Transport company First Bristol must cut the size of its fleet in the city after vehicle inspectors found a series of maintenance problems.
First Bristol says it has taken "robust action" since the inspection
The firm has said it has been told by Traffic Commissioner Philip Brown that it stands to lose up to 50 of the 350 vehicle licences it holds.
The ruling comes after a public inquiry into problems uncovered in spot checks.
If First Bristol convinces inspectors it has improved standards it will lose just 25 licences.
The public inquiry was called after a series of Vehicle and Operator Services Agency (VOSA) spot checks between November 2004 and February 2005.
A further VOSA investigation will now be carried out in November.
In a statement on Monday, the company said it had taken "robust action" following the spot checks and had improved its maintenance and engineering standards.
It added that it was "confident that the investigation will find improvements in our maintenance standards and that we will receive a satisfactory report".
First Bristol said its operational fleet would not be affected if its total licences were cut by 25.
Earlier this year, the company appeared before the Traffic Commissioner to answer a string of complaints about punctuality
It was fined £96,250 for failing to run its services on time.