The Exchanges

Q You mentioned blending mandates. I mean, I think one important point, we're not really at this point yet because, as you said, the volumes are so small, but, um, what is Delta's view on how much SAF you can blend with traditional JET? It differs by what Type of SAF it is obviously, but at what point do we start to run into blending concerns?

A So there's a couple things on the blending side that are interesting to watch. The first is the fact that there is a maximum blend limit of 50% today, and that's just because the chemistry of SAF is slightly different than conventional jet fuel, and if you've got it at a hundred percent, there are some things in the infrastructure themselves that just need to be tested and certified. So the industry is certainly looking at that, but I think we're probably at least a decade away from having that be a real issue in any single location. On the other hand, what is interesting is that when someone makes SAF, in order for it to go onto our plane, it needs to be blended in with our convention or jet fuel, and this is something the industry has noted is a concern to date, because we've got these individual producers who are trying to figure out blending, whether that's at their production site, or, you know, potentially in a tank that's just off an airport, and none of that feels, um, that scalable, and so we are really pushing to see blending hubs in some key markets, such as, uh, Minnesota. So that we've got just one place where all staff producers are able to blend in their staff, and then all airlines will be able to access. So we're not creating additional infrastructure that ultimately isn't needed as the product scales.

AI assessment note: “the fact that there is a maximum blend limit of 50% today”

Q about what, what the SAF you're actually purchasing today is, and then what it might be in the future. Um, as you know, SAF is an umbrella term, and there's lots of different versions of SAF, different feedstocks, different processes to produce it. So of the, of the, let's start with the, what's actually happening today of that limited volume that exists today. What is the source of that SAF?

A Sure. Well, here's an acronym, You may not know, and you don't need to necessarily remember it either, but the, um, the source of SAF today is using a process called HEFA, hydro-treated esters and fatty acids, and the only reason I say that is fatty acids, so the source of that today is things like vegetable oils, waste oils, used cooking oil, for example, and fats, and they go through a process that uses hydrogen, um, to essentially move it into sustainable aviation fuel. It's a somewhat, you know, it's a proven technology. It's straightforward. It's being done today. Um, and so it's proven out. So most people would say, well, then why do you need to think of any others? Well, of course, it's a feedstock constraint issue. So all those feedstocks I mentioned, I mean, there's a limitation. They can't be scaled to the four billion gallons of jet fuel that Delta uses, let alone what the industry uses. Um, and we are a growth industry too. So our fuel needs are going to be even greater in the future. And so with that, that's where you start to look towards a couple, um, pathways that are more scalable. So again, I mentioned the ethanol industry with alcohol to jet. That's one that there's a lot of excitement about. One, you get a lot of support from farmers and from rural states. It can be scaled quite a bit. It still can't get to the twenty-fifty net zero, and that's when you star…

AI assessment note: “source of that today is things like vegetable oils, waste oils, used cooking oil”

Q competitive yet with traditional jet fuel. So there's clearly a premium attached. The question is how big is that premium? How scalable is that premium, right? Like, Is there some limit to the amount of volume you could pass on to customers today at today's prices, and how is that going to have to trend, especially as we shift from hefa to alcohol to jet to power to liquids eventually?

A Yes, the million, billion, trillion dollar question, the green premium. So I will just step back for a second and mention, so we procured 3.5 million gallons of staff last year. We are actively planning for fifteen million gallons plus in California over the next two years, and the reason I'm starting with California is just mentioning that's where the incentives are to date. But actually, as you start to bring more staff online, we also see more states stepping in, and this is important, because when you think about the green premium, there's really Four levers that we as Delta believe that we play an active role in shaping amongst the ecosystem. So the first is the supply itself. And so, yes, you're correct. Shale, as you walk into these new technologies and feedstocks, there are opportunities to bring that green premium down as those products scale. So Hefa, Hefa has a hard time of bringing that green premium down dramatically because you're kind of constrained by the used cooking oil constraint. And so, you know, there isn't much more to walk down, but as you get into alcohol to jet and PTL, scalability will bring down that green premium. But in the short term, you have both federal and state level incentives that play a huge role. So again, as you start to see states like Minnesota or Illinois come online with a dollar 50 tax credit, that starts to really help walk that pr…

AI assessment note: “as you get into alcohol to jet and PTL, scalability will bring down that green premium.”

