Recasting Alcoa

A brutal drop in aluminum prices required an equally brutal remake of the company

  • Share
  • Read Later
Photograph by Eamon MacMahon for TIME

On the line Removing old anodes, caked with cryolite, at the Deschambault smelter

Two thermal rods and a souped-up golf cart could save Alcoa $47 million this year. The STARprobe project that depends on them first came online at Alcoa's Deschambault smelter, located just outside Quebec, in June. Rods are dipped into an orange bath of molten cryolite and alumina in each of the plant's 264 pots, the steel basins in which aluminum is made. Temperature readings are then sent wirelessly to the cart and recorded on a space-age computer deck in eight languages.

The instant readout not only saves time but is also helping save Alcoa. "This is literally a process that took 16 hours in a lab just three months ago when it was done manually," says Geff Wood, manager for global primary-metals manufacturing and process-control systems. "Now it's mistakeproof, it's safer for our employees, it extends the life of the pots, and its cost is made up one week after implementation."

Think your industry was hit hard by the recession? The price of aluminum dropped nearly 60% in one of the steepest recessions the metals industry has ever seen. Alcoa had to hack costs, reduce inventories, close plants and eliminate thousands of jobs. Amid nearly $3 billion in cost cutting, however, the venerable Pittsburgh company has spent some $4 billion on new operations and mines to compete with more efficient rivals in energy- or resource-rich countries.

So far it turns out to be a bravura second act for CEO Klaus Kleinfeld, the former head of Siemens. The company turned in strong second- and third-quarter results, which may help convince a wary Wall Street that Alcoa is on the path to recovery. "None of our choices were easy, but we were always looking ahead to better times, to today and how to grow for tomorrow," Kleinfeld says. "Potential to shine was high, but everyone had to carry a little more burden."

More than 16 million metric tons of aluminum have been produced worldwide this year to date. Most people come into contact with it several times a day, whether it's in a skyscraper, an iPad, a beverage can or an airplane turbine. Alcoa, more than 120 years old, is the world's largest producer of primary aluminum, operating in 31 countries. And because aluminum is so recyclable — three-quarters of the metal ever made is still in use — we won't run out anytime soon.

When Kleinfeld became CEO in May 2008, he walked straight into a maelstrom. Already deeply in debt, Alcoa saw demand for aluminum drop by nearly a third as the recession hit. Kleinfeld had just exited a difficult situation at Siemens, Europe's largest engineering firm, where his much praised work at restructuring was undermined by a bribery scandal on his watch. He left Siemens and later paid a settlement to the company.

At Alcoa he faced a different kind of crisis, the choice between two options: sell the company or drastically re-create it. Over a weekend in January 2009, Alcoa executives huddled in New York City to figure out a survival plan. (The company moved its headquarters there in 2006.) "My team sat in a room and came up with a blueprint, a strategy to get us out of this," Kleinfeld says, referring to the economic crisis. "People asked, 'Are they crazy?' when they saw the plan. Then we went out and achieved it."

Slashing costs was the first priority. More than $412 million in overhead was eliminated in 2009 alone as sales dropped from $27 billion to $18 billion. The company cut to the bone and then kept cutting. Steps included reducing smelter output by 18% and selling off the firm's signature foil business.

  1. Previous Page
  2. 1
  3. 2
  4. 3