Delta cites renewables regulations for Trainer loss

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Delta Air Lines posted a $51 million loss at its Trainer oil refinery in the second quarter, citing the cost of renewable identification numbers (RINS) for the plant's financial performance.

"Trainer's loss for the quarter was driven by the recent market volatility for RINs, which are required to comply with the EPA's [US Environmental Protection Agency] renewable fuel standard," says Paul Jacobson, chief financial officer of the Atlanta-based carrier, during an earnings call today. "Without the higher RINs expense, Trainer would have broken even for the June quarter."

Delta plans to mitigate the impact of RIN expenses through "commercial and Washington lobbying efforts", he says.

RINs are required by the EPA in order to comply with the agency's renewable fuel standards, explains Jacobson.

The Trainer loss added $0.05 per gallon to Delta's average price of jet fuel during the second quarter, resulting in total cost to $3.03 per gallon. This was still down 10% from an average of $3.37 per gallon a year earlier.

Ed Bastian, president of Delta, said in March that the airline anticipated a $75 million to $100 million profit from the facility during the three months ending in June.

The Pennsylvania refinery has yet to post a profit. Despite repeated assurances by airline management that the facility will post a profit, Trainer lost $22 million in the first quarter and $63 million in the fourth quarter of 2012 - though the latter was due to the service and supply disruptions from hurricane Sandy.

Changes in market fuel prices have also taken Delta by surprise, says Jacobson. Jet fuel traditionally sells at a premium to diesel, however, it currently is selling at about a $0.13 discount the fuel, he says.

"This has resulted in an overall reduction to our jet fuel expense, far exceeding our expectations and having a significant impact to our bottom line," he says. "We expect this market dynamic to continue."

Delta anticipates paying an average price of $3.05 to $3.10 per gallon for jet fuel in the third quarter.