NEW YORK, May 28 (Reuters) - Japan's embattled regional airline Air Do may begin talks this week with top carrier Japan Airlines Co (JAL) (9201) on expanding their alliance after talks hit a snag with All Nippon Airways Co (ANA) (9202), a Japanese daily said. Unlisted Hokkaido International Airlines Co, known as Air Do, plans to rebuild itself with the tie-up in fuel procurement and use of airport counter space, the Nihon Keizai Shimbun's online Wednesday edition said. The two carriers already have alliances in aircraft maintenance. But the ailing airline's biggest creditor, the Hokkaido prefectural government of northern Japan, is pushing for ANA, the nation's second-largest airline, to step in and buy a stake in Air Do. Earlier this month, ANA said it was in talks with the money-losing airline on financial support, in what could end up in the latest consolidation in the industry. JAL and nation's third-ranked carrier Japan Air Systems Co Ltd (9203) are slated to integrate operations this October to create the world's sixth-largest carrier. But the paper said Air Do officials have decided an equity tie-up with ANA would deter them from maintaining their independence in such areas as fare-setting for flights. Air Do is in dire need of funding as it has fallen behind paying around 900 million yen in taxes on landing and take-off fees, the newspaper said. ©2002 Reuters Limited.