UPDATE 2-Poland says no blank cheque for ailing flag carrier LOT
* Govt announces $130 mln loan to keep airline aloft
* Prime Minister says LOT is not too big to fail
* Says will not risk taxpayer money if carrier "unsaveable"
* State aid needs approval from European watchdog
By Chris Borowski
WARSAW, Jan 3 (Reuters) - The Polish government warned flag carrier LOT not to expect endless state support as it announced a 400 million zloty ($130 million) loan to keep the ailing airline flying.
LOT, which began flying in 1929 and is one of the world's oldest airlines, has been hit by cut-throat competition from no-frills competitors such as Ryanair and easyJet , as well as high fuel prices and depressed demand during Europe's economic downturn.
It lost a total of 1.1 billion zlotys between 2008 and 2011 and has warned workers that it would be deep in the red again this year and could need further funds to stay aloft.
"For many years LOT has been treated mildly by the state and that has become the source of its permanent troubles," Prime Minister Donald Tusk told a news conference on Thursday.
The airline is 93 percent state-owned, but Tusk added: "We should have done with the idea that LOT should be saved at any cost just because it is called LOT or because its labour unions are strong.
"If it proves that the company is unsaveable, we will not risk taxpayers' money."
A spokeswoman for the European Commission's competition watchdog said that it was notified of the proposed loan on December 17 and has two months to decide whether to approve Poland's state assistance or launch a wider investigation.
Some aviation experts fear that LOT could share the fate of Hungarian rival Malev, which stopped flying a year ago after the Commission forced it to repay hundreds of millions of euros of state aid.
LOT's former chief executive, Marcin Pirog, indicated in September that results for 2012 might improve and said after his dismissal that the company's 2012 net loss was likely to reach 220 million zlotys.
A LOT spokesman said that the state loan would be used to pay its most urgent bills and help to keep it steady through the winter season before traffic picks up in the second quarter.
He said that LOT would present details of a rescue plan before the end of March.
Union representatives said that Pirog had told them that LOT planned to dismiss 600 employees - about a third of its workforce - and reduce its flight network by a similar proportion.
LOT took delivery of a new Boeing Dreamliner 787 in November, becoming the first European carrier to add the jet to its fleet.
Poland's Treasury Ministry, which oversees state assets, said on Thursday that the loan was transferred on Dec. 20.