Pentagon Federal Credit Union’s purchase of a private jet may seem like an example of excess, but it might actually be the safest way for the credit union to conduct travel during a pandemic.
James Schenck, president and CEO of the third-largest credit union in the country, said that after consideration of its business needs, PenFed acquired the “employee business shuttle” to help go between its regional financial centers in San Antonio, Omaha, Eugene and its Virginia headquarters.
Nevertheless, it’s a conspicuous purchase which, on its surface, could inflame the argument over whether credit unions’ tax exemption gives them too much spending power over similarly sized community banks.
The $ 27.7 billion-asset PenFed would not provide detail on its jet, though a Federal Aviation Administration registry indicates that the aircraft is a Cessna Citation 560XL. The organization’s 2020 annual report shows a line item for “aircraft equipment” totaling more than $ 10.5 million.
The price of the plane represents less than 0.2% of PenFed’s annual operating costs, and the decision to buy benefits its members and employees through increased safety and productivity, Schenck said The purchase will also allow PenFed to become “even more efficient and effective,” he said.
“I encourage other credit unions to evaluate opportunities to cost-effectively meet their transportation needs and accomplish their mission as they do for other investments in their asset base,” he said.
A Cessna Citation 560XL, similar to the one Pentagon Federal Credit Union owns. PenFed says the private jet helps it address the cost and safety considerations of traveling during the pandemic.
It’s rare for financial institutions to buy an aircraft, said Roy Hellwege, CEO of Tampa, Florida-based Pilot Bancshares Inc. and unit Pilot Bank. The company’s wholly-owned subsidiary, National Aircraft Finance Company, provides lending for aircraft purchases.
Banks have traditionally been very prudent about making that kind of investment, Hellwege said.
“There needs to be a very strong business case to do that,” he said. “Jets are terribly expensive.”
A few large national banks might have their own aircraft for safety reasons and for the associated time savings, but “I don’t think there’s a big wave of regional banks or credit unions that are buying aircraft,” he said.
As the impact of the COVID-19 pandemic continues, some banks could be in the market for a jet of their own, Hellwege said. Overall loan demand for aircraft has doubled since last year for the $ 646 million-asset bank, spurred by small companies choosing to buy aircraft due to health concerns surrounding COVID-19.
“I do think you might see more [banks buying planes] with the delta variant and other mutations of COVID and other health concerns. There might be a bit of a move toward owning aircraft from a safety perspective, ”he said.
Such big-ticket purchases can be trickier for publicly-traded companies because of the extra scrutiny on such moves, and prices are high today, Hellwege said.
A spokesman for the largest credit union in the world, the $ 147.9 billion-asset Navy Federal Credit Union, said the company has never owned its own aircraft.
Independent Community Bankers of America spokesperson Nicole Swann said the group is not aware of any community banks that use their own plane for travel. She declined to comment on the PenFed jet purchase.
American Bankers Association spokesman Ian McKendry said Congress has previously questioned whether it is appropriate for organizations that enjoy tax-exempt status to own private jets.
“We think this should raise the same questions,” he said of the PenFed purchase.
Ken Cage, president of operations at International Recovery Group, an aircraft repossession company and one of the stars of Discovery Channel’s show “Airplane Repo,” said banks will occasionally hold onto plans that have been repossessed for their own use, but this is an uncommon practice.
“Banks are reacting differently now due to COVID, however,” he said. “But the drawbacks are that there are more expenses for the bank to insure and take care of the airplane. It’s a losing move for the bank. “
PenFed earned roughly $ 132.8 million in the second quarter of 2021, more than double the $ 60.4 million it earned for the same period in the prior year, according to National Credit Union Administration call report data. PenFed’s travel and expense spending for the second quarter of 2021 was $ 1.1 million, according to the call report.