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 yet another blow after a group of employees said negotiations in Delhi had "ended in failure" because the Indian airline did not commit to paying overdue salaries.

Kingfisher, once India's second-largest airline, is more than half a year behind on salary payments and has grounded its fleet since Monday after a protest by engineers over the weekend turned violent. Talks with employees in Mumbai on Wednesday ended in a stalemate.

"Employees demanded payment of long pending salary (seven months) prior to resuming operations. All employees expressed their keenness to resume work provided their dues are cleared expeditiously," the group of unidentified employees in Delhi said in a statement on Thursday.

The shutdown has further dimmed the outlook for the airline controlled by liquor baron Vijay Mallya. Kingfisher, which has never turned a profit since its founding in 2005, is saddled with $1.4 billion in debt, owed mostly to government banks led by State Bank of India .

The lenders, which have refused to provide more funds without a capital injection into the carrier, planned to meet with the airline later on Thursday.

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

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

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

While the airline has said it is in talks with potential investors including foreign carriers, none has publicly expressed an interest in taking a stake in Kingfisher. India last month allowed foreign carriers to own up to 49 percent in domestic players, a rule change that was sought by Kingfisher.


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

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

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

"About 100 people here agreed to return to work unconditionally," Sanjay Bahadur, vice president of corporate affairs, 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 and engineers based in Delhi said the talks had collapsed.

An official with India's aviation regulator said on Tuesday that Kingfisher would not get government approval to resume flying unless it pays salaries and submits an acceptable recovery plan.

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

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

Kingfisher's troubles have enabled India's other airlines to push up fares in a market long characterised by fierce competition 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 fourth straight session.

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

((tony.munroe@thomsonreuters.com)(+91 22 6180 7257)(Reuters Messaging: tony.munroe.reuters.com@reuters.net))