Crazy! Maybe Not!

[MCI transplant]

<_< With the every day the news of record breaking oil prices,and record fuel prices, the thought that maybe aa should assure itself a profitable way to gaurentee it's own source of affordable fuel becomes more apparrent!!!!The whole idea of aa purchasing it's own refinery would seem totally crazy!!! But in todays enviorment, at some point I feel it will have to be concidered! If it can afford to build a Billion$ terminal at JFK, it can surely find a way to secure it's future fuel supply! Did you know that same thing was true years ago, and from what I've been told was true at another Airline. That Airline was Western Airlines!!! And one of the fist things Delta did, after they bought Western, was get reed of it! BIG MISTAKE!!! Hmm------ Somehow that sounds familure!!!!!

 

[jimntx]

Owning a refinery will not solve the problem. Supply of jet fuel--the end product is not the problem--cost of crude oil, the input to the refinery, is the problem.

One of the lessons learned in the 80's and 90's with all the mega-mergers that later came apart--AOL Time Warner, for instance--was that expertise in one industry does not automatically translate into expertise in another industry. A lot of companies have shed ancillary businesses that do not fall within the scope of the company's core competencies. A refinery could hardly be further from the core competencies of an airline.

 

[coolflyingfool]

Owning a refinery would make your gas cheaper to an extent. But how long would it take to recoup the savings from the gas you are getting versus the cost associated with buying and running a refinery. It is only my guess, but I think you would be talking 15 to 20 years to offset that investment. Just my thoughts........

 

[Hopeful]

Owning a refinery would make your gas cheaper to an extent. But how long would it take to recoup the savings from the gas you are getting versus the cost associated with buying and running a refinery. It is only my guess, but I think you would be talking 15 to 20 years to offset that investment. Just my thoughts........

[post="286796"][/post]​

Not unless the TWU represents the oil workers. Just one of their famous six year concession contracts and AA would knock EXXON/MOBIL off their perch!

 

[Bob Owens]

Owning a refinery will not solve the problem. Supply of jet fuel--the end product is not the problem--cost of crude oil, the input to the refinery, is the problem.

One of the lessons learned in the 80's and 90's with all the mega-mergers that later came apart--AOL Time Warner, for instance--was that expertise in one industry does not automatically translate into expertise in another industry. A lot of companies have shed ancillary businesses that do not fall within the scope of the company's core competencies. A refinery could hardly be further from the core competencies of an airline.

[post="286787"][/post]​

I believe the sales pitch was built around the word "synergies".

 

[Bob Owens]

Owning a refinery would make your gas cheaper to an extent. But how long would it take to recoup the savings from the gas you are getting versus the cost associated with buying and running a refinery. It is only my guess, but I think you would be talking 15 to 20 years to offset that investment. Just my thoughts........

[post="286796"][/post]​

It would probably take less time than it will to recoup the cost of the new terminal at JFK.

The new terminal which is well over $1billion will only add a few gates more than we originally had. In the 7 years it will take to complete we are short around 8 gates. How many years will it take for the few extra gates we will have to generate the billions it cost?

 

[MCI transplant]

Owning a refinery will not solve the problem.  Supply of jet fuel--the end product is not the problem--cost of crude oil, the input to the refinery, is the problem.

One of the lessons learned in the 80's and 90's with all the mega-mergers that later came apart--AOL Time Warner, for instance--was that expertise in one industry does not automatically translate into expertise in another industry.  A lot of companies have shed ancillary businesses that do not fall within the scope of the company's core competencies.  A refinery could hardly be further from the core competencies of an airline.

[post="286787"][/post]​

<_< True, you can't control the price of oil by owning a refinery. That cost will born by aa regardless if they own a refinery or not! What percentage of todays fuel cost is oil, refining that oil, plus profit of refining that oil, plus comisions of middle men selling it to aa? As for running it? Damn man, aa's headquarted in Texas!!! Plus, you could sell what you don't use to say----Southwest!!!

 

[jimntx]

<_< True, you can't control the price of oil by owning a refinery. But what percentage of todays fuel cost is oil, refining that oil, plus profit of refining that oil, plus comisions of middle men selling it to aa? As for running it? Damn man, aa's headquarted in Texas!!! Plus, you could sell what you don't use to say----Southwest!!!

