Air Canada plans to hire hundreds of flight attendants at a lower wage scale to help create a discount leisure airline, saying the new division must be competitive against tour operators.

The Montreal-based carrier's proposals are contained in a letter of understanding signed with the Canadian Union of Public Employees, which represents 6,800 flight attendants at the "mainline", Air Canada's existing operations.

Flight attendants at the low-cost carrier would start at C$22.99 an hour, according to the letter, which is attached to a 53-page tentative labour agreement reached on Aug. 1. CUPE leaders began providing details of the document to its members this week during union meetings in Toronto and Montreal.

It would take four years for new hires at the discount division to attain the highest wage level, listed at C$36.03 an hour.

By contrast, Air Canada flight attendants started at C$22.99 a hour in 2008, or the monthly equivalent of about C$1,494 based on a formula for 65 hours of paid working time, the union said. On that mainline pay grid, the wage is C$36.03 an hour after four years.

The top rate at the mainline is higher - C$48.27 an hour after completing nine years of service under the now-expired labour contract, or the monthly equivalent of about C$3,137. (Unionized service directors in charge of flight attendants are paid a premium.)

CUPE's bargaining committee, which will also hold meetings this week in Calgary and Vancouver, is unanimously recommending acceptance of the five-year agreement and hopes to assuage concerns from some flight attendants about job security at the mainline.

"We feel that we did the very best job possible in preserving important benefits and working conditions," the committee said in a four-page newsletter. Management's plan to place new hires on defined-contribution pensions will go to arbitration.

Under the tentative pact, which would be retroactive to April 1, Air Canada flight attendants would receive wage hikes of 2 per cent in each of the first three years, and 3 per cent in each of the final two years.

The letter of understanding confirms Air Canada's view that the launch of a low-cost carrier (LCC) is crucial to win a share of the leisure markets in North America and overseas, but stresses that "mainline cabin personnel shall not be forced to transfer to the LCC."

The letter also says: "The mandate of the LCC will be limited to the market segment seeking low-cost air travel. The LCC is not intended to replace mainline routes the company considers to be financially viable."

Air Canada recognizes "the union as the sole bargaining agent for all cabin personnel assigned to the LCC," the letter adds.

The letter says that the budget airline needs flexible work rules to compete against tour operators, noting that "the working conditions applicable to cabin personnel assigned to the LCC shall be similar to those in place" at rivals. Competitors include Transat A.T. Inc., Sunwing Travel Group and WestJet Airlines Ltd.

Air Canada still needs to win approval for the discount division from the Air Canada Pilots Association, whose members rejected a tentative contract in May that would have established a lower wage scale for pilots at the budget carrier.

About 460 pilot jobs could be created at Air Canada's low-cost division by 2015, plus new employment for up to 1,400 flight attendants, according to the carrier's internal analysis.

Air Canada has experimented with discount carriers in the past, notably the Zip Air Inc. fleet. In 2004, just two years after its startup, Air Canada closed Zip, which had 12 Boeing 737s for short- and medium-haul domestic routes.

Stephen Smith, former chief executive officer at Zip, said in an interview Tuesday that Zip hired nearly 200 flight attendants - all from outside Air Canada. Zip attracted 100 pilots who transferred from the mainline because they were drawn by the prospect of more flying hours on the 737s, he said.