Delta Airlines 2012 Annual Report Download - page 35

In 2012, we entered into an agreement with Bombardier Aerospace to purchase 40 CRJ-900 aircraft with 12 deliveries this year and 28 in 2014.
Also in 2012, we finalized agreements with Southwest Airlines and The Boeing Company ("Boeing") to lease 88 B-717-200 aircraft. Delivery of the
aircraft will begin later this year, with 16 aircraft scheduled to enter our fleet. We will receive 36 aircraft deliveries in each of 2014 and 2015. These
B-717-200 aircraft are 110-seat aircraft and will feature new, fully upgraded interiors, with 12 First Class seats, 15 Economy Comfort seats and in-
flight WiFi throughout the cabin.
In 2011, we entered into an agreement with Boeing to purchase 100 new fuel efficient B-737-900ER aircraft. We will add these aircraft to our
fleet between this year and 2018, primarily replacing older B-757-200 aircraft. We expect the B-737-900ER to offer an industry leading customer
experience, including expanded carry-on baggage space and a spacious cabin. Additionally, we continue to increase our MD-90 fleet with previously
owned aircraft that offer a lower total cost of ownership.
As we restructure our fleet and assess our fleet plans, we will continue to evaluate older, retiring aircraft and related equipment for changes in
depreciable life, impairment and lease termination costs. By 2015, we expect to reduce our 50-seat aircraft fleet to 125 aircraft. The associated
retirement of aircraft will result in material lease termination and other charges over this period. We expect to benefit from reduced future
maintenance cost and improved operational and fuel efficiency that we will experience over the life of the new aircraft.
Oil Refinery Acquisition
Jet fuel costs have continued to increase in recent years, making fuel expense our single largest expense. Because global demand for jet fuel and
related products is increasing at the same time that jet fuel refining capacity is decreasing in the U.S. (particularly in the Northeast), the refining
margin reflected in the prices we pay for jet fuel has increased. We purchased an oil refinery as part of our strategy to mitigate the increasing cost of
the refining margin we are paying.
Acquisition
In June 2012, Monroe acquired the Trainer refinery and related assets located near Philadelphia, Pennsylvania from Phillips 66, which had shut
down operations at the refinery. Monroe invested $180 million to acquire the refinery. Monroe received a $30 million grant from the Commonwealth
of Pennsylvania. The acquisition includes pipelines and terminal assets that will allow the refinery to supply jet fuel to our airline operations
throughout the Northeastern U.S., including our New York hubs at LaGuardia and JFK.
Because the products and services of Monroe's refinery operations are discrete from our airline services, segment results are prepared for our
airline segment and our refinery segment. Financial information on our segment reporting can be found in Note 2 of the Notes to the Consolidated
Financial Statements.
Refinery Operations and Strategic Agreements
The facility is capable of refining 185,000 barrels of crude oil per day. BP is the primary supplier of crude oil used by the refinery under a three
year agreement. We are also exploring other sources of crude oil supply, such as bringing supply to the refinery by rail from the Bakken oil field in
North Dakota. We have increased the refinery's jet fuel capacity through capital improvements. The refinery's remaining production consists of
gasoline, diesel and refined products ("non-jet fuel products"). Under a multi-year agreement, we are exchanging a significant portion of the non-jet
fuel products with Phillips 66 for jet fuel to be used in our airline operations. Substantially all of the remaining production of non-jet fuel products is
being sold to BP under a long-term buy/sell agreement effectively exchanging those non-jet fuel products for jet fuel. Our agreement with Phillips 66
requires us to deliver specified quantities of non-jet fuel products and they are required to deliver jet fuel to us. If we or Phillips 66 do not have the
specified quantity and type of product available, the delivering party is required to procure any such shortage to fulfill its obligation under the
agreement. Substantially all of the refinery's expected production of non-jet fuel products is included in these agreements.
Refinery Start
-Up
During the December 2012 quarter, fuel production increased at the refinery. However, Superstorm Sandy negatively impacted the refinery start
up, slowing production and lowering efficiency levels. The refinery recorded a $63 million net loss for the quarter.
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