MIDDLETOWN, Ohio (AFX) - Labor Day, traditionally a time for union picnics and politicking, will have a somber tone in this southwest Ohio steel town this year.
There are pickets outside the gates at AK Steel's Middletown Works, where a lockout drags into its seventh month. The plant is making steel with replacement workers. Uncertainty hangs over the century-old company -- one of the last independent U.S. steelmakers -- and its union workers, many of them second- or third-generation employees.
'This lockout has impacted our whole community,' said Michael Bailey, who worked for AK Steel Holding Corp. and its predecessor Armco Inc. for 30 years. 'It's a giant step backwards ... to see our families locked out from AK Steel. It's hard to celebrate.'
Bailey, who retired in 2002, is president of the AK retirees' club. He plans to observe Labor Day by cooking out with his family and watching a documentary on the rise of unionism at a Duquesne, Pa., steel mill and the mill's ultimate demise.
'I don't want to think it can happen here,' Bailey said.
Not long ago, Middletown was undisputedly a company town, the place where the American Rolling Mill Co. began in 1900 and generations of workers took coveted jobs right out of high school and spent their entire working lives in the mill.
Now, the center of steel manufacturing has moved overseas. The United States produced just 9 percent of the world's steel last year, compared with 12 percent in 1996, while China's share has jumped from 13 percent to 33 percent, according to the International Iron and Steel Institute.
AK Steel stock closed at $11.10 a share on the New York Stock Exchange on Feb. 28. At midnight, when their contract expired, about 2,700 production and maintenance workers represented by the Armco Employees Independent Federation were locked out of the Middletown Works. More than 500 of those workers have since retired or moved on to other employers, and the union has given up its six-decade-old independence by affiliating with the Machinists union.
Since the lockout began, AK stock has outperformed the market. Shares closed Friday at $13.18.
'The company has had more-than-expected success in running the plant without the (union) work force,' said Charles Bradford, of Bradford Research/Soleil Securities in New York. The fact they've been able to do it with 1,800 replacement workers and salaried personnel is an indication of how many people they need at the plant, he said.
The company has insisted that it needs a competitive contract to survive. Its location and obligations like pensions add $40 to the cost of every ton of steel -- a huge competitive disadvantage, the company said.
When contract talks began in November, AK proposed pay raises for most employees but demanded a contract that eliminates work force guarantees, cuts the number of job classifications to increase flexibility, requires employees to pay part of the health insurance premium and converts a fixed-benefit pension to a 401(k) plan. Unions at smaller AK plants have agreed to such concessions in the past year.
As the standoff continued, leaders of the union moved to affiliate with the International Association of Machinists. The Machinists joined in negotiations, but the company said recently that their proposals have widened the gap between the parties rather than narrowed it.
Some analysts, including Bradford, believe that AK is playing hardball to improve its finances and become a more attractive takeover target.
However, Chief Executive James Wainscott told analysts on a conference call following release of second-quarter earnings in July that the company is not for sale.
'This is a company that is standing alone, and we hope to do so more profitably,' the CEO said.
Wainscott's unprompted announcement was only to pre-empt talk of a sale, company spokesman Alan McCoy said, describing it as 'a persistent rumor that for years has popped up.'
Bradford said AK is focused on the lockout and current operations.
'They're looking forward to getting the labor problem settled, which would affect the value of the company,' he said. 'If somebody came along with a good bid, would they turn them down? I don't think so.'
Meanwhile, some locked-out Middletown workers look for a silver lining this weekend.
Maintenance worker Rick Chasteen, 35, of Carlisle, said he often works holidays. This time he's spending the day with his family, and has special plans for his son, Clay, who turns 10 on Monday.
'We're going to a paintball place, him and his friends and their dads,' Chasteen said. 'We're all going to play paintball and have some fun.'
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