UPDATE 2-Japan govt plans emergency loan to Japan Airlines

* Japan plans loan to Japan Airlines, hit by global downturn

* State loan to JAL on condition it cut costs

* Loan likely to be around 100 billion yen - official (Adds Richard Branson comment)

TOKYO, June 22 - Japanese Finance Minister Kaoru Yosano said on Monday the government was preparing a loan to loss-making Japan Airlines Corp, caught by severe airline turbulence in the global economic crisis.

Yosano said he has received a request by Transport Minister Kazuyoshi Kaneko, in charge of overseeing airlines, for the Development Bank of Japan (DBJ) to extend loans to JAL, Japan's biggest airline.

"I replied that we hope to cooperate through DBJ loans and that I will pass on the request to them," Yosano told a news conference after a cabinet meeting. The Ministry of Finance oversees operations of DBJ, a state-owned bank.

A bank official said it would likely provide around 100 billion yen ($1 billion) in emergency financing to JAL.

British entrepreneur Richard Branson, founder and president of airline Virgin Atlantic criticised the move. "State aid is never appropriate. If Japan spends 1 bln dollars propping up JAL it would be patently foolish. The government would do better to let JAL go bust then younger carriers in Japan can move in and take up the slots," he said.

Hit by slumping global travel and rising fuel costs, global airlines are forecast to lose $9 billion this year, the International Air Transport Association said this month, nearly double its estimate of just three months ago.

JAL earlier this year requested finance through a government emergency loan lending programme.

JAL has not announced the amount it is seeking, but a company source said it may be around 200 billion yen ($2.1 billion).

The carrier reported a 50.9 billion yen operating loss for the year to March 2009 and warned of a 59 billion yen in the current year to next March.

A syndicate of Japan's three biggest banks and the state-backed DBJ are planning to lend about 100 billion yen to the airline as early as this month, the Nikkei daily reported earlier this month.

Government support for the carrier will help ease funding strains as it would encourage commercial banks to lend to JAL, Yosano said.

Kaneko said the transport ministry did not see any big problems in JAL's operation itself.

"The airline firm JAL and the airline industry are very important for the Japanese economy as well as for the people, and it is important to maintain airlines in Japan in order to operate internationally, too," he told a news conference.

JAL spokesman Satoru Tanaka said the airline hoped to draft out a new business plan as early as possible, reflecting the government's help. ($1=96.26 Yen)