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

[FDJ2]

I covered 1.E.8 in my statement. 1.E.9 will be up to the negotiators. Frankly, I wasn't impressed with the Virgin Australia agreement, since Virgin Australia can now increase their flying to the US by a third, without any requirement for DL to increase ours.

Yep, and without the JV they could have done that because V Australia's JV was an incremental revenue sharing JV. Our previous contract did not recognize revenue sharing JVs. This contract does. Because of the small scale of an incremental revenue sharing JV with V. Australia (completely different economics than AF/KLM/AZ) the 75% of revenue was unlikely to ever be triggered. Therefore we created a floor that increased Delta pilot flying if the JV grows in frequencies, not revenue. It's a superior metric for this JV. It's also important to understand that V. Australia is not a production balance, it's a one way floor that protects Delta pilots, not V. Australia pilots. If Delta wants to add 21 frequencies they can do it with out any addition of frequencies to V. Australia, if V. Australia pulls down 7 frequencies,, Delta doesn't have to pull down any.

 

[General Lee]

Here is another view Andy

Nov. 7, 2012, 3:21 p.m. EST
Delta starting to profit from Penn. refinery buy


By Alison Sider WSJ

HOUSTON--Delta Air Lines Inc.is starting to realize gains from its purchase of a 185,000-barrel-a-day refinery in Trainer, Pa., earlier this year, Monroe Energy LLC chief executive Jeffrey Warmann said Wednesday.
Monroe is a wholly owned subsidiary of Delta, and purchased the idled refinery from Phillips 66 (PSX) earlier this year in an effort to control Delta's jet fuel costs. The refinery shipped its first batch of jet fuel on Sept. 25 after a few months of turnaround over the summer aimed at retrofitting the plant to maximize output of that product.

Many airline and refining analysts perceived the move as a risky one. Airlines generally try to manage their fuel costs by hedging crude oil.
"We've seen a number of different areas where we've been able to influence the jet fuel price to the advantage of Delta," Mr. Warmann said while speaking at the Global Refining Strategies Summit in The Woodlands, Texas.

"We don't have to go beg, borrow or steal from various suppliers...If I can supply my own and don't have to take your jet fuel, that's negotiating, not begging," Mr. Warmann said.

The Trainer refinery is ramping up toward producing 52,000 barrels of jet fuel a day, most of which will be used at JFK and LaGuardia airports in New York, Mr. Warmann said. Delta said in its third-quarter filing with the Securities and Exchange Commission that it expects the refinery to reach full capacity during the fourth quarter, at which point it expects to "begin to realize the benefits of ownership of the refinery." During the third quarter, the refinery's operations were not material to the company's profits, according to the filing.

The gasoline, diesel or other refined products produced at Trainer, which will account for about 70% of its output, will be traded to companies such as Phillips 66 (PSX) and BP Plc. (BP) in exchange for more jet fuel Delta can use at other hubs around the country. In all, Mr. Warmann said Delta expects to realize a 12-cent-per-gallon price advantage over competitors, while hedging strategies have historically produced only a two-cent price advantage, he said.

Delta consumes 260,000 to 300,000 barrels of jet fuel per day world-wide and fuel has become the airline's largest cost, Mr. Warmann said. The company is hoping its refinery will help it save $300 million on fuel each year. "It seems like it was well worth the risk," he said. Delta invested $180 million on the acquisition, and said it expected to spend another $100 million on upgrades.

Risks include the possibility that the refinery could malfunction, forcing Delta to foot a hefty repair bill, or that a storm like Sandy will prompt a shutdown. But Trainer operated through the storm while several other East Coast refineries shut down. Some experienced prolonged power outages or sustained damage from flooding, but Mr. Warmann said all of Trainer's units are up and running.

"The pilots, flight attendants and baggage handlers kept their refinery going while the oil companies shut their facilities down and headed for the hills," he joked.

But the refinery was not entirely immune to the impact of the storm. Though it kept running, Mr. Warmann said pipeline outages at times made it difficult to transport its products.

The company spent $180 million to buy the refinery and said it expected to spend another $100 million making improvements aimed at maximizing jet fuel production.

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Bye Bye---General Lee

 

[Andy]

GL, if buying a refinery reduced costs, you'd see other airlines following Delta's lead. I'll believe that this was a good financial move after I see someone else buy a refinery.

 

[General Lee]

GL, if buying a refinery reduced costs, you'd see other airlines following Delta's lead. I'll believe that this was a good financial move after I see someone else buy a refinery.

Andy,

Your own management is considering it. Many people thought DL would buy a refinery and have "airline people" run it. No, it is run by oil people, as a subsidiary of Delta. It actually did very well during Hurricane Sandy, and produced a lot revenue while staying open the whole time. Most analysts thought it was a bad idea at first, but now most feel it was a good move. But, you can think otherwise, that's great.


From the article, points you may want to re-read again:


The Trainer refinery is ramping up toward producing 52,000 barrels of jet fuel a day, most of which will be used at JFK and LaGuardia airports in New York, Mr. Warmann said. Delta said in its third-quarter filing with the Securities and Exchange Commission that it expects the refinery to reach full capacity during the fourth quarter, at which point it expects to "begin to realize the benefits of ownership of the refinery." During the third quarter, the refinery's operations were not material to the company's profits, according to the filing.

