Middletown waits, worries
Deadline is midnight Tuesday
BY MIKE BOYER | ENQUIRER STAFF WRITER
MIDDLETOWN - This city of 52,000 is at a critical crossroads as contract talks between AK Steel, its largest private employer, and the independent union representing 2,700 employees at the sprawling Middletown Works face a midnight Tuesday deadline.
AK, Armco, its predecessor, and Middletown have been joined at the hip since Cincinnati businessman George Verity produced the first steel at the mill 105 years ago.
"Everyone in this town has some connection to AK," City Manager Bill Becker says. "Either they have a family member who works there or know somebody who does. You can't isolate AK from Middletown.''
But the competitive pressures rippling through the global steel industry, which have cost thousands of U.S. steel-making jobs and the elimination of such well known names as Bethlehem Steel, National and LTV Steel, threatens to rip apart the relationship between the company and its largest union, the Armco Employees Independent Federation, which has represented Middletown workers for 63 years.
Negotiators continue to talk as they have since the end of November, but last weekend the union members - who have never gone on strike - voted 2,368 to 56 to authorize a strike if no agreement is reached by the deadline.
"I hope there isn't a strike. People here have got to survive,'' said Jim Fetters, 55, of Summerville, who has worked at the mill for 33 years. He, like a lot of other workers who are eligible for retirement, have filed papers to retire in the event there is a work stoppage.
Another long-time employee, Jesse Baker, a burly furnace tender who lives in Franklin Township, says: "I'll tell you what the feeling is: This company has lied to us for so long, we're fed up.''
The workers say reduced staffing at the mill has meant many employees routinely work up to 80 hours a week, creating safety and health risks. Working in a steel plant can be dirty and dangerous, but well-paying. The typical hourly worker at Middletown makes about $65,000 annually, and many considerably more with overtime.
Still, Baker, who has worked 361/2 years at the mill, says he's willing to risk it all, if necessary.
"There's a point in a man's life when he's got to stand up and be a man," he says.
Although he remains optimistic an agreement can be reached, Bill Triick, president of the Middletown-Monroe-Trenton Chamber of Commerce, says, "clearly there's an air of unease and uncertainty in the community.''
The uncertainty over the contract is compounded by the fact that AK Steel is widely considered by investment analysts to be a possible candidate to be acquired if it can resolve the more than $3.2 billion in legacy costs its faces over pensions and health-care liabilities.
AK's shares closed Friday at $11.56, driven up on takeover speculation 83 percent from a 52-week low of $6.30 on June 27.
"There are no domestic steel companies immune from takeover interest,'' said Chris Olin, analyst with Longbow Research.
Becker, who has worked for the city of Middletown for more than 30 years as a police officer and as city manager, says: "This is a critical time for the Middletown community.''
Decades ago, Armco, AK's predecessor, was the dominant employer in Middletown.
Twenty years ago, when the company was more diversified, it employed about 7,000 in the Middletown area. Today the company's area employment is 3,400, including hourly and salaried workers, as it has cut costs and scaled back operations.
But AK workers still generate about 22 percent of the $18 million in revenue from the city's 1.5 percent income tax. AK pays another $7.8 million in personal property and real estate taxes. The company says its annual payroll in the area last year was $260 million, and it spends more than $775 million in the area economy, including purchases with suppliers and sales tax.
In the event of a strike or lockout by the company, Becker said, the city is making plans to step up police patrols and control new spending. "We're watching our nickels and dimes,'' he said.
Becker's comments are echoed by others.
"I think the general business community in Middletown is very concerned,'' said Jim Pierson, who operates Pierson Automotive, which has General Motors Corp. dealerships in Middletown.
So far, he said, his dealerships haven't seen any slowdown in sales because of strike fears.
"I just walked through the showroom and there was an AK employee in buying a car,'' he said.
Union officials and rank-and-file members have been increasingly critical of AK's negotiating approach and in particular the company's decision to bring in managers and replacement workers to learn the jobs of union members in the event of a work stoppage.
