Delta leverages Trainer for fuel savings in Minneapolis

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Delta Air Lines has leveraged its newfound status as a jet fuel producer to secure better contract terms for fuel at its Minneapolis-St. Paul hub.

Paul Jacobson, chief financial officer of the Atlanta-based carrier, says that Delta was able to save $15 million annually on a three-year supply contract at the Minnesota airport as a result of its production at Trainer, during an investor day on 12 December.

Jet fuel suppliers have begun competing based on price for Delta's business because the airline now has the capability to source lower cost fuel from Trainer and its partners, BP and Phillips 66.

"We call [this] the halo effect of owning this refinery," says Jacobson.

Delta anticipates additional fuel savings at its Midwestern hubs from Trainer. Richard Anderson, chairman and chief executive of the airline, says that it will begin shipping jet fuel to its Detroit and Minneapolis-St. Paul hubs from Trainer once new rail infrastructure opens at the refinery, during the investor day.

The rail infrastructure is slated to open by the end of 2013. It is being built to allow for shipments of crude to the plant from the Bakkan shale deposit in North Dakota.

Anderson says that this will help reduce Delta's fuel bill at Detroit and Minneapolis. The airline pays crack spreads of between $38 and $40 per barrel, which are among its highest in the USA, at the two airports, he adds.

"If you can backhaul [from Trainer] and be able to disintermediate that high crack spread in the Midwest would be tremendous amount of value to it," he says.

Delta declines to comment on the investment cost of the rail infrastructure, which was not included in previous upgrade cost estiamtes.

The air carrier will take a $50 million to $60 million loss on Trainer in the fourth quarter, due to a three-week shut down following superstorm Sandy on 29 October. However, the airline still anticipates a $300 million reduction in its fuel bill in 2013 when the refinery is fully operational.

Delta bought the Trainer refinery from Philips for $180 million in June and invested $100 million in upgrades to the refinery.