Air New Zealand has flagged to investors that it is aiming to sell all or part of its 25.9 per cent stake in Virgin Australia by   June 30, in a move that could result in the Kiwi carrier paying a special dividend.
Macquarie Equities analyst Nick Mar, who attended an Air New Zealand investor briefing on Tuesday, said the airline had up to $NZ750 million ($690 million) of imputation credits available for a special dividend but wouldn't look to do so based on its current balance sheet position. 
"The next catalyst would be the successful divestment of its Virgin stake," Mr Mar said. "The outcome here could be a full, partial or no sale, but the board ideally see this resolved before balance date [  June 30]."
Craigs Investment Partners analyst Matt Peek said he did not expect the review of the Virgin stake would be long-winded. "We expect an announcement potentially in the next few months," he said.
Air New Zealand's stake in Virgin is worth about $300 million at market prices, but it is possible a strategic buyer could pay a premium to buy at least 19.9 per cent of the stake.
Analysts have pointed to China Southern, Hainan Airlines, Delta Air Lines and United Airlines as potential buyers of the stake. It is also possible Virgin shareholder Singapore Airlines could bid for the remainder of the company or in partnership with fellow shareholder Etihad Airways.
Foreign Investment Review Board approval, likely to be reviewed by the federal Treasurer, would be required by any government-backed buyers of the stake.
It is unlikely such a decision would be made before the election on   July 2, given the government is expected to go into caretaker mode by next week.
However, it could be possible to cut a deal where an investment bank held shares pending a deal that might be completed by the time of Air New Zealand's full-year results in   August.
While Air New Zealand has a strong balance sheet and is expected to report a record full-year underlying profit of $NZ843 million ($774 million), its earnings are forecast to fall to $NZ746 million in the 2017 financial year due to lower currency benefits and increased competition lowering average air fare prices.
Jetstar has entered the New Zealand regional market and in the international market it faces increased competition on routes to North America and China.
"Air New Zealand see some choppy times ahead as it adjusts to higher capacity from both [itself] and competitors," Mr Mar said.
"It will continue to maximise revenue 'ruthlessly' through capacity management, reallocation of capacity, working with alliance partners and [the timing of the 767] fleet exit."
Air New Zealand is targeting a pre-tax return on invested capital [ROIC] of more than 15 per cent and a consistent and stable ordinary dividend. Mr Peek said the ability to meet the ROIC target would be "heavily influenced by its competitors". Air New Zealand achieved a pre-tax ROIC of about 16.2 per cent in the 2015 financial year.
Mr Mar said about 70 per cent of Air New Zealand's international revenue is under revenue-sharing agreements, with the carrier having more of them than any other airline in the world. Air New Zealand's partners include Virgin, Singapore Airlines, Cathay Pacific, Air China and United Airlines.