Done Deal -- $120M for Refinery
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WorldTraveler
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I am rather certain that the refinery will be a success for DL and that about 30% of its production will be in jet fuel, far higher than most other refineries. I also believe it will be a game changer in the NE and might even factor into the future for AA, who is trying to figure out how to retain a presence in the NYC market sufficiently large to be a factor. It might even be a factor in DL's strategy to gain additional access to LHR, perhaps thru a joint bid for key AA assets in a parternship with BA.
I can't know the strategic implications for the industry but I am certain that the refinery will do what DL intended it to do in lowering its jet fuel costs, providing a cost advantage, and locking up a supply of jet fuel.
I took no position until the deal was announced and the deal was known. It isn't hard to see the logic behind what DL is doing once one knows the details that have been made public.
As I have noted, there are no shortage of naysayers who jumped to the conclusion that not only could the refinery not work based on the rumors before the deal, but who have been trying to prove that the whole deal couldn't work even since the details have been released.
Those naysayers, along w/ DL's competitors, are hoping that DL is wrong.
DL still has to demonstrate it is right - that is accountability - just like what those on here who argue any position.
Just because some people jumped to a position based on limited information and end up being wrong doesn't make them less wrong.
I can't know the strategic implications for the industry but I am certain that the refinery will do what DL intended it to do in lowering its jet fuel costs, providing a cost advantage, and locking up a supply of jet fuel.
I took no position until the deal was announced and the deal was known. It isn't hard to see the logic behind what DL is doing once one knows the details that have been made public.
As I have noted, there are no shortage of naysayers who jumped to the conclusion that not only could the refinery not work based on the rumors before the deal, but who have been trying to prove that the whole deal couldn't work even since the details have been released.
Those naysayers, along w/ DL's competitors, are hoping that DL is wrong.
DL still has to demonstrate it is right - that is accountability - just like what those on here who argue any position.
Just because some people jumped to a position based on limited information and end up being wrong doesn't make them less wrong.
BoeingBoy
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[Emphasis mine]
Except you don't dare risk accountability it seems....
"Rather certain" that Trainor "will be a success" - not certain, just rather certain? Success - not $300 Million in fuel cost savings? Is $1 in savings a success? $1000? $10,000?
"About 30%" of production jet-A - why not the gallons per day that DL forecasts? How much is "about 30%" - 25%, 20%, 15%?
"No position" before the details were known? What new details - the last I recall is the emphasis on reducing the so-called crack spread. Gee, who was it that mentioned that Anderson was emphasising that? Even then you wouldn't take a position - just kept parroting DL's pr statements while leaving room for "I didn't say..."
And you're still using words that don't pin your position down, leaving room for your "I didn't say...."
You work hard to make sure that you're not included in "those that argue any position" while arguing DL's position in nearly every post. If DL ends up being right, I have no doubt that you'll be happily casting stones at those who have doubts. But if DL ends up being wrong - not saving $300 million in fuel costs/year, not producing 80% of it's fuel needs, not producing 32% jet-fuel with Trainor, etc, you'll start with your "I never said...." to escape being wrong.
As much as I believe that Anderson is being overly optimistic, at least he puts his and DL's reputation on the line. He has gone on record making specific forecasts. He'll be in the hot seat if those projections don't become reality. You are the lowest form of double-talker - making all kinds of statements about what DL's success in this experiment will result in (now a DL/IAG deal!!!) while not pinning yourself down to any position that could be wrong. A game only for those whose greatest fear is the thought of being wrong and who will go to any length to avoid that possibility - while at the same time and before any evidence is in castigating those unafraid of taking a position.
Jim
WorldTraveler
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Spare us, please.
You jumped on the bandwagon of naysayers before any party even confirmed there was a deal. And yes the details matter. You remember that there was talk of an investment bank involved - and that did not develop.
No, I simply waited to hear the details - and I also recognized then and now that it isn't my job to guess whether a deal between 3 multibillion dollar companies has validity; you apparently believed you were capable of knowing better.
Anderson is the CEO of DL; he has a legal responsibility to follow through - which is why I said from the beginning that they wouldn't be doing something if they didn't have the right people and have gone through a thorough analysis.
I don't know the petroleum industry and neither do you.
I do know the economics of the airline industry - which is why I said months ago that visions of WN growing its presence in ATL were misguided. I gave multiple reasons why - and lo and behold, WN is shrinking its ATL basis, appears to be on the verge of doing a deal w/ DL to get rid of surplus FL assets in return for DL's help on a number of strategically and operationally important issues to WN.
