Deltas Oil Refinery Deal
What DL stories as a trainer loss/revenue is somewhat arbitrary. But the all in value of gas is actual. If they can even save .05/gallon over the rest going forward, it is a large win.
No argument there – I agree with your numbers. For the 2d quarter and the first half of 2014, DL has had a reasonably significant gas value advantage to AA and UA. For the primary half of 2014, DL’s advantage over AA was eight cents compared to the 10 cents within the 2d quarter. DL has carried out very effectively.
My point is that AA and UA (and everybody else who buys gas in NYC) would have paid even more than they did had DL not brought down the price of jet fuel in the NYC area by working Coach. I am too lazy to even look to see if anyone has quantified the difference, but when DL saved hundreds of millions of dollars resulting from cheaper jet gas in NYC, then so did everyone else – maybe to not the same diploma, in the event that they did not purchase as much as DL did in NYC.
AA not hedges gas, having dumped its remaining contracts earlier this 12 months. US hasn’t hedged since 2009, when the late 2008 fuel worth collapse (from $147/bbl to about $35/bbl) price US losses in excess of a billion dollars on dangerous hedges. US was within a hair of one other Ch 11 filing because of the good Recession and its large hedging losses that value it most of its obtainable money. For most intervals since then, US has had a decrease gas value than AA, which continued hedging, even in its Ch 11 case.
Personally, I think that smart hedging (as Delta continues to do) is the best technique. Fuel prices take an unexpected spike and new AA finds itself having to by market priced fuel while those that hedge will save $$$.
Sep four, 14, 2:20 pm
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Think about a completely vertically built-in airline, from gas to manufacturing the planes!
Discover More Posts by BigOrangeTerp
Sep four, 14, three:01 pm
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Properly, “fully integrated” would correctly begin with discovering oil in the ground adopted by getting the goop out of the bottom. Starting with feedstock delivered to a refinery isn’t exactly the beginning of all of it.
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Sep 5, 14, 10:05 am
Originally Posted by jtet
Nicely, “totally integrated” would correctly begin with discovering oil in the ground adopted by getting the goop out of the ground. Beginning with feedstock delivered to a refinery is not precisely the start of all of it.
To handle a little bit of the question of what a refinery can produce, the simple reply is nearly anything from solid carbon to hydrogen and each CxHy molecule in between. Varied “flavors” of crude oil could be run by a simple distillation to kind out the mixture of molecules into numerous sets that we’ll put names like “gasoline oil” or “jet” or “gasoline”. This approach worked ok until about WWII when folks wanted more of one product and fewer of the opposite. So diffrent processes were introduced to chemically modify one element into another. If you want to produce less jet, run it through a cracker and create more gasoline. Each refinery could have a crude distillation unit. Most may have some variety of models to chemically or thermally modify the feedstock to supply the specified product mix. You may see these known as hydrotreaters, hydrocrackers, cokers (delayed and fluid), FCC’s, and so on.
As for Delta running a refinery No offense to the refinery rotating and fastened tools engineers and inspectors, however… I might reasonably not work at that site. Reporting up to a administration for whom refining is extra of a financial game than a core business wouldn’t enchantment to me in any respect. It’s hard sufficient retaining a place like that protected and dependable with company folks who know the difference between a gate valve and a globe valve.
Very nicely put. You obviously work in the trade or, a minimum of, have a greater than average familiarity with it.
DL’s advantage gained from owning a refinery will only exist so long as they safely, successfully run the place. My hopes, for the employees, is that DL is profitable in doing so. Nevertheless, refining business history is replete with examples of what happens when bean counters get to a lot sway in operating refineries. Let’s hope DL has studied these lessons.
Sep 5, 14, eleven:38 am
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Wonderful put up, jtet.
Discover Extra Posts by FWAAA
Sep 5, 14, 12:46 pm
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Initially Posted by FWAAA
Glorious post, jtet.
The integrated oil firm that used to personal Trainer determined that it no longer made financial sense, so when Delta showed curiosity, it gladly offered it to Delta. That raises some enormous warning flags for me. IMO, it takes a tremendous quantity of hubris for an airline to assert that it can make higher choices operating a refinery than ConocoPhillips – an organization with a long, established history within the industry.
If a Chinese language firm have been to determine to close a flat-display screen Television manufacturing facility because it was outdated and not viable, I might have the identical doubts if Walmart or BestBuy purchased the place and introduced that they’d run the place profitably. And flat panel manufacturing is kid’s play in comparison with running an oil refinery.
