TravelSky Technology Limited — Proxy Solicitation & Information Statement 2006

Apr 7, 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer, bank manager, stock broker, solicitor, professional accountant or other professional advisers.

If you have sold or transferred all your shares in TravelSky Technology Limited, you should at once hand this circular together with the accompanying form of proxy to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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(Stock Code: 0696)

ONGOING CONNECTED TRANSACTIONS AND NOTICE OF EGM

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

A letter from the Board is set out on pages 1 to 13 of this circular. A letter from the Independent Board Committee is set out on page 14 of this circular. A letter from Tai Fook, the independent financial adviser to the Independent Board Committee and the Independent Shareholders containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 15 to 26 of this circular.

A notice convening the EGM to be held at Conference Room 1907, Floor 19, South Wing, Park C, Raycom InfoTech Park, No.2 Xue Yuan South Road, Haidian District, Beijing, People’s Republic of China at 9:30 a.m. on 25 May 2006 is set out on pages 36 to 37 of this circular. Whether or not you intend to be present at the EGM, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed on it to the branch share registrar of the Company in Hong Kong, Hong Kong Registrars Ltd. at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong no later than 24 hours before the time fixed for holding the EGM or any adjournment thereof. Completion and delivery of the form of proxy will not prevent you from attending, and voting at, the EGM or any adjournment thereof if you so wish.

7 April 2006

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
LETTER FROM TAI FOOK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
APPENDIX - GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36

— i —

DEFINITIONS

In this circular, the following expressions shall have the meanings set out below unless the context requires otherwise:

“2003 Circular” the Company’s circular dated 10 November 2003 in relation to, among other things, the Ongoing Connected Transactions “Airline Services the airline services agreement entered into between the Company and each of Agreement(s)” the Airline Services Agreement Promoters “Airline Services Promoters other than the Technology Service Agreement Promoters Agreement Promoters” “Announcement” the announcement dated 16 March 2006 made by the Company containing, amongst other things, the details of the Ongoing Connected Transactions “Annual Caps” the expected maximum amount of the Ongoing Connected Transactions for each of the three years ending 31 December 2008, as defined in the paragraph headed “Transaction Caps of the Ongoing Connected Transactions” in the letter from the Board in this circular “associate(s)” have the same meaning ascribed to it under Chapters 1 and 19A of the Listing Rules “Board” the board of Directors “CAAC” 中國民用航空總局 (General Administration of Civil Aviation of China), the administrative authority in the civil aviation industry in the PRC “Company” TravelSky Technology Limited, a company incorporated under the laws of the PRC whose Shares are listed on the Stock Exchange and whose American depositary shares are traded on the over-the-counter market in the United States “CNA Holding” China National Aviation Holding Company (中國航空集團公司), a promoter of the Company and which as result of the Restructuring, became the holding company of three former promoters of the Company at the time of the establishment of the Company, namely, Air China (中國國際航空公司), China Southwest Airlines Co., (中國西南航空公司) and China National Aviation Corp.(中國航空總公司). In this circular, unless the context requires otherwise, the Ongoing Connected Transactions entered or to be entered into between the Group and CNA Holding shall include the Ongoing Connected Transactions entered or to be entered into between the Group and such three promoters

— ii —

DEFINITIONS

“China Southern Airlines”	China Southern Airlines Company Limited (中國南方航空股份公司), a
	subsidiary of China Southern Holdings. In the Airline Services Agreement
	entered into between the Company and China Southern Airlines, reference to
	China Southern Airlines includes Xiamen Airlines Company Limited (廈門航
	空有限公司)
“China Southern Holdings”	China Southern Air Holdings Company (中國南方航空集團公司), formerly
	known as Southern Airlines (Group) Co. (南方航空(集團)公司) prior to the
	Restructuring, being a promoter of the Company
“Directors”	the directors of the Company
“EGM”	extraordinary general meeting of the Company to be convened for the purpose
	of approving the Ongoing Connected Transactions and the Annual Caps by the
	Independent Shareholders, the notice of which is set out on pages 36 to 37 of
	this circular
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Independent Board	the independent board committee of the Company established by the Company
Committee”	to advise the Independent Shareholders as to whether the terms of the Ongoing
	Connected Transactions are fair and reasonable and whether the Ongoing
	Connected Transactions are in the interests of the Company and the shareholders
	of the Company as a whole
“Independent Shareholders”	shareholders of the Company, other than the Promoters and their respective
	associates
“Latest Practicable Date”	3 April 2006, being the latest practicable date prior to the printing of this
	circular for the purpose of ascertaining certain information for inclusion in this
	circular
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock Exchange

— iii —

DEFINITIONS

• “Ongoing Connected the continuing connected transactions contemplated under the Promoter Services Transactions” Agreements and the technology services and ancillary support agreements previously entered into between the Company and each of the Airline Services Agreement Promoters (other than China Southern Airlines and Sichuan Airlines), China Southern Holdings, Xiamen Airlines Company Limited (廈門航空有限 公司) and Sichuan Air Group, the details of which were disclosed in the 2003 Circular and which had been replaced by the Airline Services Agreements

• “Percentage Ratios” the percentage ratios, other than the profits ratio, consideration ratio and equity capital ratio, under Rule 14.07 of the Listing Rules as calculated on an annual basis

• “Promoters” (i) Hainan Airlines Company Limited (海南航空股份有限公司), (ii) China Eastern Air Wuhan Company Limited (中國東方航空武漢有限責任公司, which predecessor prior to the Restructuring is Wuhan Airlines Co. (武漢航 空公司)), (iii) Shanghai Airlines Company Limited (上海航空股份有限公司 , which predecessor prior to the Restructuring is Shanghai Airlines Co., Ltd. (上海航空有限公司)), (iv) Shandong Airlines Company Limited (山東航空 股份有限公司), and (v) Shenzhen Airlines Company Limited (深圳航空有限 責任公司, which predecessor prior to the Restructuring is Shenzhen Airlines Co., Ltd. (深圳航空公司)), all being the promoters of the Company, China Southern Airlines, Sichuan Airlines and the Technology Service Agreement Promoters. Reference to the Promoters in this circular shall include their respective predecessors prior to the Restructuring

• “Promoter Services the Airline Services Agreements and the Technology Services and Ancillary Agreements” Support Agreements

• “PRC” or “China” the People’s Republic of China

• “Relevant Period” a period from 1 January 2006 to 31 December 2008

• “Restructuring” the restructuring of the civil aviation industry as disclosed in the Company’s announcement dated 10 October 2002

• “RMB”

Renminbi, the lawful currency of the PRC

• “SFO” the Securities and Futures Ordinance (Cap 571 of the Laws of Hong Kong)

• “Share(s)” H share(s) of RMB1.00 each in the capital of the Company

— iv —

DEFINITIONS

“Sichuan Air Group”	Sichuan Air Group Company (四川航空集團公司, which predecessor prior to
	the Restructuring is Sichuan Airlines Co. (四川航空公司), a promoter of the
	Company). Reference to Sichuan Air Group in this circular shall include its
	predecessor prior to the Restructuring, Sichuan Airlines Co. (四川航空公司)
“Sichuan Airlines”	Sichuan Airlines Company Limited (四川航空股份有限公司), a subsidiary of
	Sichuan Air Group
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Tai Fook”	Tai Fook Capital Limited, the independent financial adviser to the Independent
	Board Committee and the Independent Shareholders, and a corporation licensed
	to carry on type 6 (advising on corporate finance) regulated activity under the
	Securities and Futures Ordinance (Cap 571 of the Laws of Hong Kong)
“Technology Services”	various aviation information technology services and ancillary support provided
	by the Group to the Promoters set out in the paragraph headed “Technology
	Services” in this circular
“Technology Services and	the technology services and ancillary support agreements entered into between
Ancillary Support	the Company and each of the Technology Service Agreement Promoters (for
Agreement(s)”	the avoidance of doubt, the technology services and ancillary support agreement
	entered into between the Company and CNA Holding shall mean the technology
	services and ancillary support agreement entered into between the Company
	and Air China (中國國際航空公司) in 2000)
“Technology Service	(i) China Eastern Air Holding Company (中國東方航空集團公司)(formerly
Agreement Promoters”	known as Eastern Air Group Co. (東方航空(集團)公司) prior to the
	Restructuring) and (ii) CNA Holding, being the promoters of the Company
“Waiver”	the waiver from strict compliance with the disclosure and independent
	shareholders’ approval requirements under the then applicable Chapter 14 of
	the Listing Rules in relation to the Ongoing Connected Transactions for the
	period from 1 January 2004 to 17 October 2005 granted by the Stock Exchange
“%”	per cent.

