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Squawks & HeadlinesDelta seeking fuel savings by purchasing ConocoPhillips Refinery

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Delta seeking fuel savings by purchasing ConocoPhillips Refinery

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Delta Air Lines Inc. (DAL), whose daily 2011 fuel bill was $32 million, may buy a ConocoPhillips (COP) refinery to help save 10 percent on a significant portion of its fuel needs, a person familiar with the matter said. ConocoPhillips plans to shut the Trainer operation unless it can find a buyer by the end of May as tighter profit margins squeeze East Coast refineries. (www.bloomberg.com) More...

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Lapetomane
Look who is running Delta . Any more questions ?
GLF5Pilot
GLF5Pilot 8
Dumbest. Idea. Ever
Delta can barely run the business that they have now.
chicoaggie
Tim Smith 4
You must not know how vertical integration works.
LearATP
R J 3
I wonder what else they could vertically integrate? A Coke bottling plant to cover the cost of drinks served on the plane? Maybe they should buy Boeing to vertically integrate the expense of their airplanes.
GLF5Pilot
GLF5Pilot 2
The blue lav juice factory!
LearATP
R J 1
You're just going overboard now GLF5Pilot. Keep it realistic :)
GLF5Pilot
GLF5Pilot 3
You're right Tim. A company with a negative equity value on their balance sheet should do an excellent job running an incredibly capital intensive business they know nothing about. Vertical integration will save the day!
Yazoo
Yazoo 2
Delta has owned an oil company called Epsilon for many years. I don't know if they kept it after the bankruptcy in '06(?). I'm not a fiance major but Delta has had about a $14Mil gross profit for the past 2 years, and $11.4M in '09. They do still have debt that they have been buying down. As an investment airlines are probably the worst. Out of the few US airlines remaining DAL and UAL are the only ones making money.
I'm not sure if buying an oil refinery that even an oil company thinks is not profitable is a smart move.
pkslayton
They wouldn't need to operate it, they could hire that done, although, there might be advantages in labor legacy costs not to.
B727FA
The operation is going to be hired out, the jet fuel will go to DL and the "operator" of the refinery will sell the rest and with part of the proceeds will "sell" (read "buy") more fuel to DL.
bishops90
Brian Bishop 2
"Decrypted" as in raised from the dead? Or "decrepit" as in old and worn out? The first might be more appropriate anyway! lol.
Moviela
Ric Wernicke 2
Owning a refinery is one portion of the business oil companies would love to have another party run for them. Iraq has it right, they pump the oil, send it out for processing and bring back only the parts they need.

I thought that owning a gas station would be a cool way to save money on fuel. I found out that I was expected to make money in the quickie mart, and Arco would sell me the gas at the price on the pump.

If Delta wants to save money on fuel, they should own the wells and sell the crude. For the amount of fuel they use, owning the wells could be a fruitful business. Owning a refinery would be like owning an aging aircraft, it would cost more than it is worth.
mechatroner
John Bergmans 2
You're probably already aware of this, but there's a remarkable precedent for vertical integration in the airline business. From 1929 to 1934, United Aircraft and Transport Corporation was a holding company for Boeing, Pratt & Whitney, the predecessor to United Airlines and other aviation-related firms: http://en.wikipedia.org/wiki/United_Aircraft_and_Transport_Corporation. Also, see the Feb 1,1929 entry here: http://www.boeing.com/history/chronology/chron03.html
PGelsman
Paul Gelsman 2
I don't think the government is going to allow this. The refinery will sell the oil to Delta at a profit and juggle the books. It shouldn't be allowed IMHO.

Paul
bishops90
Brian Bishop 1
Any company wanting to integrate vertically in this way shouldn't be restricted from doing so. However they arrange prices between divisions isnt anybody's business.
Whether It's SMART thing to do???? The folks above have answered the question well already, so dont worry.
devsfan
ken young 1
Losing as much as 51% of US refining capacity concerns me far more than what Delta pays for Jet Fuel..I can choose not to fly. To operate my business I must use gas or diesel.Who cares about the damned air carriers. We'll be paying five bucks for gas.
dawn48
Dawn Linder 1
Great Idea! At least someone is thinking about how to manage costs. This could be a huge win for Delta.

And come on guys you really thnk Delta spends 32 million a day in Coke!!!! Wake up and dont act so childish.
RobSJC
RobSJC 1
Pretty SAD, when Delta feels they need to buy a refinery just to "make ends meet" ... Maybe they bit off more than they could chew in the Northwest purchase ... DAILY fuel bill at $32 million ? ... Just imagine all the other operational expenses, employee salaries, employee benefits, workers comp, retirement payments, etc ... Truly a CPA headache, I'll quit dreaming, about even considering to start an airline .. lol
AABABY
Great1 They love to fly, and it shows.
chalet
chalet 1
I have a better idea: Conoco-Phillips buying Delta airlines, lock, stock and airplanes and selling its JP at great prices. LOL!!!
JG7XMAN
Vertical integration will work in some cases - like say Netflix acquiring a cable internet provider.

In Delta's case - this is about the worst business decision since HP coming up with that lame idea to get out of the PC business. Ha-ha

#1 less than 10% of a barrel of crude oil can be refined into jet fuel. So are you telling me that Delta will now have to find a buyer of over 90% of its "buy product"? That sounds like a full time job to me. No way in hell will they find a long term buyer?

#2 85% of price of a gallon of gasoline is the price of crude and taxes. So for the 15% they are saving (10% - refining and 5% admin/transport/etc costs), labor and overhead costs to run the old decrypted equipment will kill any chance of breakeven.

My guess is some hot low level analyst convinced her boss that keeping their hedged commodity and refining the oil themselves is a good idea.

It would be a better idea to go for broke and partner with an oil company somewhere - fact is what you want is cheap crude oil. Etihad (don't believe that no profit crap either), Emirates (22 yrs of consecutive annual profits and owned by Sheikh Mohammed who also owns Emirates National Oil Company (ENOC)), Saudi Arabian Airlines (with only 90 destinations why have they been afloat since 1945 - any guesses?) are airlines that have low fuel costs in common.
JJ7
JJ Johnson -1
Maybe if we get the environmental WACKOS out of our oil policies and the idiot OBAMA out of the White House you will see a more stable competitive oil price. Delta buying a refinery is like rearranging the deck chairs on the Titanic it's just STUPID. The problem with high oil is in Washington DC.Delta's solution and America's solution is fire all of the idiot politicians starting with Obama and start over.
gasmd88
gasmd88 4
You really obviously don't know very much about the real world as far as oil is concerned.
olseric
olseric 3
Our country was a net EXPORTER of petroleum last year.

It's not the government that's our issue...it's the policy of corporate greed that has infected this country.
mdlacey
Matt Lacey 1
No, it was an exporter of gasoline and other fuels. It was an importer of the oil used to make those items. Get your facts right so we can have an honest debate.
JG7XMAN
Opps! Just ran across this one: Qatar Airways Ltd. plans to start flights to Atlanta, Chicago, Boston and Detroit within the next year, doubling its U.S. network, as the carrier begins receiving Boeing Co. (BA) 787 Dreamliners (bloomberg)
sparkie624
sparkie624 0
Interesting concept. Hope it works.