Bankruptcy has become a potent tactic in the steel industry's long retreat.
The decision by LTV Corp. to fend off encircling creditors through a bankruptcy reorganization will shift more of the burden of the company's declining fortunes to its employes, retirees, bondholders, shareholders, lenders and creditors.
But LTV's Chapter 11 bankruptcy petition also will lower its operating costs dramatically, for at least 18 months, while it negotiates a financial plan in bankruptcy court.
By freezing creditors' claims, the petition saves LTV $25 million a month in interest payments. And it may be relieved of up to $30 million a month in pension charges. Together, savings on that order would cut 10 percent off the costs of prime finished steel products for LTV. Beyond that, LTV Chairman Raymond Hay says the company intends to use its Chapter 11 status to rewrite contracts with suppliers of ore and electricity.
The costs savings will give LTV a powerful advantage over other rivals, steel industry analysts say. And the likely result will be more Chapter 11 filings.
"I subscribe to the domino theory," says Joel Hirschhorn, senior associate with the Congressional Office of Technology Assessment. "It becomes very difficult for others not to go the bankruptcy route . . . . It puts a tremendous pressure on everyone else. I think it's almost inevitable."
Bethlehem Steel and Armco -- two other vulnerable steel producers -- say they are not considering that step. But they, like LTV, are facing continuing losses on steel production. They lack the cost advantages LTV is about to collect.
The LTV bankruptcy, following a similar move by Wheeling-Pittsburgh Steel Corp., has driven home the facts of life about steel. The big, "integrated" companies that produce steel from iron ore cannot find enough profit at today's prices to justify the heavy, continuing investments and expenses that they must make to match their competitors.
"You have to ask, do you continue to put money into businesses that aren't paying back?" National Intergroup Chairman Howard Love asks. "That doesn't take a master's degree."
U.S. Steel Corp., when it changed its name to a neutered USX Corp. this month, made plain it was deemphasizing its historic bond with the steel business. Henceforth, the steel business will have to stand on its own, earning investment capital from profits, said Chairman David M. Roderick.
Before the name change, Roderick had been recasting Big Steel, moving it heavily into the energy industry. His rationale is explained in interviews with Ralph Nader and William Taylor in their book, "The Big Boys."
"Can not unemployed steelworkers legitimately claim that these funds would be better spent on modernization and that their use elsewhere represents an abandonment of steel?" Nader and Taylor ask.
Roderick's answer: "A steelworker could logically say that because he is looking at it in his own interest. He is not looking at it from the standpoint of the shareholders. He is not looking at it from the standpoint of management, which has to manage assets in the best interests of the shareholders, but with total sensitivity to employes.
"Let's say all of our other assets -- some of the ones we are selling -- are earning 8 percent. To, in effect, sell them and reinvest them in a business that is earning 4 percent when I can take them and put them in a business that is earning 12 percent . . . I mean, why would I do that? I don't get paid to do that. That's not what shareholders expect."
What the "shareholders expect" is a no-frills industry, with costs cut to the bone and the uncompetitive plants closed and shuttered. In fact, that is the only way that the remaining steel industry can get the financing it must have to take the next technological steps that are essential to the industry's future.
The industry and the federal government are investing research in some important new steel-making technologies. But in its present condition, the industry will be hard-pressed to install the new processes.
Only the best, most efficient plants will be able to afford to stay in business, meeting the competition from abroad and from lower-cost "mini-mills" whose steel comes from melting scrap. The steel industry in the 1990s will be smaller, with more foreign ownership. It will specialize in higher quality steel products like the rust-resistant specially coated steel sheets being developed for the automobile and building industries.
And the industry will follow the auto and building industries as they shift away from the old Buffalo-Pittsburgh-Milwaukee industrial belt, leaving behind a problem it cannot solve -- communities whose steel plants have closed and whose former steelworkers and white-collar steel employes face a crushing loss of livelihood.