Such problems apparently have no factor in Delta’s thinking when the airline paid $ 150 million for the struggling Trainer refinery, which had concocted ConocoPhillips six months earlier, and indicated pressure from imports, weak demand and regulatory costs. The refinery, which began in 1912 as a wooden structure and has been rebuilt, closed, restarted and expanded by a series of owners, including Sinclair, BP and Phillips Petroleum.
When Delta took over, global air travel grew, refiners exported to Africa and Latin America, and a shale drilling rig suddenly produced inexpensive domestic oil for refiners to process.
For about the list price of a wide-body aircraft at the time, Richard Anderson, then Delta’s chief executive, claimed that the refinery would reduce the company’s annual fuel expenses by $ 300 million, making it more profitable to invest in just one year. That math suggested that other airlines would be foolish not to make similar purchases.
“Everyone was kind of content to see what Delta did with it. And if it made a lot of sense, you might have replicated others, but in this case, that did not happen,” said Helane Becker, a board member and senior airline analyst at Cowen, an investment bank.
While the refinery had some decent years, it never gave up the amount of jet fuel that the airline had originally hoped for relative to other fuels. However, Delta has claimed that the facility helps to dampen the effect of the volatile energy market and lowers jet fuel prices across the globe by increasing supplies.
The refinery relied largely on raw transportation by rail from the Bakken Formation in North Dakota. But in late 2015, Congress lifted a decades-long ban on oil exports. That change encouraged companies to build pipelines that took Bakken-rau cheaper to the south for export than refined in Gulf Coast refineries.
Managers at Delta and its refinery declined to comment.
In a recent conference call, Paul Jacobson, the airline’s chief financial officer, said the plant was operating “at break-even levels” after a steep April loss. In response to a question about whether the airline wanted to sell all or part of the refinery, he said nothing was out of the question.