Q Let's talk about sustainable aviation fuel. Um, maybe start with Delta's journey in the world of SAF. Like, when did, when did Delta start getting serious about it? How has the world evolved? And then where would you say you are today?

A Yeah, sustainable aviation fuel is obviously really important for us here at Delta, and we've been hard at work since, I guess it was about 20 21 when we first started to procure, uh, large, and I say large in quotation marks, even though you can't see me, um, because it's still very small in the grand scheme of things, but every year we've, you know, more or less doubled our SAF procurement, but more importantly, I think every year we've really accelerated the conversation that we're having about the topic, whether that be through a policy lens, Through a, uh, B to B customer lens, because they are very interested in SAF for their own, uh, emissions, as well as with our suppliers, who we have a number of under contract right now.

AI assessment note: “we've been hard at work since, I guess it was about 20 21”

Q fingers and have Five times as much SAF availability as there is today. You think you could find customers to essentially buy that, right? And if that's true, then, you know, because again, you're bearing no cost, that cost is, the extra cost is being passed on to the customer. There's no reason that you wouldn't max out the amount that you purchase, right? It's just a function of supply.

A No, that's spot on. It's a Uh, one of the industry-leading moves that Delta made last year was launching the Minnesota SAF Hub, and that was a recognition that the supply of SAF is not scaling at the pace that was expected, and so we stepped back and just said, well, what was the problem? And it's because there was a relationship between two companies. You had an airline and a startup, and that wasn't working. They weren't getting financing. We can send all the demand signals we want, but still, you know, the way that, the way that, you know, essentially the, the Contracts were written that SAF supplier just wasn't getting the financing they needed, and so we stepped back and we said this needs to be a more ecosystem approach. It needs to be short, medium, and long term. It doesn't need to just be project specific, but really just location specific in the case of Minnesota. So when you look at Minnesota, we've been really public in talking about there's three horizons here. It's maximizing the uplift of SAF today with what's available, and we've got a number of corporate customers at the table with us saying we will be part of that horizon one, getting SAF out of the state of Minnesota for the first time ever, and Accelerated by some state policies that are making Minnesota one of the best states to uplift SAF. And then moving into horizon two and three, horizon two is really f…

AI assessment note: “No, that's spot on. It's a Uh, one of the industry-leading moves”

Q Let's talk about those mandates a little bit. That's another component of the rising demand here. So what, um, what are the, what do you think of as the main mandates to which you will be subject, and how big a deal are they?

A Well, I think the biggest ones are the European mandates refuel EU, which starts for the region next year. I will say that France, France started their mandates a couple of years ago, so we've got a running start at understanding how those are going to work. Um, the mandate itself sits on the producer. It doesn't sit on the airline, but obviously through the relationships that we have with our producers, um, you know, our fuel producers there in Europe, we will certainly contribute to these mandates. Um, And then I think the thing that's interesting on the mandates is, you know, the conversation is spreading into other regions in the world, and so I think that will be, you know, something to watch. Again, it's just, they're all case studies in terms of what works and what doesn't work, and as a sustainability professional, we're very quick to just say we're observing, and we're learning, and we're going to pivot as we, we go. I will say, though, from the Delta perspective, we can, we continue to think and are very appreciative of the support that we've gotten, not only from the Biden administration in the United States, but as well from many of our Midwest states, That, you know, their, their government officials are incredibly supportive of SAF because they see the benefit, um, economically from, you know, SAF production coming in their states and not rushing into mandates, bu…

AI assessment note: “Well, I think the biggest ones are the European mandates refuel EU”

Q Okay, so you said you started in 2021 and you've, you've more or less doubled your procurement each year. Let's, let's put numbers on that. So how much SAF have you purchased in each of those years? And obviously contextualize it, like, what is that relative to how much aviation fuel Delta purchases?

