In court, Star Tribune execs make the case for cost-cutting

NEW YORK - Lower wages and less restrictive work rules at its printing plant would help the Star Tribune save money and attract outside work, including the possibility of printing its crosstown rival, the St. Paul Pioneer Press.

Star Tribune executives explained the need to cut costs in a U.S. Bankruptcy Court in New York Wednesday, where the paper is asking a judge to toss out the existing union contract with the newspaper's 116 pressmen.

The Star Tribune, burdened by a heavy debt load from its 2007 acquisition by Avista Capital Partners and a steep plunge in advertising revenue, is seeking a total of $20 million in annual labor cost savings, including $3.5 million from the pressmen.

"We need these savings tomorrow," said David Montgomery, chief financial officer of the Star Tribune. "We're in a critical stage where we need to save every dollar."

In addition to Montgomery, the court also heard testimony from Kevin Desmond, the paper's senior vice president of operations.

The pressmen's financial consultant and the union's top executive are scheduled to testify today.

Pioneer Press Publisher Guy Gilmore acknowledged his paper has had "exploratory" discussions with the Star Tribune about a contractual printing deal and said his paper's contract with its pressmen would permit such an arrangement.

"We think that it would make sense to at least explore a partnership," Gilmore said Wednesday. "And we have talked briefly on and off over the last few months about whether such an arrangement could work, both logistically and economically. But there haven't been any bids. There haven't been any real final kinds of schedules."

Judge Robert Drain could rule on whether to void the union contract as early as today. But he urged the company and the union to come to a negotiated settlement on their own. Drain also said he might delay his decision to give the sides more time.

Randy Lebedoff, the Star Tribune's general counsel, said negotiations with the pressmen are scheduled to resume today.

Bankruptcy courts have generally been reluctant to decide labor-management disputes. But the Southern District of New York, where Drain presides, has a reputation of being company friendly and has abrogated labor deals in the past.

The Star Tribune, like most major daily newspapers, has seen revenue plunge as the recession has taken a deep toll on key advertising sectors, including real estate, automobiles and help wanted. The Rocky Mountain News in Denver recently shut down because of a steep slide in revenue, and many analysts think the Seattle Post-Intelligencer could be the next paper to cease operations.

Montgomery said advertising revenue at the Star Tribune had fallen another 30 percent in the first two months of 2009, compared with a year earlier. "This is a horrible environment for newspapers," he said.

Montgomery openly worried that creditors would not let the company eat through cash indefinitely if it could not contain labor costs.

"They [the creditors] are constantly telling us that we have to get our cost structure under control," he said.

Looming is an April 13 deadline, when the Star Tribune must return to bankruptcy court and ask its creditors for permission to continue using cash on hand to operate.

The Star Tribune filed for Chapter 11 bankruptcy in January when it could no longer service and meet all the obligations of its $477 million debt. Avista Capital Partners, a New York private equity fund, purchased the paper two years ago and used debt to help finance the transaction.

Star Tribune reporter Dan Browning contributed to this report.