The Indian government has suspended the licence of Kingfisher Airlines, which has been struggling to resume flights following a strike by pilots and engineers who have not been paid for months.
India's Civil Aviation Minister Ajit Singh said that the decision was made following concerns about the safety of passengers.
"Their planes are not being serviced, their engineers are on strike and they are not even able to give their flight schedule," he told reporters.
Kingfisher, once one of India's best airlines, is battling for a lifeline with India's airline regulator. The company, which is drowning in debt, has not operated any flights since early this month.
The Centre for Asia Pacific Aviation, an airline industry research group, puts Kingfisher's outstanding debt at 2.5 billion US dollars (£1.6 billion), including about 1.1 billion dollars (£686 million)in bank debt, and says its accumulated losses had swollen to 1.9 billion dollars (£1.2 billion) by the end of June.
The cash-strapped airline has stopped selling tickets on its website and is still trying to convince pilots and engineers to return to work.
Last week, a court in the southern city of Hyderabad issued an arrest warrant for Kingfisher owner Vijay Mallya on charges that his airline bounced four cheques worth more than 103 million rupees (£1.2 million) to the consortium running the airport in the city. The money was meant to cover landing, parking and navigation fees at the airport.
Industrialist Mr Mallya is famous for his flashy lifestyle and lavish parties attended by fashion models, Bollywood film stars and cricket players.
His United Brewery Group is India's largest brewer and owns other businesses in industries from chemicals to information technology. He also owns Force India, an F1 team and Royal Challengers, a cricket team. His net worth is 1 billion US dollars (£623 million), according to Forbes.
Kingfisher earlier said it would be able to engineer a turnaround and pledged to provide India's aviation regulator with a "comprehensive plan for restoration of services after negotiations with our employees" by today. But it failed to do so.