[post="286855"][/post]​

1. For big customers, like AA, there usually isn't a middle-man. The oil companies provide product directly to the airlines. Granted the truck that pulls alongside may say "XYZ Jet Fuel Services and Used Car Lot," but it is usually a wholly-owned subsidiary of a large oil company.
2. Hope you don't think that being in Texas automatically embues AA with any refining expertise or would save us any money on jet fuel. I live in Dallas, own a house in Houston, and worked in the petroleum industry for over 20 years. A substantial percentage of the gasoline sold in this country is refined in Texas. Just FYI, gasoline in St. Louis is 10-15 cents a gallon cheaper than it is in Dallas or Houston. I'm guessing there is a proportional difference in the price of jet fuel between STL and DFW or IAH.

 

[MCI transplant]

1.  For big customers, like AA, there usually isn't a middle-man.  The oil companies provide product directly to the airlines.  Granted the truck that pulls alongside may say "XYZ Jet Fuel Services and Used Car Lot," but it is usually a wholly-owned subsidiary of a large oil company.
2.  Hope you don't think that being in Texas automatically embues AA with any refining expertise or would save us any money on jet fuel.  I live in Dallas, own a house in Houston, and worked in the petroleum industry for over 20 years.  A substantial percentage of the gasoline sold in this country is refined in Texas.  Just FYI, gasoline in St. Louis is 10-15 cents a gallon cheaper than it is in Dallas or Houston.  I'm guessing there is a proportional difference in the price of jet fuel between STL and DFW or IAH.

[post="286860"][/post]​

<_< Sorry jim! The differance in cost of gas between States "normally" is due to the differance in State taxes between one State and another! The advantage to owning your own refinery should be apparant to someone like yourself! You have control over at least a portion of what is the "Life blood" of this Industry! The cost of fuel!!! Which I might add, aa do'es not have today!!!!!! Like I said! Crazy!! Maybe, but in todays economical envirnment, I feel sometime you have to think "outside the box"!!! Is that Crazy? Maybe! Maybe not!!!

 

[jimntx]

Gee, I bet you're one of those people that assumes that the years I worked at Texaco I got free or reduced cost gasoline. Let me disabuse you of that notion.

By the way, owning a refinery does not guarantee a supply or even a lower cost supply. The OCAW (Oil, Chemical, and Atomic Workers union) is one of the strongest unions in the country. You might start out with a non-union refinery, but it wouldn't be for long.

Also, one of the reasons that the oil companies haven't increased capacity over the last 20 years is the up front cost of building/adding to a refinery. The cost is enormous and there is no guarantee in the current environment that the cost could ever be recouped. Even buying a used refinery--assuming there were any for sale--is a very costly proposition. And, if a refinery is up for sale in this day and age, it's because an oil company could not make it profitable--like the small refinery that Texaco used to have in Kansas somewhere. It wasn't close to any of the refinery's customers; so the cost of transporting product to the user ate up the profit.

The refineries that are anywhere near some place that AA flies are in use today or have been shut down because the cost of bringing them into regulatory compliance with today's laws is prohibitive. It's even too expensive to tear them down and use the land for something else. Though I can't think of anything you could do with the land within the fence of the average refinery. Years of accidental spills of various sorts has polluted the soil to the point it is black and shiny.

It's kind of like the good ole boy who thinks building a microbrewery in his garage will save him money on his beer. He's bankrupt before he even finishes getting all the licenses and governmental permissions he needs to start construction. Or, he runs the risk of having his house seized by the government for operating a still. The Dukes of Hazzard is not a realistic view of life.

 

[Wretched Wrench]

Didn't AA own some sort of oil business a while back? Seventies, perhaps? CRS.

 

[MCI transplant]

Gee, I bet you're one of those people that assumes that the years I worked at Texaco I got free or reduced cost gasoline. Let me disabuse you of that notion.

By the way, owning a refinery does not guarantee a supply or even a lower cost supply. The OCAW (Oil, Chemical, and Atomic Workers union) is one of the strongest unions in the country. You might start out with a non-union refinery, but it wouldn't be for long.

