* Arbitrators set for disputes with pilots, machinists
* Unions are challenging constitutionality of federal law
* Talks lined-up between the company and its unions
By Euan Rocha
TORONTO, May 2 (Reuters) - The Canadian government said on Wednesday it has appointed two arbitrators in a bid to resolve drawn-out labor contract disputes between Air Canada and its pilots and machinists unions.
The country's No. 1 airline has seen its profits hurt over the past year by rising fuel costs and a steady stream of feuds with its unions. Its shares, which have fallen nearly 60 percent in the last 12 months, closed on Wednesday at 96 Canadian cents a share on the Toronto Stock Exchange.
Air Canada was able to avoid major strikes by the pilots' and machinists' unions earlier this year after the government passed a law that prevented the two unions from striking and Air Canada from locking union members out. The legislation also sent the contract disputes to binding arbitration.
Despite the legislation, Air Canada's operations have been hurt over the last two months by wildcat strikes involving the members of both unions. The short-lived strikes have caused many flight cancellations and chaos at airports across the country.
Both unions have challenged the law as unconstitutional, but have agreed to participate in the binding arbitration process.
The government has appointed Douglas Stanley as arbitrator in the dispute between Air Canada and the Air Canada Pilots Association (ACPA). It named Michel Picher as arbitrator to help resolve the dispute between Air Canada and the International Association of Machinists and Aerospace Workers (IAMAW).
IAMAW, which represents 8,600 mechanics, baggage handlers and cargo agents, is the airline's largest union. Its contract with the airline expired on March 31, 2011 and a tentative deal was rejected by workers in February this year.
ACPA represents about 3,000 pilots employed by Air Canada, and its collective agreement also expired last March. Earlier this year, the pilots voted overwhelmingly in favor of a strike after rejecting a tentative offer. The union is concerned by Air Canada's plans to set up a low-cost carrier, which it fears will hurt job security and wages.
Air Canada, last month, said it would enter into 10-day negotiations with both unions, after the government decided on the arbitrators in the process.
Canada's Labour Minister Lisa Raitt urged both the company and the unions to cooperate in the arbitration process.