Airline Buys Oil Refinery To Make Own Jet Fuel

U.S. carrier Delta Air Lines will pay $150 million for their very own oil refinery in Pennsylvania, after claiming that the move could save the company around $300 million annually in jet fuel costs.

According to an Associated Press report, the Atlanta-based airline will spend a further $100 million to upgrade the facility, which had previously belonged to oil giant ConocoPhillips.

U.S. carrier Delta Air Lines will pay $150 million for their very own oil refinery in Pennsylvania, after claiming that the move could save the company around $300 million annually in jet fuel costs.

According to an Associated Press report, the Atlanta-based airline will spend a further $100 million to upgrade the facility, which had previously belonged to oil giant ConocoPhillips.

The refinery, AP said, was struggling to make money before the buy-over, and ConocoPhillips had plans to shut it down even before a buyer had been found.

Still, the cost of purchasing and upgrading the facility still pales in average to what most airlines pay for jet fuel each year, with the price of oil set to rise even further over regional uncertainties.

Buying the refinery “is an innovative approach to managing our largest expense,” said Delta’s CEO Richard Anderson. The purchase is a “modest investment” comparable to buying one new large jet aircraft, he added.

Last year Delta spent $11.8 billion, or 36 percent of its operating expenses, on 3.9 billion gallons of jet fuel. Delta said that their new purchase could make 52,000 barrels per day of jet fuel once it has been upgraded.

Some analysts, however, have questioned whether the move makes financial sense given the risks.

[quote]”It’s clearly a very innovative approach, but I think it will be a number of years before we know whether it actually works out,” said Robert Mann, an airline consultant in Port Washington, New York to Reuters.[/quote]

Mann added that the statement issued by Delta had failed to address how the company would handle fluctuations in crude prices, or the cost of the actual refining process. Right now, Delta suffers when higher crude prices drive up the cost of jet fuel. As a refinery owner, Delta will still need that more-expensive crude oil to make jet fuel.

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Still, the move may make sense for Delta because they can manage that expense as closely as it can, said Mary Jane Credeur, a reporter for Bloomberg News.

“(Owning a refinery) is something airlines traditionally haven’t done, partly because they don’t have the money to tie up in that and they’ve gone with traditional fuel hedges,” she said. “It’s very unusual for crude to have stayed over $100 for as long as it has.”

[quote]”It’ll (the refinery will) pay for itself in the first year, and in the future, they control a little slice of their own jet fuel needs. And they’ve got that guaranteed and locked in,” she added.[/quote]