Sept. 14 (Bloomberg) -- American Airlines, the world’s second-largest carrier, may buy equity in Japan Airlines Corp. to prop up an ally that forecasts its fourth loss in five years, two people familiar with the plan said. Japan Air rose the most in 11 months.

American also plans to expand code-sharing with Japan Air, its partner in the Oneworld marketing alliance, the people said yesterday, asking not to be identified because the discussions aren’t public. Japan Air is talking with other carriers to strengthen its business, spokeswoman Sze Hunn Yap said in Tokyo, declining to comment on discussions or possible investments.

Japan Air, which has received three government bailouts since 2001, the most recent in June, is also in talks on possible stake sales to Delta Air Lines Inc. and Air France-KLM, people familiar with those negotiations have said. The carrier, known as JAL, will present the outline of its mid-term plan to a government panel of legal and academic experts in Tokyo tomorrow and aims to announce the plan by the end of this month, Yap said.

“An investment by American or Delta is a step in the right direction,” said Mitsushige Akino, who oversees $645 million in assets in Tokyo at Ichiyoshi Investment Management Co, which doesn’t own the stock. “The question is how serious they are and how much money they are willing to invest.”

Charley Wilson, an American Airlines spokesman at the company’s Fort Worth, Texas, headquarters, confirmed talks between the carrier and Japan Air. He declined to comment on the subject of the discussions.

AMR, Delta Shares

American parent AMR Corp. rose 24 cents, or 3.6 percent, to $6.94 at 4:01 p.m. in New York Stock Exchange composite trading. Atlanta-based Delta gained 54 cents, or 6.7 percent, to $8.60.

Japan Air rose 8 percent to 176 yen at the close of trading in Tokyo. It has declined 17 percent this year compared with a 15 percent gain in the Nikkei 225 Stock Average.

The airline will cut 5,000 jobs over three years under the new plan, the Mainichi newspaper reported. The company has already said it will cut 1,400 administrative jobs, without giving a time frame.

Japan Air may be seeking 250 billion yen ($2.8 billion) to rebuild operations, the Nikkei newspaper reported yesterday without saying where it got the information.

Tokyo-based Japan Air said in a statement today that it wasn’t the source of reports on raising funds and that nothing has been decided on financing.

AMR, Delta Cash

AMR posted a $2.1 billion loss last year and has had losses in the first two quarters of this year. The company had $3.3 billion in cash or near cash on its balance sheet as of June 30, including $460 million dedicated to specific uses. Delta’s loss last year was $8.9 billion. It also posted losses in the first half. The carrier had $4.9 billion in cash on its balance sheet as of June 30.

Code sharing with Asia’s largest carrier would give Delta access to more cities in Japan and the ability to sell seats on Japan Air flights directly to customers. Through Oneworld, American already has a code-share agreement with Japan Air. Alliances such as Oneworld and SkyTeam, which includes Delta and Air France-KLM, let airlines expand their networks by pulling in more passengers and sharing revenue at lower costs.

Rival All Nippon Airways Co., forecasting a profit this fiscal year, is in the Star Alliance group along with UAL Corp.’s United Airlines and Deutsche Lufthansa AG.

American been talking with Japan Air for more than a month on a “far-reaching” joint venture, the Wall Street Journal reported yesterday.

Japan Air’s Loss

Japan Air posted a 99 billion yen loss in the first quarter, the most in at least six years, as business and leisure travel plummeted during the country’s worst postwar recession.

The carrier, privatized by the government in 1987, had a 25 percent drop in overseas passengers in June, the biggest decline since outbreaks of severe acute respiratory syndrome and bird flu in 2003. It gets more than half its airline business from international travel.

“I don’t think the Japanese government cares who gives JAL the money,” said Yasuhiro Matsumoto, an analyst in Tokyo at Shinsei Securities Co. “JAL would probably rather get money from American since they’re in the same group.”

The incoming Democratic Party of Japan, which takes power Sept. 16, has pledged to cut what incoming Prime Minister Yukio Hatoyama called “wasteful” government spending.

JAL, which predicts a loss of 63 billion yen for the full year ending March, received a 100 billion yen loan from the state-owned Development Bank of Japan and other local lenders in June. American Air could invest about 50 billion yen in JAL, Shinsei’s Matsumoto said.

“Japanese banks may be convinced to give JAL more money if it receives capital from another airline,” he said. “If an airline is willing to put substantial funds into JAL that means it’s more likely to survive.”

To contact the reporter on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net

Last Updated: September 14, 2009 16:15 EDT