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A state-backed turnaround fund may seek to put Japan Airlines Corp through bankruptcy court as part of a restructuring of the struggling carrier, two sources with knowledge of the matter said. JAL applied in October to the Enterprise Turnaround Initiative Corp of Japan, a fund established this year to help revive firms with state-guaranateed loans.
The ETIC will decide whether to support JAL as early as next month. The ETIC has discussed with JAL's creditors the possibility of using a Chapter 11-style bankruptcy procedure along with making fresh loans and investment, but has not ruled out a restructuring outside of bankruptcy court, the two sources said. Government officials have said a court-led reorganisation was a possibility but the state is at the same time wary of the potential disruption to air travel.
JAL is Asia's largest carrier by revenue and handles more than half of air traffic in Japan. A bankruptcy could also complicate talks with American Airlines and Delta Air Lines, which are courting JAL with rival offers of investment to gain access to its network in Asia and closer ties on US-Japan routes.

Copyright Reuters, 2009

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