One strike, two arbitration rulings, four rejected tentative contracts and unprecedented government intervention added up to extreme frustration for both Air Canada and its unionized employees in 2011.

It's a theme that is likely to continue for the airline in the new year Until Harper's bully boys batter them down to obey. Workers entered negotiations with high hopes of recovering some of the sacrifices they made since the airline filed for bankruptcy protection in 2003. The country's largest carrier was seeking to further reduce its cost structure by potentially launching a discount carrier and tackling its long-term pension obligations.

But neither side can claim victory, conceded the heads of the two Air Canada unions who were on the front lines in disputes this year. "We've been to hell and back," said Ken Lewenza, head of the Canadian Auto Workers Union, which represented the only Air Canada employees who were allowed to strike this year. "It wasn't a total victory but bargaining today isn't a total victory for our members, it's about finding compromises that our members can accept."

Under the threat of back-to-work legislation, the union's 3,800 customer service agents approved a new collective agreement after striking for three days in June. They also agreed to send the pension dispute to binding arbitration. The ruling, which Air Canada originally planned to fight in court, sets the stage to resolve the contentious matter for other employees. New hires will receive lower starting pay and have a hybrid pension system of both defined benefit and defined contributions.

The Montreal-based company (TSX:AC-B.TO - News) wanted all new workers shifted to defined contribution plans, where retirement payments aren't fixed. Lewenza said the airline was headed for confrontation with its workers because its demands reflected a non-union workplace and a desire to "get us to the lowest point of operational cost." The head of the union representing Air Canada's 6,800 flight attendants said workers are demoralized after an imposed contract failed to rectify past financial losses. "I think they took their frustrations out on everybody — on the government, on the company and to some degree on the union," Paul Moist, national president of the Canadian Union of Public Employees, said from Toronto.

Coalesced by their use of social media, workers twice rejected tentative agreements recommended by union negotiators. Moist's reputation itself was tarnished after he couldn't deliver on a promise to Labour Minister Lisa Raitt that the second deal would be ratified. he should not have promised on something that was not in his control. The minister responded to an October strike deadline by referring the flight attendants' dispute to the Canada Industrial Relations Board, allegedly over health and safety concerns during a work stoppage.

The lead arbitrator subsequently imposed the last deal rejected by flight attendants. Raitt said she acted to protect the "fragile Canadian economy" from the disruption of a strike. Does Mr Harper know its s fragile Canadian Economy' according to him and his finance Guru who had never balanced a budget yet..we are doing so well..??

The move not only grounded a planned strike, but likely ended the chance of any potential work stoppages by other Air Canada unions. Even if the threat of strikes appears to have diminished, Air Canada faces months of difficult contract talks before it can realize labour peace. Pilots are in the midst of conciliation and machinists are proceeding with direct talks. The head of the pilots association said he hopes a deal can be wrapped up early in the new year and avoid a mid-February potential strike deadline.

Capt. Paul Strachan said the key will be for the airline to allow pilots to be full participants in its strategic vision. "In so far as that's lacking, I think the corporation will find it very difficult to deal with us because we're not going to sign a blank cheque." Anger over the first tentative deal prompted the recall of some top union leaders. "I think there were some showstoppers in the first one that really sunk it," he said, adding that he expects the latest effort to be more focused. Federal intervention in the affairs of the airline ignited a firestorm of opposition from those who accused the government of trampling on free collective bargaining. The minister's action may have averted disruption for the public, but it also prevented the airline from pressing workers to accept the fundamental changes it sought, said George Smith, a fellow at Queen's University.

With no risk of losing a day's pay to strike, workers could comfortably reject tentative agreements knowing that arbitrators are loathe to award either side any groundbreaking gains. "You just punt it to an arbitrator... so it's just like a snowball going downhill, it becomes an avalanche," he said. No matter how challenging 2011 was, it wasn't the most difficult period in Air Canada's storied history of labour relations. A protracted battle over privatization in the late 1980s prompted strikes by three of its four unions. Those disruptions were damaging but workers eventually got on board and allowed the wounds of battle to heal, said Smith, who is a former director of employee relations at Air Canada. "At least privatization was a focused end-game... right now it's not clear what the end game is." CUPE wasn't alone in failing to have tentative agreements ratified by members. Pilots and flight dispatchers also had their deals rejected. That spawned some sympathy towards Air Canada. "While there's always been a history of labour management conflict, I think what's been unprecedented this year has been the seeming disconnect between union leadership and the membership," said Chris Murray of PI Financial Corp.

He's among the industry observers who said the carrier had little choice but to seek substantive cost savings. Its unfunded pension liability exceeds $2.1 billion and it faces a precarious financial position. Intense competition, higher fuel costs, the high Canadian dollar and the challenges of an economic slowdown continue to pressure the airline. It has already cut $530 million in costs and is working on additional savings as it trims its $4.6 billion debt before the 2014 arrival of its first Boeing 787 aircraft. "It's not a simple business to run but I think they've done a good job on working on their cost profile and making the company a little bit more resilient," said Murray. He expects 2012 will continue to be challenging, especially if the economy remains shaky. One of the airline's most controversial proposals this round is the creation of a low-cost carrier. It's an idea that's gaining interest from other legacy carriers looking to reduce costs. Air Canada declined requests for an interview, but CEO Calin Rovinescu has said that reducing costs on leisure routes is needed to take on rivals such as WestJet (TSX:WJA.TO - News), Transat (TSX:TRZ-B.TO - News) and Sunwing and help the carrier deliver sustainable profits. In a letter to employees, Rovinescu called the decision by American Airlines to seek bankruptcy protection "sobering" news for the industry. "It underscores both how broken the legacy airline model is and the necessity of changing with the times, recognizing today's new realities," he said in the note obtained by The Canadian Press. Without specifically mentioning the low-cost carrier, he said Air Canada cannot relent on tackling its legacy structural inefficiencies and developing greater flexibility. "We must be open to new ways of doing business, we must control our costs and we must work together if we are to succeed." Talks with pilots could determine whether the idea will ever get off the ground. Many workers fear low wages will infiltrate the mainline airline. Flight attendants ducked the issue entirely but Moist said it could resurface in 2012 even if it's "not on the front burner right now." Ian Lee, a professor of strategic management at Carleton University said adopting a low-cost strategy must be part of Air Canada's long-term solution. "This industry is going through a wrenching structural change and some of the airlines will survive and some of them will not and whether Air Canada is one of those survivors we don't know yet," he said.