For the purpose of this circular, unless otherwise indicated, the exchange rate at HK$1 = RMB1.04 have been used, where applicable, for the purpose of illustration only and not constitute a representation that any amount have been, could have been or may be exchanged.

— v —

LETTER FROM THE BOARD

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(Stock Code: 0696)

Directors: Zhu Yong (Chairman) Zhu Xiaoxing Ding Weiping Song Jinxiang Wang Quanhua # Cao Jianxiong # Gong Guokui # Rong Gang # Yang Yatie # Li Xiaoguang # Si Yupei # Song Jian # Wu Jiapei ## Chow Kwok Wah, James ## Yick Wing Fat, Simon ##

Registered office: Raymon InfoTech Park No. 2 Ke Xue Yuan South Road Haidian District, Beijing 100080 PRC

# Non-executive Directors

## Independent non-executive Directors

7 April 2006

To the Shareholders

Dear Sir / Madam,

ONGOING CONNECTED TRANSACTIONS

1. BACKGROUND

As set out in the Company’s announcement dated 16 March 2006, immediately prior to the listing of the Company in 2001, the Company has entered into the Ongoing Connected Transactions with the Promoters for an initial term of five years and has been granted a waiver in respect of the Ongoing Connected Transactions for the period up to 31 December 2003. In November 2003, the Company applied to the Stock Exchange for the Waiver, details of which and the Ongoing Connected Transactions were set out in the 2003 Circular. In view of the lapse of the Waiver on 25 October 2004 as set out in the paragraph headed “The Waiver” below, the Directors propose to seek the Independent Shareholders’ approval and ratification for the Ongoing Connected Transactions for the two financial years ended 31 December 2005 and approval for the Ongoing Connected Transactions for the three years ending 31 December 2008 at the EGM.

— 1 —

LETTER FROM THE BOARD

The purposes of this circular are to provide you with further information relating to the Ongoing Connected Transactions, the letter from the Independent Board Committee containing its recommendation in connection with the terms of Ongoing Connected Transactions to the Independent Shareholders, the letter from Tai Fook containing its advice to the Independent Board Committee and the Independent Shareholders, and a notice of the EGM to consider and, if thought fit, pass the necessary resolution to approve the Ongoing Connected Transactions.

Technology Services

Pursuant to the Airline Services Agreements and the Technology Services and Ancillary Support Agreements, the Company has agreed to provide to the Promoters various aviation information technology services and ancillary support, including but not limited to:

• (a) flight control system services which provide, among other services, the consolidated information, flight formation, flight control, flight tickets sales, automatic tickets sales, announcement of freight information;

• (b) electronic travel distribution system services which provide, among other services, flight information display, real-time flight reservation, automatic tickets sales, tickets price display and other travel-related services;

• (c) airport passenger processing system services which provide check-in, boarding and load planning services; and

• (d) civil aviation and commercial data network services which provide, among other services, the network transmission services and connection services.

— 2 —

LETTER FROM THE BOARD

Service fees for the Technology Services

The service fees payable by the Promoters for the Technology Services under the Airline Services Agreements and the Technology Services and Ancillary Support Agreements are currently determined in accordance with the pricing schedule prescribed by CAAC, details of which have been disclosed in the Company’s prospectus dated 29 January 2001. In accordance with CAAC’s prescribed prices, depending on the types of system through which the transactions are processed, the Promoters are required to pay the Company a per passenger booking fee for domestic routes ranging from RMB5.0 to RMB6.5 depending on the monthly booking volume and for international and regional routes ranging from RMB6.5 to RMB7.0.

In addition, the Company charges the Promoters (i) fees for each boarding passenger handled by the Company’s Airport Passenger Processing (APP) system up to maximum allowable price of RMB7.0 depending on the types of the route, volume, level of services etc, (ii) load balancing fees for each flight handled by the Company’s Airport Passenger Processing (APP) system up to maximum allowable price of RMB500 depending on the size of the aircraft, and (iii) fees for using the Company’s data network services such as physical identified device (PID) connection fees and maintenance fees depending on type and quantity of equipment at the rate prescribed by CAAC.

— 3 —

LETTER FROM THE BOARD

2. ONGOING CONNECTED TRANSACTIONS

The Company and the Promoters entered into the Promoter Service Agreements (i.e. Airline Services Agreements and Technology Services and Ancillary Support Agreements) as follows:

(1) Airline Services Agreements

The Company and each of the Airline Services Agreement Promoters have entered into the Airline Services Agreements in relation to the Technology Services. The initial term of the Airline Services Agreements is ranging from 3 to 5 years, upon expiry of which, such agreements, unless terminated in writing by any party thereto six months in advance, will be automatically renewed for such term stated in the column headed “Number of years of renewal” opposite to the name of relevant Airline Services Agreement Promoter in the table of the Airline Services Agreements below:

					Term of
					the predecessor
					technology
		Date of			services and
	Airline Services	Airline Services	Term of Airline	Number of	ancillary support
No.	Promoters Agreement	Agreement	Services	years of renewal	agreement
			(year)		(Note 1)
1.	Hainan Airlines	25 October 2004	1 January 2004-	Five	18 October 2000-
	Company Limited		31 December 2008		17 October 2005
	(海南航空股份有限公司)		(five years)
2.	China Eastern Air Wuhan	1 November 2004	1 January 2004-	One	15 November 2000-
	Company Limited		31 December 2008		14 November 2005
	(中國東方航空武漢		(five years)
	有限責任公司)
3.	Shanghai Airlines	5 November 2004	1 November 2004-	Five	18 October 2000-
	Company Limited		31 October 2009		17 October 2005
	(上海航空股份有限公司)		(five years)
4.	Shandong Airlines	5 November 2004	1 January 2005-	One	15 November 2000-
	Company Limited		31 December 2007		14 November 2005
	(山東航空股份有限公司)		(three years)
5.	Shenzhen Airlines	21 December 2004	1 January 2004-	Three	15 November 2000-
	Company Limited		31 December 2006		14 November 2005
	(深圳航空有限責任公司)		(three years)
6.	Sichuan Airlines	26 January 2005	1 January 2005-	One	9 November 2000-
	(四川航空股份有限公司)		1 January 2008		8 November 2005
			(three years)
7.	China Southern Airlines	23 January 2006	1 January 2005-	Nil	15 November 2000-
	(中國南方航空股份公司)		31 December 2008		14 November 2005
	(Note 2)		(four years)

— 4 —

LETTER FROM THE BOARD

Notes:

1. It refers to the initial term of the predecessor technology services and ancillary support agreements entered into between the Company and each of (i) the relevant Airline Services Agreement Promoters (other than Sichuan Airlines and China Southern Airlines); (ii) Sichuan Air Group (in respect of Sichuan Airlines); and (iii) China Southern Holdings (in respect of China Southern Airlines).

2. In the Airline Services Agreement entered into between the Company and China Southern Airlines, reference to China Southern Airlines includes Xiamen Airlines Company Limited (廈門航空有限 公司).

In view of the expiry of the initial term of five years of the technology services and ancillary support agreements in relation to provision of the Technology Services entered into between the Company and the Promoters in 2000, particulars of which are set out in the Company’s prospectus dated 29 January 2001 and the 2003 Circular, the Company started to liaise with the then Promoters on renewal of the relevant agreements in late 2004. As the Company has enhanced and introduced new Technology Services since 2000 in line with the development of the applicable technologies and the demand for such services, the Company took the opportunity to update the content and revise the form of the agreements, such as including brief descriptions and functions of different major types of Technology Services provided by the Company in the Airline Services Agreement. Therefore, the Company has entered into most of the Airline Services Agreements with the relevant Airline Services Agreement Promoters before the expiry of the relevant predecessor technology services and ancillary support agreements.

