UPDATE 2-JAL tumbles to record low on bankruptcy jitters

* JAL shares slump by nearly a tenth; close at record low

* Follows pension cut requests, Mitsui selling shares

* Reflects worries that JAL could go bankrupt - analyst

* JAL CDS quoted at 2,300, remain at distressed levels

* Share turnover three times 90-day daily average (Updates with closing price, credit default spreads)

TOKYO, Nov 24 (Reuters) - Shares of Japan Airlines Corp 9205.T slid to a record low on Tuesday on growing investor worries that Asia's largest airline by revenue could face bankruptcy as it struggles to agree pension cuts.

The slide was also fuelled by news that trading house Mitsui & Co (8031.T) sold all its 11.7 million JAL shares, raising speculation other shareholders would follow suit.

JAL President Haruka Nishimatsu asked retirees and employees on Monday to accept an average 40 percent cut in their pension payouts and warned that a failure to agree on cuts could push the carrier to a court-led restructuring. [ID:nT300174]

The stock closed at 87 yen after earlier dropping to as low as 85 yen, the lowest since a relisting in 2002. More than 82 million shares changed hands, three times the daily average over the past three months.

JAL's stock has more than halved in value this year and has tumbled 15 percent since Nov. 17 after Transport Minister Seiji Maehara rattled investors by saying bankruptcy was still a possibility for the airline. [I:nT199640]

"Maehara has said bankruptcy is not entirely ruled out, and many retirees appear to disagree with the pension cuts," said Takashi Ushio, head of investment strategy at Marusan Securities. "GM went into bankruptcy to deal with a very similar situation."

JAL's 5-year credit default swaps JAPB5YJPAC=MU, instruments used by investors to insure against the risk of a company failing, are quoted above 2,300 basis points this week, having climbed steadily from about 800 in mid-September.

The level is several times the benchmark iTraxx Japan index series 12 ITXCK5JA=GFI at 143 basis points.

JAL's Nishimatsu said on Monday that he would seek to cut pension payouts by slightly more than 30 percent for retirees and more than 50 percent for employees, aiming to slice into a pension shortfall that reached 331 billion yen as of March.

But pensioners have strongly opposed the cuts and can easily block them under current laws, which require the airline to secure the approval of two-thirds of retirees and employees.

The government has said it would consider legislation to force a cut in benefits, though some legal experts have said such a law could breach constitutional protection of property rights.

Coming up with a solution to the shortfall is seen as a prerequisite for JAL to qualify for the support of a state-backed turnaround fund, which is now debating whether to bail out the airline with public funds. [ID:nT349661]

JAL spokeswoman Sze Hunn Yap declined to comment.

Investors are also worried that major shareholders will look to sell their holdings, further depressing the stock price.

A spokesman for Mitsui & Co said the trading house had sold its stock, equal to about 0.4 percent of the total outstanding shares, on the market during the six months to end-September. He did not say why it sold the shares.

The Nikkei newspaper has reported that railway firm Tokyu Corp (9005.T) was considering selling its 2.9 percent stake in JAL. A spokesman for Tokyu declined to comment.

Even as it struggles to restructure and avoid bankruptcy, JAL is being wooed separately by AMR Corp's AMR.N American Airlines and by Delta Air Lines Inc (DAL.N), which are keen to gain access to JAL's network in Asia and a stronger foothold in Japan. ($1=88.90 Yen) (Reporting by Nathan Layne, Elaine Lies and Charlotte Cooper; Editing by Ian Geoghegan) ((nathan.layne@thomsonreuters.com; +813-6441-1801; Reuters Messaging: nathan.layne.reuters.com@reuters.net)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com))