UPDATE 3-India warns could cancel Kingfisher Airlines license
* Kingfisher has not adhered to recovery plan - minister
* Kingfisher to halt international service
* Plans to fly 20 planes on 110-125 daily domestic flights
* Carrier's shares hit all time low (Updates with Kingfisher plans and Mallya comments)
NEW DELHI, March 20 (Reuters) - Kingfisher Airlines Ltd said it will halt international flights and fly just 20 planes as it seeks funding, hours after India warned the carrier's license may be canceled if it fails to meet safety norms and financial viability conditions.
The embattled airline, which has debts of $1.3 billion, is scrambling to raise funds after banks refused to lend more for its day-to-day operations.
A big cutback in flights has reduced its revenue, leaving the carrier controlled by flamboyant liquor baron Vijay Mallya with little cash to pay staff, airports, tax authorities and lenders.
"If he gives a plan and says I have that many planes, that much schedule, then why should we cancel?," Aviation Minister Ajit Singh said ahead of Mallya's meeting with the regulator to submit a recovery plan for the carrier.
"The problem is, (in the) last two to three months, he has given several plans and he has not adhered to any of them," Singh said, warning that the airline was liable for prosecution over unpaid taxes.
"If passenger safety is compromised we'll not let any airline fly. Safety norms also involves financial viability," Singh said.
Kingfisher said it had submitted an interim plan to operate 20 planes on between 110 and 125 domestic routes a day, and halt international flights by April 10. The carrier's fleet, which earlier had 64 planes, now has 47.
"We have not submitted an ambitious plan. We have submitted a holding plan," Mallya told reporters.
The company has said it is in talks with potential investors, some of which would require India to allow foreign carriers to own up to 49 percent of Indian airlines, a change the government is considering.
"Some of the potential investments depend on the change in FDI (foreign direct investment) policy but there are other investors we are in discussions with," Kingfisher Chief Executive Sanjay Aggarwal told reporters.
Cancellations have already disrupted the travel plans of thousand of passengers across the country and pushed up fares.
Shares of Kingfisher Airlines, which has a market capitalisation of about $200 million, hit an all-time low in early trade on Tuesday before closing 5.5 percent lower.
Kingfisher has never made a profit in a struggling Indian airline industry that is saddled with high fuel costs, stiff competition and low fares.
Five of India's six airlines are in the red and domestic carriers are likely to lose a total of $2.5 billion in the year through March, according to the Centre for Asia-Pacific Aviation (CAPA), an industry consultancy.
"As a government, we don't want to shut down any industry. There are employees and customers involved. Kingfisher had 22 percent traffic. If we close it suddenly, where will the fares go?," Singh said.
Global industry body IATA has suspended Kingfisher from its settlement system, restricting bookings through overseas agents, hitting ticket sales. On Monday, the last of Kingfisher's independent directors resigned.
The carried needs at least $500 million immediately to keep flying and $800 million to return to full operations, according to CAPA.
Kingfisher's billionaire chairman owns one of the world's most expensive yachts as well as cricket and Formula One teams, but he has been unable to raise fresh equity for an airline that was once India's second biggest by passengers.
"Mallya has been talking a lot about capital but I think he's only doing it to calm the situation and postpone the problems. We have not seen any money," said a senior executive at a state-run bank, which recently downgraded Kingfisher's loan to non-performing status.
There are no provisions for companies to declare themselves legally bankrupt in India.
"Right now, it is a complicated situation. We are closely monitoring," said the banker, who requested anonymity as he was not allowed to talk about clients. (Writing and additional reporting by Swati Pandey; Editing by Tony Munroe and Robert Birsel)
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