To the understandings of the Directors, the contract duration of similar agreements relating to the provision of the Technology Services in the industry is generally in the range from three to five years. As such, the Directors consider that the term of the Airline Services Agreements is of normal business practice. It is also the view of Tai Fook that although there are no other comparable agreements in the PRC market to which reference can be made regarding whether or not a duration of agreements relating to the provision of the Technology Services in excess of three years is within the normal business practice of the industry in the PRC, based on the similar technology services agreements with a term in excess of three years, and entered into between certain airline operators and two worldwide leading providers of computerized ticketing and reservation systems to travel and tourism industry, who are engaged in the similar business of the Group, the contract duration of the Airline Services Agreements in excess of three years is in line with industry normal practice.

Reference to the Company in the Airline Services Agreements shall include the subsidiaries of the Company.

— 5 —

LETTER FROM THE BOARD

(2) Technology Services and Ancillary Support Agreements

As set out in the 2003 Circular, the Company and each of the Technology Service Agreement Promoters have entered into the Technology Services and Ancillary Support Agreements in relation to the Technology Services, which already expired in November 2005. The Company and the Technology Service Agreement Promoters have renewed such agreements, or as the case may be, entered into a new agreement on the same or substantially the same terms for such term as stated in the column headed “Number of years of the renewal” opposite to the name of the Technology Service Agreement Promoters set out in the table of the Technology Services and Ancillary Support Agreements below:

					Term of the
					predecessor
					agreement/
	Technology Service	Date of agreement/	Term/Renewed	Number of years	initial term of
**No. **	Agreement Promoter	renewal agreement	term of agreement	of the renewal	the agreement
			(year)
1.	China Eastern Air Holding Company	16 November 2005	16 Nov 2005-	Three	15 Nov 2000-
	(中國東方航空集團公司)		15 Nov 2008		15 Nov 2005
			(three years)
2.	CNA Holding	21 November 2005	21 Nov 2005-	Nil	21 Nov 2000-
	(中國航空集團公司)		21 Nov 2006		20 Nov 2005
			(one year)

The Technology Services and Ancillary Support Agreement entered into with CNA Holding was renewed for a shorter term of one year at the request of CNA Holding. The Company has been informed by CNA Holding that it is the internal proposal of CNA Holding that a new agreement regarding provision of the Technology Services to be entered into between one of its subsidiaries and the Company in the near future, and CNA Holding thus considers the renewal term of one year is more appropriate. Taking into account the above, the Directors are of the view that the Technology Services and Ancillary Support Agreement with CNA Holding which was entered into on normal commercial terms and negotiated on an arm’s length basis and, notwithstanding the shorter renewal term, is in the interests of the Company and its shareholder as a whole.

References to the Technology Service Agreement Promoters and the Company in the Technology Services and Ancillary Support Agreements shall include their respective subsidiaries and associated companies.

— 6 —

LETTER FROM THE BOARD

3. HISTORICAL TRANSACTION RECORDS

Set out below is a summary of the Group’s revenue derived from the Ongoing Connected Transactions for the three years ended 31 December 2004:

		Year ended
	31 December	31 December	31 December
	2002	2003	2004
Revenue	653,000,000	598,000,000	887,000,000
(RMB)	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately
	HK$627,885,000)	HK$575,000,000)	HK$852,885,000)

Based on the management accounts for the year ended 31 December 2005 of each of the Company and its subsidiaries which are prepared according to the applicable PRC accounting standards, the unaudited amount of the Ongoing Connected Transactions for the year ended 31 December 2005 was approximately RMB1,100,000,000 (equivalent to approximately HK$1,057,692,000).

— 7 —

LETTER FROM THE BOARD

4. TRANSACTION CAPS OF THE ONGOING CONNECTED TRANSACTIONS

Set out below is the summary of the amounts of the maximum aggregate annual value (“ Annual Caps ”) of the Ongoing Connected Transactions entered or to be entered with each Promoter for the three years ending 31 December 2008:

		Transaction Amount
		Year ending
	31 December	31 December	31 December
Promoter	2006	2007	2008
Hainan Airlines Company Limited	RMB157,290,000	RMB204,540,000	RMB265,860,000
(海南航空股份有限公司)
China Eastern Air Wuhan Company Limited	RMB37,450,000	RMB48,700,000	RMB63,300,000
(中國東方航空武漢有限責任公司)
Shanghai Airlines Company Limited	RMB112,350,000	RMB146,100,000	RMB189,900,000
(上海航空股份有限公司)
Shandong Airlines Company Limited	RMB59,920,000	RMB77,920,000	N/A
(山東航空股份有限公司)
Shenzhen Airlines Company Limited	RMB104,860,000	N/A	N/A
(深圳航空有限責任公司)
Sichuan Airlines	RMB67,410,000	RMB87,660,000	N/A
(四川航空股份有限公司)
China Southern Airlines	RMB374,500,000	RMB487,000,000	RMB633,000,000
(中國南方航空股份公司)(Note)
China Eastern Air Holding Company	RMB284,620,000	RMB370,120,000	RMB481,080,000
(中國東方航空集團公司)
CNA Holding	RMB299,600,000	N/A	N/A
(中國航空集團公司)
Total	RMB1,498,000,000	RMB1,422,040,000	RMB1,633,140,000
	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately
	HK$1,440,385,000)	HK$1,367,346,000)	HK$1,570,327,000)

Note: In the Airline Services Agreement entered into between the Company and China Southern Airlines, reference to China Southern Airlines includes Xiamen Airlines Company Limited (廈門航空有限公司)

— 8 —

LETTER FROM THE BOARD

The Annual Caps is determined by reference to (1) the historical annual amount of the Ongoing Connected Transactions for the year ended 31 December 2004; (2) the unaudited annual amount of the Ongoing Connected Transactions for the year ended 31 December 2005; and (3) the estimated growth of the transaction volume of the Ongoing Connected Transactions taking into account of the anticipated growth of the China’s aviation and travel industry as well as the increasing frequency of business trips. The Directors estimate that the Ongoing Connection Transactions will increase by about 15% to 30% per annum and 30% is used in determining the amount of the Annual Caps.

Given that the Technology Services and Ancillary Support Agreement entered into with CNA Holding and the Airline Services Agreements entered with Shenzhen Airlines Company Limited, Shandong Airlines Company Limited and Sichuan Airlines will expire on 21 November 2006, 31 December 2006, 31 December 2007 and 1 January 2008 respectively, the Company proposes to liaise with such Promoters and enter into a new agreement or renew the existing agreement with such Promoters. After the Company has renewed or entered into a new agreement with such Promoters, the Company will then set or, as the case may be, revise the Annual Caps in respect of each of such Promoters for the then subsequent three financial years and seek the Independent Shareholders’ consideration of and approval for the Ongoing Connected Transactions and such Annual Caps in a general meeting accordingly.

5. REASONS FOR AND BENEFITS OF THE ONGOING CONNECTED TRANSACTIONS

The Group is a dominant provider of aviation information technology services in the PRC. The Promoters (other than China Eastern Air Holding Company and CNA Holding, the respective holding company of China Eastern Airlines Corporation Limited and Air China Ltd., both of which are Main Board listed companies on the Stock Exchange) are engaged in airline operation in the PRC. China Eastern Airlines Corporation Limited and its subsidiaries are principally engaged in the operation of civil aviation, air cargo, postal delivery and other extended transportation services while Air China Ltd. and its subsidiaries are principally engaged in provision of air passenger, air cargo and airlinerelated services in the PRC. The Ongoing Connected Transactions have been and will be conducted in the ordinary and usual course of business of the Group.

The Ongoing Connected Transactions have been and will be conducted on normal commercial terms and conditions determined on an arm’s length basis. The Directors are of the view that the Ongoing Connected Transactions are on normal commercial terms and the terms of the Ongoing Connected Transactions are fair and reasonable and in the interests of the shareholders of the Company as a whole.

— 9 —

LETTER FROM THE BOARD

6. THE WAIVER

In November 2003, the Company obtained the Waiver, with conditions attached thereto, details of which were set out in the 2003 Circular.

