In a move that surprised observers in two industries, Delta Air Lines and its subsidiary Monroe Energy reached an agreement with Phillips 66 to acquire the Trainer refinery complex south of Philadelphia, Pennsylvania. As part of the transaction, Monroe will enter into strategic sourcing and marketing agreements with BP and Phillips 66. The acquisition includes pipelines and transportation assets that will provide access to the delivery network for jet fuel reaching Delta’s operations throughout the Northeast, including its hubs at LaGuardia and JFK.

After receipt of $30 million in state government assistance for job creation and infrastructure improvement from Pennsylvania, Monroe’s investment to acquire the refinery will be $150 million, and Monroe will spend $100 million to convert the existing infrastructure to maximize jet fuel production. Production at the refinery combined with multi-year agreements to exchange gasoline, diesel and other refined products from the refinery for jet fuel will provide 80% of Delta’s jet fuel needs in the United States (Fig. 1).

Fig. 1. Delta has become the first airline to purchase a refinery.

“Acquiring the Trainer refinery is an innovative approach to managing our largest expense,” said Richard Anderson, Delta’s chief executive officer. “This modest investment, the equivalent of the list price of a new widebody aircraft, will allow Delta to reduce its fuel expense by $300 million annually and ensure jet fuel availability in the Northeast.”

Monroe is partnering with leading energy companies to supply crude oil and receive jet fuel in exchange for Trainer’s non-jet fuel outputs. Under a three-year agreement, BP will supply the crude oil to be refined at the facility. Monroe Energy will exchange gasoline and other refined products from Trainer for jet fuel from Phillips 66 and BP elsewhere in the country through multi-year agreements.

“By working with world class partners like BP and Phillips 66, we can benefit from their expertise in energy sourcing and product distribution,” said Ed Bastian, Delta’s president.

Monroe expects to close on the acquisition in the first half of 2012. Jet fuel production is expected to begin during the third quarter, and changes to the plant infrastructure to increase jet fuel production would be complete by the end of the third quarter, resulting in expected 2012 fuel savings of more than $100 million.

Located on the Delaware River in Trainer, Pennsylvania, about 10 miles southwest of downtown Philadelphia, the Trainer complex has a crude oil processing capacity of 185,000 bpd and processes mainly light, low-sulfur crude oil. HP