Refining and the Airline

October 23, 2012

Contents

“Delta 101”

Why Trainer and why now?

Market reaction

3

Delta holds a long heritage as the world’s leading airline

Delta is the world's largest airline by passenger miles

5th oldest airline founded in 1928 (Delta’s legacy includes the former Northwest, Pan Am, Republic, Western, Northeastern, and Hughes AirWest airlines)

Founding member of the SkyTeam Alliance, Joint-Venture partner with AirFrance/KLM and Alitalia and partial owner of AeroMexico and GOL of Brazil

Fortune Magazine’s 2011 World’s Most Admired Airline

$35 billion in annual revenue

160 million customers annually served through 340 destinations

$44 billion in assets

More than 700 mainlines aircraft plus 700 regional jets

80,000 employees plus ~100,000 contractors

Hubs located in Atlanta, New York’s JFK and LaGuardia, Detroit, Minneapolis, Cincinnati, Memphis, Salt Lake City, Los Angeles, and overseas in Tokyo, Amsterdam, and Paris

4

Operational focus is critical to run Delta’s complex business

ManufacturingOperations Real Estate

Delta TechOps has 10,000 employees rebuilding airplanes and engines

Delta performs its own maintenance plus it serves 150 other carriers making it the third largest MRO business in the world

3 million square feet of manufacturing space in Atlanta plus facilities in Minneapolis and Mexico

$3 billion in spending on current projects

In-house management of major construction projects such as the JFK Terminal 4 complex, LAX and La Guardia expansions

>30 million square feet of commercial space is managed by Delta

1,400 airplanes moving 500,000 passengers per day

Zero fault tolerance environment for equipment (12-sigma equivalence in quality) while still providing >99.8% equipment availability

Largest carrier in the world has gone 24 years without a major aviation incident (roughly 40 million flights)

Delta developed an internal oil company long before Trainer

Refining

Point where airlines traditionally have engaged in the value chain

Logistics Terminalling On-site Facilities Fuel Loading

Fuel value chain for Delta

Delta has been one of the largest

shippers on the Colonial, Plantation,

Buckeye, and Teppco pipeline systems moving

upwards of 175,000 bpd

Delta controls several hundred thousand barrels

of storage outside of its

airports to facilitate its self-supply function

Delta owns, leases, co-owns, and/or oversees

26 on-airport fuel facilities with their

associated fuel tanks, filtration equipment,

distribution pipelines, hydrants, and fuel

carts

Several thousand fuel loadings per

day – each requiring a specialized

technician, a load planner, and 30-90 minutes to execute

If Delta’s fuel function (ex-Trainer) were to be a separate company, it would constitute the following:

Approximately 1,100 employees and contractors More than $1bn in fixed assets Roughly $500mn in working capital Annual revenue of $12bn

Delta is the world’s largest private consumer of fuelD

ail

y F

ue

l C

on

su

mp

tio

n (

00

0s

bp

d o

f a

ll fu

els

)

114

27

77

184

248

261

Air Tran

US Air

Southwest

American

UAL/CO

Delta

Air

lin

es

167

276

110

138

Portugal

Denmark

BNSFRailroad

FEDEXAir & ground

Oth

er

(all

co

ns

um

pti

on

)

Would be in the world’s top 50

as a stand-alone country

Contents

“Delta 101”

Why Trainer and why now?

