Why do they need a corporate jet in the first place? Let alone a French corporate jet? After taking MY tax dollars, they ought to be flying coach.

Sounds like we need to punish them some more.

*Calls up broker and sells all CITI.*

At what point did stories like this stop surprising me?.... and how do I get back to a point before this wasn't commonplace?

Well, Citi isn't going to release any info, but there's a chance the contract was already in place and defaulting on it would have cost more than going ahead with the purchase of the asset. News hype will make Citi look bad no matter what.

Answer: What do do with the execs of this bank.

Johny Carson: Question: What do Horses, Wall Street and Tar and feathers have to do with each other?

You have to wonder who approved this purchase and did not think that the media would pick up on it?

The chutzpah of these corporate executives surprises me no longer. Bonuses for bankrupting your company, flying in private jets to beg for money, redecorating your office while your company is on life support.
Nope, none of it surprises me anymore.

Keep moving along, nothing to see here.

First!

The contract was probably already in place and would have cost them a ton to cancel. The REAL question here is: when did they sign that contract? If it was after the third quarter of 2007, they deserve every bit of flak they get for this. If it was before that, then the protesting is total BS and they are doing the right thing by not cancelling the contract.

@Blueskylaw: They always go with the PR line that the extravagances are necessary and we peasants simply cannot understand why these high paid individuals need all these luxuries.

I do want to make one key point. Although buying a corporate jet seems needless, is it at all possible that they went with the French manufacturer because it was CHEAPER than buying the plane from a U.S. company? They are supposedly trying to cut expenses after all.

Of course it's not surprising that if you give banks free money, they'll waste it on luxuries. Hopefully stories like this will keep the idiots in government from handing out any more of taxpayers' money.

the government needs to take the "live and let die" approach and quit rewarding the evil.

I don't buy the cancelling it would cost more BS. Even if there was some sort of deposit, I doubt it was more than the cost of the jet. I also doubt it was more than the depreciation the jet had the moment it left the factory.

Say they put $5 million down, if they sell the jet for less than $45 million, they've lost money by maintaining the contract. Granted, they probably have no intention of selling it and hope people just forget about this in a few days.

Sadly, this doesn't surprise me at all anymore. The audacity of these people is just maddening.

The bailouts are like putting out a fire with more wood... [www.printfection.com]

Alex either failed to RTFA or omitted this tid bit to make for a fantastic headline

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.

@woogychuck: It isn't a matter of selling it. It's a matter of having an asset on the balance sheet that offsets the cash paid.

@zentex: aaand..

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.

so if the two jets sell for thier estimated worth, they'll break even on the new purchase.

I see nothing out of the ordinary here. Granted, they could have opted to back out of the purchase...but I wonder what kind of fee's that would have incurred.

Yet another reason why I'm moving my mortgage out of Citi...

@Canino: this looks bad either way.. the media might make it look like it happened after the fact but even if this contract is a year old isn't it still just bad spending? the kind of thing that got them in this mess in the first place?

@citybuddha:

First in line for handing out dunce caps, I see.

@citybuddha: Um... Not even close?

@Canino: If they had any inclination to act responsibly, they should have canceled the contract before they asked the gov't for aid. The chance that would have incurred any actual costs is very probably small.

Put short: They're greedy, duplicitous bastards, and you and I both know it.

The plane is actually assembled in Little Rock, Arkansas in Dassault's finishing plant. Also, they're maintained domestically in most cases. Both of those things mean jobs for Americans. Not that it makes any damn difference, because ostensibly the plane's purpose will be to impress UNHW clients.

Carry on, though. Journalism!

@zentex: They could have sold one of their 10 year old planes and not gotten the new one, or sold both of the 10 year old planes and not gotten a new one. Or they could sell their whole jet fleets like the US automakers are in the process of doing.

This post is an example of why it's good to read comments. I would have just chalked this up to more corporate greed and irresponsibility, but thanks to other comments, I got to see another point of view and even reasoning for why Citi might not be making a huge stupid decision.

Thanks Zentex!

@zentex: They can still choose not to buy them, though they lose out on their deposit. And why do they need a new plane when they have at least 2 already?

Even if they balance out money-wise, the things you pointed out don't change the core of the issue: fiscal irresponsibility.

@zentex: also, there is the question of when the final payment on the jet was made.

since most planes are reserved before being built, it is reasonable to say that backing out may not have been financially reasonable.

The lead time on these jets is typically 3-5 years. You have to make the decision based on what you THINK things will be like far in advance, and contract cancellations are often prohibitively expensive. In a better economy, you can usually sell your spot to a more impatient company for a premium, but that's gone away.

/related to an industry insider

@wee0x1B: If they had any inclination to act responsibly, they should have canceled the contract before they asked the gov't for aid. The chance that would have incurred any actual costs is very probably small.

