Our safety performance is important in its own right, but at Alcoa it has implications far beyond safety. In the process of demonstrating that we have the ability to produce a team result such as this--that is directly relevant to each employee--we have developed and integrated the ideas and tools that are necessary to superior achievement in all that we do: manufacturing, finance, logistics, environment. We have made progress in all of these areas, but we are far from finished; and we will never be through with our efforts to achieve and sustain zero injuries. At root, this is a profound change in culture, a transformation from old habits of settling for the "inevitable" (accidents happen ... costs go up ... markets get glutted ... strikes are a fact of life) to the belief that a company can seize the initiative and shape its own future. This emphasis on creating our own fate has changed us as a company. If you go any place in Alcoa's twenty-eight country universe you will find safety is the first internal commitment. And on this safety backbone we have been building excellence in all things we do.
The largest aluminum manufacturer in the world, Aluminum Company of America (Alcoa) produces aluminum and alumina for the packaging, automotive, aerospace, construction, and other markets. Alcoa's primary operations included bauxite mining, alumina refining, and aluminum smelting. Its principal products included alumina and its chemicals, automotive components, and beverage cans. During the late 1990s, the company was organized into 21 business units, with 178 operating locations in 28 countries.
Alcoa was founded in 1888 in Pittsburgh, Pennsylvania, under the name The Pittsburgh Reduction Company. Its founders were a coalition of entrepreneurs headed by Alfred Hunt, a metallurgist who had been working in the steel industry, and a young chemist named Charles Martin Hall. Pittsburgh Reduction's sole property was a patented process for extracting aluminum from bauxite ore by electrolysis, which Hall had invented in the woodshed of his family house in 1886, just one year after his graduation from Oberlin College. Hall's discovery had promised to make aluminum economical to produce for the first time in history. Later in 1886, Hall had taken his process to a smelting company in Cleveland, Ohio, but left in 1888 after it showed little interest. One of his associates there, who had also worked with Hunt at another company, introduced the two men, and Pittsburgh Reduction was started as a result of their meeting.
Despite its relative abundance, few practical uses existed for aluminum because it was so expensive to extract. By 1893, however, Hall's process allowed Pittsburgh Reduction to undercut its competitors with aluminum that had been produced at a lower price. The company then faced two challenges: to generate a larger market for aluminum by promoting new uses for the metal and to increase production so that it could cut costs even further through economies of scale. Efforts in the former area proved most successful in the manufacturing of cooking utensils, so much so that the company formed its own cookware subsidiary, Aluminum Cooking Utensil Company, in 1901. Aluminum Cooking Utensil adopted the Wear-Ever brand name.
Pittsburgh Reduction also began the process of vertical integration, insuring itself against the day when Hall's patent would expire and it would no longer have a monopoly on his process. In the mid-1890s, it began acquiring its own bauxite mines and power-generating facilities. This process continued after the death of Alfred Hunt, who had served as president since founding the company. In 1899 Hunt, an artillery captain in the Pennsylvania militia, was sent to Puerto Rico with his battery during the Spanish-American War and succumbed to malaria there. He was succeeded by R. B. Mellon of the Mellon banking family, which had loaned the company much of its start-up capital and controlled a substantial minority stake. The Mellons, however, had been content to let the engineers run the company. Arthur Vining Davis, a partner who had joined Pittsburgh Reduction only months after its founding, acted as president during this time, and the Mellons formally ceded power to him in 1910. In 1907 The Pittsburgh Reduction Company changed its name to Aluminum Company of America. In 1914 Davis became the company's last surviving link to its early days when Charles Martin Hall died, leaving an estate with an estimated worth of $45 million.
Post-World War I Expansion
Alcoa had virtually created the market for aluminum, and its only competition came from foreign producers, who were hindered by high tariffs. Alcoa also benefited from rising demand from the automobile industry; by 1915, 65 percent of all new aluminum went into automotive parts. The outbreak of World War I ended the threat from foreign producers, and Alcoa even became an exporter. Annual production rose from 109 million pounds to 152 million pounds between 1915 and 1918, with much of it going to Great Britain, France, and Italy. At home, the vast majority of Alcoa's output was used for military applications.
