Delta refinery to fight soaring jet fuel prices

Delta Air Lines is bringing some jet-fuel production in house, breaking with US carriers' reliance on outside providers, by acquiring a refinery that Phillips 66 had targeted for shutdown. The world's second-biggest airline will pay $180 million (Dh661 million) for the complex in suburban Philadelphia, according to a statement on Monday. Pennsylvania's state government is putting up $30 million in assistance to defray the expense. An airline-owned refinery is an experiment in the US industry, said Ray Neidl, an airline analyst at Maxim Group LLC in New York. Atlanta-based Delta estimated the accord will save $300 million on its annual fuel bill, which was $11.8 billion last year, or about $32 million a day. "Nothing ventured, nothing gained," said Neidl, who has a buy rating on Delta shares. "Delta likes to try new things and I'm sure they studied this for months and ran the calculations. Nobody has done something quite like this before." Article continues below Maximising production Delta is buying the refinery in Trainer, Pennsylvania, through a subsidiary called Monroe Energy LLC, a nod to the airline's original headquarters in Monroe, Louisiana. Trainer will add to earnings, boost margins and allow the airline to recoup its upfront investment in the first year, chief financial officer Paul Jacobson said in the statement. Trainer can refine 185,000 barrels of crude per day, and Delta said it will spend $100 million to convert the refinery to maximise production of jet fuel, of which the airline consumed 3.86 billion gallons last year. The plant had been idled for months, and without a buyer it would have been closed by the end of May because tighter profit margins are squeezing East Coast refineries. Sunoco Inc and Valero Energy Corp are among companies also shutting or planning to sell refineries along the US East Coast, in Europe and the US Virgin Islands as oil prices rise and demand wanes. The deal also will help ensure jet-fuel availability at important Delta hubs, including New York's John F. Kennedy International and LaGuardia airports, Anderson said. Gasoline exchange BP will supply crude oil to be refined at the Trainer refinery, and Delta said it will exchange gasoline and other refined products for more jet fuel through agreements with BP and Phillips 66. Delta estimates that refining costs account for $2.2 billion (Dh8 billion) of its fuel bill, and those production-related expenses are the fastest growing at the airline, chief executive officer Richard Anderson said.