By Kevin Smith DUBLIN, May 31 (Reuters) - Aer Lingus [AERL.UL] pilots reporting for work following a one-day strike yesterday were turned away on Friday, as the airline shut down operations in an escalation of a dispute that could threaten its future. Aer Lingus has grounded its fleet until Monday at the earliest and dropped its 530 pilots from the payroll until further notice, in a stand-off over changes to working practices the cash-strapped Irish state airline says are crucial to its survival. Around two dozen pilots left Dublin airport after being told they would not be flying on Friday. The Aer Lingus decision to shut down operations will affect thousands of passengers over the bank holiday weekend, and cost it around two million euros ($1.9 million) a day -- cash it can ill-afford to lose after bleeding 140 million euros last year. Amid mounting public concern about the impact of the dispute on tourism and the Irish republic's international image, the two sides met for talks convened by a state-sponsored labour body. However, union sources representing the pilots stressed the talks were purely exploratory. "We're just trying to establish whether there is any basis for negotiating a settlement. It's talks about talks," one said. DESPERATE MEASURES Both sides appear firmly entrenched. The pilots want fresh negotiations on the proposed work changes and the reinstatement of seven pilots suspended for refusing to co-operate with the new scheme. Aer Lingus says full implementation of its survival plan, which includes cutting a third of the 6,000-strong workforce, is the airline's only hope and that the pilots must fall into step with the majority of staff in accepting the changes. It insists that it cannot resume operations until the threat of further stoppages by the pilots is lifted. Meanwhile, rivals are already circling the beleaguered company. CityJet Chief Executive Geoffrey O'Byrne-White told an Irish newspaper this week his airline would be interested in taking over Aer Lingus's major continental routes should the state carrier fail. Budget airline CityJet, owned by Air France (AIRF), already flies to some European destinations from its Dublin home base. Irish budget rival Ryanair (RYA)(RYA), while gleefully soaking up passengers stranded by the Aer Lingus row, said on Friday it was vital the state carrier stayed aloft. "From an Irish point of view, we support there being a strong, viable airline because competitiveness between Ryanair and Aer Lingus keeps both of us on our toes and gives people the best deal," Chief Executive Michael O'Leary was quoted as saying in the Irish Examiner. "I think it would be bad for Ireland to have a takeover of Aer Lingus." Aer Lingus had been due for privatisation before it plunged into the red, damaged by industrial unrest and the global downturn even before the September 11 attacks in the United States tipped the airline industry into crisis. Ryanair said earlier this week it would carry more than 300,000 passengers during the bank holiday weekend -- up 35 percent on last year. Its shares were up 11 cents, or 1.8 percent, at 6.15 euros by 1000 GMT. ©2002 Reuters Limited.