BUSINESS
02/10/2012 10:00 EST | Updated 04/11/2012 05:12 EDT

Air Canada reaches tentative contract agreement with its largest union

MONTREAL - Air Canada (TSX:AC.B) has reached a tentative agreement with its 8,600 mechanics, baggage handlers, and cargo agents — the carrier's biggest union.

Details of the agreement will not be released until the union members ratify the deal and Air Canada's board approves the contract, Canada's biggest airline said Friday.

The tentative deal comes one day after the union representing the airline's pilots called for a strike vote.

Air Canada has had rocky labour relations for years but the situation with its unions has deteriorated in the last 12 months or so as the carrier tries to cut costs due to rising fuel bills and increased competition with rivals WestJet Airlines (TSX:WJA) and Porter Airlines.

WestJet plans to start up a regional carrier in Canada and Air Canada has been trying to set up a low cost carrier for holiday travellers but has run into opposition from its unions, especially the pilots.

A strike mandate after the scheduled five days of voting would put the airline's 3,000 pilots in a legal strike position early next Friday.

The strike vote doesn't mean the pilots will actually initiate a labour stoppage, but it gives the union the ability to respond to any unilateral moves by the company.

Air Canada CEO Calin Rovinescu told analysts this week that the airline still hopes to conclude a negotiated settlement despite Tuesday's expiry of the conciliation period.

In its financial report this week, Air Canada said it lost $60 million in the fourth quarter of 2011 and $249 million for the year.

A spokeswoman for Labour Minister Lisa Raitt said the pilots and Air Canada told her in a meeting Monday that there would be no work stoppage and no effect on the travelling public in the short term.

The government's past actions to prevent or limit strikes by Air Canada's customers service agents and flight attendants suggest it won't tolerate any disruptions by pilots.

But if there is a strike, WestJet said it will put on extra flights to accommodate Air Canada travellers affected by any work stoppage.

The Calgary-based carrier, which employs about 8.500 people, but is non-union, took the labour dispute at Air Canada to ratchet up the competitive pressure on the Montreal airline.

"We can appreciate that the travelling public may be frustrated with the uncertainty associated with potential labour disruptions at Air Canada," Bob Cummings, WestJet's executive vice-president of sales and marketing, said in a release Friday afternoon.

"We have been proactively planning for weeks now, with our network team collaborating closely with flight operations to provide as many incremental flights as possible."

— With files from John Valorzi in Toronto