NEWS

Erie, Pa, Erie Forge and Steel Inc. relied on the U.S. Navy to help keep it afloat after the company went sailing on its own through an employee buyout 10 years ago this August.

As became clear at the corporation's annual meeting last Saturday, foreign steel makers continue to buffet Erie Forge and Steel, making the Navy that much more of an anchor business.

Erie Forge and Steel remains the nation's top supplier of propulsion shafts to the Navy's warships, support fleets and the Trident submarine program. The contract provides the company 30 to 35 percent of its annual business. It also has given the 66-acre plant at West 16th Street, between Greengarden Road and Raspberry Street, a consistent defense against its most formidable enemy: the dumping of cheap steel by overseas corporations.

The forge, as it is known, employs 260 people, down from a high of 350 in June 1998, but about 10 fewer than in 1990. The flood of cheap foreign steel into the domestic market ripped into the forge's business in the fall of 1998, and sales were off 30 percent that year.

Top executives said work has been stable for the past 10 to12 months, and that the forge has paid off the loans that enabled its employees to buy the plant. A top union official said the plant is trying to survive a difficult period.

"We're starting to see some turnaround at this point," said Allan E. Concoby, the president and chief executive officer.

The forge does not publicly release its earnings data because it is privately held. But Concoby said the plant's payroll has grown from $7.8 million in the first year of the, or , to $12.5 million in 1998 to about $9 million today. Employees at the forge make an average of $13.85 an hour, including overtime and excluding benefits.

"You have to say we have maintained the jobs (in Erie) and kept the benefits," said Bob Sulecki, a machinist and the head of United Steelworkers amalgamated locals that represent the plant's 210 unionized employees. "It has not been easy. It is not easy when you are on your own.

"It has been a struggle."

Sulecki, who attended last Saturday's annual meeting, blamed the dumping of foreign steel for the drop in Erie Forge's stock for the second year in a row. As part of the, the employees cash in the stock upon retirement. Sulecki declined to provide a specific value of the stock.

Concoby said the stock is"down slightly," but is still doing better compared with the rest of the industry.

"It is down primarily because steel industry stocks are down," Concoby said."Our stock is off a little over 5 percent of value as compared to the (domestic) steel industry being off 15 percent."

The performance of its stock represents a key barometer of any business' health, but the stock holds even more vaunted status at Erie Forge and Steel. The size of employees' retirements is tied to the performance of the stock.

As part of the buyout, the employees who agreed to purchase Erie Forge and Steel did so partly by trading in their pension plans for stock in the company. They also agreed to wage concessions and a wage freeze for the first five years of the ESOP.

The employees can invest in a 401(k) plan, but their largest investments are in the company stock. An employee who was part of the buyout in 1990, Concoby said, now has shares worth an average of $32,000, to be cashed in upon retirement or five years after he or she leaves Erie Forge and Steel. The employees saved their jobs through the ESOP, but they gave away security regarding their pensions.

"If the ship sinks, not only do you lose your job, you lose your pension as well," said Bob Wallace, the head of Gannon University's masters in business administration program."Those aspects of tend to be the most risky."

At the same time, Wallace said, the employees at an company tend to join together because of their shared interest in the stock's performance. Management and union workers at Erie Forge and Steel all have shares in the company.

"The incentive is there," Wallace said."You see a light on, you turn it off, because that is your money."

Before the buyout, Erie Forge and Steel was owned by National Forge, based in Irvine, Warren County. Without the resources of a parent corporation, Erie Forge and Steel has tried to grow by expanding markets for steel ingots and other forged products it sells to machine shops and other businesses, including General Electric Transportation Systems in Lawrence Park. The forge makes its steel from scrap steel it buys from Liberty Iron and Metal in Erie. The forge's raw materials include everything from the frames of junked cars to girders and other supports from demolished buildings.

"It's the ultimate in recycling," Concoby said.

The forge uses its largest ingots-they weigh as much as 300,000 pounds when they emerge, molten orange, from the furnace-as the raw material for the ship shafts. The shafts are equivalent to an enormous crankshaft. They connect the propellers to the engines.

A ship shaft the forge makes can be as long as 68 feet and weigh as much as 150,000 pounds and must be manufactured to a tolerance of one one-thousandth of an inch. That is the total amount the shaft can vary from the Navy's specifications.

"We've been the top provider of navy ship shafts for the last 20 years," said Robin Ingols, the director of marketing."It's taken years of expertise."

The forge sells its experience to the Navy, and it also sells the nature of its plant. The original Erie Forge started near West 13th and Cascade streets in 1872, and the current plant was built in 1917-1918 to supply gun barrels and other ordnance to the U.S. Army on the eve of World War I. As their predecessors did at the beginning of the last century, today's workers at the forge make the ship shafts from start to finish at the same plant, with no contracting to other firms. The workers melt the ingots, press the steel, lathe the shafts, package the shafts and send them off to shipyards in Bath, Maine, and Pascagoula, Miss., among other destinations.

"We're a 'turnkey facility,'" Ingols said."The only place in the United States" like it."The whole facility is set up to produce the product."

In return, the Navy contract creates a ripple effect for jobs at the forge. As part of the current federal budget, the Navy hired the forge to make ship shafts for three additional destroyers in the new USS Arliegh Burke DDG class. Each destroyer requires 11 shafts for its twin screws. The 11 shafts take 12 to 14 months to produce at the forge, which works on the shafts simultaneously.

The forge expects to continue to contract with the Navy for the shafts. Concoby said the forge has options in the next federal budgets to make shafts for as many as three destroyers a year.

The forge once also produced propellers and shaft struts for the Navy warships. Its foundry for those products closed in 1976.

A shutdown threatened to sink the entire plant 10 years ago, when it was the Erie operation of National Forge in Irvine. Concoby headed an employee group that wanted to buy the plant and keep it open under the ESOP. When faced with either being sold or shut down, the company's then 254 employees purchased the metal forging operation and shop- but not the property on which it sits-for $12.5 million in August 1990.

The employees used a $5.8 million loan from PNC Bank to help in the purchase. The forge paid off that loan in 1994, one year early.

The employees in the ESOP also relied on funding and other help from the state and from the Greater Erie Industrial Development Corp., or GEIDC. It is the non-profit arm through which Erie County economic development projects are funded.

As part of the deal, EIDCO Inc., another economic development arm, leased the property on which the forge sits to Erie Forge and Steel. EIDCO assigned its revenue from the Erie Forge and Steel lease to GEIDC, which, in turn, assigned it to Erie County to satisfy repayment of money that GEIDC borrowed in the county's 1991 bond issue. Erie Forge and Steel paid off the lease last year, meaning that the corporation now owns all its property, Concoby said.

The forge continues to grow-slowly. The corporation recently purchased new equipment, including two new lathes at a cost of about $1 million each. And Concoby still hopes the forge will be able to enlarge its business to the point that it can afford to expand the plant.

Concoby in July 1998 announced that the forge was working on plans for a $10 million expansion and updating of its steel-making operations. Those plans are on hold. The forge is waiting for the steel economy to recover from the foreign dumping and rebound to 1998 levels.

"Once we get back to that point, we will dust those off," Concoby said.

Until then, Erie Forge and Steel will concentrate on staying above the rough economic waters-with, of course, the Navy's help.

"It's in our blood," Concoby said of the steel-making business."We have a lot of time invested. We have a lot of confidence that we can be successful."

Source Website: http://www.GoErie.com