GM Finally Drops Controversial Jets But Not Without Cost To Taxpayers
Six months after General Motors pledged to get rid of its fleet of private jets, the company is poised to finally get the planes off its books. But not before the aircraft cost the beleaguered automobile company - and by extension American taxpayers - an additional hundreds of thousands of dollars, including more than $240,000 for an airport hangar to hold the planes it never used.
A week and a half ago, a federal bankruptcy judge allowed GM to forfeit five separate security deposits, each worth more than $2.67 million, it had put down on its jet fleet. Those assets -- totaling roughly $13.4 million -- will be used as a partial payment for the company to back out of the lease payments it was making on five of its seven planes.
The jets were no longer in use, and hadn't been for roughly half a year. But the motion before the bankruptcy judge and the aircraft itself remained a symbol of GM's drastic fall from grace and an illustration of just how bad a financial and political situation America's one-time largest company now finds itself.
At the peak of its power, General Motor's two 1998 Gulfstream G-Vs, and five Gulfstream G350 models, served obvious functions, shepherding executives to functions both internationally and within the country. But as the company's finances faltered the planes became political albatrosses, a symbol of corporate excess and tone deafness.
In an ideal world, GM would have simply sold the fleet -- once valued at $250 million -- after its CEO and that of Ford and Chrysler were scolded by members of Congress for riding jets to Washington to seek additional bailout funds. Certainly the sale would have been a small but welcomed gesture to taxpayers who are now 60 percent owners of the company.
But GM found itself in a quandary. No one was buying. In what one industry analyst called "the worse market in memory" prices being offered by prospective buyers were half of the original purchase value. The company decided it was more profitable to hold on to the jets (the five G350s were priced at $26 million a piece) rather than sell them at a massive loss. And that's what it did for the past six months.
"There was no market," Tom Wilkinson, a spokesman for the car company explained. "And part of it was a self-fulfilling. When the ruckus broke out over the auto execs flying the jets, they immediately ground their fleets. Not just us, but also a number of companies were cutting back. So there was no one buying jets."
In the process, the company made payments on the craft. Wilkinson did not know how much money GM had been paying on the aircraft leases during this time. Nor is the figure spotted on the bankruptcy filing submitted to the U.S. Bankruptcy Court in the Southern District of New York. But industry analysts say that leases could cost in the range of tens-of-thousands per month.
In addition, the company has paid $41,000-a-month for the past six months renting a hangar space for the aircraft. That cost (more than $240,000), Wilkinson acknowledged was now being borne by the taxpayer as part of the "bridge financing from the government" as the General Motors molds itself into a new entity.
Having been forced to make such expenditures it would stand to reason that General Motors would continue to make use of the planes until they were sold. It did not. Not because of political pressure to drop the jets (though that was omnipresent) but because the company had shut down its flight department. In addition, GM had decided to forgo paying an operator to regularly bring the jets out for a flight and decided there would be little opportunity to rent the planes to other companies.
"The politics around it were so bad we just parked them," said Wilkinson. "I don't think an executive could get off of a plane without their being a huge outcry. It is such a politically touchy issue."
When the company finally filed for bankruptcy on the morning of June 1, 2009, it put in motion the final chapter of that controversial aircraft fleet. As part of the process, CEO Fritz Henderson asked the judge to allow GM to forfeit its five separate security deposits as a partial payment for the canceled leases. Days later, the request was granted.
In the end, the deal could save General Motors large amounts of money as the company removes itself from under the leases. But its failure to sell the aircraft six months ago, when it first made the decision to place the fleet on the market, provides an abject lesson on how a company can become entrapped by its own excess, media frenzies and public relations fiascoes. Only, in this case, the taxpayer helped pick up the dime.
"They couldn't get out of [these leases] evenly unless they sold the planes at a higher level," said an aforementioned industry analyst. "And they also didn't want to take a major loss. So they were a pointless seller in the market place making payments for planes they weren't using."
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First Posted: 06-16-09 07:37 AM | Updated: 06-16-09 10:18 AM