The two core units of Japan Airlines Corp in charge of operating flights and procuring funds will file for bankruptcy protection along their parent, the Nikkei newspaper reported on Friday. Japan Airlines Corp, Asia's largest airline by revenues, will file for bankruptcy protection as early as Tuesday as part of a restructuring package being crafted by a state-backed turnaround fund, sources have told Reuters.

The ongoing restructuring of Japan Airlines has landed legal advisory roles for Steptoe & Johnson, Hogan & Hartson, Jones Day, and two of Japan’s leading law firms, The AmLaw Daily reported. Eiji Katayama, a name partner at Japanese firm Abe, Ikubo & Katayama in Tokyo, is advising ETIC on JAL’s restructuring efforts. Under Japanese bankruptcy law, Katayama will likely be appointed trustee for JAL, where he would perform most of the duties traditionally reserved for debtors’ counsel in the U.S.

A Japan Airlines Corp bankruptcy will have a wide-spread impact on small businesses that account for half of the nearly 3,000 Japanese companies that do business directly with the carrier, a research firm said. Tokyo Shoko Research said small firms with less than 1 billion yen ($10 million) in sales make up half of JAL's major business partners, supplying goods to or buying from JAL's 91 group firms. "It's highly likely these small companies will feel the pinch because they depend heavily on business with JAL," said Kazufumi Masuda, a researcher at Tokyo Shoko, which tracks bankruptcy data.

The government has effectively gotten Japan Airlines Corp.'s main creditor banks to agree to let JAL file for bankruptcy under the Corporate Rehabilitation Law, and the carrier may do so Tuesday. It remains unclear, however, how Japan's biggest airline can be resurrected under court-led restructuring. In a Q&A, The Japan Times reported on questions and answers regarding the Corporate Rehabilitation Law and how it may be applied to JAL. Read more.

Shares in Japan Airlines plummeted 81% today to just ¥7 amid strong indications that the firm will file for bankruptcy and have its shares delisted as early as next week, The Guardian reported. Asia's biggest airline is expected to submit itself to a government-led rehabilitation package that will include a complete reduction of its capital. Investors, whose shares were each worth ¥213 at the beginning of last year, will see the value of their investment wiped out.

China backed off its giant stimulus effort Tuesday by reducing the amount of cash banks have available to lend, in the clearest signal yet that the government is worried that the nation's credit binge now risks igniting inflation, The Wall Street Journal reported. China's stimulus program, led by a government order to banks in late 2008 to flood the economy with cash, helped to carry China through global financial turmoil. The economy is now poised to surge past Japan this year as the world's second-largest economy after the U.S.

In a related story, the Associated Press reported that Japan Airlines Corp. is set to cut about 15,600 jobs, a third of its work force, and reject billion-dollar cash offers from Delta and American Airlines, as it files for bankruptcy and embarks on a government-led turnaround. Under a rehabilitation plan now being hammered out by a state-backed corporate turnaround body, JAL would make the job cuts during the three fiscal years through March 2013, Kyodo News reported.

Japan Airlines Corp.'s biggest commercial creditor banks have proposed a debt-forgiveness package worth more than $3 billion in a major concession designed to coax a state turnaround agency out of placing the struggling carrier in court-led bankruptcy protection, people familiar with the matter said Thursday. The move by the banks to shield their lending comes as U.S. rival carriers, Delta Air Lines and AMR Corp.'s American Airlines, intensify overtures to take a small but strategic stake in Japan Airlines, or JAL, prized for its access to Asian regional air routes despite its financial woes.

AMR Corp's American Airlines raised its offer to invest in Japan Airlines Corp. by $300 million to $1.4 billion, according to people familiar with the situation, intensifying its battle with rival Delta Air Lines Inc. to forge a partnership with the cash-strapped carrier, The Wall Street Journal reported. American met with JAL executives Thursday morning and sweetened its offer, according to these people. Last month, American, along with members of the Oneworld airline alliance and private equity fund TPG, said it would invest $1.1 billion into JAL.

Shares of Japan Airlines fell more than 4 percent on Wednesday after the Nikkei business daily reported the Development Bank of Japan (DBJ) and the Ministry of Finance are seeking court-led bankruptcy proceedings. Sources told Reuters last week that a government-backed turnaround fund was leaning towards bankruptcy proceedings for JAL as part of its restructuring plan, and was in negotiations with creditors to push such a plan. The Nikkei reported on Wednesday the state-owned DBJ, JAL's largest creditor, favours a pre-packaged bankruptcy option. DBJ declined to comment on the report.