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INTRODUCTION to Inside Bethlehem Steel

Bethlehem Steel Corporation

For nearly its entire existence – from its incorporation in December 1904 until its sale in May 2003 – Bethlehem Steel Corporation was the second-largest steel company in the United States of America. During its life, it also was a large, worldwide company engaged in the extraction of raw materials and, in the years of World War II, the world's largest shipbuilder.

In 1906, Bethlehem Steel invested in new technology – the continuous rolling of wide-flange structural shapes – that, when operational in 1908, ushered in the age of the skyscraper and the long-span bridge. The structural products of the Bethlehem, Pa., plant became the symbol for the company and spawned a nationwide series of facilities employing millions of people during the company's nearly 99-year life.

The early and tremendous successes of Bethlehem, nicknamed Bessie, as a shipbuilder, forging plant, and far-flung series of steel plants earned the company a position on the Dow Jones Industrial Index in 1918. It was one of the nation's most favored stocks traded in New York City from the 1910s through the 1970s.

In the heydays of the 1910s through the 1960s, Bethlehem Steel produced the steel and erected such American iconic structures as New York City's Madison Square Garden, Lincoln Tunnel, Waldorf Astoria Hotel, Chrysler Building, and George Washington Bridge. Elsewhere in the United States, employees made and fabricated the steel for San Francisco's Golden Gate Bridge; Chicago's Merchandise Mart; the Virginia Bay Bridge Tunnel; Los Angeles' City Hall; and Washington, D.C.'s U.S. Supreme Court and U.S. Congress' Rayburn buildings. During the 1910s and 1920s, Bethlehem also bought steelmaking facilities and coal reserves in Maryland, Pennsylvania, New York, West Virginia, California, and Washington to further expand its empire and its product lines.

During World War II, Bethlehem Steel was the largest shipbuilder in the world and employed nearly 300,000 people at its plants, shipyards, and mines to supply steel to the Allied war effort. Its vast and numerous shipyards contributed more than a ship a day (just under 1,200) to defend America and defeat the enemies in the European and Pacific arenas, and the plants produced millions of tons of steel for every imaginable military product.

After World War II, America's nearly insatiable appetite for steel kept Bethlehem Steel's mills across the country bustling and highly profitable. The nation's infrastructure was expanded to include higher buildings in our cities, new roadways to carry traffic, and bridges to safely span America's waterways, giving way to the explosive growth of the suburbs. Production of light-flat-rolled steel grew as Americans took to the newly constructed roads in their new American cars.

But the chinks were already forming in Bethlehem Steel's armor during the heady days of the 1950s. According to Fortune magazine, six of the 10 highest paid executives (salary and bonus) in all of corporate America were in the upper echelon of Bethlehem Steel. The 116-day strike in 1959 by the United Steelworkers of America against the "Big Eight" steel companies, including Bethlehem, shuttered all domestic steelmaking operations. The world was watching, and the door to the lucrative American steel market was flung wide open. In marched the offshore producers, the Japanese in particular, to fill the void. Bethlehem, known as the U.S. "supermarket of steel," was in for a tough fight after foreign steel made its presence known in the U.S. marketplace.

Despite the presence of foreign steel in the U.S. marketplace, the 1960s and 1970s were mostly profitable, fueling huge capital investments. Most of these expenditures were for new processes (namely basic oxygen furnaces in the 1960s and one continuous caster in the 1970s) merely to catch up to Bethlehem's foreign competition while others expanded growing product lines for corrosion and dent-resistant, light-flat-rolled steel for automotive and appliance makers. Environmental quality control expenditures were mandated by the federal Environmental Protection Agency, which was commissioned in 1970. Air and water quality control systems added to operating costs and eroded profitability. At the same time, foreign steel companies and new, low-cost minimills were nipping at the heels of Bethlehem and its kindred fully integrated domestic steel producers.

In 1977, Bethlehem Steel experienced one disaster after another. In January, a blizzard – with up to 14 feet of snow on the shore of Lake Erie – nearly crippled the Lackawanna, N.Y., plant. In February, a fire in the Cambria, Pa., coal mine north of Johnstown, Pa., raged out of control and curtailed production for two months. In July, the Johnstown plant was heavily damaged when more than one foot of rain fell on the city, causing rivers to swell and dams to break. In the fall, on a day that became known as Black Friday, Bethlehem Steel reported its first corporate quarterly loss in 43 years, closed duplicate rolling mills at marginal plants, and laid off white-collared employees in the headquarters. But the bad news was not over; in December, two oil tankers owned by Bethlehem collided in a remote shipping lane off the coast of Africa.

The bad news of 1977 was just a prelude to the turmoil of restructuring the entire Bethlehem Steel Corporation that began in 1981. A nationwide recession resulted in fewer capital outlays for durable goods such as cars and appliances. The sky-high interest rates put building projects on hold. Foreign competition was ruthless, and the minimills were continuing their quest to gain inroads into – and eventually capture – the market for long products such as rebar, bars, rods, wire, and, eventually, structural shapes.

Bethlehem's defensive moves to stave off bankruptcy court protection, which was considered and nearly enacted in 1986, lasted from 1981 through 1987. Inefficient facilities were closed, including nearly all of the Lackawanna, N.Y., plant, the first fully integrated steel plant in the nation to be shuttered that decade. Tens of thousands of Bethlehem employees were laid off. Wages and benefits were slashed. Product lines were sold off or discontinued.

During those tumultuous and painful years, however, Bethlehem began to focus sharply on the future, which was clearly in its highest-value products of light-flat-rolled steel produced in Maryland and Indiana. Those steels were highly sought after by automakers with U.S. operations. Research and development by hundreds of highly educated metallurgists at the firm's Homer Research Laboratories helped put the company's products back in favor with automotive, appliance, and metal-building companies. Believing its vision was "to be the premier steel company," Bethlehem's painful choices in the 1980s let the company live to enter the 1990s.

Bethlehem's market share eroded further in the next decade as imports and the minimills increased their share. Nearly all mills at the Johnstown and Bethlehem, Pa., plants were closed in the early to mid 1990s. In the meantime, Bethlehem Steel invested heavily in the mills that made light-flat-rolled steel for automobiles, appliances, and metal buildings. The operations at Burns Harbor, Ind., and Sparrows Point, Md., became the nucleus of the corporation. In 1998, Bethlehem completed the acquisition of Lukens Inc., the oldest, continuously operating steel company in the United States, and became the largest and most versatile domestic plate producer. The transaction signaled the beginning of an industry-wide consolidation that would, eventually, lead to the demise of Bethlehem Steel.

As the corporation sold assets in the 1970s through the 1990s, its laid-off employees increasingly became pensioners who received company-paid health care and defined pension plan benefits. In 1983, the number of each population was equal. By 2001, about 12,000 employees supported 74,000 retirees and 120,000 health care recipients. Through most of 2001, the stock market was eroding, and the result of the September 11th terrorist attacks in 2001 sent the stock market into a tremendous free fall, escalating Bethlehem's underfunded pension obligation to about $2 billion.

On October 15, 2001, Bethlehem filed for Chapter 11 bankruptcy court protection. In May 2003, all of Bethlehem's ongoing and idle assets were sold to International Steel Group, a company that was composed primarily of the assets of the defunct LTV Steel. "Bessie," the darling of Wall Street that produced the steel to build, transport, and defend America, had ceased to exist.

Books may be ordered from www.insidebethlehemsteel.com

© 2007 Peter B. Treiber