By Allison Lampert and David Ljunggren
MONTREAL/OTTAWA (Reuters) - Air Canada said on Wednesday it would cut first-quarter capacity by an additional 25% as measures to combat COVID-19 hit bookings, while two well-placed sources said talks over a federal aid package had stalled.
Air Canada and rival WestJet Airlines - faced with huge slumps in demand - have been negotiating with the Liberal government since November. Progress is very slow amid disagreements over what Ottawa should offer, said the sources.
Air Canada said capacity in the first quarter would be about 20% of what it was during the first three months of 2019. The latest move by Canada's biggest carrier will mean a workforce reduction of about 1,700 employees.
WestJet said last week it would reduce capacity, with schedule cuts that would mean furloughs, layoffs, unpaid leaves or reduced hours.
The Liberal government says it is prepared to help the carriers but insists they reinstate regional routes they have suspended amid low demand, and refund passengers for tickets they can no longer use.
One source familiar with the talks said Air Canada wanted Ottawa to offer low-cost loans, citing what France, the Netherlands and the United States have done.
"The airlines have not bent at all," said the source, who requested anonymity given the sensitivity of the talks.
Ottawa would only agree to better terms if there were "an awful lot more extracted from the airlines," the source added, without providing details.
Air Canada said the job and route cuts "better reflect expected demand" and will "reduce cash burn," but it was not immediately available for comment about the government negotiations.
Jerry Dias, head of the Unifor trade union, said Air Canada's move "leaves airline workers with continued disappointment in the federal government's lack of action."
Ottawa is "disappointed by airlines' decisions to cancel more regional routes," a spokeswoman for new Transport Minister Omar Alghabra said.
(With additional reporting by Ankit Ajmera in Bengaluru; Editing by Krishna Chandra Eluri and Steve Orlofsky)