Delta, American investment in JAL put on ice: source

TOKYO (Reuters) - Delta Air Lines and American Airlines will not be invited to invest in Japan Airlines until after a new management has been put in place, if ever, a person familiar with the matter said.

The government has sounded out Kazuo Inamori, the 77-year-old honorary chairman of electronics components maker Kyocera Corp, about becoming JAL's new chief executive officer and overseeing its restructuring, the person also said.

Delta and American have been courting Japan Airlines with rival offers of financial aid, eager to gain access to its routes to fast-growing Asian markets and a stronger foothold in Japan ahead of the expansion of Tokyo's Haneda Airport in October.

But these talks have been overshadowed by the issue of JAL's very survival. The airline, Asia's largest by revenue, will likely file for bankruptcy this month as part of a state-led restructuring, sources have told Reuters.

The state-backed turnaround fund in charge of deciding whether JAL should be propped up with public money believes that any decision on its overseas partner should be made in coordination with new management, the person said.

An investment from Delta or American could also complicate JAL's restructuring and make it more difficult for the fund, called the Enterprise Turnaround Initiative Corp of Japan (ETIC), to exit its investment as planned within three years.

The person was not authorized to speak publicly about the matter. The ETIC declined to comment.

American Airlines said last week it was considering sweetening its $1.1 billion investment proposal, which is backed by private equity firm TPG. Delta has offered $500 million in equity and another $500 million in guarantees and loans.

JAL had been aiming to decide this month whether to keep ties with American in the Oneworld alliance or join hands with Delta and the rival SkyTeam group. But Transport Minister Seiji Maehara said Friday a decision would likely be delayed.

The ETIC would not rule out an investment from Delta or American Airlines in the future, the person said.

"Delta continues to be in discussion with JAL about forming a long-term strategic partnership," Delta spokeswoman Betsy Talton said on Sunday. "Details of those discussions are confidential."

Officials at American could not immediately be reached.

NEW CHIEF

Both Delta and American have said they would seek anti-trust immunity with JAL under the "open skies" treaty between the United States and Japan, allowing them to work closely on pricing and scheduling to boost revenues and save costs.

They are eager to forge a deal with JAL quickly so as not to fall behind Star Alliance members United Airlines, Continental Airlines and All Nippon Airways Co, which said last month they had filed for anti-trust immunity.

The ETIC is eyeing sometime between January 19-22 for JAL to file for a bankruptcy procedure similar to Chapter 11 in the United States, and for it to officially announce it would support the carrier with state-guaranteed funds.

The ETIC plans to inject about 300 billion yen of new capital into JAL, provided it goes through with the bankruptcy filing and banks agree to waive 350 billion yen in debt, sources with knowledge of the talks told Reuters last week.

The ETIC has been looking to bring in an outsider to replace current CEO Haruka Nishimatsu, who has indicated he would resign.

Rather than knowledge and experience in the aviation industry, the fund has focused on finding someone with the leadership capabilities to implement a tough restructuring and motivate employees in the wake of a bankruptcy.

Inamori founded the predecessor to Kyocera in 1959 with an initial investment of just 3 million yen and turned the company into one of Japan's most profitable technology companies.

Inamori has been a strong supporter of the Democratic Party of Japan and is a member of a panel headed by Prime Minister Yukio Hatoyama seeking to cut wasteful government spending.

(Additional reporting by Yoshifumi Takemoto, Osamu Tsukimori and Martinne Geller; Editing by Nick Macfie and Maureen Bavdek)