southwest737500
Topic Author
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Delta Will Buy A Refinery

Mon Apr 30, 2012 9:44 pm

http://hosted2.ap.org/OREUG/d0732c86...d-9fb036de715147ae95b7343305ea111b

I think this is a smart move that can save millions
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kaitak744
Posts: 2166
Joined: Fri Jul 22, 2005 1:32 pm

RE: Delta Will Buy A Refinery

Mon Apr 30, 2012 9:50 pm

Interesting to see how this goes. If it is indeed worthwhile, I see other large airline groups to follow.
 
Rdh3e
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RE: Delta Will Buy A Refinery

Mon Apr 30, 2012 9:54 pm

They are going to loss their hats on this one. If a real energy company can't make a buck there is no way an airline will be able to.
 
luv2fly
Posts: 11056
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RE: Delta Will Buy A Refinery

Mon Apr 30, 2012 9:59 pm

Just an FYI

Delta Makes Bid For Oil Refinaery? (by FlyASAGuy2005 Apr 3 2012 in Civil Aviation)
You can cut the irony with a knife
 
burnsie28
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Joined: Mon Aug 02, 2004 1:49 am

RE: Delta Will Buy A Refinery

Mon Apr 30, 2012 10:03 pm

Quoting rdh3e (Reply 2):
They are going to loss their hats on this one. If a real energy company can't make a buck there is no way an airline will be able to.

Keep in mind that before this, the refinery was not making jetfuel, it was making a different kind of fuel. We will see but given that the agreement to sell the by-products to two major oil companies in exchange for more jetfuel. They already expect to save $100 million by the end of this year alone on this deal.
 
IAHWorldflyer
Posts: 500
Joined: Mon Feb 06, 2012 7:22 pm

RE: Delta Will Buy A Refinery

Mon Apr 30, 2012 10:04 pm

Ok, can someone on here who works in downstream operations please explain how Delta intends to trade the non-jetA by products for JetA with other nationwide refineries? AFIK, the refined product pipelines they could use with this place only transport products through the Northeastern US, about as far south as Virginia, and up north towards Boston. They don't cross the Appalachians, or go to Atlanta.
Also, refining is one of the most difficult of the energy businesses to make money at when the price of crude is high. The "spreads" are just not large enough to make much of a profit. That's a big reason Phillips, along with Sunoco are trying to divest their northeastern refineries.
I know there are some MBA's at Delta who obviously think this is a good deal, but I just don't see it.
 
ksancoflyer
Posts: 14
Joined: Thu Jun 18, 2009 3:44 am

RE: Delta Will Buy A Refinery

Mon Apr 30, 2012 10:12 pm

Does anyone know when they'll start saving money? Is it going to be instantly or over a long period of time?
Work Hard. Fly [W]Right.
 
PPVRA
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RE: Delta Will Buy A Refinery

Mon Apr 30, 2012 10:18 pm

Sounds too good to be true. . . but, they aren't even close to betting the farm, so I guess they might as well try it.
"If goods do not cross borders, soldiers will" - Frederic Bastiat
 
FlyASAGuy2005
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RE: Delta Will Buy A Refinery

Mon Apr 30, 2012 10:20 pm

Quoting rdh3e (Reply 2):

Me thinks you haven't been following the latest and most up-to-date developments...  

Its already said that they expect to save $300M in the plant's first year of operation. They're getting their investment back..twice in just 12 months proceeding the upgrades to ramp-up the Jet-A production. All non Jet by products will be exchanged for more Jet-A through Phillips 66 and BP.
What gets measured gets done.
 
FlyASAGuy2005
Posts: 3965
Joined: Sun Sep 23, 2007 4:55 am

RE: Delta Will Buy A Refinery

Mon Apr 30, 2012 10:24 pm

Quoting ksanCOflyer (Reply 6):

As soon as the plant is operational..they expect to save about $100M by the end of THIS year and about $300M annually.

Quoting IAHWorldflyer (Reply 5):

Sorry but..this deal is just a tad above the MBA level. JP Morgan has been advising for over a year as well from what I've heard..
What gets measured gets done.
 
