State owned bank to provide JAL Y100 bn: Sources

The state-owned Development Bank of Japan will offer a 100 billion yen (USD 1.1 billion) line of credit to Japan Airlines Corp to keep the airline from running out of cash, two sources with knowledge of the matter said.

At the same time, units of Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group will provide a total of 25 billion yen in loans for JAL to purchase aircraft, the sources said.

Japan's government announced on Tuesday that it would use loans from the Development Bank of Japan to keep JAL in operation while it awaits a possible capital infusion from a state-backed turnaround fund.

It also said it was considering legislation to cut the pensions of Japan Airlines retirees, as JAL seeks its fourth bailout since 2001.

But the government did not give details on the size of the loan or the role of JAL's private creditors in supporting the airline.

The 25 billion yen loan from the private banks will be backed by the Japan Bank for International Cooperation, the sources said.

The loans are part of a government rescue package for the airline ahead of its first-half earnings announcement on November 13.

JAL will also apply for a debt restructuring scheme on Nov. 13 under which a third party would mediate between JAL and its creditors, said the sources, who spoke on condition of anonymity because the matter is not yet public.

The scheme, called "Alternative Dispute Resolution", would trigger a suspension of loan payments. This would reduce the amount of funds JAL needs to secure in the near term.

A JAL spokesman said nothing has been decided on the size of the loans or whether it would apply for the ADR scheme.

Separately, the Nikkei business daily reported on Wednesday that JAL likely posted an operating loss of more than 90 billion yen ($1 billion) in the first half ended September 30, hurt by a decline in passengers and per-customer sales.

The company likely reported a net loss of about 130 billion to 140 billion yen in the April-September half, the business daily said without quoting sources.

Falling per-customer sales on the back of declining business travel appears to have hurt Asia's largest airline by revenue in the first half, it said.

In the July-September quarter, passengers on domestic flights fell 7% on the year to slightly more than 10 million, while those on international flights dipped 3% to about 3 million, the Nikkei said.

In October, JAL said it would apply for assistance from the Enterprise Turnaround Initiative Corp - a state-backed corporate turnaround body - setting the stage for a large injection of public funds into the troubled airline.

Shares of JAL jumped 5.7% to 111 yen, far outperforming the benchmark Nikkei Average, which rose 0.2%.