Atlanta-based Delta Air Lines' plan to increase jet fuel yields to 32% of output at the Trainer oil refinery is meeting scepticism among those familiar with oil refining.
In a landmark deal for the airline industry, Delta announced that it would buy the idled plant outside Philadelphia, Pennsylvania, for $180 million from Phillips in April. It plans to close the acquisition later this month.
The average yield of jet fuel was just 11% for refineries in the continental US in 2011, according to a US Energy Information Administration (EIA) report released yesterday. Some refineries were able to produce yields of between 25% and 29% but only for a few months of the year.
The EIA says that Delta's yield predictions are "higher than was previously seen at Trainer and significantly above the average yield of jet fuel in any US refining region."
The carrier plans to achieve these yields by modifying and improving the existing equipment, and decreasing the output of other products by 18 percentage points from prior output levels, according to a regulatory filing in April.
Delta would have to use medium to light crude oil with up to 90% of the distillates refined into jet fuel to achieve its stated yields, says Flightglobal sister publication ICIS. They add that physical improvements to the plant alone could not achieve a 32% yield.
"I believe [Delta] is being a little too optimistic in its estimates," says ICIS.
The airline declines to comment on its yield estimates.
Delta has stated that it would invest around $100 million in upgrades to the facility, which will be operated and maintained by its newly-created Monroe Energy subsidiary.
Ed Bastian, president of Delta, said that the airline hopes to supply up to 80% of its domestic jet fuel needs as a result of the purchase, at the Bank of America Merrill Lynch global transportation conference in Boston last month. This would result in about $300 million in annual savings to the airline's fuel bill.
"The refinery is a bold idea," he added.
The purchase has had a mixed reception from the financial community. Moody's Investor Services said that the deal poses "potentially significant operating and financial risks" and deemed it a credit negative in a comment last month. 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.
The deal benefits from $30 million in job creation and infrastructure development financing from the Commonwealth of Pennsylvania.