 a.m. EST at the school in Newtown, a town of about 27,000 people.Stephen Delgiadice told reporters that his  8-year-old daughter heard two big bangs and teachers told her to get in a corner. His daughter was fine.

“It's alarming, especially in Newtown, Conn., which we always thought was the safest place in America,” he said.

michael.muskal@latimes.com

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McAfee says will not return to Belize, willing to talk to police

(Reuters) – U.S. software pioneer John McAfee said that he will not return to Belize where police want to question him about a murder case, but that he is willing to let authorities from the Central American nation interview him in a “neutral country.”

McAfee, 67, went into hiding after his American neighbor Gregory Faull was fatally shot in November. He made his way secretly to neighboring Guatemala, but the authorities there deported him to Miami on Wednesday.

“I will not go back to Belize. I had nothing to do with the murder,” a relaxed-looking McAfee said in an interview on CNBC.

Police in Belize want to question McAfee as a “person of interest” in Faull’s killing, though authorities there say he is not a prime suspect. McAfee said he barely knew Faull and had “absolutely nothing” to do with his death.

Belize police say their country’s extradition treaty with the United States extends only to suspected criminals, a designation that does not apply to McAfee.

McAfee, an eccentric tech pioneer, made a fortune from the anti-virus software bearing his name and had lived in Belize for four years.

He has charged that authorities have persecuted him because he refused to pay $ 2 million in bribes, and that the extortion attempt occurred after armed soldiers shot one of his dogs, smashed up his property and falsely accused him of running a methamphetamine laboratory.

Belize’s prime minister has rejected the allegations, calling McAfee paranoid and “bonkers.”

(Reporting by Jim Finkle; Editing by Nick Zieminski)

Tech News Headlines – Yahoo! News

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Owner of Rivera plane being investigated by DEA

PHOENIX (AP) — The company that owns a luxury jet that crashed and killed Latin music star Jenni Rivera is under investigation by the U.S. Drug Enforcement Administration, and the agency seized two of its planes earlier this year as part of the ongoing probe.

DEA spokeswoman Lisa Webb Johnson confirmed Thursday the planes owned by Las Vegas-based Starwood Management were seized in Texas and Arizona, but she declined to discuss details of the case. The agency also has subpoenaed all the company's records, including any correspondence it has had with a former Tijuana mayor who U.S. law enforcement officials have long suspected has ties to organized crime.

The man widely believed to be behind the aviation company is an ex-convict named Christian Esquino, 50, who has a long and checkered legal past. Corporate records list his sister-in-law as the company's only officer, but insurance companies that cover some of the firm's planes say in court documents that the woman is merely a front and that Esquino is the one in charge.

Esquino's legal woes date back decades. He pleaded guilty to a fraud charge that stemmed from a major drug investigation in Florida in the early 1990s and most recently was sentenced to two years in federal prison in a California aviation fraud case. Esquino, a Mexican citizen, was deported upon his release. Esquino and various other companies he has either been involved with or owns have also been sued for failing to pay millions of dollars in loans, according to court records.

The 43-year-old California-born Rivera died at the peak of her career when the plane she was traveling in nose-dived into the ground while flying from the northern Mexican city of Monterrey to the central city of Toluca early Sunday morning. She was perhaps the most successful female singer in grupero, a male-dominated Mexico regional style, and had branched out into acting and reality television.

It remained unclear Thursday exactly what caused the crash and why Rivera was on Esquino's plane. The 78-year-old pilot and five other people were also killed. Esquino was not on the plane.

The late singer's brother, Pedro Rivera Jr., said that he didn't know anything about the owner or why or how she ended up in his plane.

Esquino told the Los Angeles Times in a telephone interview from Mexico City that the singer was considering buying the aircraft from Starwood for $250,000 and the flight was offered as a test ride. He disputed reports that he owns Starwood, maintaining that he is merely the company's operations manager "with the expertise."

