MONTREAL (Reuters) -The prospect of a system-wide work stoppage by Air Canada's unionized flight attendants loomed large on Friday with a strike deadline just hours away, despite a government plea for both sides to return to the bargaining table.

Canada's largest carrier has said it expects to cancel 500 flights by the end of the day, ahead of a threatened strike just before 1:00 a.m. ET on Saturday, leaving some 100,000 passengers to find travel alternatives.

The union representing Air Canada's 10,000 flight attendants urged the minority Liberal government of Prime Minister Mark Carney not to agree to the carrier's request to impose binding arbitration on both sides.

The union said imposing arbitration would stop the first strike by Air Canada flight attendants since 1985, after contract talks between the two sides stalled over demands for higher wages and compensation for unpaid work. 

"The mere prospect of ministerial intervention has had a chilling effect on Air Canada's obligation to bargain in good faith," said the Canadian Union of Public Employees.

Patty Hajdu, Canada's Minister of Jobs and Families, met with Air Canada and the union, urging both parties to "work harder" to reach an agreement.

"CUPE Air Canada Flight Attendants and Air Canada need to stay at the table and resolve this once and for all. It is unacceptable that such little progress has been made," she said.

After meeting with Hajdu and representatives from Air Canada earlier on Friday, a union spokesperson said: "We're here to bargain a deal, not to go on strike."

FlightAware data showed Air Canada had cancelled 196 flights as of 8:30 p.m. ET on Friday (0030 GMT).

At Toronto's Pearson International Airport, the world's hardest hit on Friday for cancellations according to FlightAware, Air Canada passengers lined up in front of a desk to ask workers for information about flights.

A strike would hit Canada's tourism sector during the height of the summer travel season.

Recording studio owner Robyn Flynn, 38, told Reuters that her Friday afternoon flight from St. John's in the province of Newfoundland and Labrador to Montreal had been delayed twice. Despite the inconvenience, she said she backed the attendants.

"They deserve a salary increase ...and if our flight gets cancelled, I 100% blame Air Canada, not the flight attendants," said Flynn, travelling with her three-year-old daughter.

The Canada Labour Code gives Hajdu the right to ask the country's Industrial Relations Board to impose binding arbitration in the interests of protecting the economy.

Although the board is independent, it routinely agrees to requests for arbitration once it has studied the matter, a process that can take a few days.

The Toronto region Board of Trade called on Ottawa to step in, saying a strike would hurt Canada's global reputation.

 Under Justin Trudeau, Carney's predecessor, the government intervened quickly last year to head off rail and dock strikes that threatened to cripple the economy.

"(Ottawa) might decide to use that, but it's not as pressing an economic issue for the country as when the railway or the ports were on strike," said Rafael Gomez, director of the University of Toronto's Centre for Industrial Relations and Human Resources. "The stakes are not as fraught."

In a note, TD Cowen analyst Tom Fitzgerald estimated a three-day strike could cost the airline C$300 million ($217.09 million) in earnings before interest, depreciation, taxes and amortization.

UNPAID WORK

The dispute hinges on the way airlines compensate flight attendants. Most have traditionally paid them only when planes are in motion.

But in their latest contract negotiations, flight attendants in both Canada and the United States have sought compensation for hours worked, including for tasks such as boarding passengers.

New labor agreements at American Airlines and Alaska Airlines legally require carriers to start the clock for paying flight attendants when passengers are boarding. American's flight attendants are now also compensated for some hours between flights. United Airlines' cabin crews, who voted down a tentative contract deal last month, also want a similar provision.

Air Canada and its low-cost affiliate Air Canada Rouge normally carry about 130,000 customers a day. Air Canada is also the non-U.S. carrier with the largest number of flights to the U.S., despite recent cutbacks in travel there from Canada due to trade tensions.

($1 = 1.3819 Canadian dollars)