Delta Air Lines' refinery in Trainer, Delaware County, posted a $42 million loss in the three months ended Dec. 31, and a $125 million loss for all of 2016.
Delta, the first U.S. airline to report earnings for the latest quarter on Thursday, downplayed the loss and said the refining industry is cyclical.
"We are expecting the refinery to produce a profit of around $100 million this year," chief financial officer Paul Jacobson said on a conference call. "We are projecting a slight profit in the first quarter" that ends March 31.
"The refinery continues to perform well against our broad-based strategy," Jacobson said, noting that Delta officials met with refinery employees last month. "Morale remains high, and we remain committed to that investment."
The No. 2 carrier by passenger traffic bought the idled ConocoPhillips refinery in 2012 for $150 million as a source of discounted jet fuel.
Until last year, the refinery, operated by Delta subsidiary Monroe Energy LLC, had posted seven consecutive quarters of profitability.
Shares of Delta were down 55 cents, or 1.07 percent, to $50.89 at the close of trading Thursday after the Atlanta-based carrier reported better-than-expected revenue in the fourth quarter, although revenue dipped to $9.46 billion from $9.5 billion a year earlier. That exceeded analysts' average estimates of $9.35 billion.
Net income was $622 million in the latest quarter, down from $980 million a year earlier, which Delta attributed mainly to a new labor agreement with its pilots.
Excluding special items, earnings were 82 cents a share, which met analysts' average estimates.
"As we move into 2017, we are seeing our revenues turn positive, which should return the company to margin expansion by the back half of the year," said Delta CEO Ed Bastion.
At an investor day on Dec. 15, Jacobson told analysts, "We get a lot of questions about the refinery and make no mistake, the refining business is cyclical. Perhaps the only thing in our career that may have been more cyclical than the airline industry is the refinery business."
Since buying the refinery, he said, Delta has built "a consistent and we believe sustainable competitive advantage in the way that we buy fuel. It provided us with the logistical expertise and even playing field in every negotiation that we have throughout the world."
The refinery profitability peaked at $290 million in 2015, "but even in the years where we lost money, we are still consistently driving an advantage to our competitors," Jacobson told analysts at investor day.
"In the long term, this is a great hedge for Delta against what the refining industry might do," he said. "If supply gets constricted in the Northeast, as it was about to be in 2012 when we bought it, we have an incredible well-positioned hedge that finances itself through the advantages that we can get in the operation."