Esquino is no stranger to tangles with the law. He was indicted in the early 1990s along with 12 other defendants in a major federal drug investigation that claimed the suspects planned to sell more than 480 kilograms of cocaine, according to court records. He eventually pleaded guilty to conspiring to conceal money from the IRS and was sentenced to five years in prison, but much of the term was suspended for reasons that weren't immediately clear.

He served about five months in prison before being released.

Cynthia Hawkins, a former assistant U.S. attorney who handled the case and is now in private practice in Orlando, remembered the investigation well.

"It was huge," Hawkins said Thursday. "This was an international smuggling group."

She said the case began with the arrest of Robert Castoro, who was at the time considered one of the most prolific smugglers of marijuana and cocaine into Florida from direct ties to Colombian drug cartels in the 1980s. Castoro was convicted in 1988 and sentenced to life in prison, but he then began cooperating with authorities, leading to his sentence being reduced to just 10 years, Hawkins said.

"Castoro cooperated for years," she said. "We put hundreds of people in jail."

He eventually gave up another smuggler, Damian Tedone, who was indicted in the early 1990s along with Esquino and 11 others in a conspiracy involving drug smuggling in Florida in the 1980s at a time when the state was the epicenter of the nation's cocaine trade.

Tedone also cooperated with authorities and has since been released from prison. Telephone messages left Thursday for both Tedone and Castoro were not returned.

Esquino eventually pleaded guilty to the lesser offense of concealing money from the IRS.

Joseph Milchen, Esquino's attorney at the time, said Thursday the case eventually revolved around his client "bringing money into the United States without declaring it."

However, Milchen acknowledged that a plane purchased by Esquino was "used to smuggle drugs."

He denied his former client has ever had anything to do with illegal narcotics.

"The only thing he has ever done is with airplanes," Milchen said.

Court filings also indicate Esquino was sentenced to two years in federal prison after pleading guilty in 2004 to committing fraud involving aircraft he purchased in Mexico, then falsified the planes' log books and re-sold them in the United States.

Also in 2004, a federal judge ordered him and one of his companies to pay a creditor $6.2 million after being accused of failing to pay debts to a bank.

As the years passed, Esquino's troubles only grew.

In February this year, a Gulfstream G-1159A plane the government valued at $500,000 was seized by the U.S. Marshals Service on behalf of the DEA after landing in Tucson on a flight that originated in Mexico

Four months later, the DEA subpoenaed all of Starwood's records dating to Dec. 13, 2007, including federal and state income tax documents, bank deposit information, records on all company assets and sales, and the entity's relationship with Esquino and more than a dozen companies and individuals, including former Tijuana Mayor Jorge Hank-Rhon, a gambling mogul and a member of one of Mexico's most powerful families. U.S. law enforcement officials have long suspected Hank-Rhon is tied to organized crime but no allegations have been proven. He has consistently denied any criminal involvement.

He was arrested in Mexico last year on weapons charges and on suspicion of ordering the murder of his son's former girlfriend. He was later freed for lack of evidence.

The subpoena was obtained by the U-T San Diego newspaper.

A Starwood attorney listed on the subpoena, Jeremy Schuster, declined Thursday to provide details.

"We don't comment on matters involving clients," he said.

In September, the DEA seized another Starwood plane — a 1977 Hawker 700 with an insured value of $1 million — after it landed in McAllen, Texas, from a flight from Mexico.

Insurers of both aircraft have since filed complaints in federal court in Nevada seeking to have the Starwood policies nullified, in part, because they say Esquino lied in the application process when he noted he had never been indicted on drug-related criminal charges. Both companies said they would not have issued the policies had he been truthful.

Another attorney for Starwood has not responded to phone and email messages seeking comment, and no one was at the address listed at its Las Vegas headquarters. The address is a post office box in a shipping and mailing store located between a tuxedo rental shop and a supermarket in a shopping center several miles west of the Las Vegas Strip.

___

Associated Press writers Elliot Spagat in San Diego and Ken Ritter in Las Vegas contributed to this report.

