Delta Air Lines announced it was taking matters into its own hands and purchasing a US refinery
Stung by fluctuating oil prices, Delta Airlines on Monday announced it was taking matters into its own hands and purchasing a US refinery.
The Atlanta-based airline will pay $150
million for a Phillips 66 refinery, in a bid to cut its jet fuel bill by $300 million a year.
While the initial investment is no more than a wide-body jet liner and will even include an additional $100 million to upgrade the plant to maximise jet fuel production. It will put Delta in the unique position of hoping that the recent rebound in refinery profit margins, which is normally an indication of added costs for a fuel consumer, doesn't prove too fleeting.
Delta Chief, Richard Anderson, said that while Delta will remain hostage to fluctuating crude oil costs, the facility would enable it to save on the cost of refining a barrel of jet fuel, which is currently more than $2 billion a year for Delta and has been rising.
Anderson added "What we're tackling here today is the jet crack spread, which you cannot hedge in the marketplace effectively. It's the fastest single growing cost in our book of expense at Delta."
The Pennsylvania facility will be used to service Delta operations in the northeastern US, including airports in New York.
Delta has said that the refinery is expected to resume operations in the third quarter, about a year after ConocoPhillips idled the plant as rising imported crude oil costs, a collapse in demand and tough competition from foreign refiners crushed margins.
The airline giant also said that the deal will include pipelines and other assets that will provide access to the delivery network for jet fuel reaching its Northeast operations, including its increasingly important hubs at New York's LaGuardia and JFK airports.
Fuel costs pushed major US airlines into the red for the first quarter, although oil prices have since eased from March peaks US crude traded around $105 a barrel on Monday, while Brent crude was about $119 a barrel.