Yesterday the speculation of Delta’s potential purchase of Conoco’s refinery in Trainer, Penn. heated up.  It has been reported that Delta’s board of directors has approved the airline’s attempt to purchase the 185,000-barrels-per-day refinery for between $100 million and $200 million, which includes a needed renovation of the facilities.

This is a first for an airline but is not surprising since jet fuel comprises approximately 36 percent of Delta’s operating costs. There is also an existing pipeline in place between the refinery’s location and New York City, a major hub for Delta.

Previously the idea was discounted as Delta has a junk-level credit rating, but we have learned that JP Morgan is stepping up and offering to finance the deal where they would be paying for the crude from Nigeria, plus the shipping costs. Additionally, since the refinery’s current production of jet fuel is only 12 percent, Delta is in talks with at least two large oil companies to swap other refined products for additional jet fuel.

Airline analyst Hunter Keay wrote on Tuesday that Delta “is the world’s largest commercial buyer of jet fuel” and, due to poor credit ratings of airlines jet fuel, is “hard to hedge, and even if [Delta] can obtain a consistent $0.05 per gallon cost advantage over the long run, it’s worth the risk.” Others feel the risk is just too high for the airline to venture out of its core business.

Back in Hawaii and Tesoro’s potential sale of its 93,500-barrel-per-day refinery in Kapolei, who would be a potential buyer? Based on the Delta scenario, two names come to mind: Hawaiian Airlines and Alexander & Baldwin’s Matson, which will soon be an independent company.

Hawaiian Airlines has been growing its routes dramatically in international markets and looking to the East Coast, all long-haul flights indicating corresponding fuel purchases increase. The risk of higher jet fuel prices will continue to be relative, but any savings from the refinery ownership would go to its bottom-line.

The other is Matson, which also uses Hawaii as its major shipping hub between the West Coast and Asia. And with the split from A&B (shareholders are expected to approve the action at the company’s May 11 annual meeting), it might be a good time to consider such a purchase.

In a very simplistic calculation, the Kapolei refinery has half the capacity of the Trainer facility and probably needs some form of renovation, so we could put a general price tag between $50 and $100 million total. Matson is in a better financial position to pull it off, but Hawaiian could look at a similar financing scenario as Delta is pursuing with JP Morgan.

It is always fun to speculate and it is speculation at this point!

Delta Airlines (DAL, NYSE, 52 week range 6.41 – 11.60), Conoco Phillips (COP, NYSE, 52 week range 58.65 – 81.50), Tesoro (TSO, NYSE, 52 week range 17.43 – 30.15), Hawaiian Airlines (HA, NASDAQ, 52 week range 3.67 – 6.98), Alexander & Baldwin (ALEX, NYSE, 52 week range 33.09 – 53.99)