Air Force Move May Raise Airline Costs

A move by the Air Force to use the same jet fuel that powers commercial airliners may squeeze the nation’s supply of the highly refined fuel and force up the airlines’ fuel bill, industry sources say.

The airlines’ cost could soar $140 million to $420 million a year, based on the industry’s current annual consumption of 14 billion gallons.

At a cost of more than $7 billion, fuel is the air carriers’ second-biggest expense, after labor.

Starting in October, the Air Force will begin a long-planned changeover from JP4, a volatile naphtha-based jet fuel, to the more stable kerosene-based fuel JP8.

The Air Force says the switch will significantly improve the safety of its aircraft.

But the switch-over is expected to boost jet fuel demand at a time when it already is surging, squeezing supplies of the special fuel.

“I think we will have severe disruptions in supply,” said a fuel broker based on the Gulf of Mexico.

Competition by the military and commercial airlines for the available fuel could be fierce.

The added demand could raise prices by one to three cents a gallon, according to Ed Tolle, president of United Aviation Fuels Corp., a division of UAL Corp.

“The big concern is that if the Air Force moves too quickly, it could have an impact on supplies,” said Tim Neale of the Air Transport Assn., the industry’s lobby group in Washington. “So far, the Air Force has said all the right things . . . it will give the industry a schedule on how it will switch fuel,” he said.

The Federal Aviation Administration projects that U.S. traffic will almost double to 807 million passengers annually by 2001, compared to 480 million in 1989.

In three to five years, all of the nation’s Air Force bases will be using the kerosene fuel.

“There is going to be a greater demand for kerosene-based jet fuel. There is no reason to believe it is going to get cheaper,” said Col. Rayde Harrington, chief of the Air Force’s fuel policy branch.

In 1989, the Air Force contracted to buy 4.1 billion gallons of JP4.

“The industry knows it’s the right thing for the Air Force to do. The key factor is how fast they do it,” said Tolle.

Harrington said the Air Force is committed to a gradual conversion. “We want to minimize the impact on everyone,” he said.

But Harrington and others agreed that small refiners who rely on Air Force orders for naphtha-based fuel will be hardest hit.