Delta Air Lines buys 49 percent of Virgin Atlantic for $360 million

[redflyer65]

There is talk of gas going into the $2 range as the shale oil comes up, refineries return to full winter production, the economy continues to slow, and OPEC has to find a buyer to fund their desire for virgins. Not good news for a company trying to hedge fuel prices by buying the production line.

The recent gas prices here have been dropping like a brick (right at 3 now) I hope it does make it to 2 bucks.

 

[Andy]

Andy,

I disagree about the refinery. Most analysts now say DL may make twice what they originally thought in profits. As you know, oil will continue to rise and fall according to World events, and being able to shave off a few cents here and there per gallon may make a huge difference. Also, using WTI prices on ND crude compared to current Brent prices could also make a huge difference.

Bye Bye---General Lee

Most analysts? Who, other than Delta employees? I must have missed analysts chaning their opinion on this.

The purchase of a refinery is a hedge against the crack spread, not against the price of a barrel of oil.
If Bakken vs Nigerian crude is the basis for 'savings' at the Trainer facility, it's a fallacious argument because the Bakken crude is available to all refineries.
Delta did not purchase oil production, they purchased a refinery. The savings from lower crude oil is passed on to all airlines, not just Delta.

It appears that Delta's management is distorting the true production costs to show that Trainer is profitable.

United quickly dismissed the idea of buying a refinery; I don't know where you get the impression that other airlines are thinking of following in Delta's footsteps.

 

[dalad]

Most analysts? Who, other than Delta employees? I must have missed analysts chaning their opinion on this.

The purchase of a refinery is a hedge against the crack spread, not against the price of a barrel of oil.
If Bakken vs Nigerian crude is the basis for 'savings' at the Trainer facility, it's a fallacious argument because the Bakken crude is available to all refineries.
Delta did not purchase oil production, they purchased a refinery. The savings from lower crude oil is passed on to all airlines, not just Delta.

It appears that Delta's management is distorting the true production costs to show that Trainer is profitable.

United quickly dismissed the idea of buying a refinery; I don't know where you get the impression that other airlines are thinking of following in Delta's footsteps.

The refinery is now worth over $1 billion, it is making money.

 

[BILL LUMBERG]

Don't let the General sell you the unicorns and glitter.......The SS Delta is steaming fullspeed into an iceberg. Not only did it lose 50-60 million blamed conveniently on Sandy, they need to invest MORE to make it work (See last sentence below!)

----------------------------------------------------------------------------

Delta Air Lines, which now owns the refinery in Trainer, says Hurricane Sandy delayed the start of its new operation there.

Instead of generating a modest profit in the first quarter, the plant will have a $50 million to $60 million loss.
The good news: The pipelines are back online, and the distribution outlets "are in check," president Edward Bastian told analysts at Delta's investor day in New York on Wednesday.
Production scheduled for 2013 at Delta subsidiary Monroe Energy L.L.C. will come online by the end of this month. Delta expects Trainer to generate $280 million in savings next year and refine 80 percent of the airline's domestic jet fuel.
"Sandy threw us a big curveball, starting up a major refinery and having a hurricane hit you the first week that Trainer was fully operational," Bastian said. "We are very optimistic about the future."
Delta CEO Richard Anderson told investors he expected a merger shortly between bankrupt American Airlines and US Airways Group.


"We have been vocal supporters of that transaction" and further consolidation in the industry. In 2008, Delta merged with Northwest Airlines, and two years later, United Airlines combined with Continental.
"The last piece of the puzzle is American and US Airways," Anderson said.
Analysts said Delta's announcement Tuesday that it would buy a 49 percent stake in Virgin Atlantic Airways of the U.K. to capture more New York-to-London business travelers put more pressure on US Airways and American to merge.
Both carriers "need additional market mass" to remain competitive with industry giants United and Delta, airline analyst Ray Neidl of Maxim Group L.L.C. wrote in a client note. "We believe the odds of a merger with US Airways before [American] exits bankruptcy has increased to a 75 percent possibility."
Late Tuesday and Wednesday, the pilots' unions for American and US Airways said they had been invited by the unsecured-creditors committee to join the confidential merger discussions under way between American and US Airways.
With both pilot groups participating, "we believe this may give additional momentum to the move toward a possible merger," Neidl wrote.
Industry sources have put an $8 billion value on the combined airline, with American's creditors getting 70 percent ownership in the new carrier and US Airways' shareholders 25 percent to 30 percent, Neidl wrote.
The new airline would be called American and based in Dallas-Fort Worth, Texas.
Vicki Bryan, a bond analyst with Gimme Credit L.L.C., wrote in a client update Wednesday that with pilots from both airlines "actively involved in deciding [American's] fate, we feel more confident than ever that the US Airways' bid will be accepted, perhaps by Christmas."
"We continue to believe a merger with US Airways" with CEO Doug Parker at the helm would "create the best chance to build an airline with sufficient scale to compete effectively against Delta and United," she wrote.
American's flight attendants, pilots, and mechanics have all agreed to tentative contracts with US Airways "and remain firmly committed to the merger," Bryan wrote.
At Wednesday's Delta investor presentation, the airline said it was talking with producers in North Dakota about bringing crude oil by rail to Trainer from the Bakken oil field in the upper Midwest.
"There's little doubt we will start producing out of Trainer Bakken crude at some point in 2013," Bastian said. Delta intends to invest in a rail unloading facility at the refinery to get crude in and jet fuel out to the Midwest.

