* Regulator gives airline 15 days to reply to notice
* Airline extends partial lock-out until Oct 12; shut sinceMonday
* Staff in Mumbai, Delhi hold protest marches over unpaidsalaries
(Adds Kingfisher's response) By Tony Munroe and Anurag Kotoky
MUMBAI/NEW DELHI, Oct 5 (Reuters) - Debt-strapped KingfisherAirlines , devoid of a turnaround plan to get back intothe air, faced a possible shutdown by the government afterextending the grounding of its fleet for another week.
The industry regulator told the airline late on Friday todemonstrate why its permit to fly should not be suspended orcancelled, and gave it 15 days to reply.
The Directorate General of Civil Aviation said the airlinehad failed to establish a "safe, efficient and reliableservice".
Kingfisher stopped flights on Monday after a weekend protestby staff turned violent. Airline employees have not been paidfor seven months.
"The airline has not been able to resolve its issues. Theyhave not approached DGCA with any operational plan," theministry of civil aviation said in a statement.
The company said in a statement it would submit its responseto the regulator "well in time" and would also come up with aplan to restore services after negotiating with employees.
About 150 Kingfisher staff staged a protest march in Mumbaiearlier on Friday, following what police said was the suicide ofan employee's wife worried about the family's precariousfinances. Another 100 staff held a candlelit march in Delhi onFriday night, adding to pressure to resolve the carrier'slong-running financial problems.
Kingfisher, once India's second-biggest airline, has failedto find an overseas airline or other investors to bring in freshequity.
The Centre for Asia Pacific Aviation, which estimatesKingfisher's debt at around $2.5 billion, said a fully fundedturnaround would cost at least $1 billion. It said Kingfisherhad only an outside chance of recovery and that its "massivedebt burden, crippled fleet and poor employee morale" woulddeter a foreign airline investor.
It is now the smallest of India's six main carriers and itssteep decline has enabled rivals such as Jet Airwaysand IndiGo to raise fares in what had been a ferociouslycompetitive market plagued by overcapacity.
Kingfisher, controlled by liquor baron Vijay Mallya, hasnever turned a profit since its launch in 2005 and before thisweek was flying only 10 planes. Its fleet once numbered 64.
"How can the management realistically expect us to work?"said Krishna Kumar, a 35-year-old engineer in Mumbai who joinedKingfisher six years ago. "We have borne this for seven months,"said Kumar, wearing a black arm band.
Talks between airline management and Delhi-based pilots andengineers broke down on Thursday. Similar talks in Mumbai onWednesday ended in what one senior pilot called a stalemate.
Kingfisher spokesman Prakash Mirpuri said the airline wasextending what it described as a partial lock-out to Oct. 12 oruntil the strike is called off.
TOUGHENED STANCE
The government has been toughening its stance towardsKingfisher after allowing it to operate for months despitegrounding most of its fleet and defaulting on payments to banks,oil companies, airports and others.
Kingfisher's lenders, mostly government banks led by StateBank of India , have refused to extend further credit inthe absence of fresh equity, but they have shown patience.Indian state banks rarely force big companies to liquidate.
"Banks are still giving time to Mr. Mallya to get aninvestor. Because if we pull the plug it would be irretrievable.And if we are patient with him possibly there is a chance thathe would revive," SBI Chairman Pratip Chaudhuri told reporters.
"Having waited for so long we might as well wait longer."
Mallya's United Spirits Ltd and Diageo Plcrecently confirmed long-rumoured talks for the UK giant to takea stake in India's dominant whisky maker, which could make iteasier for Mallya to find funds to rescue Kingfisher.
Rohan Shrivatsava, 28, who has been with the airline forfive years and was part of the protest in Mumbai, said he hadbeen looking for another job without success. "Getting a jobafter working at Kingfisher is not possible. Do you know howmany airline engineers are in the market running for jobs?" hesaid.
A 31-year-old in Mumbai cargo operations who declined to beidentified said he had earned about 18,000 rupees ($350) a monthin salary and paid 7,000 rupees a month to rent a room.
"My landlord has been furious about my rent dues. I have notpaid rent for last three months. How do I pay my rent, where doI live if I am thrown out tomorrow?"
Some employee anger was directed at Mallya, theself-described "King of Good Times", known for his lavishlifestyle.
One placard read: "Is your party over Mr. Mallya?"
Kingfisher shares fell 4.7 percent on Friday, effectively attheir daily limit of 5 percent for the fifth straight session.
($1 = 51.8650 Indian rupees)
(Additional reporting by Swati Pandey, Kaustubh Kulkarni andHimank Sharma in Mumbai and Annie Banerji in New Delhi; Editingby David Cowell and David Holmes)
((tony.munroe@thomsonreuters.com)(+91 22 6180 7257)(ReutersMessaging: tony.munroe.reuters.com@reuters.net))
Keywords: INDIA KINGFISHER/