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!)

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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.