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The government and state-backed Enterprise Turnaround Corp. of Japan are considering extensively shrinking the international operations of Japan Airlines Corp. as part of the carrier’s rehabilitation plan, which is likely to entail court-backed bankruptcy filing, sources said Friday.

ETIC, tasked with JAL’s reconstruction, is aiming to announce a bailout package later this month and will work to persuade JAL’s key commercial creditor banks, which have favored an out-of-court reorganization through debt forgiveness, to heed its plan.

The government is making final arrangements to turn around Japan’s top airline through the filing of bankruptcy under the Corporate Rehabilitation Law in a bid to ensure transparency in a process that is likely to entail a massive use of public funds.

Several proposals on JAL’s rehabilitation plan are being floated, including JAL’s withdrawal from international routes that compete with rival All Nippon Airways Co., on the back of concerns that a successful turnaround would not be possible without ditching its loss-making routes.

Under the turnaround plan being compiled, ETIC is considering investing about ¥300 billion and will expand its credit line for JAL to around ¥450 billion, up about ¥50 billion from its initial plan, the sources said.

About ¥100 billion of that credit line to be extended by state-owned Development Bank of Japan may also be guaranteed by ETIC, which can currently raise up to ¥1.6 trillion in government-guaranteed funds.

The plan will aim to reduce about ¥700 billion of JAL’s loans by seeking ¥350 billion in debt waivers by financial institutions, including regional banks, and through cuts in corporate pension benefits.

The move to expand the credit line is aimed at ensuring the smooth continuation of JAL’s key operations even if it files for bankruptcy.

“We’ve done our best so far to avoid any interruption to JAL’s operations,” Prime Minister Yukio Hatoyama told reporters following a meeting with transport minister Seiji Maehara. “I understand we will continue to make similar efforts in that direction.”

Growing fears of bankruptcy, however, sent JAL’s share price plunging nearly 12 percent to ¥67 at the close of Tokyo trading Friday.

Following a morning meeting with Cabinet members, including new Finance Minister Naoto Kan, Maehara denied the government has decided on the bankruptcy option, but emphasized that JAL’s operations will be protected regardless of which restructuring process is pursued.

“We are making arrangements with each party with emphasis on how to revive JAL by carrying out drastic reform, while making sure its aircraft continue to fly,” Maehara, minister of land, infrastructure, transport and tourism, said, adding a failure to fix JAL’s problems will lead to more use of taxpayer money.

Even if JAL files for bankruptcy, the government is expected to work with creditor banks to ensure it can finance daily business transactions, including fuel purchases.

The government and banks have reportedly called for a further review of JAL’s already announced plan to eliminate 16 of its international routes, which they view as insufficient.

There is also a proposal for JAL to effectively withdraw from international services outside of Asia and rely on potential partner carriers, particularly Delta Air Lines Inc., in maintaining trans-Pacific and other services through code-sharing arrangements where JAL would sell seats under its own airline code on flights operated by other carriers, the sources said.

Transport ministry officials have even suggested transferring part of JAL’s Asian routes to Skymark Airlines. Senior Vice Finance Minister Naoki Minezaki and other officials have even proposed having JAL totally spin off its international routes to ANA.

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