In 1999, when AK acquired Armco Inc., it locked out 600 members of the United Steel Workers at Armco's Mansfield, Ohio, mill for 39 months in a bitter and at times violent contract dispute that was resolved in late 2002.
Alan McCoy, AK spokesman, said the company isn't looking for a repeat of the Mansfield experience operating the mill with replacement workers.
"Our greatest desire is to get a competitive labor agreement,'' he said. "Using replacement workers is expensive. But we've got to have a contingency plan. We can't afford to lose one order from one customer."
Among union members there's a heavy air of distrust in what management says.
Chuck Brewer, 56, of Monroe, who has worked in the mill 33 years as a truck driver, says: "The rank-and-file feels like we've been lied to so much by the company that you can't really trust anything they say."
One sore point is a lack of profit-sharing.
"They promised us profit-sharing and we got it about three times out of all the years they promised it to us,'' said Brewer. "They've come up with different ways, in my opinion, to beat us out of it.''
A NEW STEEL ERA
AK Steel's management says the steel industry is vastly different than when the company and the federation last sat across the bargaining table in 1999. For one thing, more than 50 steel companies have filed for bankruptcy, many of them emerging without the pension and health-care costs that AK Steel is still burdened with. AK Steel's management has said it doesn't want to abandon the company's 32,000 retirees through a bankruptcy filing.
AK Steel is also dramatically different. Chairman and CEO James Wainscott, who was picked to lead the company in late 2003 after it racked up $1 billion in losses, has cut costs, including salaried and hourly jobs, sold non-core assets and tried to mend fences with customers, employees and the communities where it operates.
Last year, the company posted record sales of $5.7 billion on record shipments of 6.4 million tons of steel. But higher energy costs and higher pension and health-care costs resulted in a net loss of $2.3 million, or 2 cents a share. Adjusted income for 2005, before the charges, was $170 million, up from $146 million in the prior year.
Despite the financial turnaround, Wainscott has said repeatedly over the last two years that the company needs labor contracts with unions at all of its steel-making plants that are competitive with those of its larger rivals.
Analysts have said AK's labor agreements put it at as much as a $50 per ton disadvantage to its leading rivals.
So far, the company has negotiated what it calls competitive labor agreements with unions at four of its steel-making plants. The Middletown union is AK's largest, representing more than 40 percent of the company's total hourly work force of 6,100.
ACQUISITION A BETTER DEAL?
In a letter to Middletown employees Feb. 16, Wainscott said: "Not just any (contract) deal will do. It must be a competitive deal. We must have an agreement that reflects the realities of today's competitive global steel environment with regard to total employment cost and job flexibility.''
Even with the concessions AK Steel wants, some analysts have questioned how long the company can remain independent in the face of the consolidation sweeping the industry.
Brian Daley, who was elected president of the union last October, has said publicly his members might be better off in the long run if the company was acquired by a larger steel maker.
It's a sentiment echoed by rank-and-file members.
"This company's management has mismanaged us into the ground. So if we go into another company, we may take a pay cut, but we may have better managers," said Baker, the furnace tender. "I'm willing to take that risk."
In his employee letter, Wainscott said it's a mistake to think that a change in ownership would mean business as usual at the Middletown Works.
"Regardless of ownership, there is no room from high-cost operations anywhere in today's global steel marketplace,'' he said.
As evidence, the company points to what Mittal Steel Co., the world's largest steel maker, is doing at its recently acquired Weirton Steel mill, a 94-year-old tin-plate steel mill in Weirton, W.Va. Mittal plans to cut 1,000 jobs from Weirton's operations.
"Weirton's costs were simply too high,'' Wainscott told employees. "With Mittal operating a dozen other blast furnaces in North America alone, the new owner decided keeping Weirton open was not a good financial decision.''
That scenario causes Middletown officials to shudder.
"AK is incredibly important to this town,'' said Kelly Cowan, interim dean of Miami University Middletown campus, which sits on 40 acres donated by the steel maker. "If AK Steel were to disappear, I don't know what would happen to Middletown.''