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. . . I was wondering what was in the minds of the RCN to abolish the Observer Branch back in 1956 . . .
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It was probably as simple that with the adoption of new aircraft, specifically the Tracker, there was no longer a need (or more likely a financial justification) for officers to be on naval a/c as "Observers". Prior to the RCN acquiring the Tracker in 1956 (delivery of the a/c actually occurred over the following few years), the primary ASW a/c were the Firefly (crewed by a pilot and an observer - both officers); this was replaced (circa 1950) by the Avenger that had a three man crew - the same officer pilot and observer plus a lower deck rating of Observer's Mate. The Tracker also needed two officers (pilot and co-pilot) and operating the equipment in the back were two Observer's Mates.
The Observers likely continued with what flying duties there was for them until the Avengers were withdrawn from service. Some would have also been employed in other duties (staff, training, administration, etc) and could possibly have been qualified in another occupation, including as pilots.
From my (limited?) understanding, in 1956, Observers were crew only in the Avengers. The few helicopters that the RCN used for ASW were manned by pilots up front and the sonar equipment in back was operated by ratings from the Seaman Branch with specialized training as Submarine Detectors (not Observer's Mates). I'm not sure how the Sea Kings, when they were adopted by the RCN in the early 60s, were initially crewed. In later years,
following unification, the crew did include "Navigators" as the "TACCO".
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Perhaps this role was taken over by the; Tactical Helicopter Observer, Airborne Warning and Control System or Airborne Electronic Sensor Operator.
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Tactical Helicopter Observers and those who wore (or wear) Airborne Warning and Control "timmy wings" would not have any connection to naval aviation "Observers".
AESOP is the modern title of "Observer's Mate". The OM rating came into being circa 1950 when the Avenger came into RCN service and the need for an additional flight crewman was identified. This rating's title was changed around 1960 to "Naval Aircrewman". Following unification of the Canadian Forces and amalgamation of similar trades from the three separate services there was a trade called "Observer" that was likely formed from the RCN's OMs/NAs and whatever RCAF trade did similar duty on its maritime patrol a/c. That Canadian Force's trade of "Observer" was renamed in the early 1980s to "Airborne Electronic Sensor Operator".
An interesting source for some of this info was the old RCN magazine "The Crowsnest". The attached image is from (a pdf of) the March 1956 issue that mentions ceasing observer training. In the April 1956 issue of "The Crowsnest" there is mention of Observer Course #10 being in progress.