The government is planning to put an end to the system of commercial agreements and royalties accruing to Air-India in a move that could severely dent the national carrier's profits.

The ministries of civil aviation, tourism and external affairs are meeting soon to chalk out a more liberal policy on bilateral royalties.

The Prime Minister's Office had proposed that these fees be transferred to the Consolidated Fund of India.

The civil aviation ministry is of the opinion that the system of receiving royalty is not present in any other country and India should follow the rest of the world.

According to civil aviation ministry sources, in 2002-03 Air-India had a revenue of over Rs 300 crore (Rs 3 billion) from commercial agreements, bilateral royalties, block seat arrangements and the like, of which nearly Rs 200 crore (Rs 2 billion) came from commercial arrangements and royalties. Air-India's profits last year were Rs 133.85 crore (Rs 1.338 billion).

The earnings from royalties and other commercial arrangements were expected to go up to Rs 300 crore this year due to new agreements with countries, the sources added.

They said the government planned to stop all commercial agreements in future bilateral negotiations and would also phase out the existing ones.

Air-India has code-sharing agreements with over 12 airlines, including Aeroflot, Air France, Kuwait Airways, Air Mauritius and Malaysia Airlines.

The civil aviation ministry last year decided to enter into more such pacts because they were profitable for Air-India.

As far as royalty is concerned, Air-India charges $100-300 per seat from the airlines, including KLM and Virgin Atlantic, depending on the sector.

Officials said the government planned to create a more liberal bilateral policy, which would attract more airlines to the country.

This is primarily to create hubs of the stature of Dubai and Singapore in Delhi and Mumbai now that the airport privatisation proposal has been passed by the Cabinet.