Air Canada’s shares may look cheap compared with peers and recent lows, but there’s a fundamental reason cautious investors should sit on the sidelines: unresolved labour issues that could seriously impact operations and profitability. At face value, the airline’s broad network, loyalty program and fleet investments make it an attractive long-term business. However, the company’s financial and operational recovery hinges on how it navigates two major workforce negotiations in 2026.

The most immediate concern stems from the dispute with flight attendants, whose contract has been sent to binding arbitration after members overwhelmingly rejected the last offer. While arbitration eliminates the risk of another disruptive strike in the short term, it also introduces uncertainty about the outcome. In past bargaining scenarios, arbitrators have handed down awards that significantly exceeded management’s expectations, embedding higher structural costs for years. For an airline already operating on wafer-thin margins, an expensive award could compress profitability sharply and delay the path back to stable earnings.

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Even more concerning is the parallel negotiation with the mechanics, baggage handlers and ground crew represented by another union, whose collective agreement expires at the end of March 2026. These workers are harder to replace or backfill in the event of a walkout; a coordinated strike during peak travel season would effectively bring flight operations to a standstill. Unlike flight attendants, this negotiation isn’t in arbitration, so there’s real risk of service interruptions if talks deteriorate.

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Air Canada’s operating margins were already modest before these labour pressures — lower than the average airline — and recent financial guidance has been tempered after earlier disruptions. With free cash flow guidance still tight and limited pricing power to pass costs on to customers, management has little margin for error if costs spike or flights are grounded. Until both labour issues are resolved and cost structures are clear, the airline’s recovery story remains incomplete.

For investors focused on wealth preservation and smoother earnings paths, waiting for clarity on these workforce negotiations is a prudent strategy before committing new capital.