Sept 12 (Reuters) - A standoff between Air Canada ( ACDVF ) and

its pilots over a new labor contract escalated on Thursday, as

the airline took the unusual step of saying Ottawa should be

ready to intervene to head off a strike.

The pilots' union warned the federal government against such

a step, saying it would tip the scale in the favor of the

employer and worsen labor relations.

A strike could start as soon as Sept. 18. Air Canada ( ACDVF ) and its

low-cost subsidiary Air Canada Rouge together operate nearly 670

flights per day, and a shutdown could affect 110,000 passengers

daily as well as freight carriage.

Airline CEO Michael Rousseau said the airline was still

committed to reaching a deal but accused the pilots' union of

making excessive wage demands. If talks fail, a government order

for binding arbitration would be needed, he said.

"The federal government should be prepared to intervene if

talks fail before any travel disruption starts," he said in a

statement, adding that even a short stoppage could cause

prolonged disruption for customers.

While Ottawa has intervened several times in labor disputes

over the last few decades, it only did so after stoppages have

begun, not before.

Charlene Hudy of the Air Line Pilots Association, which

represents the pilots, said she was very disappointed by Air

Canada's ( ACDVF ) position.

"We do not want to see any government interference in our

collective bargaining ... it really has the effect of tipping

the power balance in favor of the employer," she said by phone.

Federal Labour Minister Steven MacKinnon has broad powers to

tackle disputes and last month intervened within 24 hours to end

a stoppage at the two largest rail companies, Canadian Pacific

Kansas City ( CP ) and Canadian National Railway ( CNI ).

In its statement, Air Canada ( ACDVF ) said MacKinnon's action to end

the rail stoppage had set a precedent.

MacKinnon will be meeting with both sides on Thursday, said

a spokesman for the minister, but gave no details.

MacKinnon has repeatedly said he wants the two sides to sort

out their differences at the negotiating table.

Prime Minister Justin Trudeau told reporters in British

Columbia that "the best deal happens at the bargaining table".

Around 100 business groups on Wednesday also urged MacKinnon

to prevent a stoppage before it started.

Air Canada's ( ACDVF ) 5,400 pilots are demanding wage rates that

would narrow the pay gap with their counterparts at major U.S.

carriers like United Airlines.

Pilots at U.S. airlines have negotiated hefty pay raises in

new contracts in the past two years amid a travel boom and

staffing shortages. United's new pilot contract, for example,

included pay increases of about 42%.

As a result, some United pilots now earn 92% more than their

counterparts at Air Canada ( ACDVF ), the pilots' association's data

shows. In 2013, the pay gap was just 3%.

Rousseau said Air Canada ( ACDVF ) had offered a wage increase of over

30%, as well as improved pension and health benefits.

The union's Hudy said a strike could be averted "if Air

Canada ( ACDVF ) starts to really show up" and negotiate a fair agreement.

The airline's executives had "doubled their salaries over

the last decade, whereas the pilots I'm representing were being

left behind in the dust," she said.

"And we can't have that gap be as large as it is right now."