If Delta pulls it off – congrats all around. But I still have my doubts.
But you’re making a nasty assumption- that Delta bought a refinery to get into the standalone refining enterprise. In actuality Delta appears to have bought it at least partially to kneecap the refining enterprise w/r/t jet gasoline.
ConocoPhillips was desirous to promote a plant that fell short of it is IRR targets, Delta was eager to purchase a plant that will take away pricing energy from the refineries. The exterior impact of which may very well be making the efficient IRR much higher for Delta.
Last edited by mother-; Sep 5, 14 at 1:02 pm
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Sep 5, 14, 5:02 pm
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Initially Posted by CG
Delta has a refinery division and a passenger airline division. The refinery makes jet fuel. It could sell this jet gasoline on the open market or use it itself.
Lets say UA costs represent the open market, $3.09. Delta’s cost is $2.93. If Delta makes use of the fuel, the aviation division of Delta saves $.15/gal over the open market worth and the refinery division loses $.15/gal by not promoting on the open market for the upper value. In the event that they promote the gas the refinery division makes $.15/gal while the airline division loses $.15/gal. Its a wash!
I’m sorry, however this makes completely no sense as you might be ignoring the enterprise-degree savings of the lowered general fuel prices…
The decreased gross sales worth for the fuel represents a marginal decrease in realized revenue, not an precise loss. The only actual loss would be brought on by operational “points” on the refinery and a sale of product on a below Price foundation.
Find Extra Posts by Vuelos
Sep 27, 14, 10:21 pm
A visitors tie-up on I-95 prompted the limo driver to divert previous the Delta refinery final evening.
Sep 28, 14, 12:23 am
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The place r the pics
Find Extra Posts by DL2SXM
Sep 28, 14, 12:15 pm
Originally Posted by DL2SXM
The place r the pics
It is not in an area where I might ask the limo driver to cease the automobile so that I could get out to take some footage… at the least, not at night.
Sep 28, 14, 2:29 pm
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Originally Posted by StayingHomeIsBetter
A traffic tie-up on I-95 prompted the limo driver to divert past the Delta refinery last night.
Like many refineries, it was fairly lovely at evening.
So, you are saying that the I-ninety five traffic was like it often is
Discover Extra Posts by amanuensis
Sep 28, 14, 2:38 pm
Originally Posted by amanuensis
So, you are saying that the I-95 visitors was prefer it often is
Worse. In a single day highway restore.
Jan 28, 15, 6:26 pm
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FORBES (2/9/15) has an article on this Delta refinery deal. Not too impressed.
Discover More Posts by toomanybooks
Jan 28, 15, 6:Forty two pm
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This cannot be true. Delta is run by one of the best and brightest management crew that the airline trade has ever seen. I do know that to be true, as a result of folks on FT have instructed me so.
“Selling the deal to investors, Delta defined that with $30 million in grants from Pennsylvania and a $2.7 billion alternative worth, Coach was a bargain at $180 million. But that value estimate doesnt embody the invariable environmental liabilities hidden in the dirt underneath the plant, a figure the airline refuses to share.”
Did they actually comply with take on the environmental liabilities ! ! Unbelievable.
There are giant patches of empty real property across this nation where refineries or chemical plants was once, which the owners can’t promote as a result of they can’t afford the environmental remediation prices that they would have to pay earlier than the sale may very well be finalized.
As a stockholder, I am outraged if that is true. Oh, wait, I don’t own any DL inventory.
Discover More Posts by StayingHomeIsBetter
Feb 5, 15, 12:49 pm
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Originally Posted by toomanybooks
FORBES (2/9/15) has an article on this Delta refinery deal. Not too impressed.
I am not impressed by the article. I note:1. The author –and his sources– conflate the value of crude with the worth of jet gas. (I don’t buy either, but I’ve been observing that the price of diesel has not dropped like the price of gasoline.)
2. The writer does not consider what would have happened to the jet gas worth Delta pays had the Trainer refinery remained mothballed.
3. Delta has been moving Bakken crude from North Dakota over the BNSF and CSX railroads to Philly, then transport it through pipeline to NYC airports. Others would prefer that the Bakken crude transfer from ND to Houston via the unbuilt Keystone Pipeline (wikipedia) , refine it in Houston, then move the refined fuel on a ship to NYC. Guess where the author is predicated
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