At first glance, it seemed as if the representatives for the United Steelworkers union at Wheeling-Pittburgh Steel Corp. had decided to commit collective suicide this week, when they vetoed a plan to stretch out repayment of the company's crippling debts.
In response to the steelworkers' decision, Wheeling-Pittsburgh filed for court protection under the bankruptcy act Tuesday and said it would try to terminate the steelworkers' pension plan and seek a sharply lower wage contract with the steelworkers -- steps that require the bankruptcy court's approval.
If steelworkers had accepted the debt repayment plan worked out by Wheeling- Pittsburgh and its bank lenders, they would have continued working at a level of just over $19 an hour in pay and benefits.
That would be less than the $21.40 an hour they now receive and less than the top pay of $24-plus an hour they are entitled to under the current contract. But it's more than they are likely to get by the time a reorganization plan for Wheeling-Pittsburgh is hammered out in bankruptcy court, say sources involved in the debt negotiations. And even though the steel makers' creditors are not moving to close down the company, the bankruptcy petition probably increases the risk of failure, at least in the immediate future.
A bitter Wheeling-Pittsburgh struck out at the union, saying that rejection of the debt deal was "inconceivable." For Dennis J. Carney, the combative chairman of Wheeling- Pittsburgh, the union veto and subsequent bankruptcy petition was a crushing personal blow, ending a grueling six-month-long attempt to work out a plan to lighten the company's debt load.
What killed the hopes for an agreement?
Sources close to the bargaining say that the immediate fate of Wheeling- Pittsburgh was not the only issue. Both the steelworkers and the banks saw Wheeling- Pittsburgh as a crucial test case in what will be a procession of struggles between steel companies, their bank lenders and their workers in the years ahead. Wheeling-Pittsburgh became a precedent over which unions and banks would not yield, sources said.
Carney's initial plan called for sacrifices by all sides. The steelworkers would drop to $19 an hour; the banks,which have $120 million in unsecured loans out to Wheeling- Pittsburgh, would have accepted a delayed repayment of principal and have forgiven some interest payments; and shareholders would have sacrificed their first claim they now have on new stock issues.
In Carney's view, the company had to have concessions from all three directions to survive. Although Carney's aggressive program to modernize Wheeling-Pittsburgh's production facilities had left it with high-quality, efficient plants, the price was more than $500 million in long-term debt. Unless it cut its labor costs and its interest payments, the company couldn't stay afloat in the face of continued low steel prices and stiff import competition.
The banks, however, would not forgive interest payments. In negotiations that lasted through the past weekend, they agreed to stretch out Wheeling-Pittsburgh's debt repayment burden and promised to advance new working capital -- concessions worth more than $250 million.
But in return, the banks, headed by Manufacturers Hanover Trust Co., demanded that their loans be backed by the company's current assets -- $340 million in cash, inventories and receivables from the steel maker's customers, sources said.
To the union, this was too much. By their reckoning, the steelworkers already had given the company $90 million in concessions by giving up wage increases promised in their contacts. And in return, they had accepted $10 million in stock in Wheeling-Pittsburgh.
If Wheeling-Pittsburgh should go under in the next recession, the bankers' loans would be protected. The steelworkers' stock would not, union sources said. "It looked like the workers picking up the tab and getting stuck," said a United Steelworkers spokesman.
The steelworkers' hard line was stiffened by growing resentment over their view of the bank's role: To the steelworkers, the banks are all too ready to make debt concessions to Third World nations such as Brazil, which in turn are shipping steel into the steel valleys of West Virginia, Pennsylvania and Ohio.
"It may be chauvinism. But to us it looks like a double standard," said the steelworker spokesman.
So the steelworkers blocked the debt deal. Now the union and the company are in bankruptcy court, and it's clear that Wheeling-Pittsburgh will come after the steelworkers, insisting that the judge impose a lower wage contract to assure the company's survival.
It's possible that Wheeling-Pittsburgh could come through the bankruptcy process in a much healthier condition, if it gets concessions from lenders and the union in court that knock $70 or $80 off its current steel production costs of $450 to $480 a ton, according to industry expert Peter F. Marcus, of Paine Webber Inc.
But with other steel companies waiting in the wings with heavy debt and uncertain futures, the union and the bankers weren't willing to make their concessions out of court, on a handshake.