The two sides have agreed to Raitt's offer of a six-month mediation process in a bid to settle major differences.

"I'm actually confident that they're going to be able to conclude a deal," Raitt said in an interview. She said she believed the two mediators handling the case would call the parties together on Friday to start the process.

Air Canada (ACb.TO) flies to more than 150 destinations and a work stoppage would cause considerable problems for travelers.

The pilots, who have been without a contract for almost a year, are worried about pensions, pay and Air Canada's plan to set up a low-cost carrier. This week they voted overwhelmingly in favor of giving their union a strike mandate.

The Conservative government, which sometimes takes a combative attitude with unions, has little patience for possible work stoppages at Air Canada.

Last year it twice threatened to push through back-to-work legislation when it seemed as though flight attendants and call-center and check-in staff might go on strike.

Although both Air Canada management and the pilots' union could push for a work stoppage before the mediation period runs out, Raitt said she was confident the two sides were committed to collective bargaining.

"They want to get their own deal because a work stoppage at the end of the day isn't going to help anybody," she said.

"85,000 passengers would be stranded in different places should there be a work stoppage, and we're mindful of that, and we know what the cost to the economy is as well too, and it's one in which we take a very great interest."

Earlier on Thursday Air Canada's in-flight crew schedulers said they had ratified a new four-year contract.

"I'm very pleased ... I know that the unions and Air Canada can strike deals because they've done it now three times in the past three weeks. It's another good one," Raitt said.

The carrier reached an agreement with the union representing its Toronto flight dispatchers on Sunday, and a deal with its biggest union, representing about 8,500 mechanics, baggage handlers, cargo agents and purchasing agents, last Friday. Neither has been ratified.

A leaked internal memo this month showed pilots are worried that Air Canada wants to set up a low-cost carrier offshore, where it would be able to tap cheaper labor than at home.

"You'd have to talk to the parties about that but I'm not aware of that being an issue in this negotiation," said Raitt, who predicted it would take about 60 days to get a sense of how the talks were going.

Raitt, who has been labor minister for 2-1/2 years, said that while negotiations around the country were still producing increases in pay and benefits, pensions were proving to be more of a problem.

"That's a reflection of what's happened in the world economy. I mean, whose pension didn't get hit?" she said.

"If I would characterize anything (about my time in office) I think it is a lot about dealing with underfunded pensions that is causing difficulties in the bigger federal jurisdiction for companies ... But you know what? They have to work this out," she said.

(Reporting by David Ljunggren; editing by Rob Wilson and Peter Galloway)

• A Permanent Economic Emergency