Not necessarily. Canceling a contract like that costs money. They either: 1.) lose money outright or 2.) buy the asset, which goes on the balance sheet for a net of zero (cash for balance sheet asset). The "costs" of the asset are then depreciated over the asset life, probably 15 years for a plane with accelerated depreciation.

This is a more complicated decision than "should we buy a plane, yes or no?"

@Canino: Then they should have asked congress for help protecting them from this "contract". Because it is as easy as Yes and No.

I wonder what was the ROI on this purchase? How much money will this plan actually make Citigroup? Probably very little especially if they have two planes already. This is just another symptom of the real problem. It is not a bad economy taking these banks out, it is poor business practices.

The Falcon 7X has barely even hit production yet, and is unlikely to be delivered until at least 2010. As other posters have pointed out, you enter the contract for a position in line to purchase the aircraft quite awhile in advance. Secondly, a company that conducts international banking business is the perfect candidate for, and has tremendous use for, a world-wide range jet. Flying your executive staff around the world first-class on the airlines adds up quickly. Also keep in mind that they might be doing business in areas that the airlines do not fly to. There is nothing wrong with the purchase.

I like how when I goggled the plane I got this "A typical Falcon 7X cabin can accommodate up to eight passengers." LOL 50 million for 8 people, that's awesome.

This story [www.reuters.com] gives more information, notably that Citi put in the order two years ago and canceling it would mean a loss of millions of dollars, and it seems that Citi can just as easily pay for the new plane with the money from selling its two older planes. If they get $25 million from each, they'll easily make up the cost. The older jets are estimate to be worth $27 million each.

It's far, far dumber to buy a bunch of company cars that are worth half their value in 3 years. In the aggregate, that is much more of a financial hit to a company than a jet that's still worth 90% of its value after 5-10 years (realistic).

But it's doesn't have the same "ZOMG PLanezz r expensive!!1" effect on people.

How much will this jet cost to operate over the equivalent flights on commercial planes or even charters?

I am sure that even with loss of deposit citi could have picked up an almost as nice used jet from GM or Ford.

Shame... I say fire 5% of the workforce every two weeks(execs only) till they get the message.

@Canino: No way was defaulting on the contract going to cost more than actually buying the plane.

I was one of the biggest defenders of the GM/Ford/Chrysler execs flying to Washington, but this is absolutely indefensible.

@Corporate_guy: Sooo...you think congress should get into the business of micromanaging private entities to the point they pass laws allowing them to default on contracts with no penalty?

I guess I agree if that includes the UAW.

Seriously, I've got news for you - there's already a way for businesses to be protected from contracts. It's called bankruptcy.

@rubyfrog: They already have a fleet of jets. At the very least what is wrong with this purchase is public perception, and perception is reality.

Sure, if they had ordered it awhile back and have to honor the contract, it's OK to take it but they should sell it right away and plow the money back into the Group.
Keep your money under the Mattress....it will get about the same interest there!
Mac

@citybuddha: Not only complete and utter fail, but banhammer fail.

@citybuddha: Your decision making is superior only to that of Citi execs.

/seriously, who says "First".
//especially when you're actually like ninth.

@Tiber: And why do they need a new plane when they have at least 2 already?

small private Jets, especially when they start reaching a decade old, start having an ever increasing amount of maintenance downtime and maintenance costs. Its not uncommon to unload jets at this age if you have the money to purchase a brand new one.

@Ash78: Hypothetical depreciation of 10% in 5-10 years = $5,000,000 on 1 $50,000,000 plane that carries 8 people.
That same $5,000,000 could cover depreciation on a fleet of 400 $25,000 cars that could carry 1,600 people. And they likely wouldn't need that many cars.

@Tmoney02: I believe the point is that they do not, in fact, have the money to purchase a brand new one. Well, unless you're counting OUR money as THEIR money.

@nicemarmot617: not so. termination clauses allow for these things, and a termination for convenience would be considerably less expensive (and of those expenses, many would be re-coupable) than outright purchasing the airplane.

The only expenses, unless they are complete contract 'tards, would be for materials already purchased, and labor for work already done. If it's new, there's hardly any liability, but if it's already built from a contract from a year ago (I'm not sure of Dessault's lead times) then it's cheaper to just roll with it.

Either way, it's a stupid, wasteful purchase.

@ADismalScience: Who cares where it's assembled and maintained? Where does the bulk of the $50 million go? France.

Regardless, thats not even the most disgusting point of the article (and why it is depressing to see you defend it), but I see no reason to beat a dead horse and attempt to convince someone that clearly believes strongly against it.

@citybuddha: Responding in kind: LOL GTFO n00b.

Sooooo...... If they are still servicable enough to command $27 million, why can't Citi do with last year's model?

Oh the agony of being seen taxiing around on an '04! What will the people at the club say?

Oh dear