TOKYO—Private-equity firm TPG is working with American Airlines parent AMR Corp. on a possible investment in Japan Airlines Corp., a person familiar with the situation said, upping the ante in the race with Delta Air Lines Inc. to cement a stronger partnership with the Japanese carrier.
TPG is ready to be "part of a solution for JAL" but is waiting for positive signals from the Japanese government and JAL before proceeding further, the person said.
"TPG is a well-respected investor in the airline space," AMR Chief Financial Officer Tom Horton said in a meeting with reporters Wednesday. "To the extent that there is an investment to be made, they would be a natural partner for American. We are pleased to have their support."
A TPG spokesman said it was unclear whether TPG would participate in a joint minority investment with AMR. A Delta spokeswoman declined to comment.
TPG's participation could strengthen AMR's effort to secure a more robust alliance with JAL, which is undergoing a broad, government-led restructuring aimed at returning it to profitability. Delta and American Airlines are dangling the possibility of making investments valued at hundreds of millions of dollars, though foreign investment laws limit their participation to minority stakes.
Also Wednesday, the state-backed Development Bank of Japan may extend 100 billion yen, or about $1 billion, in loans to keep JAL flying, a person familiar with the matter said. Government officials Tuesday said it would offer aid but didn't specify the amount.
TPG has a strong track record in investing in airlines world-wide, including Continental Airlines Inc., Ryanair Holdings PLC and the former America West Airlines. But its latest foray, the joint purchase with Northwest Airlines Corp. of Midwest Air Group Inc., ended badly. Republic Airways Holdings Inc. recently purchased Midwest for a small fraction of what TPG and Northwest paid last year.
An investment in JAL would be a major breakthrough for TPG in Japan. The U.S. buyout firm has tried to invest in well-known Japanese brands before, but hasn't managed to clinch a big deal for years. It competed for a stake in JAL's credit-card unit last year and the electronics unit of Matsushita Electric Industrial Co. in 2007, but both went to domestic buyers.
Private-equity firms have long struggled to sign deals in Japan, mostly because Japanese managers fear the stigma of selling assets to foreign buyers.
Mr. Horton, of AMR, said American Airlines raised $4 billion in the third quarter, making it able to supply JAL with a cash infusion. "It gives us more financial flexibility and strength in a situation like this," he said. "TPG could also be part of a comprehensive recovery plan…and could potentially help invest in JAL."
American continued to attack a potential Delta-JAL alliance, saying the Japanese carrier could stand to lose as much as $500 million in revenue plus the cost if it decided to exit the oneworld alliance. It wasn't clear what those costs would be.
Delta is offering to cover JAL's transition costs to SkyTeam, between $15 million and $20 million, according to a person familiar with the situation, plus lost revenue.
Mr. Horton argued that it would be unlikely for a Delta-JAL alliance to secure antitrust immunity once an open-skies pact is reached between the U.S. and Japan. A Delta-JAL combination would command a 60% market share of flights between the two countries.
JAL is bogged down by more than one trillion yen in net debt and legacy pension costs. The Development Bank of Japan is considering whether its 100 billion yen should be provided as a commitment line, through which the airline would be able to use funds only when needed over the next few months, said the person familiar with the development bank.
The bank also hopes other banks in the private sector would join this plan to share the burden of the loans, the person said.
Write to Mariko Sanchanta at mariko.sanchanta@wsj.com, Alison Tudor at alison.tudor@wsj.com and Doug Cameron at doug.cameron@dowjones.com