Trainer oil refinery helps boost Delta earnings

Delta Air Lines said Wednesday that its Trainer oil refinery in Delaware County produced a $13 million profit in the second quarter.

Delta, the first U.S. airline to report earnings, posted a second-quarter profit of $889 million, or $1.04 a share, that beat analysts' estimates, driven by strong passenger demand and higher revenue from corporate contracts.

Revenue rose 9.4 percent to $10.6 billion.

"We will post even better results in the third quarter, with a forecast operating margin of 15 percent to 17 percent," Delta chief executive officer Richard Anderson said on a conference call.

Delta bought the former ConocoPhillips refinery in 2012 to gain more control over its jet fuel costs, the airline's No. 1 expense.

Delta subsidiary Monroe Energy L.L.C., which operates the refinery, said Monday that it had signed a five-year agreement with a Texas logistics firm, Bridger L.L.C., to supply 65,000 barrels of domestic crude a day, or about one-third of the crude oil refined at Trainer.

Bridger said it recently invested $200 million to acquire 1,300 new railcars that would be used to transport oil to the Trainer refinery.

Domestic crude from the Bakken region in the upper Midwest costs less than crude shipped from overseas.

"Our domestic-crude initiative has lowered costs at the plant," said chief financial officer Paul Jacobson. "We expect to meet our full-year goal of 70,000 barrels per day of domestic crude for all of 2014."

The Trainer refinery, which Delta bought as a source of discounted jet fuel, supplies Delta's Northeast operations. Jet fuel is transported from Trainer by pipeline and barge to Boston Logan and to New York LaGuardia and John F. Kennedy Airports.

To improve Trainer's profitability, one of the main refinery units was shut down last winter for infrastructure modifications designed to increase refinery production of higher-value distillate fuels - diesel and jet fuel - to up to 40 percent of the refinery's output.

Delta said Wednesday that it expected the refinery to "be roughly break-even" in the current quarter ending Sept. 30. The company said previously that it expected a modest profit in 2014 from Trainer operations. The refinery posted a $116 million loss last year.

Delta's fuel expense declined $161 million in the April-to-June quarter, driven in part by operations at the refinery, which showed "a $64 million improvement year-over-year," the airline said. The average fuel price was $2.93 per gallon.

"Despite profit warnings from European airlines, and oil price volatility, major airlines are likely in a better spot going into the second half of the year than they were just a few months ago," airline analyst Fred Lowrance said in a client note this week. He cited "positive trends" in domestic passenger demand, industry capacity, ticket pricing, and jet fuel costs.

American Airlines, Southwest Airlines, United Continental Holdings, JetBlue Airways, and Alaska Air Group are scheduled to report financial results Thursday.