UPDATE 2-Citi going through with $50 mln plane order-source

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NEW YORK, Jan 26 (Reuters) - Citigroup Inc C.N, which has received $45 billion of capital from the U.S. government, is going through with plans to buy a $50 million jet but a U.S. senator called the deal absurd and wants the Obama administration to block it.

The bank ordered a Dassault Falcon 7X two years ago and plans to accept delivery later this year, according to a person familiar with the matter.

Canceling the jet would have forced the bank to pay a multimillion-dollar fee, the person said.

Citigroup is selling two older Dassault jets, worth an estimated $27 million each, according to the New York Post, which was first to report that the bank was still buying the new plane.

Citigroup declined to comment on whether it was buying a new aircraft, but it said in a statement that it has strict policies regarding use of its aircraft, including encouraging executives to fly commercial whenever possible to reduce expenses.

The bank said it has reduced its number of aircraft by two-thirds over the last eight years.

In Washington, the White House frowned on the sale with a spokesman saying President Barack Obama does not believe “that’s the best use of money” by companies that are receiving taxpayer assistance.

Sen. Carl Levin, a Michigan Democrat, wants the Treasury Department to block the sale.

“To permit Citigroup to purchase a plush plane -- foreign-built no less -- while domestic auto companies are being required to sell off their jets is a ridiculous double standard,” Levin said.

Levin said he urged Timothy Geithner, expected to win confirmation as treasury secretary later in the day, to “do what he can to stop this absurdity from occurring.”

Detroit-based General Motors Corp GM.N and Chrysler LLC were barred by the Bush administration from operating corporate jets as part of their December bailout.

A decision by auto CEOs to fly their corporate aircraft to Washington last fall to ask for help nearly cost the industry its bailout as congressional lawmakers were sharply critical of what they considered excessive spending and poor judgment.

Democrats drafting corporate bailout legislation this month sought to curb the use of company jets for those receiving federal assistance. The proposed restriction was scrapped, however, out of concern it might hurt companies that make and support business aircraft.

Industry deliveries topped 1,100 in 2007 and were up in the first nine months of 2008 compared with the same period a year earlier, according to the General Aviation Manufacturers Association (GAMA).

But the industry has hit turbulence in the souring economy.

For instance, manufacturers Cessna, a unit of Textron Inc TXT.N, and Hawker Beechcraft Corp, announced a combined 3,000 job cuts in recent months.

Key suppliers include Rockwell Collins Inc COL.N, Honeywell International Inc HON.N, and engine makers General Electric Co GE.N and Pratt & Whitney, a unit of United Technologies UTX.N.

The business jet industry will release its 2008 sales results and its 2009 forecast next month. (Additional reporting by John Crawley, Kevin Drawbaugh, and Karey Wutkowski in Washington; editing by Carol Bishopric)