I could go back and list a number of issues in the industry on which I have correctly spoken. Predicting the jet fuel production of a refinery isn't in my field of expertise.... but if DL, or AA, or US said they were going to do something, I would and have given them the benefit of the doubt - subject to their own track record in the area.
That's part of why I and a whole lot of other people are highly doubtful of US' comments that they will improve revenue production - because they haven't done a great job of doing it so far - but I have no doubt that they can keep costs down, because that is what they do a pretty good job at.
Take a breath, Jim. If you make a statement, be prepared to defend it. It's not the end of the world if you are wrong.
ps ... "about" to me means within 5% - or less. A 5 hr flight is be considered on-time with a larger margin of error than that.
BTW, don't underestimate the competitive impact of a new pilot agreement at DL. I have no idea what is in it but no one expects it to be a step backward. As AA works its way thru the 1113 process with its pilots, UA has yet to address integration issues - let alone bring UA pilots up to the CURRENT DL pilot pay levels with WN not much different, and US still working out a pilot merger half a decade after the "MERGER" DL is in an enormously strong position to demonstrate to investors it can successfully manage the industry's most valuable assets and revenue.
Throw in a few unique business approaches like the refinery and most of DL's competitors are strategically and competitively backed up against a wall.
Whether it involves BA or LHR or MIA or AS, I have no idea, but I do know that in an industry where screwups are the norm, DL is and has been running liked a well-tuned machine - and that has and will have enormous repercussions for DL's competitors.
You jumped on the bandwagon of naysayers before any party even confirmed there was a deal. And yes the details matter. You remember that there was talk of an investment bank involved - and that did not develop.
No, I simply waited to hear the details - and I also recognized then and now that it isn't my job to guess whether a deal between 3 multibillion dollar companies has validity; you apparently believed you were capable of knowing better.
Anderson is the CEO of DL; he has a legal responsibility to follow through - which is why I said from the beginning that they wouldn't be doing something if they didn't have the right people and have gone through a thorough analysis.
I don't know the petroleum industry and neither do you.
I do know the economics of the airline industry - which is why I said months ago that visions of WN growing its presence in ATL were misguided. I gave multiple reasons why - and lo and behold, WN is shrinking its ATL basis, appears to be on the verge of doing a deal w/ DL to get rid of surplus FL assets in return for DL's help on a number of strategically and operationally important issues to WN.
I could go back and list a number of issues in the industry on which I have correctly spoken. Predicting the jet fuel production of a refinery isn't in my field of expertise.... but if DL, or AA, or US said they were going to do something, I would and have given them the benefit of the doubt - subject to their own track record in the area.
That's part of why I and a whole lot of other people are highly doubtful of US' comments that they will improve revenue production - because they haven't done a great job of doing it so far - but I have no doubt that they can keep costs down, because that is what they do a pretty good job at.
Take a breath, Jim. If you make a statement, be prepared to defend it. It's not the end of the world if you are wrong.
ps ... "about" to me means within 5% - or less. A 5 hr flight is be considered on-time with a larger margin of error than that.
BTW, don't underestimate the competitive impact of a new pilot agreement at DL. I have no idea what is in it but no one expects it to be a step backward. As AA works its way thru the 1113 process with its pilots, UA has yet to address integration issues - let alone bring UA pilots up to the CURRENT DL pilot pay levels with WN not much different, and US still working out a pilot merger half a decade after the "MERGER" DL is in an enormously strong position to demonstrate to investors it can successfully manage the industry's most valuable assets and revenue.
Throw in a few unique business approaches like the refinery and most of DL's competitors are strategically and competitively backed up against a wall.
Whether it involves BA or LHR or MIA or AS, I have no idea, but I do know that in an industry where screwups are the norm, DL is and has been running liked a well-tuned machine - and that has and will have enormous repercussions for DL's competitors.
BoeingBoy
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Wow, what a non-surprise - a whole post talking about DL doing the smart thing without actually sticking your neck out and saying that you think they're making a smart move. Quick to point out any errors in others while refusing to acknowledge those you make.
As you'll recall, I told you that being wrong isn't the end of the world. You claiming my advice as your own is a cheap shot, even for you. My words were basically that I've been wrong before and will undoubtedly be wrong again - no big deal. You're just not man enough to take that step and for that I pity you. As I also said, going through life so afraid of being wrong that one can't and won't take a position must be a terrible way to live. It either takes a colossal ego, which make it highly unpleasant for anyone to deal with you, or a mental imperfection, which makes it highly unpleasant for you to live with yourself.
