Alcoa Strike Could Hurt Both Sides, Analysts Say
Published by MAC on 2006-04-18Source: Reuters
Alcoa strike could hurt both sides, analysts say
By Steve James, NEW YORK (Reuters)
18th April 2006
Just when higher aluminum prices are starting to translate into bigger profits for Alcoa Inc., the company faces potentially crippling labor strife.
Analysts are divided over whether next month's negotiations will result in the first major test in the industry since a six-week strike at Alcoa in 1986.
But they say any protracted strike could hurt both sides, with possible plant closures and layoffs as well as supply disruptions -- most notably to the aerospace industry, which uses aluminum for aircraft and rocket manufacture.
Negotiations don't start until May 18 on a new labor contract covering 9,000 workers at 15 U.S. plants, but already the company is making contingency plans by building up inventories and training managers to operate plants.
Last week, Alcoa Chief Executive Officer Alain Belda talked tough while announcing that first-quarter profits more than doubled. "We are never looking for confrontations, but must be, and are, prepared. I will not mortgage the future of the company.
"It's not about unions; it's about Alcoa and we have very clear programs to operate as much as we can to minimize disruption if there is a strike," he told Wall Street analysts.
In response, Jim Robinson, United Steelworkers of America (USW) chief negotiator, said he was not looking for a strike.
"I certainly hope not and will do everything to find a satisfactory agreement. We don't have a hard attitude, but we want to make sure all the people who made money for the company are treated fairly.
"They (USW members) contributed to an unbelievable quarter for Alcoa and the company has expanded and grown dramatically over the last 10 years," Robinson told Reuters by telephone from his office in Gary, Indiana.
The talks in St. Louis will attempt to reach a new pact to replace one that expires on May 31. It covers approximately 20 percent of the more than 45,000 U.S. employees of the world's largest aluminum producer.
Both sides have said the four big issues are retiree healthcare, active workers' healthcare, a two-tier benefit structure for new hires, and outsourcing of some tasks.
"We have every intention of going to St. Louis to get an agreement, but there are some very difficult issues on the table," said Robinson. Asked if they were surmountable, he said: "Yes, but I don't want to speculate. We have been talking about the issues for some time."
He said the mood of his members, who work in smelters, extrusion and rolling operations, is "very serious. Alcoa's negotiators ... are taking it seriously, as they should."
Analyst Lloyd O'Carroll, of Davenport & Co., said he did not believe the chance of a strike was higher than 50 percent. "(But) we do believe that it could be significant," he said in a research note.
Charles Bradford, of Bradford Research/Soleil, said Alcoa would win in the long run if the smelters were closed, because it would push up the price of aluminum.
He recalled that in 1986, management kept operations going. "They ran the plants well last time; the union was the big loser. But what they (management) found out was that they could run the operations with 30 percent fewer workers."
Bradford said Alcoa did not reduce labor immediately, but it did over the next few years.
"Belda has to do something on health care; the auto industry -- Ford and GM -- and the steel industry have done it," he said. "But the bigger issue is whether there will be further job cuts."
David Brooks, deputy editor of the trade magazine American Metal Market, also believes some plants might be in danger of closing in the event of a long strike.
"Certain assets might not survive a lengthy labor action that puts them out of operation," he wrote, noting that Alcoa is building large, low-cost smelters abroad.
With little excess capacity in the system, some customers might be nervous of a strike, Brooks said. "The aerospace industry is front row center."
Bradford agreed: "Aerospace has long lead times, and that's where the crunch is."
Brooks said a strike would nevertheless be costly for the giant aluminum maker. "Alcoa has been under some pressure from Wall Street, which has not been enamored with its results lately. A lengthy strike would clearly damage earnings."
But he does not believe Alcoa will blink on the issue of health-care costs. "The company has staked its credibility on this issue," he said, noting the company had won concessions on the issue from other hourly-paid workers.