LTV, the US steelmaker, on Monday approved a new union contract that was negotiated between its workers and creditors that will help it cut costs as it struggles to emerge from bankruptcy.
The approval removes a key barrier in LTV's efforts to restructure. The steelmaker filed late last December for bankruptcy protection under Chapter 11, but has faced the possibility of liquidation if it could not make deep cost cuts to improve its weak financial condition.
LTV said the labour agreement clears the way for its banks to seek a $250m government guaranteed loan. However, employees get a 20 per cent equity stake in the ongoing company, while accepting delays in wage increases and 1,300 job cuts.
On Friday, the United Steelworkers of America hammered out a tentative labour agreement with LTV's unsecured creditors committee. The union bypassed the company after LTV broke off talks in June. The five-year deal needed LTV management approval, and still awaits union membership and bankruptcy court approval.
The third-largest integrated US steelmaker battled with the union, particularly over benefits, for lifesaving cuts as it claimed losses up to $2m per day.
In June, LTV severed negotiations and asked the bankruptcy court to revoke its union agreement and impose the company's last offer or it faced a shutdown. It has claimed the need to slash about $800m in costs, including $260m from wages and employee and pensioner health benefits.
Under the agreement's terms, LTV delays two pay increases, agrees to a profit-sharing plan for employees and can use a retirement fund to help fund health benefits without increasing employee payments. The plan covers about 9,000 workers and 41,000 pensioners, puts two union members on the board and keeps a Cleveland plant open.
In a related move, General Motors, the world's largest automaker, plans to cut LTV as a steel supplier.