India’s cash-strapped Kingfisher Airlines is reducing flight operations as it starts returning aircraft to lessors.

“The private airline is currently operating around 100 flights daily with about 20 aircraft. And a few aircraft are grounded as they are undergoing routine maintenance that requires replacement of spare parts, which the airline is unable to fund due to the severe financial crunch,” a civil aviation ministry official tells Aviation Week.

“The flash strike by pilots since July 1 also has compounded the airline’s woes,” the official adds.

According to the ministry, Kingfisher in recent months has returned about 34 aircraft to lessors as the lease term expired. “This mainly has shrunk the fleet size of Kingfisher as it couldn’t get the required funds to renew the lease agreement,” the official says.

Reports, however, suggested that the private airline defaulted on lease rentals of more than 10 billion rupees, and as a result the lessors had taken possession of the aircraft.

Kingfisher officials were unavailable to comment on this, despite repeated requests.

About 90% of Kingfisher’s fleet of Airbus A320, A330 and ATR aircraft are leased.

Meanwhile, lenders to India’s beleaguered airlines, led by State Bank of India, are planning to meet this week to review the airline’s financial position and finalize a loan restructuring program.

Kingfisher also is likely to announce a plan for new equity, industry sources say, although they add that the bank consortium will not invest more working capital into the airline.

Analysts says Kingfisher needs about $400 million in fresh capital.

The solution may rest with a new government initiative to allow foreign direct investment in domestic airlines. That proposal could gain momentum with the prime minister, Dr. Manmohan Singh, taking charge of the finance portfolio. Kingfisher’s chairman, Vijay Mallya, reportedly met with the premier shortly after he took charge of the finance ministry.

Meanwhile, around 200 pilots and engineers have been on strike since July 1 because of the airline’s failure to pay employees for the past five months. This strike has resulted in the cancellation of at least four flights from Mumbai and completely halted Kingfisher’s ATR operations, according to reports.

Earlier this year, airline employees went on strike but soon returned to work after an assurance by the management to pay staff. However, the cash-strapped airline has not only failed to pay its employees since February, its has also defaulted on its debts to oil companies and airports and service taxes to the government.

For 2011-12, Kingfisher’s losses stood at 23.28 billion rupees ($420.3 million); total debt exceeds 70 billion rupees.

A320-200 photo: Kingfisher