UPDATE 1-Arbitrator backs Air Canada in contract deadlock with machinists
* Five year agreement effective until March 31, 2016
* Maintains current defined benefit pension
* Arbitrator selected Air Canada's final offer
June 17 (Reuters) - Air Canada won a long-running contract dispute with its mechanics and baggage handlers on Sunday, after an arbitrator opted to enforce the airline's final offer over one put forward by the union.
The dispute with the machinists union representing 8,600 mechanics, baggage handlers and cargo agents was handed to a government appointed arbitrator after the two sides were unable to reach a settlement in March. The two sides have been in on-and-off talks since the union's collective agreement expired in March 2011.
The Canadian government stepped in with legislation in March to prevent a strike and force the country's No 1 airline and the International Association of Machinists and Aerospace Workers into a binding arbitration process. It has taken similar action to resolve a dispute between the airline and its pilot's union.
The two sides put their final offers before the arbitrator, who was tasked with choosing the offer that came closest to bridging the gap between both parties.
The new five-year collective agreement with IAMAW maintains the current defined benefit pension plan for current employees.
Effective until March 31, 2016, the deal, also introduces a new multi-employer pension plan for new employees and contributes to the reduction of the pension deficit, the airline said in a statement.
Air Canada has been struggling to cope with union disputes and rising costs. The airline said it would not comment further, as details of the new agreement were being communicated to its employees.
A spokesman for IAMAW was not immediately available for comment.
A separate arbitrator has yet to rule on a contract dispute between the airline and its pilot's union.