Meet The New Jet
Citigroup may be an insolvent zombie bank whose stock only has any value because investors are willing to bet on the possibility of a government bailout, but that’s not stopping them from buying a $50 million new corporate jet:
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. [...]
“Why should I help you when what you write will be used to the detriment of our company?” replied Bill McNamee, head of CitiFlight Inc., the subsidiary that manages Citigroup’s corporate fleet, when asked to comment about the new 7X.
“What relevance does it have but to hurt my company?”
As an example of the difference between nationalizing a bank as part of a rescue package and simply getting its toxic assets “off the balance sheet,” in a nationalization scheme the taxpayers whose money is paying for the jet would also own the jet and be in a position to sell it off. Under a Classic TARP plan you pay for the jet, but Citigroup’s shareholders own the jet, and Citigroup’s managers get to use the jet.
Meanwhile, whenever you see these jets, keep in mind that (a) first class airfare is incredibly expensive, (b) first class air fare is cheaper than corporate jets, (c) first class airfare is very posh, (d) any company that needs a special subsidiary to operate its fleet of jets needs a union so as to redistribute some of the surplus away from managers and toward lower-level employees.
64 Responses to “Meet The New Jet”
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January 26th, 2009 at 10:42 am
I’ve flown first class on domestic flights. It’s not that posh. It’s a bit more comfy, though, and you get free booze.
I feel I would be better able to have an authortative opinion on the matter if I could compare my first-class flight experiences from several years ago with some flights on a corporate jet. Anyone willing to sponsor this bit of an education for me should get in touch. Specifically, I have a meeting in Europe this spring I need to attend, so if any of you can fit me on a corporate jet something in early April, that would be great.
January 26th, 2009 at 10:48 am
What is wrong with video conferencing? Even cheaper than first class.
January 26th, 2009 at 10:52 am
I think it is the time for the pitchfork-and-torches brand of nationalization. Until some fat cats get mauled by a mob, we will keep seeing this crap.
January 26th, 2009 at 10:55 am
Oh dear god Matt. I’ve been reading your blog(s) for years and I usually like what you have to say, but the absolute last thing the banks need is unions.
The only way these banks have any hope of surviving, and what makes them more worthy of government assistance than the automakers, is that they can easily restructure and fire half their employees to get themselves right-sized. The automakers can’t, which is why no amount of bailout money can help them.
Plus, a lot of these bonuses you hear about do go to lower level employees. (Note that I’m not talking about the people you see when you walk into your local branch – they are the financial services equivalent of the people flipping the burgers at McDonald’s.)
January 26th, 2009 at 10:56 am
“Why should I help you when what you write will be used to the detriment of our company?”
You sure have this ‘public relations’ thing down; heck of a job Billy.
January 26th, 2009 at 10:57 am
so, are we objecting to this because it looks bad for citi to tax taxpayer money and buy a ject or because, in fact, citi is wasting $$ by buying corporate jets rather than having its execs fly first class? I suppose it comes down to how much you value the execs time at.
January 26th, 2009 at 10:59 am
Look, I’m in strongly favor of unions, and I’m mildly in favor of bank nationalization over a TARP scheme, but I still find this post to be intellectually incoherent.
Perhaps it’s just a cheap shot to make a larger point that I basically agree with, and I should just take it as that.
But it’s odd. I’m taking the financial meltdown seriously enough that I have absolutely have no appetite for banker-bashing. (If you want to write posts bashing Alan Greenspan, those would satisfy my animal spirits…)
January 26th, 2009 at 10:59 am
(typos in the previous comment are in solidarity with the author of the blog)
January 26th, 2009 at 11:02 am
There may be a case to be made that corporate jets are a waste, Matt, but you haven’t made it. I fly regularly between Washington DC and an undisclosed bunker in the midwest, and it’s no faster than driving, all told. About 7 hours either way. First class or coach? That has nothing to do with it.
What you need to do is make the case that the executive’s time is so valuable that it’s cheaper overall to own a jet than to have said executive reading Details for Men in the waiting area for 4 hours. Quite possibly, it is.
