Lenders may carve out JAL's profitable operations

A Japan Airlines aircraft taxis at Haneda airport in Tokyo September 15, 2009.

TOKYO (Reuters) - Lenders to Japan Airlines Corp 9205.T may seek to split the carrier between its profitable and loss-making parts, two sources familiar with the matter said on Tuesday, as part of a radical overhaul that could also see foreign rivals invest in Asia's largest airline by revenue.

Delta Airlines (DAL.N) and American Airlines, with British Airways BAY.L and Qantas Airways (QAN.AX), are in rival talks to invest in JAL and form an operational alliance, as JAL also plans for job losses and route reductions.

But the Development Bank of Japan and other lenders are reluctant to offer additional loans without further restructuring and deeper government involvement, the sources said.

"The turnaround plans are not enough. A capital raising from foreign carriers is not enough, either," one of the sources told Reuters.

JAL lost about $1 billion last quarter and has been scrambling to put together a revival plan to submit to the transport ministry, which is supervising its restructuring after the state backed a 100 billion yen ($1.1 billion) loan.

The carrier, which secured a 100 billion yen loan earlier this year, is seeking another 250 billion yen in funds through a mixture of debt and equity.

The lenders are poised to ask the government for a drastic overhaul of JAL, including calling for streamlining of the carrier's operations by separating them into distinct entities, the Nikkei business daily reported earlier on Tuesday.

The "new" section would comprise profitable routes, while the "old" section would absorb unprofitable routes and segments, the Nikkei said.

Another proposal under consideration would have the government provide capital to JAL's new entity as part of a temporary nationalization of these operations, the daily said.

The old entity would then be subject to a liquidation of assets over time, while taking into account the interests of local communities that would be impacted by such a move, it said.

Last week, Transport Minister Seiji Maehara said JAL must not be allowed to fail, indicating the state would support the struggling carrier as it seeks fresh funding.

Maehara is to meet the airline's CEO and officials from the lenders separately on Thursday to discuss JAL's revival plans.

Japanese markets were closed on Tuesday.

(Reporting by Nobuhiro Kubo and Taro Fuse, Editing by Ian Geoghegan)