In Spring 2012, Delta Air Lines purchased an oil refinery from Phillips 66, the downstream business spinoff of ConocoPhillips. The purchase, made by Delta’s subsidiary, Monroe Energy LLC, for $150 million, was touted as an attempt to save money on rising jet fuel costs. According to Delta’s CEO Richard Anderson, “While Delta will remain hostage to fluctuating crude oil costs, the facility would enable it to save on the cost of refining a barrel of jet fuel, which is currently more than $2 billion a year for Delta and has been rising in the wake of U.S. refinery shutdowns.”29 Delta also announced that after the purchase it would spend an additional $100 million to convert the existing refinery to optimize the production of jet fuel. The refinery, located in Pennsylvania along the Delaware River, produces more than 185,000 barrels a day. The acquisition also includes pipelines and transportation assets that reach Delta’s operations throughout the Northeast. To allay concerns that Delta had no experience in running a refinery, Delta planned on hiring executives from the refinery business to manage its new facility.

Evaluate Delta’s decision to backward integrate into jet fuel refining in light of the discussion of make-or-buy fallacies in this chapter.