'Rescued' Citi Buying $50m Jet

[On Your Six]

Say Adios to the Falcon 7X at Citi... Update

Citigroup says no plans to take new $50 million plane

Tue Jan 27, 2009 9:15am EST

By Dan Wilchins
NEW YORK (Reuters) - Citigroup Inc, which received a massive taxpayer-funded rescue last year, canceled plans to buy a $50 million executive jet after news of the new plane drew rebukes from politicians.

The bank is under heavy pressure from regulators and elected officials after receiving $45 billion of capital from the U.S. government last year, including a $20 billion emergency infusion in November.

On Monday, Citigroup said it was going through with plans to buy a $50 million jet, which a person familiar with the matter said was a Dassault Falcon 7X. The bank said the new plane would cut its costs and it was financing the purchase by selling older jets.
But on Tuesday, a spokesman said Citigroup has no intention of taking delivery of any new aircraft.
Citigroup had ordered the executive jet in 2005, and was scheduled to receive it later this year. The bank said on Monday that canceling the deal would force it to pay millions of dollars of penalties.
The jet quickly became a lightning rod of criticism. A White House spokesman said President Barack Obama does not believe "that's the best use of money" by companies receiving taxpayer assistance.

Sen. Carl Levin, a Michigan Democrat, pressed the Treasury Department to block the sale. "To permit Citigroup to purchase a plush plane -- foreign-built no less -- while domestic auto companies are being required to sell off their jets is a ridiculous double standard," Levin said. Detroit-based General Motors Corp and Chrysler LLC were barred by the Bush administration from operating corporate jets as part of their December bailout.

(Editing by Steve Orlofsky)

 

[ultrarunner]

The fact that Citigroup did not think this wasn't going to come back and bite them in the behind, really underscores how stupid they really are.

Regardless of the justification(s) for the new bird, as soon as congress ripped GM and Chrysler a new one, Citigroup should have called up Marcel and made that order quietly go away. Flip the delivery spot, get some cash, leave some bucks in Marcel's pocket for a slot in 2010, or whenever the dust settles, and no one's the wiser....AND you've taken the preemptive strike and not hung your PR department out to dry.

Bafoons, all of 'em!

 

[batsky2000]

Its Sold, they are not getting it now!!!!

But I am sure that the pilots got the types already, not sure what thats worth since there are only 21 7X's flying around in the world

NEW YORK – Pressured by the Obama administration, Citigroup Inc. reversed course and said it will not take delivery of a corporate jet it previously planned to purchase.
The canceled deal comes amid a chorus of concerns from politicians who are worried about how banks that have received federal funds are spending the money. Citigroup has received $45 billion in capital from the government in recent months amid the ongoing credit crisis.
"Citi has no intent to take delivery of any new aircraft," the New York-based bank said in a statement Tuesday.
An official in President Barack Obama's administration reached out to Citigroup on Monday to reiterate Obama's position that such jets aren't "the best use of money at this point," and are "an outrageous use of funds" for a company getting taxpayer dollars, said a White House official who spoke on condition of anonymity to more freely describe private conversations.
In a statement late Monday, Citi said it had placed a deposit in 2005 to acquire a new corporate jet, and said it didn't plan to use government funds for the purchase. The New York-based bank noted that any cancellation of the deal would likely lead to millions of dollars in penalties.
On Monday, the New York Post reported that Citi was set to take possession of a new corporate jet, and was still planning to receive it even after it received the government funding.
With the cancellation of the deal, a deposit on the jet will be lost, but is recoverable once the jet is sold, according to a person familiar with situation. Citi was in the process of purchasing a Dassault Falcon 7X for $50 million, the person said.
Aside from not taking control of a new jet, Citi is also planning to cut the number of corporate jets in its existing fleet to two from five, said the person, who asked not to be identified because those details haven't been made public.
Corporate jets have become a hot-button topic amid the ongoing credit crisis as the cost of owning and operating them has come into question, especially for companies receiving financial support from the government.
In November, executives of automakers Ford Motor Co., General Motors Corp. and Chrysler LLC were roundly criticized for flying on corporate jets to Washington to ask Congress for federal bailout money.
Obama criticized the automakers during the transition, and White House press secretary Robert Gibbs told reporters at his daily briefing on Monday that that view applied in the Citi case as well. So an official from the Treasury Department relayed this privately to Citi, saying it was the feeling of not just the president but also lawmakers on Capitol Hill and the public, according to the White House official who spoke anonymously.
Citi has been among the hardest hit banks by rising loan defaults and souring investments, and been one of the biggest receivers of government support.
The bank has received $45 billion in capital from the government as part of the U.S. Treasury Department's plan to directly invest in banks. The government is also providing guarantees on hundreds of billions of dollars of Citi investments in mortgages and other troubled investments.
Amid the struggles, Citi has been working to streamline its operations and shed assets in an effort to regain profitability. The bank has posted five consecutive quarterly losses, including a fourth-quarter loss of $8.29 billion.
Earlier this month, Citi reached a deal to sell a majority stake in its Smith Barney brokerage unit to Morgan Stanley. Citi has also announced plans split its operations into two units, separating its traditional banking businesses from its riskier operations.
It might take a while for Citi to recover its deposit on the canceled jet deal, as the market for corporate aircraft has softened with the economy.
Before the jet market cooled last year, speculators sometimes placed orders with no intention of taking delivery of the plane. They would sell their position in line.