The gasoline, diesel or other refined products produced at Trainer, which will account for about 70% of its output, will be traded to companies such as Phillips 66 (PSX) and BP Plc. (BP) in exchange for more jet fuel Delta can use at other hubs around the country. In all, Mr. Warmann said Delta expects to realize a 12-cent-per-gallon price advantage over competitors, while hedging strategies have historically produced only a two-cent price advantage, he said.

Delta consumes 260,000 to 300,000 barrels of jet fuel per day world-wide and fuel has become the airline's largest cost, Mr. Warmann said. The company is hoping its refinery will help it save $300 million on fuel each year. "It seems like it was well worth the risk," he said. Delta invested $180 million on the acquisition, and said it expected to spend another $100 million on upgrades.



Bye Bye---General Lee

 

[redflyer65]

A 12 cent advantage? That's razor thin to make a difference. I'd be interested to see what the cost is to bring the ND product to eastern PA cost. Being it HAS to be transported by rail, or trucks (which is cost prohibitive).

That's been the problem with the Trainer facility for years. LOCATION. It's nowhere close to any raw product. Or pipelines that can supply it.

Definitely interesting to watch.

 

[jonjuan]

A 12 cent advantage? That's razor thin to make a difference. I'd be interested to see what the cost is to bring the ND product to eastern PA cost. Being it HAS to be transported by rail, or trucks (which is cost prohibitive).

That's been the problem with the Trainer facility for years. LOCATION. It's nowhere close to any raw product. Or pipelines that can supply it.

Definitely interesting to watch.

http://www.4-traders.com/WTI-SPOT-2...in-4Q-But-Expects-Long-Term-Savings-15591244/

Mr. Jacobson said he expects offloading capacity to be built so Trainer can accept crude oil from the Bakken formation in North Dakota by rail by the end of 2013, with some volumes of Bakken being delivered as early as the first half the of the year.

Mr. Jacobson said running Bakken crude at the refinery instead of the pricier West African crude it runs now will save $8 to $10 a barrel in crude-oil costs.

 

[General Lee]

A 12 cent advantage? That's razor thin to make a difference. I'd be interested to see what the cost is to bring the ND product to eastern PA cost. Being it HAS to be transported by rail, or trucks (which is cost prohibitive).

That's been the problem with the Trainer facility for years. LOCATION. It's nowhere close to any raw product. Or pipelines that can supply it.

Definitely interesting to watch.

Red, did you ever figure out what the difference in price was between WTI and Brent Crude? If DL were buying it all on Brent Crude prices via Lagos, Nigeria on a ship, and WTI prices via rail or truck via ND, which would be lower? I think you may want to look at that. And, all of you seem to be instant oil experts, but I think the CNBC analysts and the actual people who run the show are smarter than you are when it comes to OIL. Sorry!



Bye Bye---General Lee

 

[General Lee]

http://www.4-traders.com/WTI-SPOT-2...in-4Q-But-Expects-Long-Term-Savings-15591244/

Mr. Jacobson said he expects offloading capacity to be built so Trainer can accept crude oil from the Bakken formation in North Dakota by rail by the end of 2013, with some volumes of Bakken being delivered as early as the first half the of the year.

Mr. Jacobson said running Bakken crude at the refinery instead of the pricier West African crude it runs now will save $8 to $10 a barrel in crude-oil costs.

OMG! Jonny comes up with something CONSTRUCTIVE! Praise the Lord! Uncle Sal must be asleep! Thanks Jonny!


Bye Bye---General Lee

 

[redflyer65]

Red, did you ever figure out what the difference in price was between WTI and Brent Crude? If DL were buying it all on Brent Crude prices via Lagos, Nigeria on a ship, and WTI prices via rail or truck via ND, which would be lower? I think you may want to look at that. And, all of you seem to be instant oil experts, but I think the CNBC analysts and the actual people who run the show are smarter than you are when it comes to OIL. Sorry!



Bye Bye---General Lee

Genital,

I have more than a few family members in the oil industry (one in refining as well), so I'm not an oil expert but I know more than most, and probably a quit bit more than you. I don't need CNBC like you do, I just call my uncle. He knows these refineries like the back of his hand. He's been in the industry for around 30 years, day in and day out. You? Not so much. So your barking up the wrong tree if you think I'm a simple layman. He thought is was a long, long shot for Delta to make this move (his words, not mine). I'm not so quick to judge but find it an interesting proposition after listening to him tell me the complete history of that particular refinery and it's location.

One thing Delta DOES have going for it is the close proximity to LGA and JFK. I have to agree that part of the equation is favorable. The getting the raw product to Eastern PA is not. IT NEVER HAS BEEN since that refinery has been there....be it North Dakota Bakken Shale, or from Nigeria. There is major friction just getting the product there, same as the previous owners had. They never could turn a profit there....year after year, after year.

Speaking of Nigeria, here's an article yesterday about how their production is in free fall.

http://www.upi.com/Business_News/En...irms-Nigerian-oil-decline/UPI-64431355319816/

Bringing Bakken by rail is the real problem. Add to that, the Bakken that was trading at a WTI discount, is now trading as a premium vs. WTI. Some of that premium is coming from regular refiners prefering the quality of the Bakken Shale better than the west coast crude providers. So they are trying to ship it westbound while Delta is trying to ship it eastbound (read... increased prices).

Add to that, the rig count has taken it's first dip in North Dakota. Down to 194 from 214.

RF

 

[scoreboardII]

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.