On Monday, the Quebec Superior Court sided with the Quebec government's contention that Air Canada was obligated to keep their maintenance facilities in Quebec open.
Last March, Air Canada subcontractor Aveos Fleet Performance Inc. went out of business, putting 2,600 people out of work in Manitoba, Ontario and Quebec in the process.
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.
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. As many as 600 lost their jobs in Manitoba, and a further 200 in Mississauga, Ont.
A spokesperson for Air Canada tells CBC News it plans to appeal the ruling, but had no additional comment.
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 since 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 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 if 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.
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.
No federal intervention
In the House of Commons, the federal government reiterated that it had no power to save Aveos jobs.
"Air Canada is a private company in the same way (as) Aveos," Transportation Minister Denis Lebel said during Question Period on Monday
"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."