Jim
PS - a 5 hour flight that's more than 5% late is considered late so you were WRONG. 5% of 5 hours is 15 minutes so over 5% behind schedule would be more than 15 minutes while the DOT considers only 14 minutes or less after scheduled arrival as being on time.
As you'll recall, I told you that being wrong isn't the end of the world. You claiming my advice as your own is a cheap shot, even for you. My words were basically that I've been wrong before and will undoubtedly be wrong again - no big deal. You're just not man enough to take that step and for that I pity you. As I also said, going through life so afraid of being wrong that one can't and won't take a position must be a terrible way to live. It either takes a colossal ego, which make it highly unpleasant for anyone to deal with you, or a mental imperfection, which makes it highly unpleasant for you to live with yourself.
Jim
PS - a 5 hour flight that's more than 5% late is considered late so you were WRONG. 5% of 5 hours is 15 minutes so over 5% behind schedule would be more than 15 minutes while the DOT considers only 14 minutes or less after scheduled arrival as being on time.
Kev3188
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Wow, -3 as of this writing, Jim. Spectator and crew must be in the house... 
WorldTraveler
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I hope it doesn't burst your bubble to find out that not everyone on this board moves in lockstep with you 3 who seem to share a heritage of being shown to be wrong by WT but yet are unable to admit it.
Actually, Kevin, up until your post I probably would have replied to Jim that there are people on this forum who I respect because they don't try to know all of the answers to all of the world's problems - and you would be one of those people. I respect you because you know what you know - specifically on this board, labor relations in the airline industry - but you don't try to be a know it all on every subject.
Regardless of your post, I'll still say it... because I'm not afraid to say what is right. And it is right to acknowledge your strengths, just as it would be to acknowledge anyone else's - and I have indeed done that.
Jim's attempts to paint me as non-commital miss the reality that I, like you, don't pretend to have all the answers on every topic. I've never tried to argue with anyone about the mechanics of flight, never told any operational employee that they don't know what they are doing in their specific job.... what I do know is airline economics. I don't know the petroleum business, and thus don't try to pretend that I have the answers to how a refinery might work for an airline.
Even the media critics who argued the deal made no sense realized it probably was not in their best interest to continue arguing against it even after the details of the deal (and the fact that one actually existed) were announced. There have even been some "on second thought" reviews of the refinery transaction that consider that knowing the details justifies withholding criticism.
Note that the article I cited above notes that a PETROLEUM, not an airline, expert sees the value of the deal in shifting the competitive advantage to DL.
Because just like an early pilot deal, picking up a bunch of orphan 717s and M90s on the cheap, and keeping WN on a short rope in ATL are all strategic gains which DL can use to strengthen its position in the rest of its network.
You seemed to stumble with it weeks ago but I'll repeat it again despite, strangely, you would be one person on this forum who doesn't try to have an answer to areas outside of your area of expertise - or passion and thus I would argue understand the concept of knowing your place in life. There is something to be said for those who know their place in life - and that means that none of us have the answers to everything. And, in reality, those who who really do know alot are probably the most willing to admit that they don't know much - because they have realized that all they know in one field means that they know very little in thousands of others. That isn't a putdown. It's a healthy recognition that each of us should have; being able to recognize what we DO contribute to the world - and not trying to be more than we really are.
yeah, Jim, 14 minutes is on-time but 15 is not... so, if the refinery produces anything less than 49,400 barrels of jet fuel per day, then DL will be wrong.... and my faith in them will be shattered. And no, they said nothing about downtime because so far as I know, refinery production is expressed in bbls/day and is not adjusted for days out of service.
Actually, Kevin, up until your post I probably would have replied to Jim that there are people on this forum who I respect because they don't try to know all of the answers to all of the world's problems - and you would be one of those people. I respect you because you know what you know - specifically on this board, labor relations in the airline industry - but you don't try to be a know it all on every subject.
Regardless of your post, I'll still say it... because I'm not afraid to say what is right. And it is right to acknowledge your strengths, just as it would be to acknowledge anyone else's - and I have indeed done that.
Jim's attempts to paint me as non-commital miss the reality that I, like you, don't pretend to have all the answers on every topic. I've never tried to argue with anyone about the mechanics of flight, never told any operational employee that they don't know what they are doing in their specific job.... what I do know is airline economics. I don't know the petroleum business, and thus don't try to pretend that I have the answers to how a refinery might work for an airline.
Even the media critics who argued the deal made no sense realized it probably was not in their best interest to continue arguing against it even after the details of the deal (and the fact that one actually existed) were announced. There have even been some "on second thought" reviews of the refinery transaction that consider that knowing the details justifies withholding criticism.