January 26th, 2009 at 11:07 am
“the absolute last thing the banks need is unions. The only way these banks have any hope of surviving, and what makes them more worthy of government assistance than the automakers, is that they can easily restructure and fire half their employees to get themselves right-sized. The automakers can’t, which is why no amount of bailout money can help them.”
I honestly don’t know where to start. This is fundamentally wrong for multiple reasons.
January 26th, 2009 at 11:10 am
WRT #9, I think it’s been demonstrated pretty conclusively over the last six months that the “value” of these exective’s time has been significantly overvalued. Perhaps if they’d spent more time in waiting rooms they wouldn’t have managed to drive their institutions into the ground at such a steep angle.
January 26th, 2009 at 11:10 am
TH
So your position is that a company that uses whatever extra revenue it has on a fleet of corporate jets while maintaining a “flexible” work force of “hamburger flippers” is more worthy of support than an industry that actually produces something and supplies decent working class/middle class jobs?
That’s a problem.
January 26th, 2009 at 11:10 am
God, I am so sick of that argument. Doesn’t the fact that it’s not true carry any weight at all? The U.S. automakers have higher legacy costs than the Japanese, but they spent the last several years addressing the imbalance. The “job bank” is gone.
And, here’s the important part, the difference in labor costs is not why the U.S. manufacturers are in trouble. They did great producing large, high-margin vehicles when Americans were buying large, high-margin vehicles. They just didn’t have small, fuel-efficient cars ready for market when fuel prices spiked. That’s a management failure.
Plus: The economy. Toyota’s losing money this year, too, if you missed the headlines.
Finally, Ford still says it can survive without a bailout. Last I checked, they were a union shop. How does that fit with your thesis?
With regard to the rest of your post: I’d argue that, whether you’re the CEO or the mailboy, if the company you work for has lost billions and brought the world financial order to the brink of collapse, you should not be getting a bonus.
January 26th, 2009 at 11:12 am
The other benefit of Nationalization is that some GS-9 in the government can fire over-entitled assholes like Bill McNamee (the head of Citiflight quoted above.)
January 26th, 2009 at 11:14 am
i hold no brief for citigroup’s jets one way or another, but spot check billy, there’s two different issues. the first is whether, as a theoretical matter, a senior executive who travels a lot should have to spend all the surplus time that “flying commercial” entails over “flying private.” i’m prepared as a theoretical answer to that to say “no, it’s a poor use of a senior executive’s time to stand around in airport lines.”
then there’s the second question: are the right people filing those senior executive slots? that’s the one you’re talking about!
January 26th, 2009 at 11:24 am
Bosch’s Poodle, I’m having a difficult time figuring out what geographical location might be 7 hours from DC by both car andplane. I’m in California, and travel to New York regularly for meetings. That’s 7 hours from my front door to checking in at a midtown hotel. If I drove, it would be more like 4 days.
You said midwest, which to me is Iowa, or thereabouts. Des Moines is about 18 hours to DC by car, if you don’t stop. Maybe 3 hours if you fly.
January 26th, 2009 at 11:29 am
I work at a software company and collaborate with collegues in all four time zones in the US as well as with teams in India, China and Europe. When I think about how much we get done via E-mail, video-conferenceing and screen-sharing over the Internet–and even on the plain old phone, I gotta wonder what exactly these Citigroup execs accomplish with their private jets. I understand that the software industry is probably uniquely better suited to working via the Internet than other sectors, but doesn’t banking essentailly boil down to working with numbers, ie: information. I’m not going to believe these execs are flying out to branch banks to physically count real piles of money or inspect vaults.
Sure, it’s valuable from a morale standpoint to occasianlly have some real, live in-person contact with your far-flung collegauges and corporate leaders. But as an employee and shareholder it’s also nice to see reports every quarter about how much money your company has saved by limiting travel and increasing use of remote-conferencing software.
January 26th, 2009 at 11:33 am
David, investment banking is done face to face, holding the hand of the client all the way through the process, etc. You need to be physically there and with minimum hassle and delay.
Private jets do that.
