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Shares of struggling carrier Japan Airlines Corp. (9205.TO) slid to a new all-time low Friday as investors spooked by the state of its balance sheet shrugged aside assurances from Japan's transport minister that a long-awaited, multi-billion dollar restructuring plan backed by the government is coming together smoothly.

Shares in JAL, Japan's biggest airline by revenue, closed Friday down 11% at Y101, less than half their value this time last year, after hitting an all-time low of Y100 earlier in the day.

Standard & Poor's lowered its long-term corporate credit rating later Friday on JAL by two notches to B- from B+. The rating agency said the downgrade reflects "an increased likelihood that the restructuring plan...will include debt burden reductions in the form of debt-for-equity swaps, debt forgiveness, or legal protection."

S&P also lowered its senior unsecured rating on JAL to B from B+ reflecting "our view that we cannot rule out the possibility that JAL will seek bankruptcy protection. However, the senior unsecured ratings are now one notch higher than the long-term corporate credit rating, reflecting our view that debt-for-equity swaps or debt forgiveness by banks are more likely than legal protection."

JAL's plight comes after the company slumped to its largest-ever quarterly net loss of Y99 billion in the April-June quarter, from a Y3.41 billion net loss in the same period a year earlier. Like most airlines, JAL has been buffeted by a sharp drop in travel demand brought on by the global economic downturn, and now expects a net loss of Y63 billion for this fiscal year through March.

Alongside the restructuring plan, JAL entered separate tie-up talks with Delta Air Lines Inc. (DAL) of the U.S. and American Airlines parent AMR Corp. (AMR). But JAL likely won't conclude alliance talks with the two U.S. airlines until a government-appointed task force finishes a review of its ailing financial structure, people familiar with the matter said earlier this month.

After a similar 11% slump Thursday, Friday's slide leaves JAL's market value at just Y276 billion and highlights the growing alarm among investors at the scale of funds that analysts estimate will be needed to shore up its balance sheet.

Analysts estimate JAL may want up to Y150 billion in new funds in the second half of the fiscal year through March 2010. For the current fiscal year through March, JAL initially needed Y200 billion by the end of March to run its daily operations, to renew aircraft and to pay back debts among other costs, Takahiko Kishi, an analyst at Mizuho Investors Securities said.

The company already raised Y100 billion in June. "As the business is deteriorating, (the remaining) Y100 billion probably won't be enough," Kishi said. Mizuho Investors has a '2-' rating on JAL, which is the second lowest among its five grades and means the shares will underperform within 10% below the Topix index over the next six months.

Earlier this week, the Nikkei business daily reported the airline may ask creditors for debt relief of Y300 billion, including debt-for-equity swaps worth Y250 billion and loan waivers totaling Y50 billion, while aiming to boost its capital by Y150 billion under the restructuring plan. The Nikkei didn't cite sources for its report.

JAL said later Friday in a statement that it is working on a restructuring plan with a strong commitment from the government. The company expects to announce the plan by end of November. A company spokesman said the company didn't have comments on the recent steep share drop and the rating downgrade as well as the possibility of legal protection mentioned by S&P.

But some analysts say there's little relief in sight. Merrill Lynch warned in a note to clients that the airline's shares will likely remain volatile as news on the company's restructuring plan trickles out. The brokerage has an "underperform" rating on JAL with a target price of Y100.

Speaking to reporters at a news conference after a meeting of Japan's cabinet, Transport Minister Seiji Maehara declined to comment on whether the share plunge might affect the drafting of plans to overhaul JAL. Maehara said only that he doesn't want to "react to ups and downs in the share."

At the same time, he insisted the restructuring will be drawn up as planned, saying that the work on the plan is making good progress and a government task force and the company are on track to announce a draft by the end of this month.

"There is no change at all in our policy that the government will back up" the company, Maehara added. He added that he doesn't know yet if any routes will be scrapped under the restructuring plan.

JAL had laid out a restructuring plan on its own including scrapping 50 international and domestic routes and 6,800 job cuts. But Maehara said last month that he was skeptical about its feasibility. A special task force was subsequently established to advise on the company's overhaul.

-By Yoshio Takahashi, Dow Jones Newswires; 813-6895-7561; yoshio.takahashi@dowjones.com