The export boom that the war had fostered made it seem natural that Alcoa should expand its overseas operations once hostilities ended. Throughout the 1920s, the company acquired factories, mines, and power-generating facilities in Western Europe, Scandinavia, and, most prominently, in Canada. Late in the decade, however, the difficulty of managing far-flung operations, combined with a rising tide of economic nationalism abroad, made Alcoa's position overseas increasingly untenable. In 1928 it divested all of its foreign operations except its Dutch Guiana bauxite mines, spinning them off as Aluminium Limited, based in Montreal and headed by Edward Davis, A. V. Davis's brother. Aluminium Limited was renamed Alcan Aluminium Limited in 1966. In 1929 Arthur Vining Davis retired as president and became chairman. He was succeeded by Roy Hunt, the son of Alfred Hunt.
At home, the general economic boom carried Alcoa with it, but between 1929 and 1932, during the early years of the Great Depression, sales fell from $34.4 million to $11.1 million. Alcoa laid off half of its work force in this time, slashed wages for those who remained, and cut back its research-and-development budget. Demand for aluminum did not recover until 1936. Even so, Alcoa's market share remained unchallenged, as it was still the only aluminum smelter in the United States thanks to its technological lead and economies of scale--a position that had not gone unnoticed.
Aluminum Company of America had been having antitrust run-ins with the Justice Department since 1911, but all of the blows had glanced off of it until U.S. Attorney General Homer Cummings filed suit in 1937, charging monopolization and restraint of trade on Alcoa's part. The trial lasted from 1938 to 1940 and was the largest proceeding in the history of U.S. law to that time. A district court ruling in 1942 found in favor of Alcoa, but the government appealed. In 1945 an appeals court sustained that appeal. In his decision, Judge Learned Hand ruled that although Alcoa had not intended to create its monopoly, the fact remained that it had a monopoly on the domestic aluminum market in violation of antitrust law and it would be in the nation's best interest to break it up. Hand's decision became a landmark in the history of judicial activism, although it did leave open the question of how Alcoa's grip on aluminum was to be broken.
Meanwhile, of course, the United States had entered World War II. Demand for aluminum skyrocketed. Alcoa, however, proved to be unable to keep up with the increases in demand, disappointing the War Department. During the war the government financed new plants that were built and run by Alcoa, but also encouraged the development of other aluminum producers. As the tide of the war shifted in favor of the Allies in 1944, the U.S. government began deliberations on how to dispose of these plants, which would soon become surplus capacity. As a result, a solution to the problem of how to carry out Hand's ruling became apparent. The Alcoa plants that the government had financed would be sold off to two new rivals: Reynolds Metals Company and Permanente Metals Corporation, owned by industrialist Henry Kaiser. Reynolds and Permanente were to buy the plants at cut-rate prices. In effect, this divestiture created an oligarchy where there had formerly been a monopoly. In 1950 a district court decree carved up the U.S. aluminum market between the three: Alcoa would get 50.9 percent of production capacity, Reynolds 30.9 percent, and Kaiser Aluminum & Chemical Corporation, as Permanente Metals was renamed, 18.2 percent.
Roy Hunt retired in 1951 and was succeeded by Irving Wilson. During the 1950s, Alcoa's share of U.S. production capacity declined as it expanded more slowly than Reynolds and Kaiser. Faced with increased competition, Alcoa also found itself without any brand-name recognition on which to capitalize in the consumer products arena; Reynolds, by comparison, had established a name for itself quickly with its Reynolds Wrap aluminum foil. Nevertheless, booming demand for aluminum, the result of successful wartime experiments in using the metal to build military aircraft, helped compensate for decreased market share. Despite increased competition, Alcoa remained the industry's largest member and its acknowledged price leader.
Davis retired in 1957, ending his 69 years of service with Alcoa. He was succeeded by Wilson, and Frank Magee became president and CEO. Alcoa came out of the brief recession of 1957--58 by realizing that it would have to internationalize and diversify in order to ensure its future. In 1958 Alcoa joined with Lockheed and Japanese manufacturer Furukawa Electric Company to form Furalco, which would produce aluminum aircraft parts for Lockheed. Also that year, Alcoa became a player in what was then the largest takeover battle in British corporate history when it negotiated a friendly acquisition of a stake in struggling British Aluminium, Ltd. The acquisition was aborted, however. Alcoa had been approached by British Aluminium chairman Lord Portal, Viscount of Hungerford, who had neglected to consult his major stockholders before closing the deal. Thus, when Reynolds and British manufacturer Tube Investments made a substantially sweeter bid, a bitter struggle ensued. Institutional investors sold their shares to the Reynolds and Tube venture and Alcoa lost out. The fight over British Aluminium became a sensation in Britain not only because of the sheer spectacle of foreign interests vying for control of a major domestic corporation, but also because hostile takeovers were considered a breach of etiquette in British finance. What came to be known as The Great Aluminium War split British investment banks between the old-line, established houses that backed Alcoa and Portal, and the upstart firms that supported Reynolds and Tube.