As set out in the paragraph headed “Airline Services Agreements,” above in view of the expiry of the initial term of five years of the technology services and ancillary support agreements in relation to provision of the Technology Services entered into between the Company and the Promoters in 2000, the Company started to liaise with the then Promoters on renewal of the relevant agreements in late 2004. As the Company has enhanced and introduced new Technology Services since 2000 in line with the development of the applicable technologies and the demand for such services, the Company took the opportunity to update the content and revise the form of the agreements, such as including brief descriptions and functions of different major types of Technology Services provided by the Company in the Airline Services Agreement. Therefore, the Company has entered into most of the Airline Services Agreements with the relevant Airline Services Agreement Promoters before the expiry of the relevant predecessor technology services and ancillary support agreements.

As the Company considered that the terms of the Ongoing Connected Transactions contemplated under the Airline Services Agreements are substantially same as those in the predecessor technology services and ancillary support agreements entered into with the relevant Airline Services Agreement Promoters and the entering into the Airline Services Agreements prior to the expiry of the initial term of the predecessor technology services and ancillary support agreements did not amount to change in material terms of the Ongoing Connected Transactions, no announcement was made when the Company entered into the Airline Services Agreements.

However, the Stock Exchange are of the view that when the Company entered into Airline Services Agreements, the Company shall comply with the then applicable requirements under Listing Rules (i.e. the reporting, announcement and independent shareholders’ approval requirements) and the Waiver accordingly lapsed on 25 October 2004, being the date on which the Company entered into the Airline Services Agreement with Hainan Airlines Company Limited. The Ongoing Connected Transactions for the period from 25 October 2004 to 31 December 2005 were therefore subject to the reporting, announcement and independent shareholders’ approval requirements. For the reasons mentioned above, no announcement was made and the Company was considered as not timely complying with the requirements of the Listing Rules at the relevant time. The Directors proposes to seek the Independent Shareholders’ approval and ratification for the Ongoing Connected Transactions for the two financial years ended 31 December 2005 at the EGM.

— 10 —

LETTER FROM THE BOARD

In respect of the Ongoing Connected Transactions for the period from 1 January 2004 to 24 October 2004 as covered by the Waiver, the Company had complied with all of the conditions attached to the Waiver set out below:

• (1) such Ongoing Connected Transactions were:

• (a) entered into by the Group in the ordinary and usual course of its business;

• (b) conducted either (i) on normal commercial terms (which expression shall be applied by reference to transactions of a similar nature and to be made by similar entities); or (ii) (where there is no available comparison) on terms that are fair and reasonable so far as the independent shareholders of the Company are concerned; and

• (c) entered into in accordance with the terms of the agreements governing such transactions;

• (2) the independent Directors have reviewed annually and confirmed in the Company’s annual reports for each of the year ended 31 December 2003 and the year ended 31 December 2004 that such Ongoing Connected Transactions had been conducted in the manner as stated in paragraph (1) above;

• (3) the Company’s auditors have reviewed such Ongoing Connected Transactions annually and confirmed in a letter to the Directors stating that such Ongoing Connected Transactions:

• (a) have received the approval of the Board;

• (b) were entered into in accordance with the pricing policies as stated in the Company’s financial statements; and

• (c) were entered in accordance with the terms of the respective agreements and documents governing the transactions;

• (4) details of such Ongoing Connected Transactions in each financial year for the two years ended 31 December 2004 as required under the then Rule 14.25(1)(A) to (D) of the Listing Rules were disclosed in the Company’s annual report for the relevant financial year together with a statement of the opinion of the independent non-executive Directors referred to paragraph (2) above; and

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LETTER FROM THE BOARD

• (5) the Company and each party to such Ongoing Connected Transactions have undertaken to provide sufficient facility for the Company’s auditors to inspect their respective accounts and records for the purpose of performing the review referred to in paragraph (3) above.

7. LISTING RULES REQUIREMENTS

Given that the Promoters (other than China Southern Airlines and Sichuan Airlines) are the promoters (as defined in Chapter 19A of the Listing Rules) of the Company and China Southern Airlines and Sichuan Airlines, as the respective subsidiary of China Southern Holdings and Sichuan Air Group, each of them is an associate of a promoter of the Company, the Ongoing Connected Transactions for the Relevant Period constitute connected transactions for the Company under Chapter 14A of the Listing Rules. Since the Percentage Ratios for the Ongoing Connected Transactions on an annual basis are more than 25%, the Ongoing Connected Transactions for the Relevant Period are non-exempt continuing connected transactions under Rule14A.35 of the Listing Rules and are subject to the reporting, announcement and independent shareholders’ approval requirements.

8. EGM

The EGM will be held at Conference Room 1907, Floor 19, South Wing, Park C, Raycom InfoTech Park, No.2 Xue Yuan South Road, Haidian District, Beijing, People’s Republic of China at 9:30 a.m. on 25 May 2006, to consider and, if thought fit, approve, among other matters, the Promoter Services Agreements, the Ongoing Connected Transactions contemplated thereunder and the related Annual Caps. Notice of the EGM is set out on pages 36 to 37 of this circular.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you intend to be present at the EGM, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed on it to the branch share registrar of the Company in Hong Kong, Hong Kong Registrars Ltd. at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong no later than 24 hours before the time fixed for holding the EGM or any adjournment thereof. Completion and delivery of the form of proxy will not prevent you from attending, and voting at, the EGM or any adjournment thereof if you so wish.

In accordance with Rules 13.39 (4) of the Listing Rules, the vote of the Independent Shareholders taken at the EGM to approve the Ongoing Connected Transactions and the Annual Caps will be taken by poll, with the Promoters and their respective associates abstaining from voting. The voting results will be announced after the EGM.

— 12 —

LETTER FROM THE BOARD

9. POLL PROCEDURE

Pursuant to Article 73 of the articles of association of the Company, a resolution put to the vote at a meeting shall be decided on a show of hands unless (before or after the voting on show of hands) a poll is demanded:

• (a) by the chairman of such meeting;

• (b) by at least two shareholders of the Company present in person or by proxy for the time being entitled to vote at the meeting; or

• (c) by shareholder(s) of the Company present in person or by proxy(ies) and holding 10% or more Shares conferring a right to vote at the meeting on his/her own or in aggregate.

10. RECOMMENDATIONS

Your attention is drawn to the letter from the Independent Board Committee set out on page 14 of this circular and the letter of advice from Tai Fook to the Independent Board Committee and the Independent Shareholders in connection with the Ongoing Connected Transactions and the principal factors and reasons considered by them in arriving at such advice set out on pages 15 to 26 of this circular.

The Independent Board Committee, having taken into account the advice of Tai Fook, considers that the terms of the Ongoing Connected Transactions and the Annual Caps are fair and reasonable and in the interest of the Company and the Independent Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve, if thought fit, the Ongoing Connected Transactions and the Annual Caps.

11. GENERAL

Your attention is drawn to the general information set out in appendix to this circular.

Yours faithfully,

By order of the Board

TravelSky Technology Limited Zhu Yong Chairman

— 13 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [417 x 63] intentionally omitted <==

(Stock Code: 0696)

7 April 2006

To the Independent Shareholders

Dear Sir / Madam,

ONGOING CONNECTED TRANSACTIONS

We refer to the circular (“ Circular ”) issued by the Company to its shareholders dated 7 April 2006 of which this letter forms part. Capitalised terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires.

We have been appointed by the Board to consider the Ongoing Connected Transactions and the Annual Caps. Tai Fook has been appointed as independent financial adviser to advise us and the Independent Shareholders in this respect.

We wish to draw your attention to the letter from the Board and the letter from Tai Fook set out in this Circular. Having considered the principal factors and reasons considered by, and the advice of, Tai Fook set out in its letter of advice set out in the Circular, we consider that the Ongoing Connected Transactions and the Annual Caps are fair and reasonable in so far as the Company and the Independent Shareholders are concerned and the Ongoing Connected Transactions and the Annual Caps are in the interests of the Company and the shareholders of the Company as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution approving the Ongoing Connected Transactions and the Annual Caps at the EGM.