Note that the article I cited above notes that a PETROLEUM, not an airline, expert sees the value of the deal in shifting the competitive advantage to DL.
Because just like an early pilot deal, picking up a bunch of orphan 717s and M90s on the cheap, and keeping WN on a short rope in ATL are all strategic gains which DL can use to strengthen its position in the rest of its network.
You seemed to stumble with it weeks ago but I'll repeat it again despite, strangely, you would be one person on this forum who doesn't try to have an answer to areas outside of your area of expertise - or passion and thus I would argue understand the concept of knowing your place in life. There is something to be said for those who know their place in life - and that means that none of us have the answers to everything. And, in reality, those who who really do know alot are probably the most willing to admit that they don't know much - because they have realized that all they know in one field means that they know very little in thousands of others. That isn't a putdown. It's a healthy recognition that each of us should have; being able to recognize what we DO contribute to the world - and not trying to be more than we really are.
yeah, Jim, 14 minutes is on-time but 15 is not... so, if the refinery produces anything less than 49,400 barrels of jet fuel per day, then DL will be wrong.... and my faith in them will be shattered. And no, they said nothing about downtime because so far as I know, refinery production is expressed in bbls/day and is not adjusted for days out of service.
Looks like Spectator and friends registered some new usernames.Wow, -3 as of this writing, Jim. Spectator and crew must be in the house...
QA4Jet-A
Veteran
Trying to not interrupt here Gents with all of your kind responses to each other but, I'm still trying to figure out how the refinery will produce 30% of it's capacity in Jet-A, a still unknown % of other product/breakdown to be traded off and still cover 80% of DL's Domestic fuel in the entire US! Does anyone know the average output of BBLs per day at Trainer or its projected rate after the Mods are complete? Better yet, what is DL's daily average gallon use per day in Domestic routing in the US? BBLs will be fine, I can divide!Looks like Spectator and friends registered some new usernames.
QA
BoeingBoy
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I rest my case - talking about oneself in the 3rd person is a sure sign of something out of kilter. I'm amazed at the way you can put others down as sticking to only what they know (I recall you disagreeing with Kev) but you comment on subjects that you admit you know little to nothing about.
Yeah, he sees that but didn't exactly say that buying Trainer would accomplish it did he?
Shall I assume from all your talk of not being a refining or petroleum expert that you won't be claiming that you were right if DL does manage to make the Trainer deal work? Or is all that double-talk reserved for when you're wrong, letting you can claim that you didn't say Trainer would be a success?
Jim
PS - twice in one day!!! Refinery production is rated by the government two ways - per stream day and percentage of operating capacity (or per calendar day). Per stream day is at 100% capacity while percentage of operating capacity factors in scheduled down and reduced production time. So you'll see a refinery that has 500,000 bbl capacity per stream day that's operating at 87% capacity or 435,000 bbl capacity per calendar day.
Somewhere I read that Trainer can refine 185,000bpd and that DL expects to turn 30% of that into jetA, which would be 55,500bpd and further that DL said that it expects Trainer to produce 800 million gallons of jetA per year. That might be possible since 55,500bpd would equal 851 million gallons and perhaps 800 million gallons per year would be possible. If DL can trade everything else Trainer produces for jetA, that would be a total of 2.67 billion gallons per year. Last year, DL bought a total of about 3.8 billion gallons worldwide, so 2.67 billion gallons may very well be 80% of its domestic consumption.
I have no trouble believing that the refinery can refine 185k bpd of crude and not knowing much about refining, I can even buy the 30% jetA figure. My difficulty is believing that Trainer (and the associated trades/swaps of refined products) will net DL $300 million per year on an investment of just $250 million. Claims of a 120% annual return always sets off alarm bells for me.
BoeingBoy
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Trainer is listed by the EIA as having 185,000 bbls/stream day. I have no idea what it's average utilization was when it was operating (average capacity per calendar day) or how much jet-A DL uses per day that could come from Trainer. We're primarily talking about Trainer jet-A production going to DL ops in NYC and trading other products for jet-A elsewhere, so if DL says that Trainer will be able to produce 52,000 bbls/day of jet-A for mainly NYC use, I suspect that a lot of jet-A would have to come from trading other products.
DL used 886 million gallons of jet-A world-wide last year according to it's 10Q, or nearly 19.8 million bbls (counting a barrel as 45 gallons since a barrel of crude produces about 45 gallons of finished products due to additives added to various products), or 54,247 bbls/day. Obviously long haul trans-ocean flights consume a lot of fuel with nearly half of it purchased abroad, but I have no idea how much DL uses per day on average in NYC, much less domestically.