Undeterred by this setback, Alcoa went on to spread its mining operations into other parts of the world, re-establishing an international presence it had not had since it spun off Alcan. Back home, the company moved aggressively into producing finished aluminum products. In 1959 it acquired Rome Cable and Wire Company. The next year, it purchased Rea Magnet Wire Company and Cupples Products Company, a manufacturer of aluminum curtain walls and doors. Both Rome and Cupples eventually had to be divested, however, because of antitrust objections.
When John Harper became president and CEO in 1963, Alcoa found its profit margins squeezed by increased competition, high overhead, and a generally low market price for aluminum. One of Harper's solutions was to move more aggressively into manufacturing finished products, which provided higher returns than smelting. On his initiative, Alcoa began producing sheet metal for aluminum cans, which became more popular among beverage consumers in the 1960s after the invention of the pop top, and aerospace parts. In 1966 the company posted a record profit, finally exceeding a mark it had set ten years before.
1970s: Recycling and Diversification
High labor costs, dramatically high energy prices, unpredictable bauxite prices, a slower national economy, and new competitors trying to break up the aluminum oligarchy all conspired against Alcoa in the 1970s. Sales and other operating revenues grew from $1.8 billion to $4.6 billion between 1972 and 1982, but profits as a percentage of gross income remained below historical levels. High interest rates forced Alcoa to slow its expansion and concentrate on paying down existing debt. In 1972 the company also decided to sell its technology to other manufacturers on a large scale, something it had been loath to do in the past.
W. H. Krome George succeeded John Harper as chairman and CEO in 1975, and Aluminum Company of America began to show new signs of life. In the late 1970s it seized upon recycling as an alternative to the high cost of smelting, although somewhat later than rival Reynolds. By 1979 Alcoa was reprocessing 110 million pounds of scrap aluminum. By 1985 that figure would rise to over 500 million pounds and recycling would account for 19 percent of the company's aluminum ingot capacity. George, who was more scientifically oriented than his predecessors, also led Alcoa into expansive research into high-tech applications of aluminum. By the time George retired in 1983, he had started the company on the path once again to developing new high-strength alloys for use in the aerospace business. Other areas of research and development, often pursued as joint ventures with other companies, included alumina chemicals, satellite antennae, and computer memory discs.
George's successor, Charles Parry, took over in 1983, and was even more committed to diversifying Alcoa. His goal, he said, was that half of the company's revenue should come from non-aluminum sources by 1995. Immediately, Alcoa began scouting around for companies to acquire, particularly in high-tech fields. At the same time, however, Parry's vigor in attempting to reshape the company was not well-received in all quarters. He was attempting to radically change corporate thinking in a short period of time even as he continued the layoffs and plant closures that George had begun in an effort to cut costs, and employee morale suffered. Many did not see how he could create new business worth between $7 billion and $9 billion from scratch in less than 10 years. Although Alcoa made only minor acquisitions during Parry's tenure, which ended in 1987, the directors became concerned that the deals that Parry proposed to make would not fit in well. Some worried that the risks involved were more appropriate to a young company just starting up, not a major corporation nearing its centennial.
Even George became uncomfortable with his successor, and in 1986 he led the search for Parry's replacement. Aware of his board's discontent, Parry took an early retirement in 1987. He was replaced by Paul O'Neill, former president of International Paper Company and deputy director of the Office of Management and Budget during the administration of President Gerald R. Ford. O'Neill's appointment was largely George's doing; the two had met because of the latter's directorship at International Paper.
Under O'Neill, the first outsider ever to run Alcoa, the company slowed its diversification and refocused on its core aluminum business. In 1990 it formed a joint venture with Japanese manufacturer Kobe Steel, Ltd. to make sheet metal for aluminum cans and parts for automakers for the Asian market. O'Neill had also sought to revitalize employee morale and ensure product quality by emphasizing safety as a primary concern, and by instituting a profit-sharing plan.
