Aveos Fleet Performance Inc., the sole aircraft- and engine-maintenance provider for Air Canada, put about 2,600 employees out of work as it filed for insolvency protection and shut plants nationwide.

The company cited "uncertain work volume" after losing as much as US$16 million in revenue in less than two months as Air Canada projects were canceled or delayed. Airframe maintenance stopped permanently yesterday and Aveos hasn't yet decided on other operations.

Employees in Montreal, where Aveos is based, were told not to report for work today, Machinists Local 1751 President Marcel Saint-Jean said in a telephone interview. Initial efforts to obtain more information from Aveos were unsuccessful, the union said.

"The way Aveos did this speaks to how much trouble they are in," Karl Moore, a professor of business strategy at Montreal's McGill University who specializes in the airline industry, said in a telephone interview. "It's definitely not the appropriate way to do it."

Air Canada, which owns 17.5 percent of Aveos and was the repair operator's biggest customer, said the shutdown won't affect day-to-day maintenance of in-service planes, which the carrier handles directly with its 2,300 maintenance employees.

The airline extended Aveos US$15 million in debtor-in- possession financing through a court-appointed monitor, according to an Air Canada statement.

"Greater Confidence"

"This stabilization should permit Aveos to reopen certain of its facilities and recall certain of its employees, which should in turn allow Air Canada to induct some additional maintenance work with greater confidence over the coming days and weeks," the airline said.

Aveos posted a termination letter to airframe union employees on its website, along with a schedule for retrieving personal belongings and toolboxes.

"Given that we have faced reduced, deferred, and canceled maintenance services despite Aveos' exclusive contracts with our principal customer, we no longer have the capital resources we need to continue to do business," Aveos Chief Executive Officer Joe Kolshak said in a memo on the website.

Aveos said it has about 2,600 employees in Canada. That includes about 1,800 workers in Montreal, 350 in Winnipeg and 300 in Vancouver, Tony Didoshak, general chairman of Machinists District 140, said in a telephone interview. Didoshak, who took part in recent bargaining with Aveos, said the company was late in paying pension contributions and union dues.

"No Answer"

"We knew they had financial issues," Didoshak said from Winnipeg, Manitoba. "Three weeks ago we asked their VP of labor relations how broke they were, and we got no answer. And today, we've heard nothing from Aveos."

The union estimated earlier today that as many as 3,000 jobs might be affected, and Canada's RDI television network showed images of the company's employees blocking streets near the Montreal headquarters of Air Canada to protest the closing.

The company was created in 2007 when Air Canada parent ACE Aviation Holdings Inc. sold a majority stake in its aircraft maintenance unit. It also has 1,400 employees in El Salvador, according to a company fact sheet.

Aveos said Oct. 31 it had raised C$50 million (US$50.4 million) in financing from a group of lenders including Credit Suisse Group AG to invest in its component center and expand its engine-maintenance capabilities.

Reworking Debt

In January 2010, Aveos reached an agreement to reduce its debt to C$75 million from about C$800 million, with lenders including Air Canada converting some debt into equity. The company obtained an additional C$75 million working-capital facility from some of the lenders at the time.

"The goal was to emerge stronger and better aligned to meet the needs of a changing market," Kolshak said in the memo. "Today's filing is a tragedy on many fronts, but beyond the institution, we recognize the human toll and dislocation this action will cause."

Air Canada has a contingency plan to use other providers, primarily in the U.S. and Canada, for maintenance services Aveos can't handle, the airline said. The airline has three main service contracts with Aveos for airframe, engine and component maintenance.

The component- and airframe-maintenance contracts expire in 2013, while the engine-maintenance contract continues through 2018.

"Safety is Air Canada's highest priority and the safety of Air Canada's fleet will not be compromised by this development," the carrier said today in a statement posted on its website.

Air Canada fell 1.1 percent to 91 cents today in Toronto. The shares have dropped 8.1 percent this year.

The airline has sought bids from other providers as the contracts' expiration dates draw closer, and said it has no intention of purchasing Aveos or assuming its operations.