"There was such a backlog — three or three-and-a-half year waits — people could buy positions and flip them for a profit," said Robert F. Agnew, president and chief executive of aviation consulting firm Morton Beyer & Agnew. "Selling a slot today is probably very difficult."
Agnew said buyers typically pay a few percentage points of the purchase price when placing the order, then a series of payments as production begins and other milestones are reached. They might pay about 35 percent of the cost before taking delivery, then pay the balance when taking the plane, he said. At that rate, Citi could have already spent $17.5 million on a plane it will no longer receive. Agnew did note that upfront costs can be much lower where a strong relationship exists between buyer and seller, but said he was not familiar with Citigroup's arrangement with Dassault.

 

[say again]

Looks like we all found it at the same time!
HAHAHAH

 

[blzr]

Since when is it the president's job to tell people or buisnesses what IS and ISN"T a good way to spend money? Maybe he should point a finger at congress and say that!!

 

[SansPlane]

[FONT=&quot]Yes, you should point fingers at congress. You should keep your eye on everyone who spends our tax dollars. As far as corporate aviation, any entity that is relying on Uncle Sam for a bailout to survive or prop up their balance sheet needs to cut way back. Appearances do matter. Don’t believe me? Show up to drive your bird in tattered clothes, unshaven etc. As far as those blaming the media, that is just plain ignorance. When there is a contraction in the economy there will be jobs lost from the janitor up to the prop and jet drivers. Blaming the media is ridiculous. In addition, I don’t know anyone who is directly or excessively suffering from this contraction but those I know including ourselves have cut back. We want to preserve what we have and to continue to improve our positions, whatever they may be. Sure we have seen degradation on many of our investments, but the people I know and work with plan on dying while working, be it 60 or 109, so not much consequence there.[/FONT]

[FONT=&quot]I do worry that with fewer players on the field that the TSA/Govt. will have a freer hand regulating the industry which will hurt drivers more long term than a contraction, depression or bubble will.[/FONT]

[FONT=&quot]From a business perspective though in regard to many/some company planes; I think honest people will agree that there are more fiscally prudent ways to fly the not so friendly skies when tending to matters of business. I am long fractional jet ownership/cards for both fiscal reasons and matters of appearance.[/FONT]

 

[hydroflyer]

So.....if the CEO gives himself a $50 million bonus then he's an a-hole, but if he buys a $50 million jet then that's ok? I'm confused.

With a $50 million bonus the money is gone forever and does nothing to help the company. A $50 million plane is a company asset and an investment where the money, at least a large portion of it, can be recovered later through a sale. Apples to oranges.

 

[johnsonrod]

Since when is it the president's job to tell people or buisnesses what IS and ISN"T a good way to spend money? Maybe he should point a finger at congress and say that!!

Perhaps Obama should fly Southwest or Allegiant and see how he likes it compared to comfy Air Force One... Let's see how productive he could be on those flights. Don't members of Congress also fly on corporate jets (Air Force) - and we are paying for that? What a bunch of HYPOCRITES!!!!!!!!!!!!!!

 

[Shag McNasty]

With a $50 million bonus the money is gone forever and does nothing to help the company. A $50 million plane is a company asset and an investment where the money, at least a large portion of it, can be recovered later through a sale. Apples to oranges.

To John Q Public a $50 million jet is the same slap in the face as a $50 million bonus. John Q Public just lost his $40,000/year job and $50 mil would pay his salary for many years. I agree with SansPlane, appearances do matter.

I'm sorry but there is no way a company that lost over $3 billion last quarter and received $45 billion in taxpayer money can justify taking delivery of a new airplane. Not to mention the fact that they already have a fleet of perfectly fine Globals and 900EX's. These guys are just as stupid as GM, Ford and Chrysler.

 

[hydroflyer]

John Q. Public doesn't understand the difference due to the horribly inaccurate reporting of the media. They, and Washington are too focused on the corporate plane image while ignoring the real issue, piss poor leadership at the top of these companies. These companies don't need to be replacing or eliminating the planes, they need to be replacing CEO's and eliminating bonuses for executives until the company becomes profitable. "Getting rid" of the planes now is pointless. Where are they going to go? Who will buy them? They end up being a cost on the company whether they fly or not. It would make more sense to use them however the perception that the media and Washington like to show the public is it is all caviar, cocktails and needless excess.

And you are right, appearances are everything right now, regardless of whether they are correct or not.