Delta Air Lines will begin producing jet fuel at its Trainer refinery in Pennsylvania later this month.
The first fuel will be shipped by the end of the month and be used by Atlanta-based Delta in the fourth quarter, says Paul Jacobson, chief financial officer of the airline, at the 2012 Dahlman Rose Global Transportation Conference in New York today.
Trainer is on schedule. Delta closed a deal with Philips to buy the plant for $180 million in June and began $100 million in upgrades the same month. It anticipated operations would begin in September.
The deal has sparked a lot of scepticism throughout the aviation and oil industries. Delta's expectation that it can produce jet fuel yields of 32% of total output were questioned by the US Energy Information Administration (EIA) in a report in June. The agency said that average jet fuel yields were 11% for refineries in the USA, though some can achieve yields of between 25% and 29% for a few months of the year.
Moody's Investor Services said it poses "potentially significant operating and financial risks" and deemed it a credit negative in May.
Jacobson says that Trainer can achieve the production estimates because the former owner was not optimising it for jet fuel production. He adds that the plant is well positioned for producing jet fuel.
Delta's decision to buy Trainer is probably "somewhere between stupid and brilliant", says Jacobson acknowledging the scepticism.
The carrier anticipates that Trainer will generate a $300 million savings to its annual fuel bill. This will begin to be reflected in Delta's fourth quarter results, says Jacobson.