UPDATE 3-About $441 mln JAL fuel hedges may be exposed-source

* 12 major counterparties for JAL fuel hedges -source

* JAL files for bankruptcy; owes more-than-expected $25 bln * Payment for fuel to be guaranteed (Updates with JAL bankruptcy filing)

By Nathan Layne and Chikako Mogi

TOKYO, Jan 19 (Reuters) - About 40 billion yen ($441 million) of Japan Airlines Corp's 9205.T fuel hedges, mostly in Brent forward contracts, are estimated to be exposed in the event of an automatic termination of hedging contracts, a source familiar with the matter said on Tuesday.

The source told Reuters there were 12 major counterparties, of which 10 have contracts that are subject to ISDA standards, meaning automatic early termination (AET) will be triggered.

Other industry sources said the counterparties are largely big investment banks.

Normally, filing for bankruptcy protection triggers an event of default, which in turn triggers AET.

Under bankruptcy procedures, counterparties could lose as much as 80 percent of their hedge exposures, the source said, adding that it remained unclear how JAL would hedge in future.

"We intend to continue fuel hedging as per the current policy," said JAL spokeswoman Sze Hunn Yap.

It is also unclear whether the policies of JAL's current management will continue in the future, as the carrier filed for bankruptcy protection on Tuesday, owing more than $25 billion. [ID:nSGE60I079]

The state-backed Enterprise Turnaround Initiative Corp of Japan (ETIC) will support the carrier. ETIC, which can draw on government-backed funding to support ailing firms, has said it would guarantee payment for fuel and other commercial transactions to ensure JAL can maintain its operations.

JAL annually consumes some 5 billion litres of fuel, or 31.5 million barrels (86,000 barrels per day), the company's website said.

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In contrast, Singapore Airlines (SIAL.SI) consumes 35.8 million barrels of fuel a year.

JAL did not comment on the details of its hedging practices.

ILL-TIMED HEDGES?

Market sources said JAL hedges are said to be structured in the past in the following way: go long in crude oil in one-, two-, three-year contracts, and as those contracts come off they buy the crack spreads for kerosene/jet fuel.

One trader said JAL's current hedging position was likely to be as follows: Brent crude oil is for one to two years; Brent crude and gas oil is for six months to one year, products (kerosene/jet fuel) linked to Singapore spot quotes and regrade (spread between jet fuel and gas oil) prompt to six months.

Some market players said the carrier may have suffered from ill-timed hedges as oil prices were hitting record highs, locking JAL into high fuel costs for a longer period in the future.

Later in 2008, Brent crude LCOc1 plummeted from peaks above $140 a barrel, and was hovering near $77 on Tuesday.

JAL's hedge losses may be partially offset by the steady rise in oil prices since first-quarter 2009, unless it had some speculative positions aside from pure hedging.

Industry officials and market players in Tokyo said they did not believe JAL had overhedged positions.

The company's financial data showed net unrealised losses on hedging instruments shrank while fuel costs that include hedging dropped in the six months to Sept. 30, 2009.

In the first half of the current 2009/10 fiscal year, JAL reduced losses on deferred hedge transactions -- net unrealised losses on hedging instruments -- by about 99.8 billion yen to around 102 billion yen.

First-half operating expenses stood at 859.7 billion yen, of which 188.2 billion yen were fuel costs, the largest proportion of costs in the air transportation segment. Still, that was down 62.7 billion yen from a year earlier.

A JAL spokesman said the airline has reduced its fuel hedging to around 80 percent in fiscal 2009/10 to March from around 90 percent in first-half 2008/09. ($1=90.66 Yen) (Additional reporting by Osamu Tsukimori, James Topham, Taiga Uranaka, and Jennifer Tan, Yan Chong Yaw in SINGAPORE; Editing by Ramthan Hussain)