Telefonica Said to Sell Jets as Part of Spending Cuts

Telefonica SA (TEF), the Spanish phone company whose net debt is bigger than its market value, plans to reduce its fleet of private jets as part of an effort to cut costs, two people familiar with the matter said.

Telefonica, which has more private planes than any other Spanish publicly traded company, plans to put up for sale two of its four Gulfstream business jets in two to four weeks, one of the people said, asking not to be identified because the deliberations are private. The company could raise about 35 million euros ($45 million) for the jets, the person said.

Spain’s biggest phone operator will replace one of the jets by March or April with a new Gulfstream G650, which it ordered about three years ago, the person said. Madrid-based Telefonica, which has a department for aviation, may have paid about 50 million euros, less than the 70 million euros a new G650 costs now, the person said.

The jet sales are part of a cost-reduction program that spans office supplies, employee refreshments, compensation and asset disposals. After an $85 billion acquisition spree over the past decade, Chief Executive Officer Cesar Alierta is cutting back, selling assets that include shares in German and Latin American units as well as the call-center business Atento.

The company, which faces competition from France Telecom SA (FTE)’s Orange Spain unit and Jazztel Plc (JAZ), reduced managers’ total compensation by 30 percent in July, while board members agreed to take a 20 percent pay cut. Saddled with more than 58 billion euros of net debt, Telefonica also scrapped this year’s dividend and halved next year’s to save an estimated 10.2 billion euros as it rushes to avoid further debt downgrades.

Leather Seats

The jets for sale are a General Dynamics Corp. (GD) Gulfstream G200, which can fly for about 3,000 nautical miles (5,600 kilometers), and a Gulfstream GV with a range of more than 5,000 nautical miles, the person said. Both carry 10 to 14 passengers and include leather seats, couch, Internet, TV and satellite connection, the person said. The average maintenance cost for this type of jet is about 10,000 euros for each hour of flight, the person said.

Telefonica’s other two jets are Gulfstream G550 models. The company bought its first jet, a second-hand Gulfstream GIV, from the Sultan of Brunei in the late 1990s under the leadership of Alierta’s predecessor, Juan Villalonga, the person said.

A Telefonica official declined to comment.

Coffee, Photocopies

Only top executives at Telefonica use the jets, though less often than they used to, people familiar with the matter said. Alierta is known in the aviation industry as a sensible jet user, having rented one for personal use from outside the company, one of the people said.

Telefonica follows other telecommunications companies in selling planes. Research In Motion Ltd. (RIM), the maker of the BlackBerry smartphone, was selling one of its two business jets under a plan to save $1 billion in operating costs, people familiar with the matter said in July.

As part of a broad cost-cutting program, Telefonica may move some of the about 370 employees of its international unit, known as TISA, to Brazil from Spain by early next year, two people familiar with the matter said. The final number of people to be moved hasn’t been decided and the rest will be relocated to other operating units or fired, the people said.

Telefonica has also reduced the number of color photocopies for most employees, two people said. The phone company is also cutting back on travel, coffee and phone expenses, one of the people said. Other cost cuts include the use of company cars, for which directors now have stricter gasoline-allowance limits, the person said.

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