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Life Expectancy Rises Around World, Study Finds

A sharp decline in deaths from malnutrition and infectious diseases like measles and tuberculosis has caused a shift in global mortality patterns over the past 20 years, according to a report published on Thursday, with far more of the world’s population now living into old age and dying from diseases mostly associated with rich countries, like cancer and heart disease.

Tony Karumba/Agence France-Presse — Getty Images

Children in Nairobi, Kenya. Sub-Saharan Africa lagged in mortality gains, compared with Latin America, Asia and North Africa.

The shift reflects improvements in sanitation, medical services and access to food throughout the developing world, as well as the success of broad public health efforts like vaccine programs. The results are striking: infant mortality declined by more than half from 1990 to 2010, and malnutrition, the No. 1 risk factor for death and years of life lost in 1990, has fallen to No. 8.

At the same time, chronic diseases like cancer now account for about two out of every three deaths worldwide, up from just over half in 1990. Eight million people died of cancer in 2010, 38 percent more than in 1990. Diabetes claimed 1.3 million lives in 2010, double the number in 1990.

“The growth of these rich-country diseases, like heart disease, stroke, cancer and diabetes, is in a strange way good news,” said Ezekiel Emanuel, chairman of the department of medical ethics and health policy at the University of Pennsylvania. “It shows that many parts of the globe have largely overcome infectious and communicable diseases as a pervasive threat, and that people on average are living longer.”

In 2010, 43 percent of deaths in the world occurred at age 70 and older, compared with 33 percent of deaths in 1990, the report said. And fewer child deaths have brought up the mean age of death, which in Brazil and Paraguay jumped to 63 in 2010, up from 30 in 1970, the report said. The measure, an average of all deaths in a given year, is different from life expectancy, and is lower when large numbers of children die.

But while developing countries made big strides the United States stagnated. American women registered the smallest gains in life expectancy of all high-income countries’ female populations between 1990 and 2010. American women gained just under two years of life, compared with women in Cyprus, who lived 2.3 years longer and Canadian women who gained 2.4 years. The slow increase caused American women to fall to 36th place in the report’s global ranking of life expectancy, down from 22nd in 1990. Life expectancy for American women was 80.5 in 2010, up from 78.6 in 1990.

“It’s alarming just how little progress there has been for women in the United States,” said Christopher Murray, director of the Institute for Health Metrics and Evaluation, a health research organization financed by the Bill and Melinda Gates Foundation at the University of Washington that coordinated the report. Rising rates of obesity among American women and the legacy of smoking, a habit women formed later than men, are among the factors contributing to the stagnation, he said. American men gained in life expectancy, to 75.9 years from 71.7 in 1990.

Health experts from more than 300 institutions contributed to the report, which provided estimates of disease and mortality for populations in more than 180 countries. It was published in The Lancet, a British medical journal.

The World Health Organization issued a statement on Thursday saying that some of the estimates in the report differed substantially from those done by United Nations agencies, though others were similar. All comprehensive estimates of global mortality rely heavily on statistical modeling because only 34 countries — representing about 15 percent of the world’s population — produce quality cause-of-death data.

Sub-Saharan Africa was an exception to the trend. Infectious diseases, childhood illnesses and maternity-related causes of death still account for about 70 percent of the region’s disease burden, a measure of years of life lost due to premature death and to time lived in less than full health. In contrast, they account for just one-third in South Asia, and less than a fifth in all other regions. Sub-Saharan Africa also lagged in mortality gains, with the average age of death rising by fewer than 10 years from 1970 to 2010, compared with a more than 25-year increase in Latin America, Asia and North Africa.

Globally, AIDS was an exception to the shift of deaths from infectious to noncommunicable diseases. The epidemic is believed to have peaked, but still results in 1.5 million deaths each year.

Over all, the change means people are living longer, but it also raises troubling questions. Behavior affects people’s risks of developing cancer, heart disease and diabetes, and public health experts say it is far harder to get people to change their ways than to administer a vaccine that protects children from an infectious disease like measles.

“Adult mortality is a much harder task for the public health systems in the world,” said Colin Mathers, a senior scientist at the World Health Organization.

