TOKYO: Japan said it agreed on Sunday to give a new lifeline to troubled Japan Airlines by doubling a state-funded loan for the carrier to 200 billion yen (2.2 billion dollars).
The government decision comes after shares in Asia's largest carrier plunged to a record low last week after investors were spooked by reports that bankruptcy was a possible option for the beleaguered airline.
"The government has decided to expand from 100 billion yen to 200 billion yen the line of credit from the Development Bank of Japan to Japan Airlines Corp," an official statement said.
In November, the state-run Development Bank had set a credit line of 100 billion yen for Japan Airlines and has already paid out just over half of the total.
The extra funding was agreed at a meeting of cabinet ministers including Transport Minister Seiji Maehara and Vice Prime Minister Naoto Kan.
JAL, battered by the global recession and swine flu pandemic, is scrambling to slash costs and is seeking its fourth government bailout since 2001 to keep flying in the face of mounting losses.
Local media have reported that the state-backed Enterprise Turnaround Initiative Corp (ETIC), which is overseeing JAL's restructuring, is considering the possibility of the carrier filing for protection from creditors.
ETIC is expected to decide on a financial package for the carrier in mid-January.
But airline president Haruka Nishimatsu said in an interview with the Asahi Shimbun newspaper published on Sunday that he was opposed to any bankruptcy filing and also had no plans to halt international flights.
"Legal liquidation gives an image that will affect us and reduce the number of our clients," he said.
The airline, which lost about 1.5 billion dollars in the six months to September, has said it plans thousands of job cuts and a drastic reduction in routes as part of its efforts to return to profitability.
On Thursday, the Mainichi Shimbun newspaper reported that the government was discussing a plan which which would see rival All Nippon Airways (ANA) take over JAL's international flights.
But Nishimatsu dismissed such a plan as "impossible."
"Demand for air traffic, particularly in Asia, is rapidly expanding. It provides a tremendous business opportunity," he told Asahi.
JAL has been offered financial assistance by both American Airlines and Delta Air Lines, which are competing to take a minority stake in the Japanese carrier, eyeing its coveted Asian landing slots.
Nishimatsu said he was in favour of the airline switching to Delta's global alliance SkyTeam from the OneWorld group of American Airlines.
"Asia will have 'open skies' in the future... SkyTeam has many Asian members," he said.
The global economic downturn has dealt a heavy blow to JAL's efforts to recover from a long period of financial turbulence stretching back to its privatisation more than two decades ago.