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(Reuters) - The private company that maintains some of Air Canada's planes laid off workers and filed for creditor protection on Monday, blaming Canada's No. 1 airline for much of its financial difficulty.
In the filing to a Montreal court, Aveos Fleet Performance Inc said Air Canada had recently deferred or reduced maintenance work done through Aveos, reducing Aveos' revenue by C$16 million ($16 million) in less than two months.
"While Aveos remains ready, willing and able to perform such work, the loss of such work has been devastating to Aveos' financial position," it said, noting that Air Canada has been seeking alternate service proposals for heavy maintenance work.
Air Canada denied it had breached any contracts and offered the service provider a C$15 million emergency financing package. The airline said the Aveos filing would have no impact on its daily operations.
The International Association of Machinists and Aerospace Workers (IAMAW), which represents both Aveos workers and some 8,600 employees at Air Canada, said more than 1,200 Aveos workers would lose their jobs.
Air Canada is in separate labor disputes with its own machinists and with its pilots, although the government stepped in last week to pass legislation preventing a work stoppage.
Formed from the in-house maintenance division at Canada's No. 1 airline, Aveos became an independent company in 2007. It employs some 2,600 people in Canada, most of them at its three big maintenance centers in Montreal, Winnipeg and Vancouver.
Its biggest customer is Air Canada, although it also works on Canadian government planes and does some maintenance for other airlines. Air Canada still owns the three big facilities that Aveos operates, but leases them to the servicing company.
The filing showed that Aveos' liabilities exceeded the book value of its assets by about C$220 million at the end of last year. It seeks an initial order from the court that would grant it protection under Canada's Companies' Creditors Arrangement Act (CCAA), the equivalent of a U.S. Chapter 11 filing.
Aveos also asked for a stay of proceedings to determine whether it could obtain liquidity, "including payment by Air Canada of amounts owing to Aveos ... under various contracts."
Air Canada said the filing would not affect its day-to-day aircraft maintenance and repairs.
"The airline's line maintenance has always been performed directly by Air Canada, at the airline's own facilities by Air Canada's 2,300 maintenance employees," it said in a statement.
"Should Aveos not be in a position to perform work, the airline is prepared to make arrangements with a number of other service providers, located primarily in the United States and Canada."
The airline has offered Aveos, through its court-appointed Monitor, FTI Consulting Canada, a debtor-in-possession (DIP) financing package that it said is similar to a package it had offered the company over the weekend. Air Canada said the cash would help stabilize Aveos and allow it to proceed with a more orderly restructuring.
"This stabilization should permit Aveos to reopen certain of its facilities and recall certain of its employees, which should in turn allow Air Canada to induct some additional maintenance work with greater confidence over the coming days and weeks," the airline said.
Aveos in its filing, however, panned Air Canada's initial offer to provide financial aid saying the terms of the offer "were so onerous and uneconomic" that both Aveos and its lenders had been forced to turn it down.
Aveos said it had instructed its employees not to report for work on Monday and had terminated workers in its airframe division.
Dave Ritchie, general vice president at IAMAW, said the layoffs violated a legal requirement for Air Canada to keep maintenance facilities in Montreal, Mississauga and Winnipeg.
The layoffs would shut down the Winnipeg facility, he said at a news conference in Toronto, violating the Air Canada Public Participation Act, legislation that has governed the airline's operations since it was privatized in 1989.
"We have instructed our lawyers to look at every aspect," said Ritchie. "Our legal team is looking at it, but believe you me, we will do whatever is necessary to ensure our members are going to get what is rightfully theirs through this process."
On Monday morning, more than 200 people demonstrated near the Air Canada and Aveos headquarters in Montreal, where both companies are based, blocking traffic to the area.
Air Canada, which is trying to cut costs and change the way it operates, said on Sunday it was asking Canada's Industrial Relations Board to investigate an unusually large number of sick calls from its pilots.
It said Aveos has been providing it with airframe, engine and component work, which is typically pre-planned, and it has a contingency plan in place to ensure continuity of this work.
Additional reporting by Alastair Sharp and Christine Muschi; Editing by Janet Guttsman and Peter Galloway