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Japan's government Tuesday underlined its determination to reach a deal on restructuring loss-making carrier Japan Airlines Corp. (9205.TO) within days, stepping up talks between ministers, a rescue task force and creditors on proposals that could plug yawning gaps in its balance sheet, jettison unprofitable routes and cut thousands of jobs.

But while investors' hopes for a deal lifted JAL's shares for a second straight day, after shedding over a fifth of their value late last week, the government still has to bring JAL's creditor banks on board.

The lenders balked at original proposals from a Transport Ministry task force, including a debt waiver worth over $3 billion, according to people familiar with the situation.

The JAL saga is becoming a second early test of the recently installed government's willingness to intervene in business affairs after floating--and then watering down--plans to oblige banks to allow the country’s struggling small businesses more time to pay off debts.

And despite Japan's bulging budget deficit, government ministers acknowledged Tuesday that they may have to consider using fresh public funds as part of a package to revive the country's biggest airline by revenue, hurt by the global slowdown in business and leisure travel this year.

At the same time, JAL remains in contact with Delta Air Lines Inc. (DAL) and AMR Corp.'s (AMR) American Airlines over a possible alliance that could see one of the two U.S. carriers taking a small stake in Tokyo-based JAL.

"Time is really pressing," Finance Minister Hirohisa Fujii said at a news conference after a Cabinet meeting in the capital. A decision on a restructuring plan "will probably be within a few days," the minister said.

At a separate news conference, Transport Minister Seiji Maehara reiterated that a draft restructuring plan will be filed by the end of this month, in line with previous commitments by the government led by the Democratic Party of Japan. But in a hint that the government may be prepared to compromise on its original intentions to seal a recovery package, Maehara said, "The plan is evolving."

The numbers at JAL, formerly state-owned but privatized in 1987, highlight the gravity of the situation. Despite efforts to cut costs, its net loss ballooned to over $1 billion - Y99 billion - in the first quarter of its fiscal year ended June, compared with a net loss of Y3.41 billion in the same period a year earlier.

And though it forecasts an improvement in the second half as the global economy picks up, the company still expects to post a net loss of Y63 billion in the 12 months through March, equal to about $1.9 million a day.

The seriousness of the situation is reflected also in an apparent openness to international partnerships on the part of JAL's leading trade union, matching management's willingness to talk to its peers. Japan Airlines Workers' Union, which represents 9,600 of JAL's total workforce of close 50,000, would welcome an alliance with either Delta or American Airlines, according to one person familiar with the situation.

That is a significant shift for both the company and many of its employees, who have long-favored independence over forming partnerships. JAL only joined the Oneworld alliance of carriers, featuring American, in 2006, making it the last of the top 20 international airlines by revenue to join such a network. The company’s younger managers argued at the time that independence was untenable in an era when major carriers were forming global alliances and code-sharing agreements.

Hideshi Takashi, the secretary-general of Japan Airlines Workers' Union, said he hoped JAL’s management would study all options "calmly" before reaching any conclusions.

Though it already raised Y100 billion last June to cover daily operating costs, analysts estimate JAL may need up to Y150 billion in new funds in the second half of the fiscal year through March 2010 just to keep its jets in the air, even without considering ways to tackle its pile of debt. Earlier this week the company denied one media report that said its liabilities now exceed its assets.

While Japanese media have carried reports that the restructuring plan will involve the sale of various assets including JAL's hotel business, as well as the disposal of tens of large jets, the company Tuesday said no decisions have yet been made.

At his news conference Transport Minister Maehara said he met with Finance Minister Fujii and members of the task force to review progress on the restructuring package. According to people familiar with the situation, the task force is also scheduled to meet representatives of JAL's principal creditors later Tuesday.

As a legacy of the previous Liberal Democratic Party government's willingness to accommodate JAL requests for finance, rather than impose the kind of restructuring that has been common in the long-ailing airline sector, the Development Bank of Japan, a state lending agency, has the largest outstanding loan to JAL, worth about Y230 billion.

But all of Japan's big three banks also have significant long-term financing exposure. Bank of Tokyo-Mitsubishi UFJ, a Mitsubishi UFJ Financial Group (8306.TO) banking unit, has Y57 billion outstanding. Mizuho Corporate Bank, the wholesale banking unit of Mizuho Financial Group (8411.TO), has about Y53 billion loans to JAL. And Sumitomo Mitsui Banking Corp., the core banking unit of Sumitomo Mitsui Financial Group (8316,TO), has about Y37 billion outstanding as of March, according to JAL's financial statements.

All four creditors declined to comment Tuesday on their lending to JAL.

Long-plagued by loss-making routes, JAL has swung in and out of the red for many years, while rival local carrier All Nippon Airways Co. (9202.TO) has grown in stature and is now twice as large as JAL by market value.

Mina Sawamura, a credit analyst at Moody's ratings agency, said, "What separates JAL from ANA is the fact that JAL has kept flying unprofitable international routes. Meanwhile, Japan has over a hundred airports, and capacity is full at Haneda and Narita – where demand is the greatest."

Moody's doesn't have a rating on JAL itself, but last week downgraded the long-term debt at a large unit, Japan Airlines International Co., to B1 from Ba3, and placed the rating on review for a possible further downgrade.

"The banks and their shareholders will react very strongly if they are forced to forgive debt," said Sawamura. "At the same time, because (U.S.) Chapter 11-style bankruptcy proceedings do not exist in Japan, the government will not allow JAL to fail," she said.

Both Maehara and Fujii said Tuesday the pair will meet again if a decision is formally made to use fresh public funds to support JAL. But Fujii noted that all of the task force's various restructuring proposals do involve using the public purse.

Still, Fujii declined to commit himself to using taxpayers' money already, saying, “We have to think about the task force's ideas separately from what Maehara may bring in."

Whatever the methodology, the prospect of a restructuring deal flushed out buyers for JAL shares Tuesday, sending the stock nearly 9% higher at one point. The shares eventually closed up 4.4%, after an 11% jump the previous day, while the Nikkei 225 average finished the day 1% higher.

At Y118, valuing JAL at Y322 billion, the shares closed well above the Y100 lifetime low hit Oct. 16 as concerns mounted about reluctance among JAL's creditors to accept a debt waiver. Still that level was 15% below their 25-day moving average, and only slightly over half this year's high of Y215. That was achieved in January, long before the scale of the company's financial plight became apparent.

-By Kenneth Maxwell, Atsuko Fukase and Mariko Sanchanta, Dow Jones Newswires; 813-6895 7564; kenneth.maxwell@dowjones.com

(Takashi Nakamichi and Yoshio Takahashi contributed to this article)