Air New Zealand would need to raise as much as $1.5 billion to repay the Government loan, top-up working capital and cover the cash it needs to keep going until the border reopens.
That's the base case of analysts at investment bank Jarden who have a sell rating on the national carrier's shares.
Air New Zealand is due to release its half-year result next Thursday and has already signalled an intention to undertake a capital raising before June 30.
The Government has said it will participate in any capital raise in order to maintain its 52 per cent shareholding.
But the exact size of the equity raising has yet to be confirmed.
Jarden analyst Andrew Steele said in a note he expects any capital raise would be sized to repay the outstanding balance on the government's $900 million loan to Air New Zealand, provide a top-up to its cash working capital and cover its ongoing cash burn.
"Our base case now assumes a capital raise of NZ$1.5b, which we estimate would satisfy each of these elements."
A capital raise that big would exceed even last year's biggest capital raising which saw Auckland Airport raise $1.2 billion from its shareholders.
Steel said with New Zealand's borders still closed he expected Air New Zealand would remain heavily loss-making for the next year.
He is forecasting Air New Zealand to make a before-tax loss of $218.5m for the half-year down from the same period last year when it made $198m.
Steele expects debt levels for the airline to have increased from $3 billion to $3.5b during the half and for its available cash to have reduced from $1.1b to $500m to $600m.
Likely delays in opening the trans-Tasman bubble had also prompted a downgrade to earnings forecasts for the airline.
"The key area of revision is to delay the opening of Tasman / Pacific Island travel to the first half of 2022, and first long haul flights until second half of 2022. In addition, we have updated our fuel cost and fuel consumption assumptions."
He is forecasting a full-year pre-tax loss of $489m up from a previous estimate of a $351m loss for the airline.
He expects Air New Zealand to return to a slim pre-tax profit in 2022 before bouncing back more fully in 2023.
But the pending capital raise has prompted the analysts to maintain a negative view on the stock.
"We retain our sell rating reflecting our view that given AIR's requirement for what would likely be a highly dilutive capital raise, ongoing near-term losses, lack of comfort on the timing and trajectory of any earnings recovery, the shares present a negatively skewed risk/reward."
Jarden has a 12-month target price on the stock of $1.25. Its shares were trading at $1.60 this morning.