TRAINER, Pennsylvania Delta Air Lines (DAL.N) took the keys to the Trainer, Pennsylvania, refinery from Phillips 66 (PSX.N) on Friday, becoming the first air carrier to wade into fuel production in a bid to bring down costs.
The deal, which revived the shuttered 185,000 barrel-per-day plant and eased fears of a fuel supply shortfall in the U.S. Northeast, was finalized late afternoon, company officials said.
Delta subsidiary Monroe Energy, which will run the plant, will start maintenance at the shuttered plant after the July 4 holiday to restart fuel production in the fall, the company said in a statement.
Monroe will spend about $100 million to convert the refinery, increase jet fuel output to 52,000 bpd and cut back on production of gasoline. Gasoline demand on the East Coast has dropped in recent years due to more efficient vehicle fuel consumption and modified driver behavior in a weak economy.
Delta hopes the deal will lower its fuel costs, which reached nearly $12 billion last year, the largest expenditure on its balance sheet.
The airline paid an average $3.06 a gallon for jet fuel last year, up nearly a third from 2010. The U.S. Department of Energy forecasts the cost of jet fuel will average $3.35 a gallon in 2012.
Approximately 400 workers employed at Trainer before it was idled will be brought back to the plant, Delta said.
"We have a team of refining experts and proven leaders effectively implementing our strategy at the Trainer refinery," said Jeffrey Warmann, chief executive officer and president of Monroe Energy LLC.
Trainer was one of three refineries on the East Coast that was threatened with closure since late last year as the high cost of imported crude that the plants process crushed margins, raising the threat of a fuel squeeze in the region as the summer driving season approached.
Further relief from the threat of shortage may come from a deal for Sunoco Corp (SUN.N) to either sell or form a joint venture with private equity firm Carlyle Group LP (CG.O) to run a 330,000 barrel-per-day Philadelphia refinery.