(Updates throughout with background, detail)

 
   DOW JONES NEWSWIRES 
 

The parent of American Airlines said Thursday that it had raised $2.9 billion in fresh funding, repairing one of the sector's weakest balance sheets and potentially paving the way to buy a stake in Japan Airlines (9205.TO).

AMR Corp. (AMR) gained $1.3 billion in cash from monetizing most of its unencumbered assets, selling aircraft and frequent-flyer miles to counter a sharp slide in airline travel and prepare for looming pension charges.

The airline's move is the latest in a series of efforts by U.S. carriers to counter the slide in revenue from weak fares and falling business travel by raising secured funding ahead of the traditionally weak winter quarters.

American also is retrenching to its four main U.S. hubs and said it would leave domestic capacity flat next year, alongside a modest rise in overseas flying.

AMR's shares rose almost 18% in recent premarket action to $8.65.

The second-largest U.S. carrier for revenue also is seeking to retain and expand its alliance with JAL in the face of a challenge from Delta Air Lines Inc. (DAL).

Both are pursuing the Japanese carrier with the offer of a possible equity stake to bolster its own weak balance sheet. American made no comment Thursday on discussions with JAL. Delta has already raised $2 billion from selling flyer miles and announced a $500 million bond issue Wednesday.

American has turned to General Electric Co. (GE) with a $1.6 billion of aircraft sale-leaseback deal, plus a $280 million loan from the conglomerate. GE makes aircraft engines and runs the world's second-largest aircraft leasing company; it has a central role in bankrolling the sector during downturns.

The airline will also raise $1 billion from the advance sale of its AAdvantage frequent flyer miles to Citigroup Inc. (C).

American, which had $2.8 billion in cash at the end of the second quarter, has already raised $1.3 billion so far this year, though the coupon on some secured funding was as high as 13%.

Chairman and Chief Executive Gerald Arpey said Thursday that AMR expects its mainline capacity to rise about 1% next year, with the figure flat in the U.S.

-By Tess Stynes, Dow Jones Newswires; 212-416-2481; tess.stynes@dowjones.com

(Doug Cameron contributed to this story.)