Private equity firm TPG could partner with American Airlines on a minority investment in Japan Airlines to prevent its defection to a rival airline group, the chief financial officer of American parent AMR Corp said.

The emergence of TPG as a potential investor comes as the loss-making Japan Airlines seeks its fourth state bailout since 2001, saddled with $15 billion in debt, a massive pension deficit and dozens of unprofitable routes.

The Japanese government pledged on Tuesday to enlist a state bank to offer bridge loans to prevent the airline from running short of cash and said it may introduce legislation to cut a pension shortfall that hit $3.7 billion in March.

Even as it struggles to avoid bankruptcy, JAL is being wooed separately by American Airlines and Delta Air Lines, which are keen to gain access to JAL's network in Asia and a stronger foothold in Japan. JAL is Asia's largest carrier by revenues.

AMR's Thomas Horton said TPG, which helped fund Continental Airlines emergence from bankruptcy in 1993 and backed a failed takeover attempt for Australia's Qantas Airways in 2007, has agreed to potentially invest in JAL as part of any deal with American Airlines.

As appropriate and if it were welcomed by Japan Airlines and the government of Japan, TPG could also be part of a comprehensive recovery plan, Horton told reporters in Tokyo.

They have been active in the airline space over the years.

A spokesman for TPG in Tokyo declined to comment.

American partners JAL in the Oneworld alliance, which pools frequent flyer miles and feeds passengers between members, and is keen to block it from joining Delta in the rival SkyTeam group.

American has argued that JAL and Delta would have difficulty clearing regulatory hurdles if they sought antitrust immunity for closer business ties because the alliance would give SkyTeam control of 60 percent of air traffic between Japan and the U.S.

American, which has hired Rothschild as an adviser on the deal, also estimates that defecting to SkyTeam could drain JAL of about $500 million in revenues during a transition period of 18-24 months.

A Delta spokeswoman in Tokyo declined to comment.

SIDE SHOW

In addition to a capital investment, American has been talking with JAL on forming a joint venture to cooperate more closely on scheduling, pricing and marketing. American estimates this could bring another $100 million in annual revenue to JAL.

Such close cooperation requires an open skies agreement between Japan and the United States. The two governments are in negotiations and are aiming for a deal this year.

The posturing by American and Delta remains a side show in the context of the much larger hurdles facing JAL. Any investment from the U.S. carriers would likely be a fraction of the 300 billion yen in capital a government-appointed task force estimated it needs to stage a sustained recovery.

JAL applied last month for a bailout from the Enterprise Turnaround Initiative Corporation of Japan, a state-backed body that is expected to take until January to study its assets and decide whether it is worthy of an injection of public funds.

Japan's recently elected government is under pressure to save JAL while contending with growing investor concern it faces a funding crunch to finance public debt expected to swell to 200 percent of GDP this year.

The government said on Tuesday the Development Bank of Japan (DBJ) would extend loans to keep it in operations until the ETIC can decide on support, part of a rescue package to ease market jitters ahead of JAL's first half earnings report on November 13.

The Nikkei business daily reported JAL was likely to post an operating loss of more than 90 billion yen, hurt by a decline in passengers and per-customer sales.

The government will also consider legislation to forcibly cut pension payouts, aiming to get around current laws that allow retirees to easily block such a move.

Shares of JAL, which have lost almost half their value this year, rose 4.8 percent after the government announced its support for the pension and bridge loan issues. The benchmark Nikkei Average <.N225> ended flat.

The government did not announce the size of the bridge loan but two sources told Reuters on Wednesday the state-owned DBJ would offer a 100 billion yen ($1.1 billion) line of credit, while private banks would put up 25 billion yen.

Loans from units of Mitsubishi UFJ Financial Group <8306.T>, Mizuho Financial Group <8411.T> and Sumitomo Mitsui Financial Group <8316.T> will be used to buy aircraft and will be guaranteed by another state-owned bank, the sources said.

The sources also said JAL would announce its application for a debt restructuring scheme on November 13 under which a third party would mediate between JAL and its creditors.

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.

JAL CEO Haruka Nishimatsu is likely to resign to take responsibility for the airline's woes, one source said.

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

($1=89.63 Yen)

(Additional reporting by Taro Fuse in Tokyo and Mansi Dutta in Bangalore; Editing by Chris Gallagher and Lincoln Feast)

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