UPDATE 6-Australia's Qantas, union talks fail; head to forced settlement

* Airline says no longer in talks with engineers union

* Pilots, transport workers say Qantas rejected extension

* Analyst says arbitration will be a more rational process

* Qantas shares fall 1.2 pct (Adds failure to reach deal with engineers)

By Sonali Paul and Narayanan Somasundaram

MELBOURNE/SYDNEY, Nov 21 (Reuters) - Talks between Qantas Airways and its pilots, engineers and other key employee groups have broken down and all sides now have to accept a future settlement imposed by Australia's industrial umpire, which could help the airline slash costs.

Qantas and the workers are waging a bitter fight over pay and moving jobs to Asia. The Australian carrier and the union representing its engineers had faced a midnight (1300 GMT) deadline to reach a settlement.

Late on Monday in Australia, the Australian Licenced Aircraft Engineers Association (ALAEA), the lone hold-out for a negotiated settlement, joined pilots, baggage handlers and caterers in resorting to a resolution to be decided by Fair Work Australia, the industrial umpire.

"We haven't been able to reach a new agreement with the ALAEA, so will now let the independent umpire decide," Qantas' chief executive, Alan Joyce, said in a statement.

Qantas and the unions have said the arbitration could take months with the pilots association expecting it to take up to six months. The industrial umpire's settlement can be binding for up to four years.

However neither side can take any industrial action while the arbitration is ongoing, a key factor giving the airline comfort that it will not face any more travel disruptions.

"We asked for a 21-day extension. We thought a negotiated outcome was possible, but they (Qantas) turned that down," said Anil Lambert, a spokesman for the Australian and International Pilots Association.

Qantas said it, the pilots union and the Transport Workers Union had concluded they could not reach a deal and the dispute would now be resolved through binding arbitration.

"Qantas rejects claims that it terminated negotiations," a spokesman for the airline said, adding the two parties concluded they could not reach an agreement.

The Transport Workers Union, representing baggage handlers and caterers, said the dispute would now go before arbitration after Qantas said it did not want to renew talks for another 21 days.

"Our fear is that Qantas will drag this out for as long as it can," a spokesman told Reuters.

The unions' main concerns centre on the airline's attempts to cut costs and set up two airlines based in Asia to stem A$200 million ($201.09 million) a year in losses on its international business.

QANTAS SAYS CUSTOMERS RETURNING

Joyce said customers have returned "in large numbers" since the airline resumed flying after Qantas grounded its planes in late October in a drastic move aimed at ending disruptive industrial disputes.

The Australian and International Pilots Association has been demanding that all pilots on a flight with a Qantas code or sold as a Qantas ticket should be paid as much as Qantas pilots.

Shareholders and analysts said by not extending talks for a further three weeks and submitting to an imposed settlement by the Fair Work Australia commission, Qantas was clearly trying to reach a settlement as soon as possible.

"They're going to be better off than they have been. It'll be a more rational process," said Sondal Bensan, who helps manage BT Investment Management's stake in Qantas.

A YEAR OF TALKS

Qantas and the three unions were ordered on Nov. 1 by Fair Work Australia to reach an agreement by Monday, after Qantas grounded its fleet in October.

Joyce and Qantas' chairman, Leigh Clifford, have taken a hard line against the unions after failing to agree on a deal following more than a year of talks over pay and conditions.

"It looks like Qantas believes they will get the better outcome from deferring to a decision by Fair Work Australia rather than continue negotiations," said Scott Marshall, an analyst at Shaw Stockbroking.

Qantas said just ahead of the October weekend grounding of its entire fleet that the cost of industrial actions had totaled A$68 million and led to a collapse in forward bookings, a factor Qantas cited for grounding the fleet.

Qantas shares, which have fallen about a third so far this year, ended down 1.2 percent on Monday, underperforming a 0.2 percent fall in the broader market.

($1 = 0.994 Australian dollars)

(Additional reporting by Rob Taylor in CANBERRA and James Regan in SYDNEY; Editing by Ed Davies and Matt Driskill)