January 26th, 2009 at 11:33 am
If you’re talking about corporate jet travel vs commercial jet travel, I have to think a lot of the time savings is in not having to go through security lines. The perk is not standing around in your socks with the masses. If it were me, that would be the last thing I’d give up.
January 26th, 2009 at 11:38 am
People in California always – always - think the Midwest is Iowa. My family out there are visibly baffled when I explain that Ohio is Midwest, not East. Those that are not baffled by this are instead baffled that Ohio is not Iowa, the two being interchangeable even though they’re 650 miles apart.
Front door to hotel, the flight takes me about 5 1/2 hours all told, longer if there are problems or delays. The drive is about 7 hours.
DTM is right on. Flying a ‘private’ jet to beg for taxpayer money is bad optics and terrible PR, but do you seriously want executives spending their time worrying about PR and image instead of running their companies? Given that they have the brains of hamsters, you don’t want to distract them with minutia like this. Corporate jets are a drop in the ocean. Forget about them, please.
January 26th, 2009 at 11:44 am
Keep in mind that nationalization creates a public interest in lower compensation for everyone, not just for executives. I’m all for nationalization in proportion to recapitalization, but it’s not devoid of tensions.
January 26th, 2009 at 11:46 am
I am, too, but just until the crisis is over. What we should try to avoid, though, is forcing executives to view every business decision through the prism of populist politics. Other than the Leninists in attendance, I think we can all agree that capitalism generally does a better job allocating resources and generating growth than old-school socialism.
January 26th, 2009 at 11:53 am
All of these comments defending the private jet (on a liberal blog, and, presumably, by liberals) are clear evidence that the host body has been completely infected by the Gilded Age capitalism virus. It must be destroyed.
Do you really despise yourselves so deeply that you think the work a John Thain does is 500 time more valuable than your own?
Christ, talk about Stockholm Syndrome.
January 26th, 2009 at 11:53 am
I don’t understand why people are defending yet another failing banking corporation for spending money on another private jet. They are failing because of poor (stupid) decisions and rampant greed. That in a recession, with a balance sheet going south, they are buying yet another corporate jet is a symptom of what is wrong with these companies and the depth to which the problems lie. An executive’s time is not that valuable (it can’t be or else we wouldn’t be in this mess to begin with), especially when there are other virtual means of conducting most meetings.
January 26th, 2009 at 11:55 am
I’d personally like to see John Thain in shackles, breaking rocks for $1.85 a day. But my point is that if we focus on trivial expenses that annoy you because they just seem wrong, it’s a pretty poor way to make a decision. You’d have to make the point that corporate jets cost more money than they save, and nobody here has bothered to do that. You just assume so, because it annoys you.
January 26th, 2009 at 11:58 am
Re “David, investment banking is done face to face, holding the hand of the client all the way through the process, etc. You need to be physically there and with minimum hassle and delay.”
———
Obviously, that paradigm is doing well.
January 26th, 2009 at 12:03 pm
I suppose it comes down to how much you value the execs time at.
Well, I can’t really address the absolute value of their time, but I’ll go out on a limb and say that their actual value as managers & leaders looks pretty damned marginal. At best.
Or, what D Turkin said.
January 26th, 2009 at 12:06 pm
That is true, although I suspect that most IB deals are done in cities that have airports (which would also facilitate the use of the private jet). Also, I don’t think there are many IB deals going down these days. This just screams ‘waste of money’.
And bringing up the valuable time of a financial CEO isn’t something that I can even type with a straight face.
January 26th, 2009 at 12:12 pm
No Bosch’s Poodle I think that Citi must demonstrate the financial imperatives behind their latest jet acquisition, something which they are either unwilling or unable to do.
After all they haven’t a sterling record which should lead any of us to just trust in their judgment.
Add in the fact that this 50 million is to all intent taxpayer money and on its face the purchase is reckless.
After all, 50 million here and 50 million there, pretty soon we are talking real money.
January 26th, 2009 at 12:15 pm
This time I want to defend the post, give or take the incoherence of a change of topic to unions toward the end. He doesn’t have to argue against the value of the purchase of the jet, since his point is who should own assets after a bailout, the taxpayer or the company.
