Oil Refinery Acquisition

6 Months Ended

Jun. 30, 2012

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

OIL REFINERY ACQUISITION

On June 22, 2012 (the "Closing Date"), our wholly-owned subsidiary, Monroe Energy, LLC (“Monroe”), acquired an oil refinery located near Philadelphia, Pennsylvania from Phillips 66. Monroe invested $180 million to acquire the refinery and is expected to receive a $30 million grant from the Commonwealth of Pennsylvania and Delaware County that will be used to offset the purchase price of the acquisition. The acquisition includes pipelines and transportation assets that will allow Monroe to supply jet fuel to Delta's operations throughout the Northeast, including our New York hubs at LaGuardia Airport ("LaGuardia") and John F. Kennedy International Airport ("JFK").

Monroe has entered into strategic agreements with BP and Phillips 66.Under a three-year agreement, BP will supply crude oil to be refined at the facility. Monroe will spend approximately $100 million to convert the facility to maximize jet fuel production and will sell the jet fuel produced to Delta for use in its operations in the Northeast. In addition to jet fuel, the refining process will produce gas, diesel fuel, and other refined products ("non-jet fuel products").Monroe will exchange these non-jet fuel products for jet fuel from Phillips 66 and BP to be used in Delta's operations throughout the U.S.

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 refinery mark-up or margin reflected in the prices we pay for jet fuel has increased.Our ability to acquire jet fuel from Monroe and the strategic agreements with BP and Phillips 66 are expected to reduce our fuel costs.

We accounted for the refinery acquisition as a business combination. The refinery, pipeline, and transportation assets acquired were recorded in property, plant, and equipment at $180 million based on our initial estimate of their respective fair values on the Closing Date. In connection with the closing, we also purchased $50 million of inventory, primarily crude oil, that was at the refinery on the Closing Date, which was recorded in prepaid expenses and other.