UPDATE 2-Air Canada reaches deal with flight attendants

* Flight attendants to extend contract for 21 months

* Deal said crucial for Air Canada to raise financing

* Shares rise C$0.02 to C$1.55 (Recasts with union, analyst's comments, stock price)

By Nicole Mordant

VANCOUVER, British Columbia , June 22 (Reuters) - Air Canada (ACa.TO) (ACb.TO) reached a tentative labor agreement on Monday with its last hold-out union, removing an important obstacle in the cash-strapped airline's bid to line up financing to stave off bankruptcy.

Shares in Air Canada, Canada's biggest carrier, turned positive after a deal to extend its current contract with its flight attendants was announced. But an analyst said labor peace is just one of several boxes the airline needs to check to avoid filing for bankruptcy for the second time in six years.

"As of now they are not out of the woods yet. The labor agreement is just the first step in a multi-step process," Research Capital analyst Jacques Kavafian said.

Key to Air Canada's future is its ability to raise fresh financing to pay off debt. The airline has repeatedly said lenders require labor peace before they will consider loans, so its move to extend all its union contracts was crucial.

Another important prong will be how well the airline performs financially over the important summer vacation period.

Kavafian said that June "will probably not be a good month" but that July and August could be "pretty good" based on advance bookings and prices.

Air Canada's B shares were up 2 Canadian cents at C$1.55 on the Toronto Stock Exchange early on Monday afternoon. Its variable voting A shares were 1 Canadian cent firmer at C$1.56, bucking an overall market that was down more than 3 percent.

DEAL WITH FLIGHT ATTENDANTS

With the help of two mediators, Air Canada and the union representing its flight attendants agreed to extend their collective labor agreement for 21 months -- the same deal Air Canada struck with its four other unions.

The Canadian Union of Public Employees, or CUPE, which represents 6,700 flight attendants at Air Canada, was the last of the unions to agree to the labor contract extension.

The carrier has also reached agreements with all its unions on a 21-month moratorium on funding a C$2.9 billion ($2.5 billion) shortfall in its pension plan.

"These tentative agreements will allow us to move forward to the next milestones: obtaining the necessary governmental measures and approvals for the pension funding arrangement and raising new financing," Air Canada Chief Executive Calin Rovinescu said in a statement.