Bailout Banks Will Keep Using Your Money For Private Jets
Under government pressure — and by "pressure" we mean asking meekly in a very soft voice — companies that have received funding from the taxpayer-funded TARP program have outlined the controls they plan to put in place to limit "luxury expenditures." And — surprise! — the definition of "luxury" is very different for the corporate titans spending your money. While most big banks have put at least some limits on personal use of corporate jets, many seem to echo Bank of America's policies on official use, which state that that execs can use private planes for "safety and efficiency reasons," no advance approval required.
Most of the bailed out banks, as well as auto manufacturers Chrysler and GM, will still allow top execs to use private planes for at least some business trips, and some, like Bank of America, seem to encourage it, with policies that authorize "reasonable usage of the aircraft and other upgraded transportation services for conducting the business of Bank of America." Private use of company planes is now mostly off limits, and Citigroup CEO Vikram Pandit, who had an exemption from that company's no-private-use policy, has said he'll honor it regardless.
Other companies seem to have only now realized that unfettered personal use of private jets might be a bad thing. As New York Magazine points out:
PNC just changed their rules to stipulate that senior executives get permission before using company aircraft for personal use, and repay the company from now on, which only serves to give us a horrible picture of what things might've looked like there before.
At least Bank of America is working to exorcise the memory of John Thain's excesses. The bank's new policies ban "antique furniture, customized finishes, and construction of non-standard office sizes or private restrooms." That policy should cover any future exec with ideas about picking up a $35,000 antique commode — whether it's considered housing for a chamberpot, or just a really fancy side table.
TARP-Supported Companies Outline Conditions Under Which They Can Still Use Private Jets [NY Mag]
Pandit Shuns Corporate Jet as TARP Recipients Address Luxuries [Bloomberg]
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I would like to formerly request that any arguments below about the merits of private jets be guided by facts and research, instead of your gut feeling that corporate jets are wasteful, excessive instruments that save time and money.
Because seriously, I'm still looking for a cost-benefit analysis to settle the argument.
So, instead, these companies should ground the planes in perpetuity? Nevermind that they would need to maintain them... how much does that cost? Not to mention instead of using these planes, their personnel will be flying commercial. And you can bet a CEO doesn't fly coach. How much wasted time waiting for the airplane?
While I think use for personal/private reasons is unacceptable unless they pay back the company, using it for business reasons... go for it. But don't go buying MORE planes with taxpayer dollars.
I've only used a corporate jet once (about 10 years ago), but I highly recommend it. The trip from a point in the midwest to New York City took an hour less than a commercial flight would have, because those suckers fly high and fast. The amenities didn't suck, either.
That said, we're living in an age when it has never been less important to physically be somewhere in order to conduct business. Isn't it possible to use some of that newfangled technology stuff to avoid the need to fly in the first place?
@Michael Belisle: They companies a lot of time off flying commercial (which are cutting routes daily). As far as saving money, it's an expense. I view it as in investment. And it allows a small to medium-sized company to have the reach of the bigger players.
They "save" companies a lot of time off flying commercial (omission)
@Michael Belisle: Try these:
How much does it take to fill up the tank of a corporate jet?
Are corporate jets safer than commercial airliners? This is in response to the Big Three companies telling Congress that they need their jets because of heightened need for safety.
@Michael Belisle: Well, first off, private use (non-company use in which the user doesn't repay the company either) is never beneficial to the company, unless you can argue that the however many thousands of dollars it costs the company is a necessary benefit to pay the CEO or whoever it is, and without it he/she would quit or something.
the issue of corporate jets aside, when you bail someone out with money, you don't get to make line item approvals or disapprovals of their choices. Just think of when someone asks you for money -- it's pointless to say, "ok, but only if you use the money for the rent". You'll be deceiving just yourself.
Money is fungible -- it can be moved around and you can't really specify that it go towards something and not something else that a person will decide. Or organization/company for that matter. Just like when university donors specify that their donation only gets spent on a certain department. Sure, you really tied their hands, huh?
Basically, when you bail someone/something out, you are making a 0 or 1 , yes or no, approve or disapprove, statement about their lifestyle and whether you wish to support it.
We bailed out the banks, knowing full well that this is how they operate. Don't start complaining about the private jets now...
@TCama: I'd like to double/triple bump this comment. Private use of corporate jets = bad idea. That's my 'gut feeling'.