Read more: http://www.philly.com/philly/busine...rt_of_its_Trainer_refinery.html#ixzz2Ewn20ODG
Watch sports videos you won't find anywhere else
​

 

[Andy]

Whenever I see an airline 'diversify' outside of its core business, I remember how senior airline executives in the past have siphoned off money from the airline by setting up subsidiary companies where senior execs own the majority of the subsidiaries. Note that the Trainer refinery is owned by Monroe Energy LLC.
I wouldn't be surprised if they're doing the same thing with the VA stake.

 

[General Lee]

There is talk of gas going into the $2 range as the shale oil comes up, refineries return to full winter production, the economy continues to slow, and OPEC has to find a buyer to fund their desire for virgins. Not good news for a company trying to hedge fuel prices by buying the production line.

How often do World Events change gas prices? Would you think oil will stay low forever? No. There is always something out there that could bring prices back up. If it profits $300 million per year or $50 million per year, is it a bad investment? Do you think oil will stay low forever? I doubt it. I would be nice for you and me, but I doubt it.


Bye Bye---General Lee

 

[General Lee]

Whenever I see an airline 'diversify' outside of its core business, I remember how senior airline executives in the past have siphoned off money from the airline by setting up subsidiary companies where senior execs own the majority of the subsidiaries. Note that the Trainer refinery is owned by Monroe Energy LLC.
I wouldn't be surprised if they're doing the same thing with the VA stake.

You know DL was originally headquartered in, wait for it, MONROE, LA, right? Now do you understand the name? It is a full subsidiary of DL, run by oil people.



From the Philly Enquirer and Philly dot com aritice on July 16, 2012

Monroe Energy L.L.C., a wholly owned subsidiary of Delta, took control of the refinery June 22. Union workers in operations and maintenance returned the next week to begin the process of getting the plant up and running. The refinery, when fully operational, will employ 400, including 220 members of United Steelworkers Local 10-234, the same number employed by ConocoPhillips.

The Trainer facility will not aim to be a traditional refiner, like PBF, Sunoco, or predecessor ConocoPhillips. "We don't have a marketing department. We are totally exchanging everything to get jet fuel," said Jeffrey Warmann, Monroe's CEO and plant manager. "That's our whole purpose: to maximize jet fuel availability to our parent company."

Wharton School management professor Larry Hrebiniak said that while some people, especially in energy and finance, don't like the deal, "I'm going to go the other way. I think it makes some sense



Bye Bye---General Lee

 

[General Lee]

Don't let the General sell you the unicorns and glitter.......The SS Delta is steaming fullspeed into an iceberg. Not only did it lose 50-60 million blamed conveniently on Sandy, they need to invest MORE to make it work (See last sentence below!)

----------------------------------------------------------------------------

Delta Air Lines, which now owns the refinery in Trainer, says Hurricane Sandy delayed the start of its new operation there.

Instead of generating a modest profit in the first quarter, the plant will have a $50 million to $60 million loss.
The good news: The pipelines are back online, and the distribution outlets "are in check," president Edward Bastian told analysts at Delta's investor day in New York on Wednesday.
Production scheduled for 2013 at Delta subsidiary Monroe Energy L.L.C. will come online by the end of this month. Delta expects Trainer to generate $280 million in savings next year and refine 80 percent of the airline's domestic jet fuel.
"Sandy threw us a big curveball, starting up a major refinery and having a hurricane hit you the first week that Trainer was fully operational," Bastian said. "We are very optimistic about the future."
Delta CEO Richard Anderson told investors he expected a merger shortly between bankrupt American Airlines and US Airways Group.


