Delta Air Lines plans to manage the volatile cost of jet fuel by getting into the oil refining business, an airline industry first. On April 30 the carrier said its wholly owned Monroe Energy subsidiary will acquire a refinery complex southwest of Philadelphia from Houston-based Phillips 66 for $180 million.
Delta said it expects to save $100 million in fuel costs this year and $300 million a year thereafter by acquiring the facility. By combining production from the facility with agreements to exchange refined products such as gasoline and diesel fuel for additional jet fuel from other providers, Delta said it will cover 80 percent of its domestic fuel requirements. Last year, the airline spent $11.8 billion on fuel, accounting for 36 percent of its operating cost when including contract carriers.
Monroe Energy is buying the 347-acre Trainer Refinery complex on the Delaware River in Trainer, Pa. Formerly run by multinational energy giant ConocoPhillips, the facility holds the capacity to refine 185,000 barrels of oil a day. Last September, ConocoPhillips began the process of idling the refinery and offered it for sale “based on the level of investment required to stay competitive.” Phillips 66 is a new spin-off company of former ConocoPhillips refining assets.
A $30 million state grant supports Delta’s acquisition of the refinery. According to the office of Pennsylvania Gov. Tom Corbett (R), the state support depends on Monroe Energy “investing at least $350 million at the project site, including acquisition costs, and employing at least 402 full-time workers on site for at least five years from the date of occupancy.” Monroe expects to begin jet fuel production at Trainer during the third quarter. The day after Delta’s announcement, Corbett, Delta president Edward Bastian and others gathered in a parking lot at the refinery to commemorate the sale.
As part of the transaction, Monroe Energy will enter into multi-year sourcing and marketing agreements with oil companies BP and Phillips 66. BP will supply the crude oil for refinement at the Trainer facility under a three-year agreement. Monroe Energy plans to trade gasoline and other “non-jet” refined products from Trainer for jet fuel from the two companies.
“Acquiring the Trainer refinery is an innovative approach to managing our largest expense,” said Delta CEO Richard Anderson. “This modest investment, the equivalent of the list price of a new widebody aircraft, will allow Delta to reduce its fuel expense by $300 million annually and ensure jet fuel availability in the Northeast.”