UPDATE 4-New Japan transport minister says JAL must not fail

* Maehara says hopes JAL will get bank loans, revive on own

* Independent panel reviewing turnaround to be disbanded

* JAL attractive for routes into China, access to Haneda

* JAL will revise pension cut plan - Nikkei (Recasts with fresh comments from Maehara)

By Nobuhiro Kubo

TOKYO, Sept 17 (Reuters) - Japan's new transport minister said Japan Airlines Corp 9205.T must not be allowed to fail, indicating the state would support the loss-making carrier as it seeks fresh funding for a drastic cost-cutting plan.

The comments by Seiji Maehara on Thursday come as Delta Airlines DAL.N and AMR Corp's AMR.N American Airlines hold rival talks to invest in Japan Airlines (JAL) as they eye growth opportunities across Asia. [ID:nT194467]

“JAL must not be allowed to fail,” Maehara told a news conference. “I hope JAL will restructure and come up with a solid turnaround plan so that banks can lend it money and it can stage a recovery on its own.”

Maehara’s Democratic Party was swept to power in a landslide victory last month, ending five decades of nearly unbroken rule by the Liberal Democratic Party (LDP).

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

Maehara said he would disband an expert panel formed under the LDP government to review that plan. He said he had not decided whether to create a new panel.

“I know time is limited. I will listen to various stakeholders and experts. I also need to ask JAL about the content of its restructuring measures and the feasibility of its plans.”

JAL is seeking an additional 250 billion yen in funds through a mixture of debt and equity, some of which could come from Delta or American. But banks have remained wary of lending more to JAL until the Democrats’ stance is clear, banking sources have said.

The Democrats have vowed to place greater scrutiny on the use of public money, but at the same time have taken labour-friendly policies that could be at odds with plans for tough restructuring, such as scrapping unprofitable routes in Japan.

“The DPJ’s policy stance is to pay greater heed to local needs, and it would be negative if it slows down the restructuring of JAL’s domestic routes,” said Naoki Fujiwara, fund manager at Shinkin Asset Management.


Shares of JAL, Asia's largest airline by revenue, closed flat at 167 yen. The Nikkei average .N225 rose 1.7 percent.

JAL has been hard hit by the global recession, which has cut passenger numbers and cargo traffic. The International Air Transport Association raised its forecast this week for 2009 industry losses by $2 billion to $11 billion.

Volatile oil prices and health fears over the new H1N1 flu have also hurt carriers, but also prompted those that can afford it to strike deals to lay claim to future sources of growth -- such as JAL’s route network through Japan and into China.

An investment by either Delta or American would likely form a small but important component of a larger financial support package that would almost certainly need to include the state, either in the form of loan guarantees or a capital injection.

JAL CEO Haruka Nishimatsu said earlier this week the carrier planned to cut 6,800 workers, or 13 percent of its workforce, as part of an overhaul expected to include major cuts to overseas and domestic routes and asset sales.

JAL is also trying to cut pension pay-outs. It has already included an 88 billion yen gain on proposed benefit cuts in its annual forecast even though they have to be approved by retirees who have shown strong opposition to the move.

The Nikkei business daily reported that JAL will look to circumvent that by revising its proposals to balance a lower pay-out rate with a longer duration under which families will receive pay-outs if a beneficiary dies prematurely.

If the offer is considered to be on balance neutral for recipients it could pass without the two-thirds approval of retirees, the Nikkei said.

A JAL spokesman declined to comment on the report. (For more stories on Japan's new government, click [ID:nPOLJP]) For a related graphic, click: ($1=91.03 Yen) (Reporting by Yoshifumi Takemoto, Nobuhiro Kubo and Rodney Joyce; Editing by Chris Gallagher)