Yours faithfully,

For and on behalf of the

Independent Board Committee

Wu Jiapei Chow Kwok Wah, James Yick Wing Fat, Simon Independent non-executive Directors

— 14 —

LETTER FROM TAI FOOK

Set out below is the text of the letter of advice from Tai Fook to the Independent Board Committee and the Independent Shareholders in connection with the Ongoing Connected Transations and the Annual Caps prepared for inclusion in this circular.

25th Floor

==> picture [131 x 32] intentionally omitted <==

New World Tower 16-18 Queen’s Road Central Hong Kong 7 April 2006

To the Independent Board Committee and the Independent Shareholders

TravelSky Technology Limited Floor 18 - 20, South Wing, Park C Raycom InfoTech Park No. 2, Ke Xue Yuan South Road Haidian District, Beijing 100080, PRC

Dear Sirs,

ONGOING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders with respect to (i) the terms of the Ongoing Connected Transactions under the Airline Services Agreements entered into between the Company and the Airline Services Agreement Promoters and the Technology Services and Ancillary Agreements entered into between the Company and the Technology Services Agreement Promoters; and (ii) the Annual Caps in respect of the Ongoing Connected Transactions for the Relevant Period, details of which are contained in the circular dated 7 April 2006 (the “Circular”) to the shareholders of the Company, of which this letter forms part. Terms used in this letter shall have the same respective meanings as defined in the Circular unless the context otherwise requires.

— 15 —

LETTER FROM TAI FOOK

Given that the Promoters (other than China Southern Airlines and Sichuan Airlines) are the promoters (as defined in Chapter 19A of the Listing Rules) of the Company and China Southern Airlines and Sichuan Airlines, as the respective subsidiary of China Southern Holdings and Sichuan Air Group and each of them an associate of a promoter of the Company, the Ongoing Connected Transactions for the Relevant Period constitute connected transactions for the Company under Chapter 14A of the Listing Rules. Since the Percentage Ratios for the Ongoing Connected Transactions on an annual basis are more than 25%, the Ongoing Connected Transactions for the Relevant Period constitute non-exempt continuing connected transactions under Rule14A.35 of the Listing Rules and are subject to the reporting, announcement and independent shareholders’ approval requirements.

The Independent Board Committee comprising three independent non-executive Directors (namely Wu Jiapei, Chow Kwok Wah, James and Yick Wing Fat, Simon) has been established to advise the Independent Shareholders in respect of the terms of the Ongoing Connected Transactions and the Annual Caps for the Relevant Period. In our capacity as the independent financial adviser to the Independent Board Committee and the Independent Shareholders, our role is to provide the Independent Board Committee and the Independent Shareholders with an independent opinion as to whether (i) the terms of the Ongoing Connected Transactions are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole; and (ii) the Annual Caps in respect of the Ongoing Connected Transactions are fair and reasonable so far as the Company and the Independent Shareholders are concerned. We are independent of the Company and its associates.

BASIS OF OUR OPINION

In formulating our opinion, we have relied on the information and facts supplied to us and representations expressed by the Directors and/or the management of the Company and have assumed that all such information and facts and any representations made to us, for which they are fully responsible, are true, accurate and complete as at the date hereof. We have been advised by the Directors and/or the management of the Company that all relevant information has been supplied to us and that no material facts have been omitted from the information supplied and representations expressed to us. We have also relied on certain information available to the public and have assumed such information to be accurate and reliable, and we have not independently verified the accuracy of such information. We have no reason to doubt the completeness, truth or accuracy of the information and facts provided and we are not aware of any facts or circumstances which would render such information provided and representations made to us untrue, inaccurate or misleading.

We consider we have reviewed sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted an independent verification of the information nor have we conducted any form of in-depth investigation into the businesses and affairs of the Group.

— 16 —

LETTER FROM TAI FOOK

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinions in respect of the terms of the Ongoing Connected Transactions and the Annual Caps, we have considered the following principal factors and reasons:

1. Background of and reasons for the Ongoing Connected Transactions

The Group is a dominant provider of aviation information technology services in the PRC. The Promoters, other than China Eastern Air Holding Company and CNA Holding, are airline operators in the PRC. China Eastern Air Holding Company is the holding company of China Eastern Airlines Corporation Limited, which together with its subsidiaries is principally engaged in the operation of civil aviation, air cargo, postal delivery and other transportation services in the PRC. CNA Holding is the holding company of Air China Ltd, which together with its subsidiaries is principally engaged in the provision of air passenger, air cargo and airline-related services in the PRC. The Ongoing Connected Transactions have been and will continue to be conducted in the ordinary and usual course of business of the Group.

Immediately prior to the listing of the Company in 2001, the Company has entered into the Ongoing Connected Transactions with the Promoters for an initial term of five years and has been granted a waiver in respect of the Ongoing Connected Transactions for the period up to 31 December 2003. In November 2003, the Company applied to the Stock Exchange for the Waiver, details of which and the Ongoing Connected Transactions were set out in the 2003 Circular. The Waiver lapsed on 25 October 2004, details of which are set out in the “Letter from the Board” of the Circular.

Subsequently, the Company entered into the Airline Services Agreements with the Airline Services Agreement Promoters, and the Technology Services and Ancillary Support Agreements with the Technology Services Agreement Promoters. The Directors proposes to seek the Independent Shareholders’ approval for the Ongoing Connected Transactions and their Annual Caps for the Relevant Period at the EGM.

The Technology Services provided under the Ongoing Connected Transactions comprise the provision of various aviation information technology services and ancillary support, including but not limited to:

• flight control system services which provide, among other services, the consolidated information, flight formation, flight control, flight tickets sales, automatic tickets sales, announcement of freight information;

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LETTER FROM TAI FOOK

• electronic travel distribution system services which provide, among other services, the flight information display, real-time flight reservation, automatic tickets sales, tickets price display and other travel-related services;

• airport passenger processing system services which provides check-in, boarding and load planning services; and

• civil aviation and commercial data network services which provide, among other services, the network transmission services and connection services.

The provision of the Technology Services to airline operators is the principal business of the Group in its normal and ordinary course of business.

As advised by the Directors, the aviation industry in the PRC is subject to extensive supervision of the PRC government and dominated by a limited number of airline operators. We noted that the major airline operators in the PRC are either the Promoters or their subsidiaries, all being connected persons of the Company as defined under the Listing Rules. Since the main clientele of the Group is airline operators, it is commercially essential and desirable for the Group to carry on the Ongoing Connected Transactions in order to secure recurring income and to develop and expand business for its Technology Services.

The Ongoing Connected Transactions are entered into between the Company and the Airline Services Agreement Promoters pursuant to the Airline Services Agreements, and between the Company and the Technology Services Agreement Promoters pursuant to the Technology Services and Ancillary Support Agreements. As explained in the “Letter from the Board” of the Circular, the Company has enhanced and introduced new Technology Services since 2000, and has taken the opportunity of the entering into of the Airline Services Agreements to update the content and form such as including brief description and functions of different major types of Technology Services in the Airline Services Agreements. We have reviewed the Airline Services Agreements and the Technology Services and Ancillary Support Agreements, and consider that the interest of the Company would not be affected by such updates as a whole.

Based on the above considerations, we concur with the Directors’ view that the Ongoing Connected Transactions have been entered into in the ordinary and usual course of business of the Group, and are in the interests of the Company and the Independent Shareholders as a whole.

— 18 —

LETTER FROM TAI FOOK

2. Pricing basis of the Ongoing Connected Transactions

As stated in the “Letter from the Board” of the Circular, the services fees payable by the Promoters for the Technology Services are determined in accordance with the pricing schedule prescribed by CAAC, details of which have been disclosed in the Company’s prospectus dated 29 January 2001. We have discussed with the Directors and are given to understand that currently the services fees to be charged by the Group under the Ongoing Connected Transactions pursuant to the Promoter Service Agreements are governed by the aforesaid pricing schedule prescribed by CAAC.

In this regard, we have reviewed the services fees to be charged by the Group under the Promoter Services Agreements. We noted that the service fees to be charged by the Group pursuant to the Promoter Service Agreements are within the respective price ranges prescribed by CAAC.

