TORONTO (CP) – Air Canada will ask a court next week to allow the struggling airline to make $120 million in contributions to its underfunded pension plans.

The defined benefit plans cover all of Air Canada’s unionized and non-unionized employees and retirees in Canada and the Britain as well as a group of Air Canada Jazz pilots.

“Our request to the court for a timely contribution of current service costs to the pension plans is a reflection of our commitment to preserve existing benefits for employees and retirees,” Air Canada president and CEO Robert Milton said Friday.

Air Canada said the board, bankruptcy monitor and equity partner Trinity Time Investments have agreed to the payment to cover the 2003 current service costs for the plans.

On Wednesday, the court approved a request that the company pay about $15 million to the Air Canada Jazz defined contribution pension plans and group RRSP, the Air Canada pilots’ retirement compensation arrangement and the Air Canada flight attendants’ group RRSP.

The defined-contribution plans differ from the defined-benefit plans with the main carrier, which have a deficit of about $1.5 billion.

“While significant issues relating to the deficits in the defined benefit plans remain outstanding, we will continue to work with Air Canada’s equity sponsor, the regulator and other stakeholders to arrive at a resolution as soon as possible,”Milton said.

Meanwhile, a creditor will argue next week for an appeal of the process that led to court approval of a $650-million investment from Hong Kong businessman Victor Li while another offer was in the wings.

Justice Robert Blair of the Ontario Court of Appeal ruled Friday that Mizuho International should get an “expedited” hearing. Mizuho International, a British hedge fund and subsidiary of Mizuho Financial Group, the Japanese banking giant, holds about $112 million in Air Canada debt.

If the Court of Appeal rules that the lower court made a mistake in approving the offer from Trinity, it could jeopardize the Trinity deal. An agreement allows Trinity to cancel the deal if it isn’t approved by the court by Saturday, Dec. 20.

Air Canada (TSX:AC) has been operating under bankruptcy-court protection from creditors since April 1.

Harvey Strosberg, a lawyer for Mizuho International who asked for the chance to appeal the case, called the decision “rare and exceptional.”

On Monday, Ontario Superior Court Justice James Farley approved a $650-million investment offer from Trinity, plus a $450-million rights offering led by Deutsche Bank.

Strosberg argued at the time that Farley should have waited a week until an anticipated offer by Cerberus Capital Management could be delivered, so the bids could be compared.

Terms of the Trinity deal allow Air Canada to entertain a new bid from Cerberus if the airline’s board deems it a “superior proposal.” But if Air Canada chooses to go with Cerberus, it will have to pay Trinity a $19.5-million break fee.

“The issue is whether Justice Farley was wrong going ahead,” Strosberg said Friday.

The Windsor, Ont., lawyer said he will argue that the court abdicated its responsibility in overseeing the restructuring process when it allowed the Air Canada board of directors to review the Cerberus proposal – received Wednesday – without showing it to creditors and hearing their opinions.

Peter Howard, a lawyer for Air Canada, argued that Mizuho understood and agreed to the process and that the airline and other parties have moved on.

“We’re already considering a changed factual landscape,” he said.

But Blair said most of the arguments made by Air Canada and others dealt with the merits of the appeal and not whether it should be heard next week.

Cerberus had earlier proposed claiming 11.9 per cent of the airline for $250 million and giving creditors the right to buy up to $850 million worth of Air Canada shares.

Mizuho believes the last Cerberus offer would have seen creditors receive about $967 million more than the Trinity offer provides. Air Canada has disputed that claim.

Cerberus and Li were shortlisted from a group of potential investors that included the Onex Corp. conglomerate. Toronto-based Onex failed in a late-1990s bid to buy Air Canada and merge it with former rival, Canadian Airlines International.

Bankruptcy court monitor Ernst & Young has endorsed the Li proposal, as have several large creditors including GE Capital Aviation, IBM and Cara Operations.

Li, a son of Hong Kong billionaire Li Ka-shing, spends much of his time in Hong Kong but is a Canadian citizen, which means his bid is viewed as a domestic deal, not subject to foreign ownership restrictions.