Japan Airlines Corp's lenders may approach the Japanese government for a drastic overhaul of the struggling air carrier, including a move to separate its profitable operations from money-losing segments, the Nikkei business daily reported without citing sources.

The Development Bank of Japan and other lenders are pressing for increased government involvement in JAL's rehabilitation, citing a major deterioration in its operations, and are reluctant to provide additional loans, the paper said.

Last week, Japan's new transport minister Seiji Maehara said Japan Airlines must not be allowed to fail, indicating the state would support the loss-making carrier as it seeks fresh funding for a drastic cost-cutting plan.

The Development Bank and the other lenders are calling for streamlining of the carrier's operations by separating them into distinct entities -- the new section would comprise profitable routes and healthy operations, while the old section would absorb unprofitable routes and segments, the daily said.

Another proposal under consideration would have the government provide capital to JAL's new entity as part of a temporary nationalization of these operations, the business daily said.

The old entity would then be subject to a liquidation of assets over time, while taking into account the interests of local communities that would be impacted by such a move.

JAL lost about $1 billion last quarter and has been scrambling to put together a revival plan this month to submit to the transport ministry, which is supervising its restructuring after the state backed a 100 billion yen ($1.1 billion) loan. (Reporting by Supantha Mukherjee in Bangalore; Editing by Anil D'Silva)

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