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Japan Airlines Asks Banks for Up to $3.3 Billion Capital Boost

Japan Airlines is asking its main lenders to boost its capital by 200-400 billion yen ($1.7 - $3.3 billion) to help it restructure without further damage to its financial standing, the Nikkei business daily reported on Thursday.

JAL, Asia's largest airline by revenue but ranked sixth by market value, said in a statement that nothing had been decided regarding a capital increase, while acknowledging that beefing up its finances was a top priority.

JAL unveiled a new business plan just three months ago under which it vowed to reduce its interest-bearing debt by a third over the next four years through the sale of non-core assets.

JAL is asking for some of its debt to be converted into equity such as preferred shares, a move that would enable it to strengthen its equity while reducing its interest-bearing debt of 1.7 trillion yen, the Nikkei said.

President Haruka Nishimatsu and other senior officials made the request to the Development Bank of Japan, Mizuho Corporate Bank, Bank of Tokyo-Mitsubishi UFJ and Sumitomo Mitsui Banking Corp. this month. The Development Bank of Japan is poised to agree in return for further restructuring steps, the paper said.

JAL told the banks it hoped to reach an agreement by as early as the end of June, when it is due to hold its annual shareholders' meeting, and to execute the debt-equity swap by summer, the paper said, citing several sources involved in the matter.

Hit by high fuel prices and a string of safety mishaps that drove customers to switch to rival All Nippon Airways, JAL lost a combined 63.5 billion yen over the two years to March 2007.

For the current business year, it expects to return to the black as it cuts jobs and taps into growing demand for flights to China.

JAL has said it aimed to save costs by flying fuller planes using more small to mid-sized aircraft and shifting to a newer, more fuel-efficient fleet.

If the banks agree to its request, JAL would use part of the capital to replace old aircraft, the Nikkei said.