Japan Airlines needs a new flight path. It has no hope of breaking even without jettisoning huge debts, massive pensions obligations and a bloated cost base. Even a last-minute deal with its pensioners will not solve its problems. JAL should opt for bankruptcy.

JAL’s troubles are not new. It has reported losses in four out of the five past years. And in the first six months of 2009 alone it was some 131 billion yen ($1.5 billion) in the red.

Its shares are in a downward spiral. They have lost more than half their value this year as investors have baled out rather than wait for a government-engineered restructuring plan to deal with the losses, debts of $15 billion in debts and a $3.7 billion pension shortfall.

The only reason JAL is still flying is thanks to a 100 billion yen credit line from the state-owned Development Bank of Japan. This is meant to tide JAL over until a state-backed turnaround fund decides whether or not to support it. This could take between one and three months.

JAL’s pension hole is a major sticking point, with JAL’s president Haruka Nishimatsu warning pensioners and staff that unless they accept an average 40 percent cut in their pension payouts, the carrier will be forced into a court-led restructuring.

Faced with inevitable opposition from 9,000 pensioners and 17,000 JAL employees, the Democratic Party government of Prime Minister Yukio Hatoyama is considering legislation to implement such cuts.

Even if such a change in the law were possible, JAL’s problems require more drastic action. With too many planes, too many routes and a heavy cost base, the airline desperately needs to slim down.

JAL had cash reserves of just 95 billion yen at the end of the first half. It has admitted to problems meeting its loan obligations and its ability to continue as a going concern. JAL’s biggest creditors include the country’s three top banks.

JAL is trying to cut costs, but this will not be enough to see it through one of the toughest periods in airline history.

While there is value in JAL’s network in Asia — it is being courted by Oneworld alliance partner American Airlines, rival SkyTeam member Delta Air Lines and private equity firm TPG — only once it has been freed from the weight of its pensions and debts, will it be able to take-off again.

Given the rate of descent of its shares, investors are right not to wait for a long-winded government-led restructuring.