"We have been vocal supporters of that transaction" and further consolidation in the industry. In 2008, Delta merged with Northwest Airlines, and two years later, United Airlines combined with Continental.
"The last piece of the puzzle is American and US Airways," Anderson said.
Analysts said Delta's announcement Tuesday that it would buy a 49 percent stake in Virgin Atlantic Airways of the U.K. to capture more New York-to-London business travelers put more pressure on US Airways and American to merge.
Both carriers "need additional market mass" to remain competitive with industry giants United and Delta, airline analyst Ray Neidl of Maxim Group L.L.C. wrote in a client note. "We believe the odds of a merger with US Airways before [American] exits bankruptcy has increased to a 75 percent possibility."
Late Tuesday and Wednesday, the pilots' unions for American and US Airways said they had been invited by the unsecured-creditors committee to join the confidential merger discussions under way between American and US Airways.
With both pilot groups participating, "we believe this may give additional momentum to the move toward a possible merger," Neidl wrote.
Industry sources have put an $8 billion value on the combined airline, with American's creditors getting 70 percent ownership in the new carrier and US Airways' shareholders 25 percent to 30 percent, Neidl wrote.
The new airline would be called American and based in Dallas-Fort Worth, Texas.
Vicki Bryan, a bond analyst with Gimme Credit L.L.C., wrote in a client update Wednesday that with pilots from both airlines "actively involved in deciding [American's] fate, we feel more confident than ever that the US Airways' bid will be accepted, perhaps by Christmas."
"We continue to believe a merger with US Airways" with CEO Doug Parker at the helm would "create the best chance to build an airline with sufficient scale to compete effectively against Delta and United," she wrote.
American's flight attendants, pilots, and mechanics have all agreed to tentative contracts with US Airways "and remain firmly committed to the merger," Bryan wrote.
At Wednesday's Delta investor presentation, the airline said it was talking with producers in North Dakota about bringing crude oil by rail to Trainer from the Bakken oil field in the upper Midwest.
"There's little doubt we will start producing out of Trainer Bakken crude at some point in 2013," Bastian said. Delta intends to invest in a rail unloading facility at the refinery to get crude in and jet fuel out to the Midwest.

Read more: http://www.philly.com/philly/busine...rt_of_its_Trainer_refinery.html#ixzz2Ewn20ODG
Watch sports videos you won't find anywhere else​

Bill,

You're the one with unicorn posters up in your room.

As far as the refinery goes, the last couple sentences do make the point JonJuan was making (unbelievably), which was DL will try to take advantage of lower priced ND Bakken crude compared to buying it at Brent Crude prices in Nigeria (thanks Red, I can see why it is falling in Nigeria, it's more expensive there). If you buy it at WTI prices instead of Brent prices, you can save $8-12 per barrel. That is called SAVINGS.

Regardless, all ya'll are the next JR Ewings, and that is FANTASTIC.


Bye Bye---General Lee

 

[General Lee]

Most analysts? Who, other than Delta employees? I must have missed analysts chaning their opinion on this.

The purchase of a refinery is a hedge against the crack spread, not against the price of a barrel of oil.
If Bakken vs Nigerian crude is the basis for 'savings' at the Trainer facility, it's a fallacious argument because the Bakken crude is available to all refineries.
Delta did not purchase oil production, they purchased a refinery. The savings from lower crude oil is passed on to all airlines, not just Delta.

It appears that Delta's management is distorting the true production costs to show that Trainer is profitable.

United quickly dismissed the idea of buying a refinery; I don't know where you get the impression that other airlines are thinking of following in Delta's footsteps.

From the Philly Enquirer and Philly dot com article on July 16, 2012


Under the deal announced April 30, Delta has multiyear contracts with British Petroleum to supply the crude to Trainer, and Phillips 66 and BP will swap the gasoline and diesel for jet fuel to serve Delta at airports around the country.

When the Trainer plant is up and running in September, production will be 165,000 to 185,000 barrels a day, including 52,000 barrels a day of jet fuel, which will go by pipeline and barge to Delta's hub operations at New York's LaGuardia and John F. Kennedy airports.

"We've had this matter under study for the better part of a year," Anderson said in a call with reporters. "What we're tackling here today is the jet crack spread," the fastest-growing portion of all Delta's expenses, he said.