January 26th, 2009 at 12:17 pm
#24 is an extremely cool comment.
January 26th, 2009 at 12:23 pm
I don’t think people realise the time wasted in connections and layovers. If you wanted to go to, say, Iowa City or Midland or Biloxi or St. Louis or whatever from New York, most flights are routed through connections and thus a lot of time is wasted that way. With private jet you get to fly point to point and so there is a lot more flexibility.
January 26th, 2009 at 12:25 pm
The worse you do your job, the more you need to spend on customer relations.
January 26th, 2009 at 12:48 pm
For those who insist that private jets are a justifiable expense for execs, how do you justify Citi buying a new jet while simultaneously selling two older ones?
January 26th, 2009 at 12:50 pm
If anyone really thinks the executives gain a competitive advantage remotely comparable to the cost because they’re using a private jet and a private airfield instead of having to face an actual airport and an airline’s schedule, I’d ask them to consider the following market-oriented thought experiment:
Assume these executives are being paid, and paid very well, to perform for their companies as effectively as they can. Now suppose they’re expected to bear all the costs of maintaining their efforts from out of all that bounteous compensation the company gives them: housing, meals, entertaining, chauffeur, and, yes, air travel, rather than having the company pay for it directly. They can afford it all, because the company makes sure they’re well-enough paid to sock away a big nest egg while still footing all these expenses necessary to being the best executive they can be. Do you really think that if the money came out of their own pocket they’d pay for private jet travel? After all, with modern technology they can get a lot of work done even though they do lose an hour or two in airport security, and they can easily afford to have a personal assistant travel along and see to the bags and other trivialities, and still pay hundreds of times less per trip. And the upthread claim that commercial air travel at the elite level means a dead loss of the whole time spent seems to be comparing it not to private air travel but instead to teleportation.
January 26th, 2009 at 1:04 pm
I think private jets do save these people a lot of time. What I don’t understand is why people are so willing to assume that it’s still worth it. Personally, I don’t think these guys are remotely worth it. The institutions they manage are certainly required to run a capitalist economy and their unique positions and roles grant them an extraordinary amount of leverage in determining just how large a stream of profits they get to skim off the top of the various financial deals they serve as a middleman for. As a result, they pay themselves ridiculous sums and ‘value’ their time so highly that their firms spend billions on jets to fly them around. Yes, billions. These guys operate a fleet of private jets. Each one costs in the neighborhood of $50M and they have to pay for fuel, pilots, warehousing, etc. They spend a ton of money flying just a few people around so they can do a better job of skimming money off the top. Fabulous.
I don’t want the people running these companies to think like populists, but I do want them to start questioning the assumptions that they should be treated like royalty in expense reports. 99.9% of the working world has to deal with justifying their expense reports and their companies operations don’t ground to a halt. It can be done.
January 26th, 2009 at 1:09 pm
Perhaps it is spurious to remember the past, but in the Original Guilded Age [tm], powerful executives used…. super trains!
These executives had exclusive access to fast locomotives, private traincars, and private telegraphy codes. Messrs Frick, Carnegie, and Mellon all commuted from Pittsburgh to New York in this enviable state. Of course they were Real Capitalists, and Pittsburgh actually built stuff….but you get my point.
By the UH Grant Administration and the the huge economic failure of the late 1870s, the “business model” of executive exclusivity in travel and communications had been completely structured into US culture. The invention of aircraft abetted this model but never really changed it.
Take away the bank’s plane, and you can expect to see a special Investment-Bankers-Business-Class-HiSpeed-MegaLane built into the next highway appropriations bill.
This is why there are always good highways between state capitols and Golf Course Resorts. But I digress, wot?
January 26th, 2009 at 1:36 pm
I think the mostly overlooked underlying issue here is who will run these companies when/if the federal government owns them? I’m in favor of nationalization if the alternative is simply to give shareholders a mountain of free cash. My question is, how much wisdom is there is taking the next step and saying, ok, now we own them, let’s run them! Let’s let GS-9’s fire CEOs!