Tobacco use is a rising threat, especially in developing countries, and is responsible for almost six million deaths a year globally. Illnesses like diabetes are also spreading fast.

Donald G. McNeil Jr. contributed reporting.

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American, US Airways may merge to form largest U.S. airline

A global recession and a surge in fuel prices sparked a frenzy of airline mergers and acquisitions over the last decade, as carriers joined forces to stay airborne amid economic turbulence.

Merger mania is not over. The biggest yet may now be in the works, combining American Airlines and US Airways into the nation's largest airline with up to 1,500 planes in its main line and regional fleets and more than 120,000 employees.

Analysts say a merger between Fort Worth, Texas-based American and Tempe, Ariz.-based US Airways could be announced as soon as January. It would produce a mega airline with an estimated value of about $8 billion. At Los Angeles International Airport, American is already the largest airline.

Airline experts debated the financial merits of a merger, but they agreed passengers could face some short-term headaches if a deal happens.

"Mergers are never good for passengers because there are always disruptions," said Joe Brancatelli, an airline expert and online columnist on business travel.

Video chat: Airline workers have gripes too

If merger history is any guide, the integration of American and US Airways could lead to reservation system glitches, labor disputes and a cut in services to some markets, experts say. Airline mergers, they add, mean fewer competitors and thus higher fares.

"I believe merging the two companies would be at least a two-year difficult period with many challenges," said Ray Neidl, an airline analyst for Maxim Group, a New York investment banking firm.

Executives of the parent companies of US Airways and American Airlines are meeting behind closed doors and declined to comment publicly on a potential merger. But the union for American Airlines pilots, which supports a merger, says an integrated American-US Airways would fly more efficiently and offer more destinations.

Still, Tom Hoban, spokesman for the Allied Pilots Assn., concedes that "there are always going to be some operational challenges."

Indeed, airline mergers rarely run smoothly.

Dozens of United Airlines flights have been delayed over the last year because of computer glitches, apparently resulting from efforts to switch over to the reservation system formerly used by merger partner Continental.

Integrating labor groups, such as pilots, can also lead to problems, such as strikes and job actions.

US Airways completed a merger with America West Airlines in 2005 but has yet to get pilots and flight attendants from the two airlines to agree on integrated employment contracts.

After filing for bankruptcy last year, American Airlines parent AMR threw out its previous labor contracts and jumped into strained contract negotiations with its pilots. AMR contended American Airlines pilots filed an unusually high number of last-minute maintenance work orders in September, delaying hundreds of flights, in a bid to coerce management into reaching a deal. The pilots' union conceded that the pilots filed the maintenance orders but only because it was required of them. The pilots voted this month to approve a new labor contract.

By cutting competition, a merger between American and US Airways may push up fares but not significantly, said UC Irvine Professor Jan Brueckner, who coauthored a report on the effects of airline mergers. In the end, he said, cost savings created by the merger would more than make up for the higher fares.

"This impact is likely to be dwarfed by the network benefits enjoyed by passengers and by the cost synergies of the merger, some of which will eventually be passed on to consumers," Brueckner said.

Whatever those challenges, frequent fliers don't seem too worried.

Mitch Smith, a frequent flier from Minnesota, said he isn't expecting higher fares. "There will still be United, Delta and Southwest to compete with," he said.

Karen Constine, a public affairs and cultural management consultant from Los Angeles, is hopeful a merger could improve American, an airline she often flies abroad.

"If this helps bring more services for customers, then that certainly is great," she said.

American, the nation's fourth-largest airline, has been the subject of merger talk since AMR filed for bankruptcy in November 2011.

US Airways, the fifth-largest airline, has pushed for a merger, arguing that the two airlines can combine to better compete against bigger carriers such as Delta, which merged with Northwest in 2009, and United, which merged with Continental in 2011.

US Airways submitted a merger proposal in November that would give AMR creditors 70% of the new mega airline, leaving US Airways 30%, according to news reports.

US Airways went so far as to convince three of American Airlines' unions to back a merger. One of the key arguments for a merger is that US Airways' extensive service on the East Coast can help boost American's sparse presence in the region.