We have also reviewed sample copies of the services agreements entered into between the Company and certain independent third parties in respect of the Technology Services. We noted that the Company would charge such independent third parties based on the same pricing schedules on which the Company would charge the Airline Services Promoters as set out in the Airline Services Agreements.

3. Term of the Airline Services Agreements and the Technology Services and Ancillary Support Agreements

We set out below a summary of the term of the Airline Services Agreements and the Technology Services and Ancillary Support Agreements:

	Date of
	agreement /	Term of
Name of the Promoter	renewal agreement	agreement
Airline Services Agreements
Hainan Airlines Company Limited	25 October 2004	1 January 2004 -
(海南航空股份有限公司)		31 December 2008
		(5 years)
China Eastern Air Wuhan Company Limited	1 November 2004	1 January 2004 -
(中國東方航空武漢有限責任公司)		31 December 2008
		(5 years)

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LETTER FROM TAI FOOK

Shanghai Airlines Company Limited	5 November 2004	1 November 2004 -
(上海航空股份有限公司)		31 October 2009
		(5 years)
Shandong Airlines Company Limited	5 November 2004	1 January 2005 -
(山東航空股份有限公司)		31 December 2007
		(3 years)
Shenzhen Airlines Company Limited	21 December 2004	1 January 2004
(深圳航空有限責任公司)		31 December 2006
		(3 years)
Sichuan Airlines	26 January 2005	1 January 2005 -
(四川航空股份有限公司)		1 January 2008
		(3 years)
China Southern Airlines	23 January 2006	1 January 2005 -
(中國南方航空股份有限公司)		31 December 2008
(Note)		(4 years)
Technology Services and Ancillary Support Agreements
China Eastern Air Holding Company	16 November 2005	16 Nov 2005 -
(中國東方航空集團公司)		15 Nov 2008
		(3 years)
CNA Holding	21 November 2005	21 Nov 2005 -
(中國航空集團公司)		21 Nov 2006
		(1 year)

Note: In the Airline Services Agreement entered into between the Company and China Southern Airlines, reference to China Southern Airlines includes Xiamen Airlines Company Limited

The Promoter Service Agreements have various terms ranging from one year to five years. As confirmed by the Directors, the Promoter Service Agreements are arrived at after arm’s length negotiation between the parties concerned.

— 20 —

LETTER FROM TAI FOOK

We noted that the Airline Services Agreements entered into between the Company and each of Hainan Airlines Company Limited, China Eastern Air Wuhan Company Limited, Shanghai Airlines Company Limited and China Southern Airlines have a term of either four or five years. Pursuant to Rule 14A.35 of the Listing Rules, the term of the Airline Services Agreements shall not exceed three years except in special circumstances where the nature of the transaction requires the contract to be of a duration longer than three years and it is normal business practice for contracts of this type to be of such duration.

Commercial rationale

The provision of the Technology Services to airline operators is the principal business of the Group in its normal and ordinary course of business. As illustrated in the paragraph headed “Background of and reasons for the Ongoing Connected Transactions”, the Promoters and their subsidiaries, being connected persons of the Company, comprise the major airline operators in the PRC. As such, it is commercially essential and desirable for the Group to carry on the Ongoing Connected Transactions in order to secure recurring income and to develop and expand business for its Technology Services.

We have discussed with the Directors and reviewed the breakdown of the Group’s revenue in terms of major customers for the three years ended 31 December 2004 and the six months ended 30 June 2005. We noted that the Ongoing Connected Transactions accounted for approximately 67%, 67% and 69% of the revenue of the Group for the three years ended 31 December 2004 respectively and approximately 72% for the six months ended 30 June 2005. Given the essential revenue contribution to the Group attributable to the Ongoing Connected Transactions, we consider that a longer contract duration, if secured by the Company, would be beneficial to the Group since it could mitigate the Group’s exposure to uncertainty in its business while benefiting from the expected growth of the aviation industry in the PRC in the coming years.

We understand from the Directors that the terms of the Promoter Service Agreements were determined between the Company and the Promoters after arm’s length negotiations. Given the substance of the agreements to the Group, the Directors have made efforts to procure the agreements be entered into for a longer term. It was based on arm’s length negotiations that the Company has managed to enter into the Airline Services Agreements with each of Hainan Airlines Company Limited, China Eastern Air Wuhan Company Limited, Shanghai Airlines Company Limited and China Southern Airlines for a term of either four or five years.

On the other hand, we consider that the Shareholders’ interests could be protected in light of the Group’s right to terminate the Airline Services Agreements or the Technology Services and Ancillary Support Agreements by giving six months’ notice to the Promoters.

Based on the aforesaid, we consider that a longer contract duration with the Promoters is fair and reasonable and in the interest of the Company and the Independent Shareholders as a whole.

— 21 —

LETTER FROM TAI FOOK

Industry business practice

As advised by the Directors, the Group is currently the dominant provider in the PRC in respect of the Technology Services in relation to PRC domestic airlines so far as the Directors are aware. As such, there are no other comparable agreements in the PRC market to which reference can be made regarding whether or not a duration in excess of three years is within the normal business practice of the industry in the PRC.

In formulating our opinion with regard to whether a term in excess of three years is in line with the normal business practice, we have sought to establish major international players that are engaged in the similar business of the Group. In this connection, we have identified Amadeus (Note 1) and Sabre Holdings (Note 2) , two leading providers of computerized ticketing and reservations systems to travel and tourism industry, whom are engaged in the similar business of the Group and whom provided public information in relation to service agreements entered into with major customers. We set out below a summary of the terms of the technology services agreements entered into between the two companies and airline operators during year 2002 to 2005 which involve an agreement term in excess of three years:

			Term of
Provider	Year of agreement	Airline	agreement
			(years)
Sabre	2005	AirTran Airways	5
Amadeus	2005	Pulkovo Airline	5
Sabre	2005	Southwest Airlines	7
Amadeus	2004	TACA Airline	5
Amadeus	2004	Air Canada	5
Amadeus	2003	Qantas	5
Amadeus	2002	Finnair	10

Source: websites of Amadeus (www.amadeus.com) and Sabre (www.sabre-holdings.com)

• Note 1: Amadeus is a world leader in providing the travel industry with solutions to manage the distribution and selling of travel services. Currently the company has presence in over 215 markets worldwide, has over 6,500 employees and its systems used by 75,000 travel agencies and more than 11,000 airline sales offices

• Note 2: Sabre Holdings is a world leader in the travel marketplace. Traded on the New York Stock Exchange, it merchandises and retails travel products and provides distribution and technology solutions for the travel industry. Its subsidiary, Sabre Airline Solutions is the leading provider of decision-support tools, reservations systems and consulting services for airlines

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LETTER FROM TAI FOOK

Based on the aforesaid, we consider that it is normal business practice for contracts of this type to be in excess of three years and that such contract term is fair and reasonable so far as the Company and the Independent Shareholders are concerned.

Based on the considerations that (i) a longer contract duration with the Promoters is commercially essential and desirable to the Group in view of the substantial revenue contribution attributable to the Ongoing Connected Transactions; and (ii) it is normal business practice for contracts like the Promoter Services Agreements to have a term in excess of three years, we are of the view that the term of the Promoter Services Agreements in excess of three years is fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

4. Annual Caps

Set out below is a summary of the Group’s historical revenue derived from the Ongoing Connected Transactions for the four years ended 31 December 2005:

		Year ended 31 December	Year ended 31 December
	2002	2003	2004	2005
				(Unaudited)
Revenue	653,000,000	598,000,000	887,000,000	1,100,000,000
(RMB)

We set out below the proposed Annual Caps for the Ongoing Connected Transactions for the Relevant Period:

		Year ending 31	December
	2006	2007	2008
	Amount	Amount	Amount
	(RMB)	(RMB)	(RMB)
Hainan Airlines Company Limited	157,290,000	204,540,000	265,860,000
(海南航空股份有限公司)
China Eastern Air Wuhan Company Limited	37,450,000	48,700,000	63,300,000
(中國東方航空武漢有限責任公司)
Shanghai Airlines Company Limited	112,350,000	146,100,000	189,900,000
(上海航空股份有限公司)

