UPDATE 3-India's Kingfisher flights grounded by staff unrest

* All Kingfisher flights on Monday cancelled - minister

* Kingfisher will not be allowed to fly if safety norms notmet - minister

* Some employees manhandled staff willing to work -Kingfisher

* Shares fall by maximum daily limit of 5 pct

(Adds minister's comments on safety)

By Anurag Kotoky

NEW DELHI, Oct 1 (Reuters) - Labour unrest forced India'sKingfisher Airlines Ltd to cancel all its flights onMonday in the latest blow for the ailing carrier as it scramblesto find an investor, sending its stock down by its maximum dailylimit.

India warned it would not allow Kingfisher to fly if safetyrules were not followed, and the industry regulator will meetKingfisher executives on Tuesday to discuss safety issues, CivilAviation Minister Ajit Singh said.

Kingfisher, controlled by flamboyant liquor baron VijayMallya and once India's No. 2 carrier by domestic market share,has struggled with its $1.4 billion debt and banks have refusedto lend it more unless it can infuse fresh equity.

The carrier, which has never made a profit, had alreadygrounded most of its fleet.

"A section of employees of Kingfisher Airlines has not beenreporting for work over the last fortnight and over the past twodays, they have been threatening and even manhandling the otheremployees who are reporting for work," Kingfisher spokesmanPrakash Mirpuri said in a statement on Monday.

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Kingfisher said earlier on Monday it was cancelling"several" flights, but Singh said all the airline's Mondayflights were cancelled. All Kingfisher flights scheduled todepart from Delhi on Monday were cancelled, the airport'swebsite showed.

"I must have been crazy to have booked tickets onKingfisher. I don't know what to do now," Bilal Ahmed, 29, whowas due to be married on Wednesday in Srinagar, told Reuters atDelhi airport, where his flight had been cancelled.

Kingfisher's Mirpuri did not reply to phones calls and textmessages, seeking further comment.

Shares in Kingfisher closed 4.95 percent down at 15.35rupees on the National Stock Exchange. The stock is allowed tofall or rise a maximum of 5 percent a day, according to dailylimits set by the exchanges.

SAFETY ISSUE

Kingfisher, which has been months behind on salary payments,has seen its operations disrupted several times by fed-upemployees, although until the recent incident there had notapparently been any reports of violence.

"The point is if safety is jeopardised. That's the issuehere," Singh told reporters on Monday. "This is the first timethat safety issue has come up."

"There are certified engineers, only who can certify thatairworthiness is there or not," Singh said. "If there is nocertificate for airworthiness from the engineers who arequalified to do that, they won't be allowed to fly."

The Mint newspaper on Monday reported that airline groundstaff had refused to attach an air bridge to a plane in Mumbaion Sunday, stranding passengers onboard, while some engineers"beat up" an executive, the newspaper said, citing two unnamedsources.

Arun Mishra, the Director General of Civil Aviation, toldReuters the regulator was "examining" the situation atKingfisher.

Under Indian rules, an airline needs to operate at leastfive planes in order to maintain its licence.

INVESTMENT HOPES

Last month, India allowed foreign airlines to buy stakes ofup to 49 percent in local carriers, a long-awaited policy movelobbied for by Kingfisher and seen as providing a lifeline tothe country's debt-laden operators.

While no carrier has publicly expressed interest in buying astake in Kingfisher, Mallya told shareholders last week he wasin talks with foreign carriers for investments, echoing earliercomments about potential investments, which have yet to yieldany announcement.

Kingfisher, which has never turned a profit, has seen itsdomestic market share fall from second place last year to lastamong India's six main carriers. Kingfisher shares havemore-than-doubled from an all-time low of 7.05 rupees inmid-August.

Last week, its banks held inconclusive talks about thecarrier's turnaround plan and will meet again this month.

Also last week, Mallya's United Spirits Ltd andDiageo Plc confirmed long-rumoured talks for the UKgiant to take a stake in India's dominant whisky maker, a dealthat could make it easier for Mallya to find funds to rescueKingfisher.

(Additional reporting by Mansi Thapliyal; Writing by DeviduttaTripathy; Editing by Chris Gallagher and Tony Munroe andCatherine Evans)

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Keywords: INDIA KINGFISHER/