India's aviation regulator on Thursday demanded assurances from Kingfisher Airlines and the budget arm of Air India that their financial problems would not affect safety.
The Directorate General of Civil Aviation told the airlines to offer a timeline to put in place measures to tackle their financial problems, which it said were affecting maintenance, training and other operations that could compromise safety.
"There is a list of discrepancies," Bharat Bhushan, the director general of the agency, told reporters, referring to aircraft maintenance and other potential safety problems.
"Kingfisher, for example, we have told them to come back to us on Monday...within how many days they are going to complete certain specific things," Bhushan said.
Kingfisher said it was operating flights with "utmost safety". A spokesman for Air India also denied there were any safety issues with its budget carrier.
Bhushan said there was no threat that any carrier's licence would be cancelled, and he was confident that any problems would be resolved.
Earlier on Thursday, the Times of India newspaper, reported that the regulator had determined in an audit that there was a reasonable case to withdraw Kingfisher's licence as its financial problems could threaten passenger safety.
"All airlines are going through a difficult patch financially ... our challenge is to see that this financial difficulty does not reflect on safety," Bhushan said.
"Please let there be no panic," he added. "The skies are safe."
Adding to Kingfisher's problems, the State Bank of India said on Thursday that it now considered its loans to the airline to be non-performing.
Most airlines in India, including market leader Jet Airways Ltd, are losing money as a result of high fuel costs, cutthoat competition and a slowdown in the economy.
But Kingfisher, controlled by flamboyant liquor baron Vijay Mallya, has been the biggest casualty. The struggling carrier cancelled hundreds of flights late last year and grounded aircraft to conserve cash.
More than 100 pilots have left the airline in recent months, putting pressure on the airline to train new staff.
Bhushan said that as much as one-third of one particular carrier's fleet had been grounded. He did not identify the airline, but the Times of India identified it as Kingfisher.
"The audit was financial but they found the financial situation of Kingfisher and Air India (Express) was so bad that they would be cutting on costs all across, including areas related to safety," said Rajan Mehra, executive director at the Asia Pacific Academy for Aviation and Hospitality.
"This will further dent Kingfisher's brand image because once passengers start thinking that an airline is unsafe, that is the final nail in the coffin," he said.
Kingfisher's shares closed down 2.62 per cent at 20.45 rupees. The shares fell as much as 4.5 per cent as investors dumped the stock following the regulator's comments. Kingfisher shares fell more than 68 per cent in 2011.
"No Safety Issue"
Representatives of both airlines met with the regulator on Thursday.
"DGCA has asked Kingfisher Airlines to provide a specific timeline for getting the grounded aircraft back in the air and for its recapitalization efforts," Chief Executive Sanjay Aggarwal said in an emailed statement.
"We would like to clarify that DGCA did not have any significant findings or concerns with regard to safety at Kingfisher Airlines, and that we have adequate number of pilots and engineers to operate our scheduled services," he said.
An spokesman for Air India also said the group's budget airline, Air India Express, was facing a shortage of pilots but denied that safety was being compromised.
"There is no safety issue," the spokesman said. "There is a shortage of commanders but the number of flights which are operating is actually in accordance with the number of commanders available," the spokesman said.
"The DGCA will give us a list of action points and a timeline. We will comply with that".
Kingfisher and Air India have been negotiating with banks for a further cushion to ease their debt burden and to raise working capital. Both have undergone a debt restructuring.
A government report viewed by Reuters last month said the total debts of India's airlines are expected to rise to $20 billion in 2011/12 ending March as they struggle with rising oil prices, high sales taxes on jet fuel and below-cost pricing driven by fierce competition..