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LETTER FROM TAI FOOK

Shandong Airlines Company Limited	59,920,000	77,920,000	N/A
(山東航空股份有限公司)
Shenzhen Airlines Company Limited	104,860,000	N/A	N/A
(深圳航空有限責任公司)
Sichuan Airlines	67,410,000	87,660,000	N/A
(四川航空股份有限公司)
China Southern Airlines	374,500,000	487,000,000	633,000,000
(中國南方航空股份有限公司)
China Eastern Air Holding Company	284,620,000	370,120,000	481,080,000
(中國東方航空集團公司)
CNA Holding	299,600,000	N/A	N/A
(中國航空集團公司)
Total	1,498,000,000	1,422,040,000	1,633,140,000

The Technology Services and Ancillary Support Agreement entered into between the Company and CNA Holding and the Airline Services Agreements entered into between the Company and Shenzhen Airlines Company Limited, Shandong Airlines Company Limited and Sichuan Airlines will expire on 22 November 2006, 1 January 2007, 1 January 2008 and 2 January 2008 respectively. Accordingly, the corresponding Annual Caps for the relevant periods have been arrived at after taking into account such circumstances. After the Company has renewed or entered into a new agreement with such Promoters, the Company will then set or revise (as the case may be) their respective Annual Caps. Other than the above, we noted that the Annual Caps represent an embedded annual growth of 30% for each Promoter during the Relevant Period.

— 24 —

LETTER FROM TAI FOOK

We have assessed the fairness and reasonableness of the Annual Caps based on the following considerations:

Favorable macro-economic environment for the PRC aviation industry

The PRC has experienced significant economic growth in the past few years. According to the publication by the National Bureau of Statistics of China dated 28 February 2005, the Gross Domestic Products of the PRC reached approximately RMB13,651.5 billion in 2004, representing an approximately 9.5% increment as compared to that of the corresponding period. Such favourable macro-economic environment is beneficial to the growth of the PRC aviation industry as a whole, as evidenced by the growth in the total passenger traffic of the PRC, which increased at a compound annual growth rate of approximately 16% over the period from 2000 to 2005.

Given the favourable macro-economic environment for the PRC aviation industry, the business of the PRC airline operators is expected to continue to grow, so as the Group’s Ongoing Connected Transactions with the Promoters, who themselves or their subsidiaries constitute the major airline operators in the PRC.

Expected growth against historical growth

As illustrated above, the aggregated transaction amount of the Ongoing Connected Transactions increased from approximately RMB653 million in 2002 to RMB887 million in 2004, representing a compound annual growth rate of approximately 17%. Further, based on the unaudited transaction amount for the year ended 31 December 2005, the transaction amount grows to approximately RMB1,100 million from the same for the year ended 31 December 2004, representing an annual growth of approximately 24%. In view of the historical growth and having considered the favourable macroeconomic environment for the PRC aviation industry as described above, we consider that the 30% growth rate used in determining the total Annual Caps is fair and reasonable, taking into account a modest buffer to accommodate the possible fluctuation in the turnover of the Group.

Mechanism in determining the Annual Caps for each Promoter

After deriving the total Annual Caps for 2006, the 2006 Annual Caps in respect of each Promoter are determined with reference to the historical transaction amount contributed by each Promoter in respect of the Ongoing Connected Transactions. In this regard, we have reviewed the historical transaction amounts for each Promoter for the three years ended 31 December 2004 and the six months ended 30 June 2005. We noted that the turnover contribution attributable to each Promoter in the total transaction amounts of the Ongoing Connected Transactions of the Group remain substantially stable during the period. As such, we consider that applying a fixed share of the total Annual Caps for each Promoter to derive the 2006 Annual Caps in respect of each Promoter is reasonable.

— 25 —

LETTER FROM TAI FOOK

The Technology Services and Ancillary Support Agreement entered into between the Company and CNA Holding and the Airline Services Agreements entered into between the Company and Shenzhen Airlines Company Limited, Shandong Airlines Company Limited and Sichuan Airlines will expire on 22 November 2006, 1 January 2007, 1 January 2008 and 2 January 2008 respectively. In view of this, a 30% annual growth rate is then applied on the year on year basis to derive the 2007 and/or 2008 (as the case may be) Annual Caps in respect of each Promoter other than CNA Holding and Shenzhen Airlines Company Limited.

Based on the aforesaid and after taking account of the recurring nature of the transactions, we consider that the Annual Caps for the Ongoing Connected Transactions were made by the Directors after due and careful consideration and we concur with the Directors’ view that basis in determining the Annual Caps and the Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned.

RECOMMENDATION

Having considered the above principal factors and reasons, we consider that (i) the terms of the Ongoing Connected Transactions as contemplated under the Airline Services Agreements and the Technology Services and Ancillary Support Agreements are on normal commercial terms, in the ordinary and usual course of business of the Group, fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole; and (ii) the Annual Caps for the Relevant Period in respect of the Ongoing Connected Transactions are fair and reasonable so far as the Company and the Independent Shareholders are concerned. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders and we advise the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Ongoing Connected Transactions as contemplated under the Airline Services Agreements and the Technology Services and Ancillary Support Agreements and the relevant Annual Caps.

Yours faithfully, For and on behalf of Tai Fook Capital Limited Derek C. O. Chan April Chan Managing Director Director

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. INTERESTS AND SHORT POSITIONS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE IN THE SHARE CAPITAL OF THE COMPANY

As at the Latest Practicable Date, none of the Directors, supervisors or chief executive of the Company had any interest or short position in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which is required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or any interests required to be entered in the register maintained in accordance with Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules.

3. SUBSTANTIAL SHAREHOLDERS

• (a) As at the Latest Practicable Date, as far as it was known to any Directors, supervisors or chief executive of the Company, the following entities (other than a Director, supervisors or chief executive of the Company disclosed under the paragraph headed “Interests and short positions of Directors, supervisors and chief executive in the share capital of the Company” above) had an interest or short position in the respective class of Shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was directly or indirectly interested in 10% or more of the nominal value of the respective class of share capital carrying rights to vote in all circumstances at general meetings of the Company:

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GENERAL INFORMATION

APPENDIX

• (1) Interest or short position in the shares of the Company

			Approximate
			percentage of	Approximate
			respective	Percentage of
Name of		Class and	class of	total share
shareholder	Capacity	no. of securities	share capital	capital
		(Note 1)
Templeton Asset	Investment	40,567,000	13.05%	4.57%
Management Limited	manager	H Shares of
		RMB1 each (L)
Matthews International	Investment	28,239,000	9.08%	3.18%
Capital Management,	manager	H Shares of
LLC		RMB1 each (L)
J.P. Morgan Chase & Co.	Beneficial	154,000	0.05%	0.02%
	owner	H Shares of
		RMB1 each (L)
	Investment	27,083,000	8.71%	3.05%
	manager	H Shares of
		RMB1 each (L)
	Other	6,958,600	2.24%	0.78%
		H Shares of
		RMB1 each (L)
	(Note 2)	6,958,600	2.24%	0.78%
		H Shares of
		RMB1 each
		(lending pool)

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GENERAL INFORMATION

APPENDIX

Platinum Asset	Investment	7,202,000	2.32%	0.81%
Management Limited	manager	H Shares of
as trustee for the		RMB1 each (L)
Platinum Asset
Management Trust
	Trustee (other than	11,635,000 of	3.74%	1.31%
	a bare trustee)	H Shares
		RMB1 each (L)
JPMorgan Chase & Co.	Investment	16,829,000	5.41%	1.89%
	manager	H Shares of
		RMB1 each (L)
	Custodian	1,081,000	0.35%	0.12%
	corporation/	H Shares of
	approved	RMB1 each (L)
	lending agent
	(Note 3)	1,081,000	0.35%	0.12%
		H Shares of
		RMB1 each
		(lending pool)
Shanghai Industrial	Interest of	47,180,000	15.18%	5.31%
Investment (Holdings)	controlled	H Shares of
Company Limited	corporation	RMB1 each (L)
J.P.Morgan Fleming	Investment	22,199,000	7.14%	2.50%
Asset Management	manager	H Shares of
(Asia) Inc.		RMB1 each (L)
J.P.Morgan Fleming	Investment	22,199,000	7.14%	2.50%
Asset Management	manager	H Shares of
Holdings Inc.		RMB1 each (L)

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GENERAL INFORMATION

APPENDIX

JF Asset Management	Investment	22,199,000	7.14%	2.50%
Limited	manager	H Shares of
		RMB1 each (L)
OppenheimerFunds, Inc	Investment	19,000,000	6.11%	2.14%
	manager	H Shares of
		RMB1 each (L)
China TravelSky	Beneficial	198,496,500	34.38%	22.35%
Holding Company	owner	domestic Shares
		of RMB1 each (L)
China Southern Air	Beneficial	116,460,500	20.17%	13.11%
Holding Company	owner	domestic Shares of
		RMB1 each (L)
China Eastern Air	Beneficial	109,414,500	18.95%	12.32%
Holding Company	owner	domestic Shares of
		RMB1 each (L)
China National Aviation	Beneficial	89,433,500	15.49%	10.07%
Holding Company	owner	domestic Shares of
		RMB1 each (L)

Notes:

1. The letter “L” represents the entity’s interests in the securities.

2. The capacity in which the securities are held was not stated in the corporate substantial shareholders notice of J.P. Morgan Chase & Co..

