Japan's government is set to explain through diplomatic channels the situation of Japan Airlines Corp <9205.T>, increasingly likely to go bankrupt, to some 35 nations the airline serves, Yomiuri newspaper said on Saturday.

The government, aiming to ease credit worries abroad, will also issue a statement saying it fully supports JAL's flight operations when Asia's biggest carrier by revenue files for bankruptcy, Yomiuri reported without citing a source.

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

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

The Enterprise Turnaround Initiative Corp of Japan 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.

A pre-packaged bankruptcy of JAL would involve drastically cutting the carrier's services and providing the airline with 600 billion yen ($6.48 billion) in credit as a bridge loan, the Nikkei business daily reported on Saturday.

The government may approve the turnaround plan as early as Tuesday, with the carrier filing for court protection around the same day, the daily said.

The airline's top lenders had been pushing for a creditor-led workout but are now expected to accept the government's decision, media reports said.

During the three-year timeframe set for rebuilding the carrier, the ETIC is expected to cut 13,000 jobs, write down the value of the airline and cancel 26 domestic and overseas routes in addition to the already announced 21 routes, the Nikkei said.

While the ETIC is seeking a delisting of JAL through a 100 percent reduction of capital, which would wipe out existing shareholders, JAL management and creditors are lobbying to keep the company listed, the business daily reported.

Meanwhile, 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.

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

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

(Reporting by Archana Shankar in BANGALORE and Yoko Kubota; Editing by Alex Richardson)

Japan Japan Airlines American Airlines