Is JPMorgan (NYSE: JPM) Setting Delta Airlines (NYSE: DAL) Up For a Crash?

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The devil is in the details.

That's what I thought when I read that Delta Airlines (NYSE: DAL) may be hopping into bed with JPMorgan Chase (NYSE: JPM).

According to various reports, Delta is in talks to purchase the idled "Trainer" refinery facility in Philadelphia with assistance from JPMorgan Chase as its financier.

On the surface, the deal seems to make perfect sense. Jet fuel is very expensive.

Delivering jet fuel to New York Harbor would have cost you $1.94 a gallon five years ago. Today it's $3.12, or 60.82% higher according to Bloomberg.

Owning a refinery would be a good way to lock up supplies and keep fuel costs down in today's world.

It's so smart I'd watch for United, British Airlines and Lufthansa to do the same in short order. Perhaps even the regional carriers will get in on the action at some point, too.

All are "route heavy" on the Eastern U.S. seaboard where many refineries have to pay for more expensive imported Brent crude because they can't access less expensive West Texas blends or alternatives coming from North Dakota shale fields.

But what the frack?

Ordinarily, airlines would simply hedge price increases like this in the futures markets.

So there must be something else at work that would make Delta and presumably other carriers so desperate they're willing to enter the refinery business. After all, it's a tough business -- even for oil companies.

Two thoughts come to mind specifically about Delta: a) its geographic concentration, and b) its credit rating, which stinks, may be so bad the airline can't cost effectively hedge in the open markets.

Few people realize this but several major oil companies, including Sunoco, Hess Corp, Valero and ConocoPhillips -- just to name a few -- are planning to close, idle or otherwise shut down refineries on the east coast.

That would remove 51% of U.S. East Coast refinery capacity from the equation by some accounts.

This means that delivering fuel into the northeast corridor's airports is going to become especially problematic and more expensive.

In that sense, one could argue that Delta is taking prudent steps to secure its own supplies while building in defenses against higher prices ahead.

I can't find fault with that given that every penny increase per gallon costs Delta $40 million more on an annualized basis, according to Bloomberg. I would be thinking along the same lines.

But I don't "buy" it even though the airline spent $11.8 billion on fuel last year and understandably wants to save money.

Here's where it gets interesting (and I get suspicious).

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