Grounded Kingfisher Airlines
The DGCA had asked the carrier earlier this month why its licence to fly should not be cancelled for failing to provide a "safe, efficient and reliable service".
However, while Kingfisher submitted a reply to the regulator, it did not respond to the DGCA's main queries and asked for more time, India's director general of Civil Aviation Arun Mishra said.
"Suspension of licence is very much on the cards," and could happen as early as this weekend, the source, who has direct knowledge of the developments but declined to be identified because of the sensitivity of the matter, said on Friday.
Mishra said Kingfisher had sought more time to reply to its notice. A reply was due by Saturday.
A Kingfisher spokesman did not respond to requests for comments.
Struggling to pay its bills, Kingfisher is seven months behind on salary payments. Its fleet has been grounded since the start of the month after a staff protest turned violent.
Earlier on Friday, the airline said it expects to start flying again on November 6 if the government approves its plan to resume operations.
Kingfisher, controlled by liquor baron Vijay Mallya, is reeling under debt of $1.4 billion and has never made a profit since it was founded in 2005. It has been scrambling to find an investor, thus far without success.
"If we cancel the licence, it will be all over for Kingfisher. Suspension is until further notice, so that gives them a chance to recover," the regulatory source said.
Earlier this week, the regulator rejected Kingfisher's proposed winter schedule. The airline had 2,930 departures per week last year in its winter schedule, which is due to start this year on October 28.
The Centre for Asia Pacific Aviation, which estimates Kingfisher's total debts at around $2.5 billion, said a fully funded turnaround would cost at least $1 billion.