Combined profits for 1988 and 1989 more than doubled Alcoa's total for the first eight years of the decade, providing an early sign that the changes instituted by O'Neill were working. By 1991, the revitalization of the aluminum business under O'Neill's watch had achieved great strides. A billion-dollar program to modernize its plants was finished that year, long-term debt had been whittled down, and the company's research and development budget had been increased significantly. Important changes in the structure of Alcoa also were underway during the early 1990s, as O'Neill pursued his agenda of "reinventing" the venerable aluminum giant. Two layers of corporate management were stripped away, including the company's presidential post, exposing 24 business units that were ceded autonomous control over their respective operations. Each of these business units reported directly to O'Neill, who exerted considerable sway over the company's operations despite his desire to give the business units an unprecedented amount of power.
Two developments outside Alcoa's control affected the early years of the 1990s, however, hampering the company's progress under O'Neill's decisive rule. The collapse of the Soviet Union had a disastrous effect on the world aluminum market, causing prices to fall to the lowest in history. The Soviets exported an average of 250,000 metric tons of aluminum a year before the Berlin Wall came down, but when revolution swept communism aside and left Russia in a precarious financial position, aluminum shipments exported from the former Soviet Union increased exponentially. In dire need of cash, Russia was shipping an average of 1.2 million metric tons of aluminum per year during the early 1990s, flooding the market and drastically reducing the price of aluminum. Aluminum, which sold for $1.65 a pound in 1988, was priced at $.53 a pound by 1993, the lowest price ever recorded.
To make matters worse, a worldwide recession settled in during the early 1990s as aluminum prices plummeted. The effects of the recession had a more lasting hold on Alcoa's fortunes than the fall of the Soviet empire. The company trimmed its payroll by 2,000 in 1992, the first major layoff since 1986, as depressing financial totals were tallied at the company's headquarters. Alcoa lost $1.1 billion in 1992 and recorded a paltry $4.8 million gain in 1993. Despite the bad news, O'Neill remained steadfast to his revitalization plan and focused his attention on reducing the company's healthcare costs, which were rising by 11 percent a year and costing the company nearly $200 million annually. "Our productivity improvements," he declared, "are effectively being eaten up by health care costs."
By the mid-1990s, O'Neill's reputation for running a tight and efficient enterprise had helped Alcoa realize a full recovery from the ills of the early 1990s. Alcoa's net income rose from $4.8 million in 1993 to $375.2 million in 1994 and up to $790.5 million in 1995, while annual sales increased from $9 billion to $12.5 billion. As the company charted its course for the late 1990s and the new century ahead, O'Neill continued to hold a tight rein on spending, vowing to cut $300 million from Alcoa's annual sales and administrative costs by the end of 1997, which would produce a savings of 25 percent. O'Neill also planned to relocate the company's headquarters to a $50 million facility along the Allegheny River. The move was expected to take place in 1998, and with construction underway in 1997, Alcoa embarked on its future course, reigning as the preeminent aluminum producer on the globe.
Principal Subsidiaries: Alcoa Brazil Holdings Co. (79%); Alcoa Aluminio S.A. (Brazil, 74.8%); Alcoa-Deutschland GmbH (Germany); Alcoa Generating Corp.; Alcoa International Holdings Co.; Alcoa Manufacturing (G.B.) Ltd. (U.K.); Alcoa Minerals of Jamaica, Inc.; Alcoa Nederland Finance B.V. (Netherlands); Alcoa Properties, Inc.; Alcoa Recycling Company, Inc.; Alcoa Securities Corp.; ALCOA/TRE, Inc.; Capsulas Metalics, S.A. (Spain, 80%); Grupo Aluminio, S.A. de C.V. (Mexico, 44%); Halco Inc. (27%); H.C. Industries, Inc.; H-C Industries, Inc. of Mississippi; Inversiones Alcoa, S.A. (Venezuela, 42%); Moralco Limited (Japan, 75%); Shibazaki Seisakusho Limited (Japan, 51%); The Stolle Corp.; Suriname Aluminum Co.; Tapoco, Inc; Texas Engineered Products Co., Inc.; Yadkin, Inc.