Shares in Japan Airlines Corp <9205.T> tumbled on Friday as media reports and comments from government officials heightened fears Asia's biggest carrier by revenue will file for bankruptcy as part of a state bailout.

Negotiations have dragged on for months as company officials, employees, policymakers, investors and even pensioners grapple over JAL, with a bankruptcy for the debt-laden and loss-making airline looking increasingly likely.

A state-backed fund is in talks with the government and creditors on a plan to support JAL with yet more cash if it files for bankruptcy and can get debt forgiveness from its banks, sources have told Reuters.

The case for a court-led restructuring, which would likely slash the value of JAL's shares, appeared to gather momentum on Thursday when Japan's new finance minister said he expected the fund to support JAL.

Transport Minister Seiji Maehara told reporters on Friday, however, he had not heard from the fund that a court-led bankruptcy was a premise of JAL's restructuring.

JAL shares slumped 13 percent, extending losses this week to as much as 30 percent and cutting the airline's market value to below $2 billion from more than $6 billion a year ago.

For a Graphic TIMELINE on JAL shares, click http://graphics.thomsonreuters.com/0110/JP_JAL0110.gif

But some analysts warned the shares might fall further.

The current share price hasn't fully factored in a bankruptcy scenario, said Takahiko Kishi, senior analyst at Mizuho Investors Securities. If a court-led restructuring really takes place, then their shares can easily be knocked down to the 20-30 yen level.

The stock last traded at 67 yen.

The spread on JAL's five-year credit default swaps, used to insure against default, have been recently quoted at distressed levels around 6,000 basis points.

OPPORTUNITIES FOR RIVALS?

Shares in rival All Nippon Airways <9202.T> rose 1.1 percent to a 4-month high as investors bet ANA would benefit from JAL's drastic restructuring.

The more JAL suffers, the more ANA benefits because there're basically only two big carriers flying over Japan, said SMBC Friend Securities chief strategist Fumiyuki Nakanishi.

Even as JAL flirts with bankruptcy, Delta Air Lines and American Airlines have been stepping up their efforts to court the carrier, eyeing its access to fast-growing Asian markets and a stronger foothold in Japan.

The state-backed fund, Enterprise Turnaround Initiative Corp of Japan, is expected to make a final decision on whether to support JAL in the week starting January 18, with a filing for bankruptcy likely on the same day, sources have said.

The Nikkei business daily said on Friday the government has firmed up its stance to put JAL through a bankruptcy procedure and would finalize its decision as early as Tuesday and the carrier could file for bankruptcy a week later.

American Airlines met with JAL executives on Thursday and raised its offer of investment, to be made with private equity firm TPG, by $300 million to $1.4 billion, the Wall Street Journal reported on its Web site.

A spokesman for American declined to confirm or deny the figure.

Maehara said it would be difficult to choose Delta or American as a partner for JAL by the end of this month.

($1=93.25 Yen)

(Additional reporting by Mariko Katsumura; Editing by Edwina Gibbs, Lincoln Feast and Ian Geoghegan)

Japan Airlines Japan American Airlines