UPDATE 2-Kingfisher fails to resolve dispute with striking staff

* Entire fleet grounded since Monday

* Shares fall near daily limit for 4th straight session

* Carrier's lenders to meet later on Thursday

(Recasts with statement from employee group, details)

By Anurag Kotoky NEW DELHI, Oct 4 (Reuters) - Kingfisher Airlines Ltd's

efforts to resolve a labour dispute were dealt yetanother blow after a group of employees said negotiations inDelhi had "ended in failure" because the Indian airline did notcommit to paying overdue salaries.

Kingfisher, once India's second-largest airline, is morethan half a year behind on salary payments and has grounded itsfleet since Monday after a protest by engineers over the weekendturned violent. Talks with employees in Mumbai on Wednesdayended in a stalemate.

"Employees demanded payment of long pending salary (sevenmonths) prior to resuming operations. All employees expressedtheir keenness to resume work provided their dues are clearedexpeditiously," the group of unidentified employees in Delhisaid in a statement on Thursday.

The shutdown has further dimmed the outlook for the airlinecontrolled by liquor baron Vijay Mallya. Kingfisher, which hasnever turned a profit since its founding in 2005, is saddledwith $1.4 billion in debt, owed mostly to government banks ledby State Bank of India .

The lenders, which have refused to provide more fundswithout a capital injection into the carrier, planned to meetwith the airline later on Thursday.

Indian banks rarely pull the plug on big companies, withstate lenders perceived to be especially willing to help outcompanies in distress.

"We want a concrete plan from Kingfisher. We need to knowhow the capital will be infused and then we can see how bankscan help," S. Vishvanathan, deputy managing director of SBI,told Reuters ahead of the meeting between the airline and itslenders.

"I don't want people to start speculating. This is a routinemeeting to keep ourselves updated," he said.

While the airline has said it is in talks with potentialinvestors including foreign carriers, none has publiclyexpressed an interest in taking a stake in Kingfisher. Indialast month allowed foreign carriers to own up to 49 percent indomestic players, a rule change that was sought by Kingfisher.

NO PAY, NO FLY

"There is a stalemate," Vikrant Patkar, a pilot in command,told reporters on Wednesday after a meeting with Kingfisher'schief executive and chief operating officers in Mumbai.

In Delhi on Thursday, several members of Kingfisher's groundcrew outside the hotel near the airport where the meeting tookplace said they were willing to return to work.

A company official also said some employees in Delhi hadagreed to go back to work, and that the airline expected toresume operations in four or five days.

"About 100 people here agreed to return to workunconditionally," Sanjay Bahadur, vice president of corporateaffairs, had told reporters after the meeting.

He also said the airline expects to pay salaries for March"within a week or so."

However, the later statement by a group of pilots andengineers based in Delhi said the talks had collapsed.

An official with India's aviation regulator said on Tuesdaythat Kingfisher would not get government approval to resumeflying unless it pays salaries and submits an acceptablerecovery plan.

Kingfisher's website was not accepting bookings for flightsbefore Oct. 8.

Before this week's shutdown, Kingfisher operated just 10planes out of a fleet that once numbered 64, and its marketshare was the smallest among India's six main carriers.

Kingfisher's troubles have enabled India's other airlines topush up fares in a market long characterised by fiercecompetition and overcapacity.

Shares in Jet Airways India Ltd and SpiceJet Ltd

rose 2.4 and 2.7 percent, respectively, on Thursday.

Kingfisher shares fell 4.8 percent to 13.90 rupees,effectively at their daily limit of 5 percent for the fourthstraight session.

(Additional reporting by Swati Pandey in MUMBAI; Writing byTony Munroe; Editing by Ryan Woo)

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Keywords: KINGFISHER/OPERATIONS