More skepticism
here.
From the article (emphasis added):
"...There must be something else at work that would make Delta and presumably other carriers so desperate they're willing to enter the refinery business. After all, it's a tough business -- even for oil companies.
Two thoughts come to mind specifically about Delta: a) its geographic concentration, and B] its credit rating, which stinks, may be so bad the airline can't cost effectively hedge in the open markets."
Putting on the tin foil hat for a moment, I wonder if this whole scheme is part of what sent Halter running for the exits?
Furthermore, with the above in mind, maybe this isn't some sort of forward thinking move some have made it out to be, but rather an attempt to stay in the hedging game at all?
It is highly possible that Halter did not agree with the direction DL wanted to take its fuel management process. There are clearly risks and no one including me has denied that.
There is a difference between acknowledging risks and deciding owning a refinery doesn't make sense when no one including the analysts writing against the deal know the structure of the deal at all. It is impossible to know if the deal will make sense.
And there will be people who will be skeptical even after the deal is announced. That is the nature of the world and the people who live in it.
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I don't think there is any reason to believe that DL can't continue to be a hedger... but they clearly would rather have more control over the process.... sometimes you win hedges, sometimes you don't - and that applies to both sides.
DL's credit rating is about mid-term for airlines... which isn't great... but DL's hedges have recently been more effective than WN's who has a higher credit rating.
Coming to the assumption because shorts on DL stock are some of the lowest in the industry so Wall Street now is trying to engineer a deal that will bring DL down and allow WS to gain is a little far fetched.
Since DL is supposedly building the deal (according to those same "leaked" media reports) around swapping non-jet fuel products for jet fuel and the east coast is a net importer as a region for refined petroleum products (thus the huge Colonial pipeline), then it would seem that restoring refining capacity closer to the locations where petroleum is used would be a net benefit for DL.
I don't think anyone believes that even at optimum production, the Trainer refinery could produce more jet fuel than NYC and the regions NE of the refinery consume.
There is a clear reality that when DL, the largest consumer of jet fuel in the world, starts moving into the arena of producers and gains the intellectual capacity to improve its own hedges relative to the industry that other players start asking questions if maybe they should allow DL to redefine the game.
IOW, are they better off letting DL into the production game instead of having them continue to argue against speculation or allow them to acquire the knowledge to compete very effectively against the counterparties in its hedges?
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When you're talking tens of billions of dollars, you don't just keep writing check after check w/o asking if things can't be done better.... and I'm not sure alot of people who are commenting about the merits of the parts of the deal that have been leaked have anywhere near the background on this situation to know if both sides don't recognize there is a benefit in changing the paradigm from simply "you as a big airline should just send us billions of dollars every year and not ask questions."