In a 39-page ruling, Justice Martin Castonguay said the airline has an obligation under the Air Canada Public Participation Act to maintain such operations in Montreal and Winnipeg, along with Mississauga, Ont., where smaller overhaul work was completed by Aveos Fleet Performance until it closed last year.
Quebec's former Liberal government launched a lawsuit against the airline last April following the closure of Aveos, whose bankruptcy resulted in 2,600 employees losing their jobs, including 1,800 in Montreal.
Aveos had announced plans to liquidate its assets under the Companies Creditors' Arrangement Act on March 20, citing a decline in business from Air Canada. Various parts of Aveos have been sold off to businesses in Canada and abroad.
"The court concludes that Air Canada doesn't respect the law put in place when it privatized in 1988," the judge wrote.
Castonguay said Parliament couldn't have envisioned 25 years ago that the carrier would let go highly specialized jobs in Canada, only to create the same specialized jobs abroad.
After Aveos closed, Air Canada gave American company AAR a five-year renewable contract to maintain its airplanes in a specially built facility in Duluth, Minn., that employs 350 workers.
"If Air Canada wants to modify its business plan so significantly, it must be supported by a legislative change," added Castonguay.
Quebec's former government argued that a federal law passed in 1988 required the airline to maintain those aircraft overhaul functions in Canada even though it obtained contrary legal advice from the federal Justice Department.
Montreal-based Air Canada (TSX:AC.B) had argued that it respected the law by conducting aircraft maintenance at its three Canadian facilities. It also told the court that the Quebec and Manitoba governments have no jurisdiction because aviation is a federal matter.
It frequently cited a ruling by Ontario Superior Court Justice Frank Newbould that concluded the carrier met the act's requirements by having its own overhaul and maintenance operations.
"Air Canada will be appealing this Quebec Superior Court decision, given the importance of the matter, and makes no further comment at this time," spokeswoman Isabelle Arthur wrote in an email.
But Castonguay said his ruling isn't inconsistent with Newbould's decision because it was rendered when Air Canada continued to contract work to Aveos in addition to what it completed internally.
The union representing former Aveos employees said it is pleased with the ruling.
"We hope it will help us to get our guys back to work, but Air Canada contests the Quebec Superior Court decision so the battle will continue and we hope to eventually be the winners," said Georges Bujold, general chairman, eastern region, for the International Association of Machinists and Aerospace Workers.
He said workers shouldn't expect to get their jobs back quickly because the legal process could be dragged out for months and months if the case eventually winds its way to the Supreme Court. Forcing Air Canada to provide heavy maintenance work in Canada would also be costly if it is forced to cancel long-term contracts.
Bujold added the union is concerned that the Harper Conservatives will change the law to short-circuit the legal challenges.
"We never know with the Tories what position they would take but it wouldn't surprise the IAM that Air Canada would make that request to the prime minister or the minister of transport to revisit the Air Canada Act and make those modifications."
Quebec said the closure of Aveos caused the loss of 1,785 jobs and $18.5 million of taxes, while Manitoba claimed nearly 600 jobs lost and $5.5 million of taxes.
The court heard that Air Canada paid Aveos $450 million to do work in 2011 alone, but that the company faced growing problems after the airline began to pull back the volume of repair work.
The Quebec government couldn't be immediately reached for comment, but Manitoba welcomed the court ruling.
"This is a positive ruling for Manitoba as the Quebec Court has ruled that by closing its maintenance and overhaul facilities in Montreal it is in violation of the Air Canada Public Participation Act," said Rachel Morgan, press secretary to cabinet.
"Unfortunately, it appears that Air Canada will appeal this ruling. If so, Manitoba will consider its options."
After Quebec filed its lawsuit, the Harper government reiterated that it had no power to save Aveos jobs.
In Ottawa, Transportation Minister Denis Lebel reiterated that the federal government has no power to save the Aveos jobs.
"Air Canada is a private company in the same way (as) Aveos," Transportation Minister Denis Lebel said in the House of Commons.
"We presented a legal opinion which confirms that Air Canada respect the laws and we will let the Air Canada people take their business decisions."
On the Toronto Stock Exchange, Air Canada's shares closed down five cents, or two per cent, at $2.43 in Monday trading.