Even if there were a rationale for Citi buying a corporate jet now (which I cannot fathom, given their horrid financial condiiton), why buy new? There are no doubt plenty of used jets for sale right now.
This incident illustrates the degree to which a corporate/financial elite has developed in the US. Top executives feel they have a right to fly on private jets. If the company is, say, a Wal-Mart, with a lot of operations in remote areas where access by commercial flights is indirect, private jets make sense (Sam Walton famously flew his own plane to visit stores). But for Citigroup, where the vast majority of their operations are in major, well served financial centers, it’s hard to justify (the usual rationale is that the top brass can discuss business on a private plane, while they cannot do so on commercial flights. Funny how that was seldom seen as a justification in the early 1980s, when executives were for the most part content to fly first class).
From the New York Post (hat tip reader Marshall):
Beleaguered Citigroup is upgrading its mile-high club with a brand-new $50 million corporate jet – only this time, it’s the taxpayers who are getting screwed.
Even though the bank’s stock is as cheap as a gallon of gas and it’s burning through a $45 billion taxpayer-funded rescue, the airhead execs pushed through the purchase of a new Dassault Falcon 7X, according to a source familiar with the deal.
The French-made luxury jet seats up to 12 in a plush interior with leather seats, sofas and a customizable entertainment center, according to Dassault’s sales literature. It can cruise 5,950 miles before refueling and has a top speed of 559 mph.
There are just nine of these top-of-the-line models in the United States, with Dassault’s European factory churning out three to four 7Xs a month.
Citigroup decided to get its new wings two years ago, when the financial-services giant was flush with cash, but it still intends to take possession of the jet this year despite its current woes, the source said….
It’s not uncommon for large companies to pay a deposit on a new plane then cancel the order before delivery, according to a source in the corporate aviation business.
Citigroup execs are also quietly trying to unload two of their older Dassault 900EXs.
Those jets, nearly 10 years old, are worth an estimated $27 million each. They were still listed for sale yesterday on the Web site of Citigroup’s aviation broker, Aviation Professionals.
Update 9:00 AM, 1/27 Bloomberg reports that Citi is not backing down:
Citigroup Inc., the bank that received $45 billion in U.S. government funds, said it plans to buy new aircraft and sell older ones.
The transactions may lower operating costs because the new jet would be more fuel efficient, the bank said in a statement e- mailed to Bloomberg News.
“We signed a contract in 2005 for replacement aircraft, which was part of our plan to reduce the number of aircraft Citi owns and use more fuel-efficient aircraft,” the e-mail said. “Refusing delivery now would result in millions of dollars in penalties.”
The New York-based company said funds from the Troubled Asset Relief Program, or TARP, wouldn’t be used to buy aircraft. It didn’t provide details of the purchase plan in the e-mail.
Repeat after me: money is fungible.