Alcoa to cut 13,500 jobs, curtail production

(RTTNews) - Aluminum producer Alcoa Inc. (AA | Quote | Chart | News | PowerRating) said Tuesday that it would eliminate 13,500 employees, further curtail production and divest four non-core downstream businesses as part of a series of specific actions to save cash, reduce costs and strengthen the company's competitiveness during the current economic downturn.

The company, which is headquartered in New York and has its corporate center in Pittsburgh, said it would implement further smelting reductions of more than 135,000 metric tons per year that would result in reduction of total primary aluminum output by more than 750,000 metric tons per year or 18% of annualized output.

Alumina production will also be reduced accordingly across the global refining system to a total of 1.5 million metric tons per year in response to market conditions, the company said.

Alcoa said the production cuts would be fully implemented by the end of the first quarter 2009.

This is the third time in as many months that Alcoa has announced production cuts. In November, the company said it will curtail an additional 350,000 metric tons per year of aluminum production beginning immediately. In October, the company curtailed production at its 265,000 metric tons per year smelter in Rockdale, Texas.

Alcoa said Tuesday it will reduce its global workforce by 13%, or about 13,500 positions, by the end of this year through targeted job cuts, curtailments and plant closures and consolidations. The company also said it will eliminate an additional 1,700 contractor jobs and that it has instituted a global salary and hiring freeze.

Additionally, Alcoa said it plans to divest four non-core downstream businesses: Electrical and Electronic Systems; Global Foil; Cast Auto Wheels; and Transportation Products Europe to raise about $100 million. The businesses to be sold had 2008 combined revenues of $1.8 billion and an estimated after-tax operating loss of about $105 million. The businesses employ a combined 22,600 people at 38 locations.

"These are extraordinary times, requiring speed and decisiveness to address the current economic downturn, and flexibility and foresight to be prepared for future uncertainties in our markets," said Klaus Kleinfeld, President and CEO of Alcoa Inc.

Alcoa has been taking several measures, including curtailing non-critical capital programs, adjusting manufacturing capacity, reviewing under-performing assets and suspending share buybacks to preserve and improve strong balance sheet during unprecedented volatility in financial markets.

As a result, the company on Tuesday projected capital expenditure for 2009 to be $1.8 billion, down 50% from the 2008 level.

Alcoa said it expects total charges for the recently concluded fourth quarter due to restructuring, impairment and other special charges to be $900 million to $950 million after tax, or $1.13 to $1.19 per share.

The company expects the restructuring and divestiture program to save about $450 million before taxes on an annualized basis.

Alcoa is scheduled to report fourth quarter earnings on January 12 that will traditionally kick-start the fourth quarter reporting season. Analysts polled by First Call / Thomson Financial currently expect the company to report a loss of $0.05 per share on revenue of $5.41 billion for the fourth quarter.

Aluminum producers are going through a difficult time. Prices for aluminum dropped fell 36% last year on the London Metal Exchange.. A weakening global economy has hurt demand considerably. At the same time, the price of alumina, from which aluminum is made, has gone up as did caustic soda and various carbon-based materials like coke used in processing.

Aluminum Corp. of China Ltd., China's biggest aluminum producer, said in October that it will cut 18% of its output. Rio Tinto, the world's second largest aluminum maker, announced last month that it would slow or halt investments.

It seems Alcoa's previous cost cutting moves were not enough, forcing the company to take some more aggressive actions to remain competitive in the recent business environment. It is to be seen whether the companies, who have earlier announced similar cost-cutting measures, will follow suit or not.

Alcoa lost its position as the world's largest producer of primary aluminum after the merger that led to the creation of Russia's United Co. Rusal. Rio Tinto Group acquired Canadian aluminum producer Alcan Inc. for $38.1 billion last July, pushing Alcoa to the third position.

Alcoa shares, which have traded in a range of $6.80 to $44.77 over the past year, closed Tuesday's regular trading session at $12.12, up 26 cents or 2.19% but lost 48 cents or 3.96% in after hours trading.

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