Tdan
Posts: 509
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RE: Delta Will Buy A Refinery

Mon Apr 30, 2012 10:26 pm

Modigliani and Miller's principles hold here for DL: They are robbing Peter (the refinery) to pay Paul (the airline) and it is a zero sum game, ie the sum of all future cash flows are unaffected. JetA is a commodity, so it is not special and there are no presumed arbitrage opportunities in the market. Based on this, there's no change to the market value of the firm, so DL is spending money to acquire an asset that will not provide any value to the corporation

It seems to me that the "DL MBAs" are forgetting a lot of their academic training. Refining is a very very tough and cyclical business. If the refinery is properly valued and not selling at a steep discount, I do not see how DL could generate any value for its shareholders. The only value I can see is the $30M subsidy that the state is providing; however, I wouldn't be surprised if the other refineries operating in PA throw a fit and demand the same support from the state.

[Edited 2012-04-30 16:09:57]
We will ride this thunderbird, silver shadows on the earth, a thousand leagues away our land of birth... -Captain Bruce
 
fpetrutiu
Posts: 657
Joined: Tue Aug 07, 2007 11:28 pm

RE: Delta Will Buy A Refinery

Mon Apr 30, 2012 10:31 pm

Florin
Orlando, FL
 
swafa
Posts: 38
Joined: Tue Mar 20, 2012 12:33 am

RE: Delta Will Buy A Refinery

Mon Apr 30, 2012 11:04 pm

Maybe they (DL) are seeing this as a hedge against future volatility rather than an income producing venture. Full disclosure.....I haven't the foggiest idea what I'm talking about.
 
Flighty
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RE: Delta Will Buy A Refinery

Mon Apr 30, 2012 11:07 pm

This actually makes "sense." Except for the fact Delta probably has no competency in managing that type of thing.

At times when "crack" refining premia are high (the award paid to a refinery to refine crude into Jet-A and diesel) refineries are printing money and Delta is suffering.

Putting both under the same roof does indeed insulate Delta from this particular uncertainty. Kind of a neat idea.
 
Flighty
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Joined: Thu Apr 05, 2007 3:07 am

RE: Delta Will Buy A Refinery

Mon Apr 30, 2012 11:09 pm

Quoting Tdan (Reply 10):
Refining is a very very tough and cyclical business. If the refinery is properly valued and not selling at a steep discount, I do not see how DL could generate any value for its shareholders.

Yes, and so is the airline business, but the neat thing is, they are at least partly counter-cyclical. That's worth money.
 
Tdan
Posts: 509
Joined: Mon Nov 28, 2011 9:36 pm

RE: Delta Will Buy A Refinery

Mon Apr 30, 2012 11:20 pm

Quoting Flighty (Reply 14):
Yes, and so is the airline business, but the neat thing is, they are at least partly counter-cyclical. That's worth money.

Not necessarily. A few points: much of the cyclicality in the airline industry is being muted through industry consolidation. Don't get me wrong, there's still a large cyclical part of the business, but I would call the airline industry more seasonal vs. cyclical since a lot of the overcapacity boom and bust cycles due to a highly fragmented industry are becoming a thing of the past. Additionally, refining has been a dog for years and the future is not too promising. If refining truly operated as a negative beta to airlines, then airline finance departments would be hedging their risk by buying stock in refiners. This move by DL essentially says to the market that DL thinks it is smarter than they are and that the best way to manage their risk is to own and operate the refinery themselves rather than via a hedge or equity portfolio that can produce the same returns.
We will ride this thunderbird, silver shadows on the earth, a thousand leagues away our land of birth... -Captain Bruce
 
Cadet985
Posts: 1981
Joined: Sat Mar 02, 2002 6:45 am

RE: Delta Will Buy A Refinery

Mon Apr 30, 2012 11:32 pm

I don't see the logic. Said refinery is here in PHL. We aren't a hub, or even a focus city for DL. To get the fuel to a hub would require transport via truck, rail, or pipeline. The way I see it, this won't do much to lower the cost of tickets.

Marc
 
acidradio
Crew
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RE: Delta Will Buy A Refinery

Mon Apr 30, 2012 11:48 pm

Folks:

This discussion is actually already going in a different thread (and has been for about a month when news started to circulate about this). For the sake of keeping the discussion cohesive I am going to lock this thread and ask everyone to continue in Delta Makes Bid For Oil Refinaery? (by FlyASAGuy2005 Apr 3 2012 in Civil Aviation). Thanks for posting! Sorry for any confusion, we should have seen this one earlier in the day  
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