Saturday, September 20, 2003

AK Steel looks ahead


Talks with labor unions seen as critical to survival

By Ken Alltucker
The Cincinnati Enquirer

The removal of AK Steel's top executives could improve the Middletown-based firm's tumultuous labor relations and ease the path to cost-cutting measures, analysts and union officials said Friday.

While the company offered little information of plans one day after ousting chairman and chief executive officer Richard M. Wardrop Jr. and president John G. Hritz, those familiar with the company say initiating talks with unions will be a top priority to keep the struggling firm afloat.

"This opens the door for better labor relations," said Brian Rayle, an analyst with Midwest Research in Cleveland.

It's too early to tell, Rayle said, but moves could be swift and include layoffs or even plant closings to reverse the firm's sagging fortunes. The company has posted losses in seven of the past eight quarters, including a $489.7 million plunge in the last quarter of 2002.

The company promoted chief financial officer James L. Wainscott to acting chief executive while a search committee headed by retired Caterpillar chairman Donald V. Fite searches for a new CEO. A company spokesman Friday declined to discuss the firm's intentions beyond a prepared statement released by the board Thursday after the close of trading. Friday, AK's stock dropped 24 cents to $2.32.

At the firm's Middletown headquarters, workers expressed shock and worry about their future. Yet they also were optimistic that a new management team could bolster labor relations and improve the fortunes of the largest U.S. supplier of automotive steel.

"The management that was in place needed to go, and I'm glad to see it's gone," said Ed Shelley, president of Armco Employees Independent Federation, which represents 3,100 of AK's 4,000 Middletown employees. "I'm concerned about the workers at this plant. I'm hoping it's a better sign."

Three months ago, Wardrop pursued concessions from the union. Talks slowed after the union requested that AK provide a more detailed picture of the company's financial health.

"They asked for cuts - significant cuts," said Shelley, a 341/2 -year AK veteran who works as a rigger.

The company's six-year contract with the Middletown workers doesn't expire until the fall of 2006. The contract blocks the company's ability to lay off workers, but some positions can be eliminated through attrition, Shelley said.

Labor unions representing AK's work force outside Middletown also cheered Wardrop's removal.

"The union is looking forward to working with new management to create a more productive and successful environment," said Leo Gerard, president of the United Steelworkers of America. "It is unfortunate that has come to this, but in many ways, this is a positive development."

Yet the company faces other problems beyond rocky labor relations. Contract disputes with General Motors, pending racial and environmental lawsuits and a failed attempt to buy Indiana-based National Steel have compounded the problems of Butler County's largest private employer.

Furthermore, a shrinking steel market and increasing pressure from competitors that have done a better job of managing costs puts AK in a difficult position, Rayle said.

Others said that U.S. steel manufacturers that have survived the industry's consolidation - more than 30 have filed for bankruptcy since 1997 - will be well positioned. And AK might be particularly strong because it is the largest U.S. supplier of automotive steel.

"If you have a strong automotive position, there is a reason to suggest that good times are well ahead," said Dick McLaughlin of Pittsburgh-based Hatch Consulting. "There's a better balance between the steel suppliers and automotive buyers. Automotive companies can no longer play suppliers against one another."

Others offered a grim outlook for integrated companies - the ones that make steel the traditional way with blast furnaces - such as AK.

Robert Crandall, an economist at the Washington-based Brookings Institution, said integrated firms such as AK will be phased out as newer technology takes hold.

AK is "clearly in a lot of trouble," Crandall said. "The old-line integrated companies are failing one after the other."

James McNair contributed to this report. E-mail kalltucker@enquirer.com



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