Canada refused to grant more landing rights to two state-run airlines from the United Arab Emirates because the U.A.E. tried to "blackmail" it into doing so by using access to a key Dubai military base as a bargaining chip, Conservative sources told CBC News.

A Leopard 2 tank leased by the Canadian military from Germany arrives in Kandahar aboard an Antonov transport aircraft in 2007. The United Arab Emirates has told Canada its military must vacate Dubai's Camp Mirage, creating challenges for transporting equipment and troops to and from Afghanistan. (Martin Ouellet/Canadian Press)

The U.A.E. decided to boot Canada out of Camp Mirage, a covert military base it has been using to stage operations in Afghanistan, after the federal government refused to allow U.A.E. state carriers Emirates and Etihad unlimited daily service into Toronto.

Currently, the two airlines are limited to six flights a week in total.

The Conservative government, one source insisted, supports free trade and open skies on a "level playing field" and is "simply standing up for Canadians and won't be bullied."

But Liberal foreign affairs critic Bob Rae accused the Conservatives of "bungling" an important relationship with an ally in the Middle East, saying negotiations were "handled in a way that can only be described as strange."

The U.A.E. carriers also wanted access to other Canadian cities, such as Calgary and Vancouver. That would have given Canadian travellers access to cheaper, direct flights to Dubai, for example, and reduced the need for some connecting flights operated by Air Canada and Lufthansa.

An airline industry source said that had the U.A.E. airlines been granted unlimited access to major Canadian cities, Air Canada's Ottawa-Frankfurt flights, in particular, would potentially be under threat.

Those flights are used by travellers to India, Pakistan, Turkey and Africa, who, the source argued, would instead choose to fly via the U.A.E., because its airlines are able to operate more cheaply. The state airlines don't pay taxes or have a unionized workforce.

Air Canada could have been forced to cancel the Ottawa-Frankfurt route altogether, resulting in 300 to 500 job losses, the source said.

In a statement Tuesday, Air Canada said the current agreement between Canada and the U.A.E. "allows more than enough capacity to carry all the point-to-point traffic" between the two countries.

"Air Canada supports liberalization in markets where such agreements benefit both sides, such as with the U.S. and Europe, but opposes capacity dumping by state-owned airlines," the statement said.

Stelmach backs direct flights

Alberta Premier Ed Stelmach said granting the U.A.E. airlines direct flight access to his province would clearly help Alberta as it looks down the road for economic opportunities, especially with its common ties in the energy sector.

"It will not only be shorter for the business community, but it will enhance our opportunities in Dubai, for sure," Stelmach told CBC News on Tuesday.

Bruce Graham, CEO of Calgary Economic Development, said the city needs to maintain and strengthen direct links with international partners to enhance business relationships and opportunities.

"I know from a Calgary business standpoint that we want to foster international links where possible. We want to retain those that we already have," Graham told CBC News.

"I know the economics of expanding airline linkages is tough anywhere, so I suspect it's a delicate balancing act that we're going through right now."

Federal Environment Minister Jim Prentice, who represents a Calgary riding, said the Canadian government has been trying to make sure those routes are available, but only "on terms and conditions that are appropriate for Canada."

Military could reroute flights through Turkey, Kuwait

Defence Minister Peter MacKay confirmed Monday that talks with the U.A.E. had failed and that Canada would abide by the country's wishes and vacate Camp Mirage.

Hours after the minister spoke, the U.A.E. reportedly closed its airspace to MacKay and Gen. Walt Natynczyk, Canada's chief of defence staff, as the two were returning from a three-day visit to Afghanistan, forcing them to be rerouted to Europe.

The government is now preparing to relocate the Forces based in the U.A.E. to an alternative base.

One insider says there are many alternative locations from which to stage Canada's Afghan operations, including Cyprus, Kuwait, Jordan and Turkey.