March 20, 2012 / 7:27 PM / 5 years ago

WRAPUP 1-Air Canada faces challenges from Aveos, pilots

* Bankruptcy protection granted until April 5

* Employees told not to return to work

* Aveos workers throw stones, eggs at Air Canada staff

* Air Canada must have service centers across Canada

By Leila Lemghalef and Allison Martell

MONTREAL/TORONTO, March 20 (Reuters) - Canada's biggest airline faced another day of labor complaints on Tuesday as laid-off workers with a company that services Air Canada planes took their protest to its Montreal headquarters.

Workers from Aveos Fleet Performance Inc, some of whom only recently worked for Air Canada, pelted passing cars with stones and debris after Aveos halted operations, laid off workers and filed for bankruptcy protection.

Separately, the airline's pilots, angry after the federal government passed a law to prevent a strike or lockout at the airline, said they were challenging the legislation in court.

Aveos, once the in-house maintenance division at Air Canada, secured bankruptcy protection on Monday, blaming main customer Air Canada for a liquidity crisis. It laid off more than 1,200 workers, and told other employees not to return to work until further notice.

Neither Aveos nor Air Canada could be reached for comment, although Air Canada said on Monday that a disruption at Aveos would not affect its day-to-day operations.

About 300 protesters set up near the Air Canada and Aveos headquarters in an industrial neighborhood in Montreal. Some threw eggs, rocks, wooden planks and Christmas lights at cars headed toward the airline's facility. One man was arrested, given a ticket and released, according to police at the site.

Rehan Sheikh was one of the laid-off workers at the protest. Like many colleagues, he was an Air Canada employee until recently - in his case, only three weeks ago.

Sheikh said he was told last year that he had to choose between the airline - where he would likely have been laid off soon - and Aveos.

"Us young guys were forced to choose Aveos or we would have been laid off," he said. "They promised us a lot."

BANKRUPTCY PROTECTION

Aveos was granted bankruptcy protection on Monday, according to a website put up by its court-appointed monitor () . The initial order, issued under Canada's Companies' Creditors Arrangement Act, the equivalent of a U.S. Chapter 11 filing, will expire on April 5.

According to its website, the company is laying off all workers in its airframe division, which carries out major work such as hull repairs, window replacements, and corrosion treatment as well as related inspections.

Its union, the International Association of Machinists and Aerospace Workers, estimated that more than 1,200 members would be affected and spokesman Bill Trbovich confirmed that his members are not working.

Late on Monday, Air Canada said it had offered Aveos a debtor-in-possession financing package, which the airline said could help Aveos resume some operations. But the package was similar to one Aveos and its lenders rejected over the weekend.

Aveos became an independent company in 2007, although Air Canada still owns the maintenance facilities and leases them back to Aveos.

The Canadian government noted on Monday night that Air Canada is obliged by law to keep overhaul stations in Montreal; Mississauga, Ontario; and Winnipeg.

It is one of several ways that Air Canada faces different rules than its competitors. Other airlines do not have to comply with tough language laws that say customers have the right to service in English or in French, Canada's two official languages, for example.

Air Canada is locked in several different labor disputes as it tries to cut costs and change the way it operates, and it came close to shutting down earlier this month amid threats of a simultaneous strike and lockout.

The government, which says the Canadian economy is too fragile to withstand a work stoppage, prevented both with legislation that sent two separate contract disputes, including one with the pilots, to binding arbitration.

In an application filed on Monday, the pilots asked an Ontario court to rule that the act violates their right to collective bargaining and freedom of association.

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