UPDATE 1-India allows lessors to retrieve Kingfisher planes
* Most of 17 deregistered planes to be returned to lessors
* ILFC cannot take back 2-3 planes due to litigation
* Airports must abide by international convention
* Lessors need to pay parking fees
NEW DELHI, March 26 (Reuters) - Plane lessors will be allowed to retrieve most of the deregistered aircraft they leased to grounded Kingfisher Airlines, India's aviation regulator said on Tuesday, easing worries a dispute with global financiers might hurt other Indian carriers.
Financiers have warned that failure to resolve the dispute could starve India of funds needed to develop its aviation industry.
Kingfisher, controlled by liquor baron Vijay Mallya, has been grounded due to a cash crunch.
Lenders, airport operators and tax authorities are trying to recover some $2.5 billion, but disagreement over which creditors should take precedence has left jets stranded.
"We have decided that those aircrafts, which were deregistered by DGCA, we should release them," Director General of Civil Aviation (DGCA) Arun Mishra said following a meeting with tax officials and airport operators.
Mishra said lessors will have to clear the parking charges from the date of deregistration to the date they fly back the planes.
However, lessor International Lease Finance Corp, a unit of insurer AIG, will not allowed to take back 2-3 planes it owns before settling a pending litigation, Mishra said.
"Only a few of them are under litigation. Airports have filed a case. We will have to wait for that."
ILFC said its action had solid standing. "We believe that our position is in compliance with the norms of the Cape Town Convention and any claims brought against us would therefore be incorrect and dubious," said spokesman Paul Thibeau, referring to a treaty on transactions involving moveable property.
On Monday, ILFC said it had successfully removed one of six aircraft in Kingfisher colours but is worried about the others.
The fate of Kingfisher's jets is seen as an important test of an international agreement known as the Cape Town convention, designed to make it more attractive for leasing companies to invest by duplicating U.S.-style repossession rights.
The Airports Authority of India is bound by international convention to let the planes go to lessors, its chairman V.P. Agrawal said.
Germany's DVB Bank said in December it had sued India's aviation regulator and Kingfisher in order to have two planes it financed for the troubled carrier deregistered, a first step toward recouping its funds.
Kingfisher has 25 more planes, both owned and leased, but there has been no request to deregister those, Mishra said.
Reuters reported earlier this month that India will make it easier for leasing and finance firms to reclaim planes used by Kingfisher, after complaints that India was complicating the process.
Kingfisher made no immediate comment.