The idled Trainer facility came cheap — an asset probably worth a $1 billion, he said. Delta bought it for $150 million, plus $100 million the airline will invest to modify the plant to maximize jet fuel production. (Pennsylvania kicked in $30 million for job creation and infrastructure improvement.)

Delta said that $250 million investment — a little less than the list price of a new wide-body airplane — would pay off in the first 12 months in lower annual fuel costs of $300 million. The jet fuel from Trainer, and the swaps with BP and Phillips 66, will cover 80 percent of Delta's domestic fuel needs, the company said.

"It looks like it's a good thing; I don't know why all the oil guys tell me it's a bad thing," said airline analyst Bob McAdoo, with Imperial Capital L.L.C. "I am a little skeptical that the people who are the loudest negative are also people who haven't seen the details of this transaction."

"When you look at how much Delta spends on oil, and how much they spend on everything, this is not a big risk financially. These guys do their homework," McAdoo said. "I would expect that it's going to work for them. Even if it doesn't, it's not a big number relative to the overall size of Delta."



Bye Bye---General Lee

 

[Andy]

You know DL was originally headquartered in, wait for it, MONROE, LA, right? Now do you understand the name? It is a full subsidiary of DL, run by oil people.

A lot of games get played at 'wholly owned subsidiaries'. Like hiring the CEO's son as an advisor for a six figure income - not saying that's what's happening but you wouldn't be able to tell with everything being done separately from the parent company.
Another little game that can be played is to 'sell' refined products to the parent company for above market prices so that you're able to show a paper profit for the subsidiary, all the while skimming money off of the operation.

Here's the question you should be asking: Why does Delta need to operate the refinery as a subsidiary? Occam's razor would say that it is so they can manipulate the numbers off of Delta's books.

 

[redflyer65]

Don't let the General sell you the unicorns and glitter.......The SS Delta is steaming fullspeed into an iceberg. Not only did it lose 50-60 million blamed conveniently on Sandy, they need to invest MORE to make it work (See last sentence below!)

Lumberg for President. A realist who calls it like he sees it, instead of unicorns and glitter from the Genital.

 

[EngineThunder]

General,
Serious question: Does it bother you that after the TA is signed and delivered that Delta finds $360 million to spend elsewhere instead of giving back to the pilots what was stolen in BK?

 

[General Lee]

General,
Serious question: Does it bother you that after the TA is signed and delivered that Delta finds $360 million to spend elsewhere instead of giving back to the pilots what was stolen in BK?

Does it bother me? The company made $2.5 billion in ancillary revenue last year alone. They make money. They are paying off debt too, which will help all of us. Would I have liked a contract that gave us all our money back from the BK and more additionally? Sure. But, that is just unrealistic. I think the TA was good because it was short in duration, almost a 20% raise in 3 years, and addressed scope concerns (parked a lot more RJs that came in), plus had a deal for 717s that MAY NOT HAVE come had the 50 seaters stuck around for 3 more years. Lumberg probably does disagree, but he doesn't know either. Overall, it was a good deal for a short duration contract. So, no, it doesn't really bother me. You can't go for the Moon, because that will never produce results. Shorter contracts with substantial raises (15-20%) is the wave of the future.


Bye Bye---General Lee

 

[BILL LUMBERG]

General,

You ARE correct, I disagree.

I may not know about the future, but fear drives stupid decisions, fear of management, fear of the economy, fear of saying NO.

When we had probably the BEST leverage we have ever had in my career and we settle for this zero sum turd of a contract and cheer for somebody's hand-me-down 717s and post on here about how great our management is, you are incorrect.

Management knows we will never say no EVER......and now everybody I talk to is having buyer's remorse over this stupid contract. Call me sour grapes, but we could have done WAYYYYY better under a different MEC who actually fights for it's pilots rather than try to get invited to management Birthday parties and share circle jerk articles written about how great they are together.

I was told we would get paid when Delta is profitable. Well here we are, with not much to show for it. Hey didn't somebody say we didn't leave anything on the table? Funny how EVERYBODY else at Delta gets the same raises we do? Funny? No money left?

Anyway, rant over......Continue your love affair with SWA General.

 

[General Lee]

General,

You ARE correct, I disagree.

I may not know about the future, but fear drives stupid decisions, fear of management, fear of the economy, fear of saying NO.

When we had probably the BEST leverage we have ever had in my career and we settle for this zero sum turd of a contract and cheer for somebody's hand-me-down 717s and post on here about how great our management is, you are incorrect.

