Delta Airlines (DAL) has agreed to buy a refinery from Conoco-spinoff Phillips 66 (PSX), the company announced. The deal includes pipelines to get the fuel to JFK, LaGuardia and other airports. The late-day announcement sent Delta shares about 1% higher. The company made the purchase through a wholly-owned subsidiary named Monroe Energy.
“After receipt of $30 million in state government assistance for job creation and infrastructure improvement from the Commonwealth of Pennsylvania, Monroe’s investment to acquire the refinery will be $150 million, and Monroe will spend $100 million to convert the existing infrastructure to maximize jet fuel production. Production at the refinery combined with multi-year agreements to exchange gasoline, diesel, and other refined products from the refinery for jet fuel will provide 80 percent of Delta’s jet fuel needs in the United States. “
The deal seems quixotic on its face: running a refinery is clearly a different enterprise from running an airline. But analysts have warmed to the deal in recent days, noting that it could help Delta manage costs as oil prices remain volatile.
“Acquiring the Trainer refinery is an innovative approach to managing our largest expense,” said Richard Anderson, Delta’s chief executive officer. “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. This strategy is aligned with the moves we have made to build a stronger airline for our shareholders, employees and customers.”
