The new five-year deal marks an end to 14 months of negotiations and mediated talks between the Montreal-based airline (TSX:AC.A) and the International Association of Machinists and Aerospace Workers.
It also means there is only one of the airline's major unions that is still without a collective agreement. The airline's 3,000 pilots are still in the process of working through their dispute with a federal arbitrator.
The threat of a lockout of pilots, and a strike notice from the Machinists, had prompted the federal government to intervene with back-to-work legislation in both disputes. The law allowed federally appointed arbitrators to impose settlements within 90 days.
Air Canada has been engaged in an often bitter labour dispute with most of its unionized employees in recent months.
The resolution of outstanding labour contracts is being seen as significant as it could decide Air Canada's ability to launch a low-cost carrier — currently a top priority at the airline.
The deal imposed by arbitrator Michel Picher on Sunday maintains the current defined benefit pension plan for current employees but includes pension changes for any new hires.
It also contributes to the reduction of the pension deficit and establishes a protocol for the sustainability of the pension plan, taking into account any short term funding pressures on the company, a statement from the airline said.
"The arbitrator's selection of Air Canada's final offer concludes a new collective agreement with the IAMAW," the airline said.
"The airline will not have further comment as details of the new collective agreement are being communicated to its employees."
The IAMAW represents 8,600 mechanics, baggage handlers and cargo agents employed by Air Canada.
It was not immediately available for comment on the ruling.