MONTREAL (Reuters) - Air Canada pilots continued to negotiate with the airline ahead of a midnight Tuesday strike deadline, but the two sides were said to be far apart on contract issues.

Pilots are demanding wages that approach parity with what they say is much better pay for pilots at major U.S. airlines. The Air Canada Pilots Association is representing the Montreal-based carrier's 2,100 pilots in talks with the airline, Canada's largest.

Air Canada spokeswoman Nicole Couture-Simard said government mediator George Adams held separate meetings Thursday with the union and the airline's bargaining committee.

She said the union and company bargaining committees were expected to meet face-to-face Friday morning with Adams.

Jean-Marc Belanger, chairman of the pilot union's master executive council, said the two sides were still far apart on the contract issues, which center on wages, pensions and working conditions.

The talks are expected to continue through the weekend right up to the strike deadline of midnight eastern time on September 1. If there is no agreement by the deadline, the pilots could begin strike action in the early hours of Wednesday morning.

The union has said a strike would cause havoc for airline passengers in Canada during what is traditionally a busy season. Air Canada carries between 65,000 and 80,000 passengers a day on flights within Canada and across its borders to the United States and elsewhere.

Couture-Simard said Air Canada continues to talk to other airlines, including Calgary, Alberta-based rival Canadian Airlines, to obtain endorsements allowing passengers to more easily transfer Air Canada tickets to other carriers if there is a strike. The Air Canada passengers would be able to use their tickets to book flights on Canadian and other airlines, including charter services and U.S. carriers.

"It would be a matter of available capacity," she said.

On the Toronto Stock Exchange, Air Canada shares were off 35 Canadian cents to set a new year-low of C$6.95 as volatile Canadian stock and currency markets were ravaged by uncertainty. Air Canada's shares have lost more than half their value since the beginning of the year, in part on concerns about rising labor costs at the profitable carrier.

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