Although American Airlines executives say they want to exit bankruptcy before considering a merger, Neidl estimated that the odds of a merger with US Airways before American exits bankruptcy are 75%.

"Both can survive on their own for the foreseeable future," he said, "but over the long run, each would erode in their competitive positions."

hugo.martin@latimes.com

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Susan Rice withdraws from Secretary of State consideration

WASHINGTON – Susan Rice, who came under heavy criticism for her defense of the Obama administration after armed militants killed four Americans in Benghazi, Libya, withdrew her name from consideration for secretary of State on Thursday as the president began to narrow his choices for key Cabinet positions.

“If nominated, I am now convinced that the confirmation process would be lengthy, disruptive and costly – to you and to our most pressing national and international priorities,” Rice wrote in a one-page letter to President Obama. “That tradeoff is simply not worth it to our country.”

In a statement, Obama praised Rice, who is the U.S. ambassador to the United Nations, as a key member of his Cabinet and “an advisor and friend.”

PHOTOS: Notable moments of the 2012 presidential election

“While I deeply regret the unfair and misleading attacks on Susan Rice in recent weeks, her decision demonstrates the strength of her character, and an admirable commitment to rise above the politics of the moment to put our national interests first,” Obama said.

The decision leaves Sen. John Kerry (D-Mass.) as the leading contender to head the State Department after Hillary Rodham Clinton steps down early next year. That, in turn, would require a special election in Massachusetts and likely give Scott Brown, a moderate Republican who lost his Senate seat to Democrat Elizabeth Warren in November, another chance to run.  

White House aides said the president also is now likely to choose either Chuck Hagel, a Republican and former U.S. senator from Nebraska, or Michele Flournoy, formerly the highest-ranking woman at the Defense Department, to replace Leon E. Panetta as secretary of Defense. If nominated, Flournoy would be the first woman to run the Pentagon.

Rice drew flak after she appeared on several Sunday TV talk shows five days after militants stormed a U.S. diplomatic mission in Benghazi in eastern Libya on Sept. 11, killing U.S. Ambassador J. Christopher Stevens and three other Americans.

Although Rice relied on so-called talking points given to her by the CIA, a number of Republican lawmakers said she had falsely described the attacks as spontaneous protests and not a calculated act of terrorism by Libyan extremists. Critics said she had tried to downplay the nature of the attacks to protect Obama during his reelection campaign.

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Rice later agreed that her statements were incorrect, but blamed the information she was given by the intelligence community. It did little to stanch the criticism, however.

As speculation grew that Rice was a likely candidate to replace Clinton, she tried to disarm her sharpest critics by meeting senior Republicans in closed-door meetings on Capitol Hill. But Sens. Lindsey Graham (R-S.C.), John McCain (R-Ariz.) and Susan Collins (R-Maine) all said they were dissatisfied, putting her expected nomination in jeopardy.

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[For the Record, 2:27 p.m. PST  Dec. 13: This post originally referred to Michele Flournoy as the current highest-ranking woman at the Defense Department, a position she formerly held before aiding Obama's reelection campaign.]

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iPhone 5 hits China as Apple market share slips

SHANGHAI (Reuters) – The China release of its iPhone 5 on Friday should win Apple Inc some respite from a recent slide in its share of what is likely already the world’s biggest smartphone market, but its longer-term hopes may depend on new technology being tested by China‘s top telecoms carrier.

Cupertino, California-based Apple has been in talks about a tie-up with China Mobile for four years. A deal with China’s biggest carrier is seen as crucial to improve Apple’s distribution in a market of 290 million users – which is forecast to double this year.

China is Apple’s second-largest and fastest-growing market – it brings in around 15 percent of total revenue – but the company’s failure to strike a deal with China Mobile means it is missing out on a large number of phone users. As the China pie grows, Apple’s sales increase, but without China Mobile, it’s losing ground at a faster rate compared to other brands.

“In absolute terms, this (iPhone 5) launch will certainly result in strong sales for Apple in China. However, in relative terms, I don’t believe it will move the needle enough in market share,” said Shiv Putcha, a Mumbai-based analyst at Ovum, a global technology consultant.

