Delta takes plunge into refinery business

Delta Airlines has decided to do something about high gas prices. The company is buying a refinery from Conoco Philips for a bargain basement price of $150 million. With this purchase, Delta becomes the first airline to get into the business of producing its own jet fuel.

An unlikely knight in shining armor has appeared in the Delaware County refinery town of Trainer: Delta Airlines.

Since energy giant ConocoPhillips shuttered the plant here over the winter it’s been quiet. Former plant employee Michael Hubert points out you can’t hear steam coming off the towers across the road.

“The lights at night, the place is just dark as anything,” said Hubert. “Ready to get back in there and turn them back on, get the place running.”

Delta plans to get the facility back online and producing jet fuel for its fleet by Labor Day.

Delta’s President, Ed Bastion, delivered the news in the refinery’s parking lot this morning with Governor Corbett, Senators Casey and Toomey as well as most of the local congressional delegation.

“Some may say this is an unconventional move,” said Bastion. “We consider this an innovative move, an out of the box idea, and it’s going to be in the best interest of our business, our community and our shareholders.”

The airline industry has talked about fuel refining for years, but Delta is the first carrier to bite the bullet.  Delta is one of the world’s largest passenger airlines.  It guzzles more than three and a half billon gallons of jet fuel every year.  That’s a fuel bill of more than $11 billion.

That means, if it can shave just cents off its costs per gallon, the airline will save hundreds of millions of dollars.  But Delta may be in for a turbulent flight. Industry experts are skeptical.

“Quite frankly we as everyone know the airline business is tough enough as it is,” said aviation analyst John Armbrust. In the end, this whole plan only works if Delta can get more out of the refinery than it costs the company to run it.

“If it works they’re going to be the smartest kid on the block,” said Armbrust. “If it doesn’t. People will say see that’s was the dumbest thing they could have ever done.”

Conoco Phillips, a veteran in the business, decided to sell the aging refinery after several years of losses. Expensive crude prices have combined with falling U.S. demand to make the volatile refining business tougher than ever, especially for East Coast refineries that get crude shipped in from overseas.

There was another big announcement yesterday involving refineries. The sale of Sunoco to a Texas energy transportation firm marked the end of Sunoco’s departure from the refining business altogether.

But Delta’s Ed Bastian defends his company’s deal.   He says airlines have never paid as much as they pay for fuel today.

“We’ve got great confidence in the management team that we’ve brought forward,” said Bastian. “We believe in partnering with Conoco as well as Phillips66 and BP that we’ve got a long term answer.”

Delta says, all told, the deal will supply over 75 percent of its fuel needs in the U.S.  Bastian said he hopes to save enough to keep ticket prices steady.