Market reaction

Crude oil price

risk

Refining Margin

Risk

Jet Fuel Specific

Risk

7080

90100

110120

130

5

10

15

20

25

-2

0

2

4

6

8

Risk Type

Root Causes of volatility

Natural Hedge for Delta

Economic growth combined with higher production costs

Supply shocks

Price levels can be passed through to customers

Delta’s loss

Economic growth

Supply constraints

Supply shocks and weather events

Some price risk can be passed

through

All risk borne by Delta

Regional market variations

All risk borne by Delta

$/bbl

Brent

HeatCrack

Jet versus Heat

Delta’s exposure to fuel price is not a simple crude short…

9

…the jet crack is the fastest growing element of fuel expense…

100%

71%

5%

18.5%

3.6%

2.1%

Fuel Expense

Transport

Taxes

Product

Markup

Refining

Cost

Crude

Oil

$430mn

$240mn

$2.2bn

$590mn

$8.5bn

Pipeline & barge

Fuel excise taxes

Represents the profit margin and marketing spread that a refiner and reseller/trader gain from jet sales, which are typically the most profitable sales at the refinery

Operating cost

Purchase cost of the average source feedstock for jet fuel (all crude contains jet fuel, some contain more than others)

$12bnTotal

Jet crack spread tripled since 2009

8,000

7,000

6,000

5,000

4,000

3,000

201020052000

-21%

+13%

…driven by dieselization and slowing demand for gasoline

Source: BP Statistical Yearbook

2000 2005 2010

10,000

9,000

8,000

7,000

6,000

5,000 1,000

1,500

2,000

2,500

3,000

3,500

4,000

2000 2005 2010

+125%

Diesel & Jet

Gasoline

United States European Union China

Daily transportation fuel consumption in 000s bpd

European fuel switching from gasoline to diesel and voracious BRIC demand for middle distillates are driving the global imbalance between gasoline and diesel

Criteria for purchasing a refinery

Properly sized – large enough to make a material impact on the company’s profitability but not larger than Delta’s consumption

Relevant to the company’s demand centers (domestic, USGC or USEC based)

Flexible refining kit able to maximize jet production with minimal investment

Well-maintained plant that had not suffered from under-investmentActionable within a year

Viable as a stand-alone business

Provide a mechanism for non-jet product disposition

The jet-crack will remain high for several years

Refinery capacity shut-ins will drive margin volatility and regional shortages

Beliefs about the market

Criteriafor the

refinery

Criteria for the deal

A

B

C

D

The Trainer deal

199,000 bpd refinery located in Trainer, Pennsylvania (Philadelphia)

Pipeline system and 3 oil terminals included in sale

Solomon Complexity Index of 9.6 with a replacement value of $2.7 billion

Asset

Price of $180 million ex-hydrocarbon inventory (6% of replacement value)

$30 million grant from the Commonwealth of Pennsylvania

$100 million in turnaround and small capital expense for max-jet mode

Terms

Trainer is able to supply most of Delta’s northeastern fuel demandA

LGA

JFK

EWR

HarborPipeline

LaurelPipeline

TwinOaks

Buckeye

Upstate NY

Waterborne exports

Trainer jet flows to local market

52

Swing &export

OtherDelta

Consump.

JFK & LGA

Production

Production and consumption in kbd

Trainer

Monroe Pipelines

PIT

PHL

The flexible refining kit at Trainer is capable of full conversion…

Hydrotreating Units

DistillateVGO HTDHTKero HT

GasolineNHTPost-Cat NHT

Reformer – 60,000 bpd2-Stage Hydrocracker – 26,000 bpd Resid Fluid Catalytic Cracker – 55,000 bpd

B

…and a jet-optimized product yield at minimal expense

Refinery Operation from 2007-2011 Monroe Planned Refinery Operation

Middle distillates

= 50% of total margin

risk

Gasoline

= 44% of total margin risk

Byproduct

= 7% of risk

19% Diesel

Pricing

14% Jet

52% Gasoline

15% Fuel Oil, LPG

44% Gasoline

18% Diesel

32% Jet

7% Fuel Oil, LPG, Other

B

Trainer would be viable as a stand-alone businessC

Trainer performance backcasted with Monroe’s operating plan$ million per quarter

-50

-25

0

25

50

75

100

125

150

175

200

225

250

275

300

Q1 2011

Q1 2010

Q1 2009

Q1 2008

Q1 2007

Q1 2006

Average EBIT = $551 MM/year

Average EBIT = $345 MM/year

$300 million per year in earnings appears, at first glance, to be too high for a $250

million investment, however, the returns are

appropriate for a business that if

newly built would cost $2.7 billion and

consume an additional $500

million in working capital for a pre-tax asset return of 9%

Exchanges with P66 and BP dispose of all non-jet production while simultaneously fueling Delta’s self-supply network

