UPDATE 1-Air Berlin says targets difficult to reach
* Q2 EBIT loss 8.1 mln eur
* Shareholder equity drops to minus 116.3 mln eur
* CFO says expects equity to improve
* Full Q2 results to be published Thursday (Adds detail on shareholder equity, debt)
FRANKFURT, Aug 14 (Reuters) - Air Berlin, Germany's second largest airline, said its targets were becoming more difficult to reach and that its shareholder equity declined further in the second quarter.
Air Berlin has previously said it is targeting break-even this year.
"As a result of the generally muted economic conditions and the market environment, the ability to reach our targets is becoming increasingly challenging," Chief Executive Wolfgang Prock-Schauer said in an unscheduled statement on Wednesday.
The finances of Air Berlin, which is almost 30 percent owned by Gulf carrier Etihad, have been deteriorating for years as it struggled to halt losses and manage its debts following a period of aggressive growth.
Its total equity came in at minus 116.3 million euros at the end of June, shrinking further from the minus 53.1 million euros reported at the end of March, the airline said
Negative shareholder equity means its liabilities exceeded its assets.
Some analysts have kept a close eye on the size of its equity compared with its debt as a key indicator of financial health.
Air Berlin, which in May said it did not need further financial help from Etihad, reduced its debt pile to 706.5 million euros against 728.2 million euros at the end of the first quarter.
"We expect the equity capital to increase over the following quarters," Chief Financial Officer Ulf Huettmeyer said in a statement. The airline added that its liquidity grew to 436.8 million euros, up one-third from the same time last year.
Air Berlin narrowed its second-quarter operating loss to 8.1 million euros ($10.8 million) from 29.4 million one year ago. Its net loss also narrowed to 38 million euros, against a restated 99.8 million loss for the same period last year, as efforts to shrink its business took effect.
Analysts had been expecting an operating loss of 26 million euros and a net loss of 39 million, according to data from Thomson Reuters I/B/E/S.
Air Berlin is cutting about 900 jobs or 10 percent of its workforce, downsizing its fleet and slashing unprofitable routes - all part of its "Turbine" cost cutting programme.
In the quarter, it cut capacity - the number of seats it offers - by 8.4 percent.
The company will publish full second-quarter results on Thursday.
($1 = 0.7538 euros) (Reporting by Victoria Bryan; Editing by Anthony Barker)