Delta Air Lines plans to supply up to 80% of its domestic fuel needs as a result of its purchase of the Trainer oil refinery in Pennsylvania, said airline president Ed Bastian at the Bank of America Merrill Lynch global transportation conference in Boston.
The airline will do this by swapping the refinery's non-jet fuel output with BP and Phillips 66 for jet fuel in markets outside the northeast, he said. Only about 30% of the plant's output can be used as jet fuel.
Delta has said that it expects to save $300 million in fuel costs annually as a result of the deal. It spent $12 billion on fuel in 2011.
Phillips agreed to sell the idled Trainer facility to Delta for $180 million last month. The deal benefits from $30 million in job creation and infrastructure development financing from the Commonwealth of Pennsylvania.
Delta expects to spend a total of about $250 million on the refinery, including the acquisition price and upgrades to the facility.
The airline hopes to close the transaction in June with operations beginning at the plant in September.
The refinery deal has had a mixed reception in the market. Moody's Investor Services said it poses "potentially significant operating and financial risks" and deemed it a credit negative while Standard & Poor's and Fitch Ratings each noted that it poses some risks but would not affect Delta's credit rating in the near term.
Bastian said that the possible annual impact on working capital would be in the low "tens of millions of dollars" but that that could be improved through better terms from vendors.
"The refinery is a bold idea," said Bastian.