At least 800 pilot jobs could go

The deal means the carrier avoids a court-ordered settlement that could have led to the airline's planes being grounded.

"It's business as usual for Air Canada and customers may book with confidence," the airline said in a statement.

Air Canada is currently not bankrupt, but enjoys the sort of protection from creditors that is known as Chapter 11 in the US.

According to pilots, a key part of Air Canada's proposal - a controversial move to expand and shift traffic onto its low-cost subsidiary, Jazz - has now been accepted.

"We are now ready to set up this new low-cost carrier from coast to coast," said Nick Di Cintio, pilots' association president for Jazz.

Just in time

The agreement will allow the airline to continue to restructure its business, which currently has 13bn Canadian dollars (�5.8bn, $9.5bn) of debt.

Our pilots realize the gravity of the situation and are willing to do what it takes to help build a new future for Air Canada Don Johnson, Canada Pilot Association

Air Canada has been seeking to reduce its C$3bn annual labour costs by C$770m, and to cut one-quarter of its 40,000 strong workforce.

It had already reached agreements with eight of its nine unions, but the union representing pilots was resisting changes which involved pay cuts and the loss of 800 pilot jobs.

On Friday, Ontario Superior Court Justice James Farley said the court would meet on Sunday morning to consider options.

This could have taken the form either of an enforced labour deal, or a filing for bankruptcy - something that would have grounded the airline.

Talks between the two sides carried on past the court-imposed deadline of midnight on Saturday (0400 GMT Sunday) before a deal was reached.

Building a future

No details of the agreement were released.

"No one is happy with a situation where salaries will be cut, and jobs lost," said Air Canada Pilot Association president Don Johnson.

"However, our pilots realize the gravity of the situation and are willing to do what it takes to help build a new future for Air Canada."

The union said a ratification vote would be held "in the near future".