China Mobile and Apple initially said they were separated only by a technical issue – as the Chinese carrier runs a different 3G network from most of the world – but that has evolved into a broader and more complex issue of revenue-sharing.

“China Mobile and Apple still have to solve many issues, such as the business model, articles of cooperation and revenue division, but I believe we will reach an agreement eventually,” China Mobile CEO Li Yue was reported by Chinese media as saying in Guangzhou last week.

Apple China declined to comment. China Mobile said it had no update to the Apple discussions.

STRONG PRE-ORDERS

Apple’s ranking in China’s smartphone market slipped to sixth in July-September, according to research firm IDC, [ID:nL4N09G1QK] but investors, primed to look to China product launches for an uptick in Apple’s quarterly sales, have good headline numbers to digest – more than 300,000 iPhones pre-ordered on one carrier alone. But it’s the lack of a deal with the No.1 carrier that prevents those numbers being stronger.

The iPhone is currently sold through Apple’s seven stores, resellers and through China Unicom and China Telecom – which together have fewer than half the mobile subscribers of bigger rival China Mobile.

“Apple’s market share declined because of the transition between the iPhone 4S and 5. Their market share will recover (with the iPhone 5), but if you don’t have China Mobile, the significant market share gains will be very difficult,” said Huang Leping, an analyst at Nomura in Hong Kong.

TD-LTE: STILL DISTANT

Cutting a deal with a Chinese state-owned carrier may be less optimal than the deals Apple is used to in other markets, and analysts note that China Mobile wouldn’t necessarily open the flood gates for Apple.

Ovum’s Putcha believes Apple and China Mobile will eventually strike a deal – though this would be for an iPhone running on China Mobile’s next-generation network rather than its current 3G network.

Of China Mobile’s 704 million subscribers, only 79 million are on its 3G network, and Apple has been reluctant to sign up to China Mobile’s under-utilized, homegrown TD-SCDMA technology. “Apple likely doesn’t see the return-on-investment in extending themselves for TD-SCDMA,” Putcha said.

China Mobile is currently trialling its next-generation network, TD-LTE, which could be of more interest to Apple, but full-scale commercial use – and an iPhone tie-up – could still be years away.

ANDROID THREAT

Meanwhile, rivals are circling, eating away at Apple’s smartphone market share. Samsung Electronics, Lenovo Group and little-known Chinese brand Coolpad held the top three slots in the third quarter, according to IDC.

All three have relationships with China Mobile and offer smartphone models at different price points. Apple competes exclusively at the high-end, and even there, rivals are rolling out models with China Mobile. Last week, Nokia said it planned to release its latest Lumia smartphone with China’s top carrier, which is also expected to launch Research in Motion’s new Blackberry 10, analysts predict.

“The threat will still come more from the Android camp where they have many vendors already working with China Mobile and offering high-end phones,” said TZ Wong, a Singapore-based IDC analyst.

While these smartphones don’t generate the buzz of a new iPhone, Chinese buyers are not known for their brand loyalty, and this could siphon away users considering an Apple upgrade.

“I’ve used a Blackberry, Android and iOS and, personally, I want to try the Windows 8,” said Andy Huang, a 37-year-old fund manager, who owns most iPad models, an iPhone 4 and a 4S. “I think the Windows 8 is very innovative.”

With a China Mobile deal looking some way off, Apple could always boost market share by offering cheaper models – the basic iPhone 5 will cost 5288 yuan ($ 850) without a contract – though this appears an unlikely route for a high-end brand.

“If they want to expand market share, probably the only way to do it here dramatically would be to put out a lower cost phone,” said Michael Clendenin, managing director at RedTech Advisors. “It’s really uncertain if they’d decide to go that route … Apple’s a mystery in that regard.”

($ 1 = 6.2518 Chinese yuan)

(Additional reporting by the Shanghai Newsroom and Jane Lee; Editing by Kazunori Takada and Ian Geoghegan)

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