DealZone

Plane talk

January 28, 2009

CitibankCiti scrapped plans to buy a $50 million corporate jet after it raised eyebrows all the way to the White House. Politicians called the order, which was made in 2005, wasteful. 

True, Citi has been propped up by taxpayers, swallowing up $45 billion of capital since October. Its market value is now only about $17 billion. And it has lost more than $28.5 billion in the last 15 months.

But how unusual is it for a company the size of Citi, once the world’s largest bank, to have a corporate jet? 

It is not as if Citi placed an order for it in November, when it got the $20 billion emergency cash infusion. Cancelling the Dassault Falcon 7X order is actually going to cost money. The bank placed a deposit on the jet when it agreed to buy it. And it will likely have to pay a penalty for not buying the plane, the amount of which is being negotiated.

Citi is down. And the jet became an excuse to kick it, which is probably well-deserved. But should a bank really be micromanaged by popular vote?

DEALS OF THE DAY

** The world’s top oil seed processor Bunge is in talks to buy a strategic stake in sugar firm GMR Industries to gain entry into sugar making, a newspaper reported  citing an unnamed source.

** The heirs of the founder of Roche Holding have decided to extend their agreement to exercise a majority shareholding in the Swiss drugmaker, private bank Scobag said.

** Britain’s VT Group said it would sell its 45 percent stake in its BVT Surface Fleet naval shipbuilding operations to its joint-venture partner BAE Systems for a minimum 380 million pounds ($536 million).

**Israeli conglomerate Africa Israel Investments said it signed a memorandum of understanding to sell its 50 percent stake in the Gottex swimwear venture to its partners for $50 million. 

** Britain’s business support group Hargreaves Services bought the remaining 50 percent stake in Coal4Energy Ltd from UK Coal Plc for 9 million pounds ($12.70 million), the companies said.

** Norwegian engineering company Aker Solutions ASA said that it had bought the remaining 50 percent of the German drilling equipment firm WIRTH.

** Drug maker Piramal Healthcare Ltd said it had acquired the inhalation anaesthetic gas distribution unit of U.S.-based RxElite Inc for about $4.2 million in cash.

** A group of Spanish investors, Catalana D’Iniciatives, is finalising an offer for SAS unit Spanair, a spokesman for the Barcelona-based consortium said. 
     
** Dutch market maker All Options has agreed to buy Dutch proprietary trading company Saen Options to strengthen All Options’s position in Europe and Asia, All Options said.

** Shares in Veolia rose on Wednesday after a report in French weekly L’Express said U.S. funds were eyeing a stake in the French water and waste management group.

** Lanxess could buy Indian peer Gwalior Chemical Industries Ltd. or another small or mid-sized company on the subcontinent, a person familiar with the plans told Reuters.

** Shares in Satyam Computer Services rallied on Wednesday, extending gains to an eighth session, after the fraud-hit outsourcer’s new board said there had been wide bidding interest and a transparent process would be devised.

** British construction materials group Ennstone Plc’s shares were suspended on Wednesday after it said the chance of sales and refinancing talks concluding successfully had “diminished greatly”. 

(Photo: REUTERS/Alywin Chew)

Comments
6 comments so far | RSS Comments RSS

I don’t see how anything that can be done in a boardroom can’t be done by webex/video conference. Even a banker has to change his stripes in this environment.

Posted by Jimi | Report as abusive
 

They need to dump the jet. Forget about it as a political symbol, which it inevitably became when they accepted Federal money. Think of keeping it as an continuation of business as usual in a firm that made a slew of mistakes that would have been fatal to a less prominent firm . They need a top-to-bottom revamp of how they earn value and, until value creation is restored, a tight fisted approach to expenses is a must. The rationale for a jet, which consumes shareholder value, is that top execs are being kept from even greater shareholder value creation by travel. Until they prove they are actually creating value again, the rationale is a canard.

Posted by Christopher Chaloux | Report as abusive
 

It may be said that may large companies have corporate jets but that begs the question, “Do large companies need corporate jets?” There is no way that the use of a corporate jet can be justified on a dollars and cents basis. The jet that Citi tried to buy would be a tremendous waste of taxpayers dollars not corporate dollars. I am pleased with the governments actions. If you let the camel’s nose in your tent you will get the whole camel sooner than you expect.

Posted by Lucio DiLoreto | Report as abusive
 

If CitiBank had been allowed to fail, as the rules of the free market game require, their assets would be owned by their competitors and the corporate jet would not be in the lime light. By accepting public money they get to join the media circus of chasing public opinion.

On the subject of corporate jets, the only justification of the exorbinant expense is to save the highest paid officers time, since the officers are typically fixed overhead expenses, private always cost more than airline tickets. Private aircraft are always more expensive than rent cars and airlines, they are luxuries.

Posted by Kirk King | Report as abusive
 

Back in the days of capitalism, the free market determined if Citi could buy a jet.

As soon as they took taxpayer money, the taxpayer’s should have voting rights.

Whether or not the jet is cost justified is irrelevant to the issue of who gets to decide. Once we determine who gets to decide, smart people would conduct a complete cost benefit analysis for substantive decisions. Such analysis should consider all aspects, including soft issues, e.g. brand name.

Posted by Walter | Report as abusive
 

Corporate jets are perks. It’s that simple. Advertisements for luxury jets pander to self-important execs with headliners proclaiming such jets are “THE WINGS YOU EARNED”.

These guys do not “earn” $50 million luxury jets. These execs are more than pampered; they are cons with wildly inflated egos. No corporate CEO “earns” a private jet, or million-dollar salary while the company they manage is taking a nose dive.

Let’s put this in perspective. American workers being laid off are nonetheless paying through taxes for multi-million dollar bonuses and luxury jets.

What’s wrong with this picture?

Posted by Al | Report as abusive
 

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