Japan Airlines, a once-proud flag carrier crippled by huge debts, opted for bankruptcy on Tuesday as part of a painful overhaul involving thousands of job cuts, route closures and asset sales.

Asia's biggest airline is set to keep flying with an injection of billions of dollars in public aid, while undergoing a revamp that will reportedly see one-third of its workforce depart as it bids to halt its financial tailspin.

According to local media, JAL's management formally decided on Tuesday to begin bankruptcy proceedings, becoming one of the highest profile victims yet of Japan's economic woes. A court filing was expected later in the day.

With estimated debts of about two trillion yen ($22 billion), a JAL bankruptcy would be Japan's biggest failure outside the financial sector since World War II, according to Tokyo Shoko Research, an advisory firm.

JAL shares plunged to an all-time low of just three yen (three US cents) at one point on Tuesday, reducing the market value of the group to about $90-million, far less than even the cost of a new jumbo jet.

Investors are expected to be left out of pocket if JAL goes bust, although Tokyo says JAL will stay in the skies during the restructuring, which is expected to be similar to the process used for US auto giant General Motors.

"The government has prepared various support measures," transport minister Seiji Maehara told reporters. "We want to help (JAL) to recover while operating safely," he added.

The government has tapped Kazuo Inamori, a 77-year-old entrepreneur and ordained Buddhist monk, to run the stricken airline during its overhaul.

Inamori is one of Japan's most respected business executives and management gurus, having founded both high-tech parts supplier Kyocera Corp. and a company that later became part of KDDI Corp., now Japan's number two telecoms firm.

"He seems to have charisma, which is a good thing," said Makoto Murayama, an analyst at Nomura Securities.

"At the moment JAL employees don't really want to admit that they work for the company. If someone can restore their pride and lead them, the chances of a recovery could increase."

Page 2: Merger talks

AFP

Win tickets to Europe! Need a break in 2010? iafrica.com and SWISS are giving away two free tickets to Europe!

Win a Cathedral Peak stay We're giving away a fabulous escape to the famous Cathedral Peak Hotel in the Drakensberg!

Travel deals for less Feeling cash-strapped in 2010? Browse our low-price deals for a budget break...