February 10, 2012 / 3:33 PM / 6 years ago

UPDATE 2-Air Canada machinists union reaches tentative deal

* Deal affects about 8,500 workers

* Pilots have called strike vote

* Stock down nearly 9 pct to C$1.05 on TSX

* Holding company, ACE Aviation, announces wind down plans (Adds analyst comment, stock prices, ACE wind down)

TORONTO, Feb 10 (Reuters) - The union representing Air Canada’s mechanics, baggage handlers and purchasing agents said on Friday it has reached a tentative labor deal with the country’s largest airline, though the threat of a pilots strike as early as next week remains.

The International Association of Machinists and Aerospace Workers said the proposed four-year contract provides wage increases, improved benefits and secures a defined benefit pension fund for about 8,500 workers. It did not specify the size of the wage increases.

Contract talks with the airline’s biggest union began in late 2011 and were completed with a government conciliator, who joined negotiations on Jan. 9. The previous contract expired March 31, 2011.

Ratification meetings to vote on the deal may be scheduled for the week of Feb. 20, said union spokesman Bill Trbovich.

Bargaining has just begun for the union’s 221 finance and 240 clerical workers, he added.

“I think it’s a positive sign that at least we have that tentative agreement, but as we’ve seen from other agreements, tentative does not necessarily mean ratified,” said PI Financial airline analyst Chris Murray.

The Air Canada Pilots Association, which is currently holding a strike vote, reached a tentative agreement with Air Canada in March but the pilots rejected the deal, worried about two-tier pensions and the impact of a proposed discount airline.

The pilots union called the strike vote after talks with a government-appointed conciliator and management failed to produce results. After a cooling-off period that ends Feb. 14, the pilots can strike after giving the airline 72 hours’ notice. Air Canada can also lock out workers with the same notice.

Air Canada, which reported a bigger than expected quarterly loss on Thursday, said it is prepared to extend talks with the pilots beyond the Feb. 14 deadline and has told the union it will not impose a contract in the near term.

Separately, Air Canada parent Ace Aviation Holdings Inc said on Friday that it plans to wind down operations by distributing up to C$300 million in cash to shareholders.

ACE, created in 2004 after Air Canada emerged from bankruptcy protection, has long planned to dissolve itself. Shareholders vote on the plan April 25.

Air Canada’s more heavily traded class B shares fell nearly 9 percent on Friday, but that reflects broad market declines rather than company-specific issues, said Murray.

The shares were down 10 Canadian cents at C$1.05 on the Toronto Stock Exchange and have lost nearly 70 percent of their value in the past year.

$1=$1 Canadian Reporting By Susan Taylor; Editing by Frank McGurty, Peter Galloway and Rob Wilson

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