Patriot Coal, UMWA duel over status of labor negotiations

Patriot Coal (OTC: PCXCQ) on June 12 said that a statement from the United Mine Workers of America (UMWA) union concerning negotiations between Patriot and the UMWA was misleading.

Contrary to the UMWA’s assertion, Patriot said that it has not “walked out” of negotiations with the union. In fact, the company said it only learned that next week’s planned negotiating meetings were cancelled from the UMWA’s press release. Patriot said it continues to be ready to reach a consensual agreement.

“The press release issued by the UMWA is inaccurate and distorted,” stated Patriot President and CEO Ben Hatfield. “Patriot has been working diligently with the UMWA in efforts to address their concerns about the contractual changes found to be necessary, fair and equitable by the Bankruptcy Court. If our goal was to force acceptance of the court-approved contract as is, no further discussions would have been necessary, as that option has been available to us since May 29.”

He added: “Instead, we have offered up millions of dollars in additional contract enhancements, including wage increases, healthcare improvements, life insurance, and paid personal time off. The two-day recess in negotiations that the Company requested for the current week was needed for financial analysis of UMWA demands that Patriot roll back the majority of cost relief approved by the Bankruptcy Court. It remains the assessment of Patriot management that agreeing to the UMWA’s demands would sacrifice any chance of making the Company viable.”

On May 29, Judge Kathy Surratt-States in the U.S. Bankruptcy Court for the Eastern District of Missouri granted Patriot’s motion under sections 1113 and 1114 of the Bankruptcy Code. The court authorized Patriot to implement proposals that would adjust employee wages and benefits to a level consistent with the regional market, and transition retiree healthcare obligations to a VEBA. The VEBA would be funded with hundreds of millions of dollars, consisting of: a 35% ownership stake in the reorganized company which the UMWA would monetize for a substantial cash contribution: an initial cash contribution of $15m; royalty contributions for every ton of coal produced by Patriot; and profit-sharing payments.

Patriot says it is voluntarily trying to negotiate with the union

Despite being under no obligation to do so, Patriot said it has voluntarily continued to bargain with the UMWA in an effort to reach a consensual agreement on terms more favorable to the UMWA than the proposals approved by the court.

“In these continuing discussions, Patriot has offered substantial improvements for our UMWA employees that result in a wage and benefit package that is clearly favorable to the regional labor market,” Hatfield said. “However, we cannot support UMWA demands for changes in the court-approved contract that would increase Patriot losses by over $40 million per year in 2013, 2014, and 2015. If we did, Patriot would not emerge from bankruptcy.”

Hatfield added: “Patriot continues to respect the need for confidentiality in the negotiations if the parties are to make progress. Unlike the UMWA, we will not grandstand in the media or issue press releases filled with distortions about the parties’ discussions. Rather than spending time on such theatrics, we are hopeful that the UMWA will return to the negotiating table and work toward a solution that allows Patriot to survive and continue to provide 4,000 jobs and meaningful healthcare benefits for thousands of retirees and their families.”

The UMWA has threatened to strike if Patriot implements the proposals approved by the court. Said Hatfield: “A strike would put the company on a path to liquidation, which is the worst possible outcome for UMWA employees and retirees. Patriot’s unionized work force would be left with limited job opportunities in a difficult coal market, and our UMWA retirees would likely be left with zero healthcare coverage. We are disappointed that President [Cecil] Roberts appears to be ignoring the painful lessons of the Hostess bankruptcy, where the intransigence of union leaders resulted in the company’s liquidation and the loss of more than 18,000 jobs. It is critical that the UMWA agrees to continue productive negotiations if this devastating outcome is to be avoided.”

UMWA sees management bonuses as a real issue

In the UMWA announcement that is being contested by Patriot, UMWA President Cecil Roberts said: “We had made significant progress toward reaching an agreement that provided a workable alternative to the severe terms Patriot asked for last spring and that were approved by the bankruptcy court in St. Louis. The union had agreed to more than $400 million in savings for the company over the life of the current contract, which gives them the money they say they need to survive. But that still wasn’t enough for them. When the company walked out, we were only about $30 to 35 million apart, which given the scope of this problem really isn’t all that much. A big chunk of that money is in bonuses the company wants to pay management personnel into the future.”

Roberts added: “The company now says it will implement the terms and conditions approved by the judge, effective July 1. I have consistently made it clear to management that I could not recommend to our membership that they work under those terms, because the sacrifices they require from our active and retired members are too great.”

Roberts said there would be a vote held on this among affected workers, likely during the week prior to July 1. Under the UMWA Constitution, all active members working at Patriot operations, including those who are laid off or on sick or disability leave, have the right to vote on the terms and conditions of employment.

Roberts also pledged to continue the union’s efforts to get Peabody Energy (NYSE: BTU) and Arch Coal (NYSE: ACI), which had previously owned most of Patriot’s unionized operations, to live up to their alleged obligations to the retirees to whom Peabody and Arch promised health care benefits.

“We find ourselves in this position today because Peabody and Arch made promises that they didn’t keep,” Roberts said. “We are not letting them off the hook. We are airing a new round of television spots that feature the voices of the victims of their scheme. Thousands of us will be back in front of Peabody’s offices next week, and more events are planned in St. Louis and throughout the coalfields in the coming months.”

Peabody created Patriot in a 2007 IPO. Arch had sold operations to a company, then those operations were later acquired by Patriot in 2008. Both Peabody and Arch have said they spun off or sold financially healthy operations and have no further responsibility for them and their union obligations.

Patriot Coal is a producer and marketer of coal in the eastern U.S, with 11 active mining complexes in Appalachia and western Kentucky. In 2012, St. Louis-based Patriot sold a total of 24.9 million tons of coal, which was a reduction of almost 20% from the 31.1 million tons sold in 2011. Patriot is the tenth largest coal-producing enterprise in the U.S. based on 2012 coal production and the sixth largest coal-producing enterprise based on 2012 revenues.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.