Management knows we will never say no EVER......and now everybody I talk to is having buyer's remorse over this stupid contract. Call me sour grapes, but we could have done WAYYYYY better under a different MEC who actually fights for it's pilots rather than try to get invited to management Birthday parties and share circle jerk articles written about how great they are together.

I was told we would get paid when Delta is profitable. Well here we are, with not much to show for it. Hey didn't somebody say we didn't leave anything on the table? Funny how EVERYBODY else at Delta gets the same raises we do? Funny? No money left?

Anyway, rant over......Continue your love affair with SWA General.

Some people want to hit a homerun everytime, maybe that is you Bill. I am more realistic. I would rather get smaller contracts with pretty good payouts. A 3 year contract with an almost 20% raise is pretty darn good. There were things that weren't great, but if we try to get a HUGE contract each time, it just won't happen. It won't. We can try, but it will drag out. If this was a 5 year contract with about 20%, then I would have said no way. Other things like calendar day for 3 day allnighter trips, the 717s, tighter scope overall, more credit for training and vacation, along with more sick time per year, covered a lot of the basics that needed to be filled. It wasn't as bad as many on here believe, and negotiations will start again in 2 1/2 years. Not bad at all. But hey, you've got your opinion and I respect that.


Bye Bye---General Lee

 

[Hamfighter]

A good, concise explanation...

Delta And Virgin Atlantic To Merge


December 17, 2012 | Filed Under » Investing News, Stock Analysis, Stocks
Tickers in this Article » DAL


Like finding out that your daughter was engaged to the boy you thought she would never date, the December 11 announcement of a merger between Delta (NYSE:DAL) and Virgin Atlantic came as a complete surprise to most. Delta will purchase Singapore Airlines' 49% stake in Virgin Atlantic for $360 million, according to CNN. That is a $600 million loss for Singapore Airlines that purchased the stake for $960 million in 2000. Why would Delta want a stake in an airline that operates primarily outside of the United States? There is a reason for this odd couple arrangement, and it is big.


It Is a Lucrative Route
Delta is the second largest airline in the U.S. With that in mind, it would make sense that a carrier of that size would offer as many flights from New York to London as possible - especially when a look at the airline industry shows that this is one of the most lucrative routes for business travelers.

Presently, however, Delta only offers three flights from New York to London each day. The partnership between British Airways and American Airlines results in 14 daily flights from New York to Heathrow, a dominant 60% market share.

Providing the merger manages to jump through all the appropriate regulatory hoops by the beginning of 2014, Delta will have access to nine flights from New York to London daily. Some transportation analysts believe that the merger could result in a 38% market share of the route. That is up from the current 10% share they have now.

Why Not Just Schedule More Flights?
They would if it were that easy. London's Heathrow Airport is operating at capacity. With the failed attempt to gain approval to expand Heathrow, airlines do not have the luxury of adding to their routes. This is what makes the Delta - Virgin merger so attractive. Virgin would be giving Delta even more options moving forward. It's definitely something to consider for those analyzing this acquisition announcement closely.

There Are Other Benefits
In the U.S., Delta will be the carrier of choice for flights inbound to New York and other airports servicing the London market. On the United Kingdom side, Delta benefits from having more flights to Heathrow, which opens up other markets throughout Europe and Asia. In 2008, Delta purchased rival Northwest Airlines. Delta did this to gain access to Northwest's extensive Asian network. This, along with its partnership with Air France, gives it many more future options for expanding internationally.

Virgin is a much smaller airline than Delta. Rising fuel costs and the eurozone crisis have hit the airline hard, resulting in a loss of $129 million in the past fiscal year. The merger with Delta gives it access to more American travelers and will likely increase capacity for the airline.

Why Didn't Delta Buy Virgin As They Did Northwest?
First, because global airline laws generally prohibit an airline from taking more than a 50% stake in an airline operating outside of their headquartered country. Second, Virgin's 51% stakeholder, Sir Richard Branson has indicated that he has no plans to exit the airline business. He stated that he sees the merger as a way for the two airlines to add even more flights throughout the world. Analysts say that the merger will largely equate to business as usual for Virgin.


The Bottom line
Mergers resulting in consolidation in the airline industry have swept throughout the world as airlines struggle to cope with the rising costs of fuel and other associated charges. This merger will give Delta access to one of the most lucrative business travel routes and that, in turn, will allow the airline to service more customers on both sides of the Atlantic. If you're interested in investing in travel and tourism, dig deeper into this deal. At the time of writing, Tim Parker did not own any shares in any company mentioned in this article.