Bethlehem Steel Corp., which for nearly a century has forged the material for the nation's bridges, skyscrapers, ships and automobiles, filed for bankruptcy protection yesterday, saying its financial troubles deepened after last month's terrorist attacks.
The nation's third-largest steel company has been struggling for years with competition from imports and rising pension and health-care costs for its huge roster of retired and laid-off workers. But "since September 11, what was a declining marketplace has become a free fall," Robert S. Miller Jr., Bethlehem's chairman and chief executive, said in an interview.
Its major customers in the appliance, automotive and construction industries "have been canceling orders by the ton. We don't quite know where the bottom is," said Miller, a corporate turnaround veteran at Chrysler Corp. who last month replaced Duane Dunham as Bethlehem Steel's chairman and chief executive.
Over the weekend, Bethlehem got a $450 million loan commitment from GE Capital to keep it running into next year while it tries to right itself.
Bethlehem is the 25th U.S. steelmaker to enter bankruptcy proceedings since an industry-wide crisis struck in 1998. Those financially ailing companies accounted for about a third of U.S. steel production three years ago.
The bankruptcy filing comes at a critical time for the steel industry.
The U.S. International Trade Commission, an independent U.S. panel, is expected to rule soon -- possibly by Monday -- on whether a flood of imports threatens the U.S. industry. The Bush administration requested the ruling after intense lobbying from the steel industry and union leaders.
Steel lobbyists have been arguing in recent days that national security concerns require the government to safeguard the domestic steel industry. An ITC finding of harm would enable President Bush to impose quotas that could limit the amount of foreign steel sold in the United States. But analysts noted that one of those overseas competitors is Russia -- whose support is a key part of the administration's military campaign in Afghanistan.
The bankruptcy filing could also give Bethlehem Steel more leverage in its new round of negotiations with the United Steelworkers of America union over operating practices and retiree pension and health costs, according to analysts.
Like many major U.S. steel companies, Bethlehem Steel has been battered by relentless foreign competition and its own costly efforts to repulse those foreign rivals.
The company went deeply into debt to modernize its primary operations on Lake Michigan in Indiana, alongside Baltimore's Inner Harbor and just south of Harrisburg, Pa.
Its restructuring also resulted in years of repeated workforce cutbacks, adding to the retirement and health-care benefits the company is obligated to pay under its union contracts. Bethlehem now has 13,000 workers, 3,800 of them at Baltimore's Sparrows Point plant. But it has 130,000 retirees and dependents receiving company-paid pension and health care.
The company yesterday reported a $152 million loss for the third quarter of 2001, equal to $1.25 per share, or $109 million when several major plant closings and property sales are excluded. It lost $35 million (34 cents a share) in the third quarter of 2000.
It has suffered $1.6 billion in losses since the start of 1998, when the Asian financial crisis choked off steel demand there, triggering a surge in low-priced imports into the United States.
Revenue in the quarter dropped to $825 million, from $989 million a year ago. Steel production in the period dropped by 9 percent from a year ago and Bethlehem received 9 percent less in price for each ton than it got last year, because of import competition, the company said.
And since Sept. 11, the company's sales have "gone to hell in a handbasket," Miller said.
Analysts said that the publicly available financial numbers recorded before the attacks don't show a company down to its last dime. Because of that, some analysts speculated that the bankruptcy filing was made to improve the company's bargaining position with its union and the government.
The company said it had $4.2 billion in assets and $4.5 billion in debt in its filing in Manhattan's U.S. Bankruptcy Court.
The decision to file a Chapter 11 bankruptcy petition -- which bars creditors from foreclosing on debts while the company tries to work out a court-approved reorganization -- was made by company executives Friday, approved by its board on Sunday and details were nailed down at 3 a.m. yesterday in New York.
The filing provides an opening for the company to seek wage, benefit and work-rules concessions from the steelworkers union. The union agreed in August to a new cost-savings formula with LTV Corp., a Cleveland-based steelmaker that has been in Chapter 11 since December.
"We are going to look at every element of our labor agreement" in negotiations with the union, said Miller.
Leo W. Gerard, president of the United Steelworkers of America International, said the union would begin bargaining with Bethlehem on cost-savings, but he vowed to resist significant reductions in the pension and health-care benefits now guaranteed to steelworker retirees and their families.
Throughout the industry, 600,000 union retirees and dependents are receiving those payments and Gerard said another round of plant closings in the industry could easily drive that number to 1 million next year.
"This problem was not caused by workers . . . These companies won't be saved on the backs of our membership," Gerard said in a conference call yesterday.
The union is backing legislation that would provide a federal takeover of a major part of the industry's health-care commitments to retirees. Those health-care commitments now cost $1 billion a year. The union is seeking a 1.5 percent tax on U.S. and foreign steel shipments to fund the program.
Beyond that, Gerard said it may be time for the union and the companies to arrange their own health-care coverage with providers. "Maybe we need to . . . create a buying consortium and bring 1 million lives to the table. We don't intend to have their benefits reduced in any way," he said.
But the benefits costs continue to be a huge financial cloud over the industry, standing in the way of potential mergers or acquisitions that could make the industry more competitive, according to some analysts.
"It's hard to compete when you have a product selling for, say, $300 a ton, and you're spending $120 on labor costs and foreign producers are spending $20 to $40 a ton" on their labor costs, said Aldo Mazzaferro, steel industry analyst with Goldman Sachs in New York. One-third of the $120 is probably accounted for by payments to retirees, he estimated.