Given those figures (which were rounded slightly), Trainer should be able to produce nearly all the jet-A DL needs world-wide if their predictions are correct. The problem is two-fold - transporting the jet-A from Trainer to where it's needed would be expensive so it's better to trade for jet-A in other places even if it means trading jet-A for jet-A, and DL also says that Trainer will only produce enough jet-A for 80% of it's domestic use so something is wrong in either the jet-A production or usage numbers - there's too big a difference between the two predictions otherwise.
Jim
NOTE - FWAAA posted while I was typing the above and he prompted me to see an error in my numbers - not enough zeros in DL's total fuel usage last year. My number should be 886 billion gallons of jet-A consumption last year instead of 886 million. That affects the barrels and daily usage numbers also. Jim
QA4Jet-A
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Thanks
WorldTraveler
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BINGO!
You are absolutely right that I won’t claim that ** I ** was right if the refinery venture works out because **I** didn’t come up with the idea and can’t validate if DL was saying the right thing or not.
What I can do – and will do – is say that if the refinery deal produces savings of the level DL says it will achieve, it WILL BE a game changer that will significantly change the competitive balance, just as WN obtained a competitive advantage more than 5 years ago with its hedges at a time when other airlines had none. Unlike WN’s hedges, though, the refinery deal has the potential to lock in DL’s advantage for many years.
If DL achieves its $300M in annual fuel savings, it will be less than 3% of its total fuel bill… hardly an earth shattering large percentage reduction. But when you factor in that net profits in the best years for the strongest US airlines have rarely exceeded $1B per airline per year, then a 30% increase in net profits is absolutely game changing, esp. when it comes in key highly competitive markets – and potentially involves supply issues which may significant affect DL’s competitors way more than any of us can understand now.
As for the ROI, note that the AUA refinery might be sold for a price 2X as high as what DL paid for Trainer even though the AUA refinery is only about 20% larger according to the article. Many analysts have said DL bought Trainer at the bottom of the market.
A look at this article shows that the whole refinery industry is in a global upheaval – and based on this article, Europe might be the hardest hit. But it is also far from certain that the supply of jet fuel on the market will remain constant and that DL could gain a supply advantage ON TOP OF a cost advantage derived from reduced transportation costs as well as better control of the refining process and maximization of jet fuel production, which is admittedly only one of multiple products for other refineries.
http://finance.yahoo...-124547391.html
What I have consistently harped on in this thread is that some people, you and some analysts and writers, jumped to the conclusion that this refinery deal could not work EVEN BEFORE the deal was announced and the details were known. You went so far as to say that a refinery could not produce jet fuel in the percentages DL has since said the refinery will produce.
Contrast that with what FWAAA and QA4 wrote – both of whom admitted their skepticism and questioning about how it can happen – but I don’t think either of them have said it can’t happen.
I never said I agreed 100% with anyone here, including Kev. I did say that Kev, like me, knows what he knows and doesn’t try to have answers to problems on which he isn’t an expert. I don’t really want to converse with a bunch of people who agree with me. I want to converse and debate with people who logically and rationally have defensible positions. I like diversity of thought and opinion – and anyone who is willing to participate in that type of interchange comes out stronger if they are willing to learn from others and not admit they
are right about everything.
There is a lot of wisdom in admitting one doesn’t have all of the answers and being willing to accept that – instead of being certain that one has all of the answers, even though everyone else knows that all of the data to make such a decision or conclusion cannot be known.
You might find it objectionable that I point out where others are wrong – or where I am right – but I find it objectionable that some people jump to conclusions and declare themselves right when they clearly have neither the data or experience to make that conclusion.
I’ve made that point sufficiently to say that I have no intention of holding you accountable for your statements saying the refinery cannot produce 30% or 52K bbls of jet fuel, plus or minus any reasonable number.
If you want to continue to argue that if Trainer doesn’t produce 52K bbls per day of jet fuel, that is your choice… but I never put my reputation on the line for that claim – because I don’t know if can be made or not.
I have said that DL, P66, and BP have all partnered in this venture so if DL fails to achieve it, they are all wrong – which I find very unlikely to occur.
BoeingBoy
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For someone that claims to not know you've been quick to label as wrong those who predict that Trainor won't be able to produce as much jet-A as DL forecasts. How can you claim that anyone is wrong but then claim you don't know and make no predictions? You just keep pushing the "DL is right" line - see your last sentence - but then say you don't know enough to say who is right but also say others are wrong when they dispute DL's line. Seems you want it both ways...not held accountable for all the support you've given to this plan but already claiming others are wrong to question it.
Jim
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