D

ExxonMobil FrontierValero

41%

38%

2%

29%

Delta

Effective Tax rate 2010

Delta also carries a significant tax advantage versus other refiners

Post-tax earnings benefit of $120 million per year versus ExxonMobil’s domestic tax

rate at Monroe’s forecast

earnings run rate

Team Member Background / Prior CompaniesYears

Energy Experience

Jeff WarmannCEO

• All aspects of refinery, process and trading operations• Murphy Oil, Frontier Refining, Western, Williams

28

Frank PiciCFAO

• 15 years as public co. CFO in refining, upstream, MLP• CVR Energy, Penn Virginia, Mariner Energy, Cabot O&G

30

Coby StewartVP / Maintenance Lead

• Construction, maintenance, turnaround experience• Frontier Refining, Chicago B&I, Flour Corp.

33

Rodney SmithVP / Controller

• Senior accounting and financial professional• Delek, Western Refining, Holly Corp

20

Brian CarlsonOperations Leader

• Process engineering, economics, technical background• Frontier Refining, Citgo Petroleum

11

Rick ChavezTechnical Leader

• Economics & Planning, M&A, project development• Stancil, Williams, Lyondell, El Paso, Amerada Hess

27

Pete PirogVP MIPC Pipeline

• Pipeline construction, scheduling , storage logistics• ConocoPhillips, Buckeye Pipeline

15

Liz LundmarkEnvironmental Leader

• Deep environmental compliance & logistic experience• Murphy Oil

22

Keenan KendrickH&S Leader

• Process Safety Management, Change Management• Western Refining, ChevronTexaco Downstream

11

19

Monroe has a seasoned management team

Contents

“Delta 101”

Why Trainer and why now?

Market reaction

Delta would get into the refinery business only because they are stupid – Ed Hirs, U. of Houston in Forbes

Airlines, after all, know a thing or two about managing high risk, logistics intensive, industries – Janet McGurty, Reuters

Market reaction

Debt AnalystsRefining market “pundits” Equity Analysts

Other airlinesBusiness Press

If Delta thinks they will be able to lower fuel volatility, they are sadly mistaken – Phil Flynn

It goes beyond Delta’s core competency – Stephen Schork

It is worth a shot, the refinery is only about the cost of a single new widebody jet – Ray Neidl

Trainer is an innovative approach to the long-term management of the airline's jet fuel costs, notwith-standing the operational risks of running a refinery – Fitch

Trainer attracts a lot of haters of Delta’s stock – CNBC

It could be brilliant or a disaster, only time will tell – CNN Money

If it works for Delta, it can work for us – and is completely reproducible – Jeff Smisek, CEO of UAL

Shocking revelation… this has been done before!

1955: Malcolm McLean creates the Sea-Land shipping company to focus on containerized shipping, the company grows rapidly

1948: Aminoil (American Independent Oil Company) wins a concession to develop oil in Kuwait

1970: RJR purchases 100% of Aminoil for $40 million to hedge its Sea-Land’s fuel expense

1969: RJR purchases Sea-Land Corp. for $530 million

1958: Aminoil builds the Mina Abdullah Refinery

1968: Aminoil expands Mina to 145,000 bpd, yields 50% bunker fuel (company nears bankruptcy)

1974: Earnings for Sea-Land reach $145 million; Aminoil

earns $86 million

1984: RJR spins off Sea-Land (later merged to form CSX)

1984: RJR sells Aminoil to Phillips 66 for $1.7 billion

During 14-years of vertical integration both Sea-Land and Aminoil had record years of profitability

Questions?