That business model has been tried and it doesn’t work very well at all. What I’m saying is that nationalizations should be temporary, and to the extent possible and reasonable (whatever that is), we should try to allow them to be run like normal companies. In parallel, new regulations can be enacted that will curb the excesses and bad behavior of all businesses in any given sector, not just the nationalized ones.
January 26th, 2009 at 1:36 pm
DTM, I was criticizing the assumption that ANYONE’s time is worth so much that they can justify such extravagant spending (particularly so when these same institutions are being bailed out).
I reject out of hand the notion that a Bank CEO works so much harder, or has such specialized knoweldge, that they deserve compensation hundreds of times greater than their average employee.
By even suggesting a cost-benefit analysis should determine whether this extravagance may be in a company’s, or our country’s, best interests, you are suggesting a rational basis for the extravagance. I reject that suggestion as against all notions of common sense and human decency.
January 26th, 2009 at 2:05 pm
“Bosch’s Poodle, I’m having a difficult time figuring out what geographical location might be 7 hours from DC by both car andplane”
Your problem is that you fail to realize that Bosch’s Poodle, like most movement conservatives, is an evil, dishonest lying hack. Out nation won’t recover until people like him are routinely shot dead on the streets as the rabid dogs that they are (with apologies to rabid dogs for the unflattering analogy).
January 26th, 2009 at 2:12 pm
I don’t think people realise the time wasted in connections and layovers. If you wanted to go to, say, Iowa City or Midland or Biloxi or St. Louis or whatever from New York, most flights are routed through connections and thus a lot of time is wasted that way.
Last time I had a layover during work-related travel, I was not only able, but ordered, to use my laptop and modem to work through the layover. Since communications technology has only gotten better and more available since then, there’s no reason that Citigroup executives couldn’t do what I did.
January 26th, 2009 at 3:52 pm
The award for careful reader of the day does not go to Voice of Reason, who for my sins has declared me worthy of murder. Well, I’d just like to clear the record – I am not a movement conservative, I am simply a liberal. An Obama-loving, ACLU card-carrying, rainbow-sticker-sporting liberal.
I wish I could say I’m glad to have such energetic young men (almost certainly) as Voice of Reason on our side, but I’m not glad at all.
Grow up.
January 26th, 2009 at 4:09 pm
Voice of reason, a quick Google search shows that you’ve threatened at least 4 commenters on this blog with execution. You seem to have some unresolved issues from childhood. My recommendation is that you stop before you get yourself into some serious legal trouble.
January 26th, 2009 at 4:29 pm
In fairness, most of the death threats are only rhetorical flourishes directed at people who have long forfeited any respect. They also make me laugh, which also makes me a bit twisted, I’m sure.
Also, this comment deserves repeating:
Our ruling class seems to be doing their level best to create a radicalized middle-class since they don’t seem to get that people are fucking pissed. If they weren’t such reactionary cretins, they’d realize Obama is trying to salvage state capitalism and hence their collective asses.
Some of them won’t get it until they get the Louis XVI Treatment.
January 26th, 2009 at 6:10 pm
Matt,
Your former Atlantic colleague James Fallows is something of an aviation expert, and has written, as you know, about the potential of air taxis. Why don’t you ask him about the merits of corporate jets versus flying first class? I don’t know what his opinion would be, but I’d be interested in hearing it.
January 27th, 2009 at 1:50 pm
If CEOs’ time is too costly to have them wait for scheduled flights, then I have the solution: Reduce CEO pay.
January 27th, 2009 at 11:47 pm
BY ANY OTHER NAME, THIS IS DISRESPECT AND ABUSE, OF TAXPAYERS AND SHAREHOLDERS
–
http://pacificgatepost.blogspot.com/2009/01/disrespecting-taxpayers-shareholders.html
–
The White House and Congress continue with misguided policies, and incompetent distribution of taxpayer money.
January 28th, 2009 at 10:56 am
“Plus, a lot of these bonuses you hear about do go to lower level employees. (Note that I’m not talking about the people you see when you walk into your local branch – they are the financial services equivalent of the people flipping the burgers at McDonald’s.)”
Oh good! It would be a terrible shame if those burger flipping peons actually received decent pay now wouldn’t it TH?
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