* Bankruptcy protection granted until April 5
* Letter on corporate site terminates all workers
* 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) - The company that services planes for Canada's biggest airline ceased Canadian operations and fired its workers on Tuesday, a new headache for an airline already facing arbitration over two labor disputes.
Aveos Fleet Performance Inc, which does heavy maintenance for Air Canada, posted a termination letter on its website on Tuesday afternoon addressed to "all employees."
"We regret to advise you that effective immediately your employment with Aveos Fleet Performance Inc is terminated. You are no longer required to report to the workplace," it said.
In a separate release, Aveos said it ceased Canadian operations and was liquidating its assets. The company also has about 1,400 employees in El Salvador, according to its website. It did not say what would happen to that business.
Aveos was once the in-house maintenance division at Air Canada and many of its 2,600 employees in Canada previously worked for the airline, some of them very recently.
It obtained bankruptcy protection on Monday, laid off workers in its airframe division and blamed Air Canada, its principal customer, for a liquidity crisis.
"For some time we have attempted to work for a consensual agreement with Aveos' principal customer. At this point, we have exhausted all measures," Chairman Eugene Davis said in a statement.
Air Canada had attempted to avoid the shutdown by offering Aveos a debtor-in-possession financing package on Monday. Aveos said the proposal was unacceptable to it and its lenders.
The airline said late on Tuesday that it was disappointed with the decision.
"To ensure Air Canada's customers are not inconvenienced and are able to continue traveling and booking Air Canada with confidence, the airline will be activating its contingency plan," it said in a statement.
Air Canada said maintenance work would continue in compliance with regulations and its own standards. I t also said it was owed net amounts over C$35 million ($35 million) by Aveos.
"Contrary to Aveos's court filings and public statements, Air Canada has been very supportive of Aveos and has provided financial and other assistance to the company," it said.
Even before the additional terminations, Aveos workers protested outside Air Canada's headquarters in Montreal, pelting passing cars with stones, eggs and debris. One person was arrested.
Air Canada, the only airline serving many smaller Canadian centers, has already been in disputes with both its pilots, represented by the Air Canada Pilots Association, and with its machinists, who belong to the same union that represents the Aveos workers.
The 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, complaining it violated their right to collective bargaining.
Aveos union spokesman Bill Trbovich said he understood from his members that Aveos has at least three Air Canada aircraft in its facilities right now -- two in Montreal and one in Vancouver.
Aveos also services aircraft for the Canadian government and for a number of other airlines, including U.S. carrier JetBlue Airways Corp, it said in its filing for creditor protection. Jet Blue said it has not been affected by the shutdown, as all of its dealings with Aveos are in El Salvador.
Aveos's initial bankruptcy protection order, issued by a Montreal court under Canada's Companies' Creditors Arrangement Act -- the equivalent of a U.S. Chapter 11 filing -- will expire on April 5.
The workers' protest, the second in two days, took place near the Air Canada and Aveos headquarters in an industrial part of Montreal. Some demonstrators threw eggs, rocks, wooden planks and Christmas lights at cars headed toward the airline's facility.
Rehan Sheikh was one of the laid-off workers at the protest. He was an Air Canada employee until three weeks ago, but said he was told last year that he had to choose between Aveos and the airline, which would likely lay him off soon.
"Us young guys were forced to choose Aveos or we would have been laid off," he said. "They promised us a lot."
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, one of several regulations that Air Canada's competitors do not face.
Air Canada also has to comply with language laws that say customers have the right to service in English or in French, Canada's two official languages.
Air Canada competes domestically with Calgary-based WestJet Airlines Ltd and privately owned Porter Airlines. It is trying 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 the two separate contract disputes to binding arbitration.