@TuxthePenguin: Yeah, but when I take the company plane to Hawaii for a little R&R with the mistress and the CFO calls it back for work, I want to have another one on hand if I want to fly my mistress back to Australia. More Planes!
Most meetings can be held using the Internet and most of the rest can be gotten to in time via commercial air and other means of transportation.
Can these corporations measure the net financial gains of using corporate jets? If so, are they distributed to the shareholders or do they end up as mega-bonuses?
@supernova87a: Of course you can't say "only spend it on rent," because money is money. But you might say "I'm not going to give you money to pay your rent unless you check into rehab." Like, I may want to help my friend stay in his apartment and it's not unreasonable to say that I'll only agree to help him if he stops blowing his money on crack and hookers.
Otherwise, what's the point of giving him money? Obviously the addictions are a problem that's causing the money trouble.
Not all corporate jets are for the use of a single individual. Before the bad press made us give up our fleet of jets, they'd transport 48 engineers at a time, quickly, efficiently, and at less cost than commercial passage, and in a *lot* less time.
When flying a corporate jet, always make sure you get the one Ted Danson gets! Otherwise you'll end up in a small town jail for a year.
@pecan 3.14159265: I didn't think for a moment that they were referring to flight safety. Surely they're implying that banking executives aren't safe in public places.
@TCama: Right! And we could hire operators to work the telephone switchboards - those jobs would help the economy too! Gadzooks!
@balthisar: Exactly. If you stick a dozen people that need to fly to a week long meeting into a corporate jet and put them up at a corporate penthouse in NYC for a week you can end up ahead. Our company had to get rid of the jets as well, but it used to be standard practice to let line-level employees use the jets if they had 10 or more going to a client meeting and we did enough business in NYC that the company rents an apartment up there that ends up being cheaper than hotel rooms for 20 nights a month.
However, one time our former CEO got stranded in Chicago because the plane needed a tire replaced, so he had a second jet sent to him rather than hopping on the next first class flight home. That might be excessive.
Corporate jets are like anything else. They can be used wisely or foolishly.
nowadays these execs can have their meetings on Skype. this is bullcrap, and nObama PAID these chumps for getting him elected. I'm so mad at most of you here ....
@TCama: They can't use one of Mr. Bell's new invention! They would run the risk of industrial espionage considering all the banks in the U.S. work on a party line.
Okay, I hate to be the turd in the punch bowl, but can we please stop demonizing private jets and the use thereof? Allow me to paint for you a timeline of falling dominos.
1) Big Auto flies down to DC to beg for money. They use their private jets.
2) Big Auto are subsequently crucified, both by politicians and the general public.
3) Private jet makers, like Gulfstream, suddenly find themselves with exactly zero contracts because you step foot on a private jet without being harshly criticized. The plants have to take unplanned shutdown to keep the company afloat. The workers take extended furloughs in the mean time.
4) The jet manufacturers notify their supply chain that they won't be paying them for, well, anything.
5) The market for carbon fiber, which before this point looked relatively well poised to survive the recession, evaporates overnight. Plants which already saw workers taking furloughs now have to extend them. Expansions to meet the anticipated demand of carbon fiber beyond 2013 now are both unnecessary and wasteful.
This happened, as in really happened out here in meatspace, and I'm unemployed as a result of it. No, I'm not blaming anyone (keeping focused on moving on is all that's important), but please, please, please understand that this kind of negativity has unintended consequences.
@Shoelace: I can say as a business owner and a marketeer of my business (I'm a CPA) that meeting with a client physically carries a TON more weight than a phone call or even a web conference. Now, I do use those things for updates or just running some small item, but if I'm trying to get a new audit client, I'm out there.
Granted, I'm small fry compared to major corporations, but our society still does not like major meetings being teleconferenced in. Especially sales pitches.
@banmojo: Really? Do you think that a deal worth BILLIONS is going to be negotiated over Skype? Maybe they should look into that, but society and businesses aren't at that point yet.
@Michael Belisle: I have to say any cost benefit analysis is going to be incorrect as they will take the CEO's pay into account. I am sorry I pass 5-6 CEO quality beggars as I drive to work everyday. Any one of them I am sure could be as good as a corporate exec begging the government for handouts just as easily as they do the rush hour commuters.
The bank's new policies ban "antique furniture, customized finishes, and construction of non-standard office sizes or private restrooms."