Also, one of the reasons that the oil companies haven't increased capacity over the last 20 years is the up front cost of building/adding to a refinery. The cost is enormous and there is no guarantee in the current environment that the cost could ever be recouped. Even buying a used refinery--assuming there were any for sale--is a very costly proposition. And, if a refinery is up for sale in this day and age, it's because an oil company could not make it profitable--like the small refinery that Texaco used to have in Kansas somewhere. It wasn't close to any of the refinery's customers; so the cost of transporting product to the user ate up the profit.

The refineries that are anywhere near some place that AA flies are in use today or have been shut down because the cost of bringing them into regulatory compliance with today's laws is prohibitive. It's even too expensive to tear them down and use the land for something else. Though I can't think of anything you could do with the land within the fence of the average refinery. Years of accidental spills of various sorts has polluted the soil to the point it is black and shiny.

It's kind of like the good ole boy who thinks building a microbrewery in his garage will save him money on his beer. He's bankrupt before he even finishes getting all the licenses and governmental permissions he needs to start construction. Or, he runs the risk of having his house seized by the government for operating a still. The Dukes of Hazzard is not a realistic view of life.

[post="286880"][/post]​

<_< Yea! Your probely right! Bad idea!!!But Pleeease don't try and tell me that "COST" is the only only reason the oil companies haven't built new refiners lately!!!! Their awash in money lately!!!!!!Or haven't you noticed? Profits up 300%+ from last year!!!And their refining capacity, or lack of, has contributed greatly to their bottom line!!! It doesn't take the sharpest tack in the box to figure that out! So what's your answeer to our #1 expence! I say #1 because with all our concessions I know labor can't clam that title any longer!!!!! Or at this rate, if not true this month, it will be next!!

 

[jimntx]

<_< Yea! Your probely right! Bad idea!!!But Pleeease don't  try and tell me that "COST" is the only only reason the oil companies haven't built new refiners lately!!!! Their awash in money lately!!!!!!Or haven't you noticed? Profits up 300%+ from last year!!!And their refining capacity, or lack of, has contributed greatly to their bottom line!!! It doesn't take the sharpest tack in the box to figure that out! So what's your answeer to our #1 expence! I say #1 because with all our concessions I know labor can't clam that title any longer!!!!! Or at this rate, if not true this month, it will be next!! 

[post="286947"][/post]​

Yes, the oil companies are awash in money. They always have been. I didn't say they didn't have the money to build/expand refineries. AA has the money to buy some new a/c if you just look at money in the bank. Why aren't they buying some new 777s for instance? Uncertainty about the future.

The oil companies have not invested in new refineries for a number of reasons--mostly uncertainty about the future, but also the sheer size of the investment, the environmental controls that are required today that were not required when the current refineries were built. But uncertainty about the future is paramount.

If you could take several billion dollars and invest in sure things like gummint bonds, or blue chip stocks OR invest those same billions in a new refinery that not only is going to take many years to achieve a positive ROI in a stable economic environment, but also is dependent upon things in the Middle East working out for the long term to our advantage, where would you put your money?

The timeframe for getting your money back from a new refinery exceeds any known timeframe for having securable, dependable supplies of crude--and that includes emptying out the ANWR.

You also have the problem that everyone wants new refineries built so that they can continue to drive their Hummers at a relatively low cost. However, NO ONE wants the friggin thing built in their backyard. They think a good place for it would be the vacant lot behind YOUR house. Take it from me. You can smell a refinery and start developing a headache from the fumes LONG before you can see that refinery.

One other "minor" problem. If you started building a new refinery today, it would be 10-15 years before it came on-line. Who's willing to risk several billion dollars on a venture that has so very many uncontrollable variables--the economy, the government, the Middle East situation, the future of China, the supply of crude oil, the defeat (or not) of terrorist organizations? I mean it's scary just thinking about it.

 

[eolesen]

Didn't AA own some sort of oil business a while back? Seventies, perhaps? CRS.

[post="286902"][/post]​

Yes, and it was more recent than that.

AMR Energy Corp was bought in 1977, and sold in June 1986 to Total Petroleum (about the same time SkyChefs was sold). Had oil production of about 1M barrels in 1984. Made money for a few years, but wound up losing money in 1984 and 1985 due to falling prices and some exploration projects gone bad in West Texas.