Air New Zealand is being tipped to triple its pre-tax profits in the next four years.

Forsyth Barr analyst Rob Mercer, in a research note, upgraded his profit forecast for New Zealand's national airline for the year to June 30 to NZ$205.5 million before interest and tax, up NZ$50.3 million.

He forecast that would rise to NZ$497 million in 2010.

Even those forecasts were conservative, Mr Mercer said.

The key profit driver was a well timed fleet upgrade, which would give Air New Zealand a capital expenditure holiday for the next five years, allowing the airline to generate about NZ$1.7 billion in free cashflow over the next five years.

He also expected Air New Zealand to pay an 8-cent a share dividend in 2008, up from 5c.

As forecast net debt of NZ$182.7 million for 2007 turned to NZ$120.2 million cash in 2008, and exceeded NZ$1 billion cash by 2011, shareholders could expect special dividends in the next few years, Mr Mercer said.

Air New Zealand is about 80 per cent state-owned following a taxpayer-funded rescue in 2001.

Mr Mercer increased his valuation for Air New Zealand shares from NZ$1.52 to NZ$2.20 and recommended investors buy the stock. The shares closed at NZ$1.94 on January 5, up 2c. (New Zealand dollar is the currency used in this report unless otherwise stated)