I find it absolutely amazing that has to be spelled out in policy. I would think the kind of people you want to hire would know better than to fritter money away on such things.
At work here there is no official policy preventing employees from throwing pencils into the ceiling and, yet, we manage not to have any pencils stuck in the ceiling tiles.
*fills out requisition form for antique pencils to throw*
@TCama: And reimbursed private use should be paid back with interest - at the credit card default rate and with a 5% convenience fee.
The argument in favor of corporate jets seems to be that they avoid the highly paid executives wasting their time fooling around at airports like the rest of us peons.
Seems to me it would be a *wonderful* idea to make the rich and powerful waste their time at airports. Maybe that would put a stop to the airline and TSA suckage.
I have no problem with corporate jets being used for business - but that's where they should be used.
CEOs and executives using company planes so that they can fly to their expensive vacation homes should be off limits.
I once worked for a company based in Dallas. Our CEO didn't like Dallas, however, and wanted to live in Boston. So every week, they would fly him on a company jet to Dallas and back to Boston for the weekend. As the business started declining, they made many, many cuts, but the expense of having the jet to shuttle the CEO was sacred - more than people's jobs.
No doubt there will be no restrictions on political donations.
What did you you think they would do with it! Let's face it, our government (Bush, Obama, et al) was stupid to give them the money (and with no restrictions or accountability, of course). It clearly was never going to be used to 'fix' any problems.
We should never bail out banks, insurance companies, auto manufacturers! Don't bail out anyone! Let them fail!
@balthisar: If you can fit 48 engineers into one that's a tad more densely packed than what most people think of when they think "private jet". It's probably about as uncomfortable as commercial, I'd reckon. (Embraer?)
@bobert: Same here. Make the companies' business reliant on the moods of the TSA monkeys and you'll start seeing change very quickly, I bet.
@Michael Belisle: Considering the CEO of every other company (privately owned) I know flies (at best) business class I think they can too. Heck one guy I know in the computer biz will have his great-grandkids using his frequent flyer miles from trips to Taiwan and Korea. Wanna bet how often he uses a private jet?
Conversely the Health Insurer I used to work for leased a private jet for the CEO to be part of the Mon-Thur club. Come in on Monday, leave on Thursday, because his wife didn't want to move.
Wanna bet who flies more distance per year? Why does public corporation loser get a jet? Because it's not his money paying for it.
@t-r0y: They'll attack the messenger and call you an idealogue. You're telling the truth, though. We shouldn't have bailed any of the banks out. They should have gone through the bankruptcy process and had their good assets bought by smaller banks.
It was illegal, and also made no economic sense.
(For some economic sense, read Economics in One Lesson ([jim.com]), by Henry Hazlitt.)
@MooseOfReason:
They'll attack the messenger and call you an idealogue.
I'm surprised that I haven't been labeled a Texas hating, racist, anarchist (see original post).
I've read the Hazlitt book, have you read Sowell's "Basic Economics 3rd Ed: A Common Sense Guide to the Economy"? I haven't yet, but I've been considering getting a copy.
@wrjohnston19283: Part of the problem was that Congress never specifically authorized loans in the first place or exchanging funds for equity. They specifically authorized buying up the "toxic" assets, but also anything the Treasury Secretary deemed appropriate.
Lo, the law passed and almost immediately Paulsen said that he was not going to buy toxic assets and instead going to inject capital directly into the banks in exchange for a variety of things that were not toxic assets. Giving banks a blank check pissed pretty much everyone off when they started saying things like tthey intended to use it to "be more active on the acquisition or opportunistic side" or to assure that free up "non-TARP" funds to assure that this whole mess is but only a tiny hiccup in the bonus stream.
So thus faced with alleged voter outrage, Congress altered the deal and imposed some damn restrictions.
@t-r0y: I haven't read that. By the way, I wasn't recommending you read it, just other people on here who I believe are misinformed about economics.
@jamar0303: Fokker-80, about the size of a 727. But you've proven a point: too many people think that all corporate jets are super-expensive, luxury Leer-jets. The F80 was equipped with all first-class seats (as in, physical seats of the style that are first class on commercial airlines.).
Look, I didn't kiss ass for decades in this biz just to forgo useage of a private jet and insanely expensive shitter.
I'll be dead in 10 years and no one will know what the difference would have been had I not done all of this, so why not enjoy it?