A No, I know. That's, that's where I'm so proud of the work that we've done, but also we have so far to go. So Delta as a company procures four billion gallons of jet fuel every year. Last year we used roughly three and a half million gallons of SAF, and that's not for Uh, wanting more. That's all we could get our hands on. Um, and we, we've sold, or we've, we've got a buyer for the scope three emissions for every single drop that we have, and there's way more demand for that than we can even get our hands on, and so it speaks to the fact that it's, it's scaling, and whether you look at wind or solar, you can sit there and say, well, sure, those industries took a while to take off, but I think on the other side, there's a real sense of urgency as a hard-to-decarbonize sector that, you know, is also very beloved for what we offer. You know, we've got to outpace Some of those other emergent industries in terms of we don't have decades to get this right. It needs to scale sooner rather than later.

AI assessment note: “Delta as a company procures four billion gallons of jet fuel... used roughly three and a half million”

Q a sustainability standpoint, it's got its pluses and minuses. So as you think about Um, as you think about staff procurement, um, You know, is it sort of anything that's better from an emissions standpoint without significant negative externalities of anything that's better than Jet A today is worth procuring? Or do you grade it based on the degree of decarbonization? Like, what's the right way to think about that?

A Yeah, I mean, I think there's a couple guardrails when you think about SAF, and I would just mention, you know, a few at the outset. So one, in terms of the way incentives are written, you have to hit a So it's not just a little bit. It's got to hit that 50% threshold. I think the second thing is we are studying life cycle emissions, right? So we're looking at the totality of the production of that fuel, and there's some emerging science in particular in the pathway of ethanol that is going to be really important to study and quantify and to build into the model things like climate smart agriculture, for example, which is, you know, the government is, is, that's top of mind for them right now. They've got to understand it, got to figure out additionality, and then, you know, If it counts, that's where these fuels start to be, you know, pretty close to a zero emissions product, but the, you know, there's still some more studying that's, that's underway for that right now. Um, and then I think, you know, the next thing I would just comment on again is back where I started. We've got this ecosystem that similarly stands with us on this, these corporate and cargo accounts, and so they're, they're walking with us and saying, right, we want the most, um, the highest integrity staff that's possible, the most environmentally friendly, and we want to really look at that life cycle emiss…

AI assessment note: “It's not just a little bit. It's got to hit that 50% threshold.”

Q other side, presumably A company or a government or something like that, that flies a lot with Delta, to whom you are passing on the credits, in other words, they are, they are paying you that green premium in the form of buying that to, to eliminate their own emissions, right? So you're sort of a pass-through at the end of the day. Is that how you think about it?

A Yeah, I mean, I think, I think maybe step back for a second and just say, you know, Delta, you Just because of the service that we offer, you know, we're beloved by both our consumers as well as our corporate and cargo customers who trust us with, whether it's their business travelers or their, or their cargo. And so we've always had these really large enterprise relationships with our top B to B clients, and we're just transitioning that into sustainability. We've had probably 500 plus conversations with our top corporate and cargo customers just to say, what are your sustainability goals and how can we support you on those? And for many of our customers, their scope three Business travel emissions. Think about your consulting firms or your banks, for example. That's the bulk of their emissions. They sit in that scope three business travel, and so they're very eager to partner with us on SAF, not just for today to be able to show their employees that they're doing something, but more broadly that they see the role for themselves often in the value chain, because many of them provide us as well with their assets, whether that's their people or their time or their expertise to similarly help us scale it. So it goes beyond just a transaction. And more about just a huge ecosystem of our best B to B customers who are saying Delta and airline industry, we want to be there to support…

AI assessment note: “So it goes beyond just a transaction. And more about just a huge ecosystem”