UPDATE 3-Last Air Canada union approves labor, pension deal

* Union vote helps keep airline from bankruptcy

* Shares surge almost 13 pct to C$1.49

* Air Canada says times "extremely challenging"

* Will need "fundamental restructuring" for profitability (Adds Air Canada comments, updates share price)

By Nicole Mordant

VANCOUVER, British Columbia, July 15 (Reuters) - Air Canada's (ACa.TO) (ACb.TO) last hold-out union has voted in favor of a labor and pension agreement, the employee group said on Wednesday, helping the cash-strapped airline clear a major obstacle needed to keep it out of bankruptcy court.

Shares in Air Canada surged nearly 13 percent after the International Association of Machinists and Aerospace Workers said 60.32 percent of its members backed the deal in a re-vote, after they initially rejected it earlier this month.

"Air Canada seems to have cleared the labor hurdle. It was one of the things that had to happen to prevent a bankruptcy," said David Tyerman, an analyst at Genuity Capital Markets in Toronto.

The IAMAW, which represents 12,300 mechanics, baggage handlers and cargo agents at Canada's biggest airline, is the last of Air Canada's five unions to give its blessing to a 21-month extension to their contract agreements.

The ratification by all of its unions is a crucial step in Air Canada obtaining much-needed financing and securing federal approval for a funding freeze on past pension contributions.

Without new loans of at least C$600 million ($539 million) to meet its immediate financing needs and a moratorium on funding its C$2.9 billion pension shortfall, Air Canada faces the likelihood of having to seek bankruptcy protection for the second time this decade.

Air Canada's B shares surged 17 Canadian cents, or almost 13 percent, to C$1.49 on the Toronto Stock Exchange. Its variable voting A shares added 15 Canadian cents to C$1.47.

The airline still has several hoops to jump through to avoid a bankruptcy filing.

It needs the company's non-unionized employees and retirees to back the pension moratorium, a process it expects to wrap up by Saturday. An industry source said retirees were unlikely to reject the pension freeze.

The union ratifications are also subject to the government of Canada approving the pension moratorium and Air Canada securing at least C$600 million in financing.

Federal approval is unlikely to be a problem. Air Canada is expected to raise money from a number of sources including some C$200 million from Export Development Canada, a federal agency, and C$150 million from its parent, ACE Aviation (ACEa.TO).