3. The capacity in which the securities are held was not stated in the corporate substantial shareholders notice of JPMorgan Chase & Co..

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GENERAL INFORMATION

APPENDIX

• (2) Interest or short position in the underlying shares of the Company

		Number of
Name of shareholder	Nature of derivatives	underlying shares
		(Note)
Shanghai Industrial	Unlisted cash settled	1,937,000 (L)
Investment (Holdings)	derivatives
Company Limited

Note: The letter “L” represents the entity’s interests in the underlying securities.

Save as disclosed herein, there was no person or other entity known to the Directors, supervisors or chief executive of the Company, who, as at the Latest Practicable Date, had an interest or short position in the respective class of Shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was directly or indirectly interested in 10% or more of the nominal value of the respective class of shares capital carrying rights to vote in all circumstances at general meetings of the Company.

• (b) So far as is known to the Directors, supervisors or chief executive of the Company, as at the Latest Practicable Date, the following entities (other than a Director, supervisors or chief executive of the Company disclosed under the paragraph headed “Interests and short positions of Directors, supervisors and chief executive in the share capital of the Company” above) were directly or indirectly interested in 10% or more of the nominal value of the registered capital carrying the rights to vote in all circumstances at the general meetings of the subsidiaries of the Company:

		Approximate
Name of	Name of	Registered	Percentage of
subsidiary	shareholder	Capital	interest
Hainan Civil Aviation Cares Co., Ltd.	China Southern Air Holding Co.	RMB1,505,000	22.74%
(海南民航凱亞有限公司)	(中國南方航空集團公司)
Cares Hubei Co., Ltd.	Wuhan Tinhe Airport	RMB625,000	12.50%
(湖北民航凱亞有限公司)	Company Limited
	(武漢天河機場有限責任公司)

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GENERAL INFORMATION

APPENDIX

Cares Hubei Co., Ltd.	Union Committee	RMB625,000	12.50%
(湖北民航凱亞有限公司)	of Wubei Branch of
	China Southern Air
	Company Limited
	(中國南方航空股份有限公司
	湖北分公司工會委員會)
Cares Hubei Co., Ltd.	China Eastern Air Wuhan	RMB625,000	12.50%
(湖北民航凱亞有限公司)	Company Limited
	(中國東方航空武漢有限責任公司)
Cares Hubei Co., Ltd.	Cares Shenzhen Co., Ltd.	RMB625,000	12.50%
(湖北民航凱亞有限公司)	(深圳民航凱亞有限公司)
Cares Chongqing Information	China International	RMB2,401,000	24.50%
Technology Co., Ltd.	Aviation Company Limited
(重慶民航凱亞信息技術有限公司)	(中國國際航空股份有限公司)
Cares Chongqing Information	Chongqing Airport (Group)	RMB2,401,000	24.50%
Technology Co., Ltd.	Company Limited
(重慶民航凱亞信息技術有限公司)	(重慶機場(集團)有限公司)
Aviation Cares of Yunnan	China Eastern Air-	RMB980,000	49.00%
Information Co., Ltd.	Yunnan Airlines Company
(雲南民航凱亞信息有限公司)	(中國東方航空雲南公司)
InfoSky Technology Co., Ltd.	Societe Internationale de	US$1,225,000	49.00%
(天信達信息技術有限公司)	Telecommunications
	Aeronautiques Greater
	China Holdings Limited
Civil Aviation Cares of Xiamen Ltd.	Xiamen Airlines Co.	RMB1,140,000	28.50%
(廈門民航凱亞有限公司)	(廈門航空有限公司)

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GENERAL INFORMATION

APPENDIX

Civil Aviation Cares of Xiamen Ltd.	Xiamen International	RMB820,000	20.50%
(廈門民航凱亞有限公司)	Airlines Holdings Co., Ltd.
	(廈門國際航空港股份有限公司)
Civil Aviation Cares of	Civil Aviation Qingdao	RMB720,000	36%
Qingdao Ltd.	Liuting Airport
(青島民航凱亞系統集成有限公司)	(民航青島流亭機場)
Civil Aviation Cares of	Huadong Civil Aviation	RMB260,000	13%
Qingdao Ltd.	Cares of Shanghai Ltd.
(青島民航凱亞系統集成有限公司)	(上海民航華東凱亞系統集成有限公司)
Civil Aviation Cares of	Shanxi Airport Management	RMB850,000	17%
Xi’an Ltd.	Group Company
(西安民航凱亞科技有限公司)	(陝西省機場管理集團公司)
Civil Aviation Cares of Xi’an Ltd.	China Eastern Air-Northwest	RMB1,600,000	32%
(西安民航凱亞科技有限公司)	Airlines Company
	(中國東方航空西北公司)
Civil Aviation Cares Technology of	China Southern Air	RMB735,000	24.50%
Xinjiang Ltd.	Holdings Company
(新疆民航凱亞信息網絡有限責任公司)	(中國南方航空集團公司)
Civil Aviation Cares Technology of	Xinjiang Airport	RMB735,000	24.50%
Xinjiang Ltd.	Group Co., Ltd.
(新疆民航凱亞信息網絡有限責任公司)	(新疆機場集團有限責任公司)

Save as disclosed above, as at the Latest Practicable Date and so far as is known to the Directors, supervisors or chief executive of the Company, there was no other entity (other than a Director, supervisors or chief executive of the Company disclosed under the paragraph headed “Interests and short positions of Directors, supervisors and chief executive in the share capital of the Company” above) who was directly or indirectly, interested in 10% or more of the nominal value of the registered capital carrying rights to vote in all circumstances at the general meetings of any subsidiary of the Company.

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GENERAL INFORMATION

APPENDIX

4. SERVICE AGREEMENTS

As at the Latest Practicable Date, none of the Directors had entered or proposed to enter into a service contract with any member of the Group which will not expire or is not determinable by the employer within one year without payment of compensation (other than statutory compensation).

5. LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration or claim of material importance and there was no litigation or arbitration or claim of material importance known to the Directors to be pending or threatened by or against either the Company or any of its subsidiaries.

6. MATERIAL CHANGES

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2004, being the date to which the latest published audited financial statements of the Group were made up.

7. INTEREST IN ASSETS

As at the Latest Practicable Date, none of the Directors or Tai fook had any interest, direct or indirect, in any asset which had been since 31 December 2004, being the date to which the latest published audited accounts of the Group were made up, acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group.

8. MATERIAL INTEREST IN CONTRACTS

As at the Latest Practicable Date, none of the Directors was materially interested in any contracts or arrangement subsisting as at the date hereof which was significant in relation to the business of the Group.

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GENERAL INFORMATION

APPENDIX

9. EXPERT

Tai Fook is licensed under the SFO for type 6 (advising on corporate finance) regulated activity as defined under the SFO and is the independent financial adviser to the Independent Board Committee and the Independent Shareholders in connection with the terms of Ongoing Connected Transactions and the Annual Caps. Its letter of advice to the Independent Board Committee and the Independent Shareholders dated as of the date of this circular was given for the purpose of incorporation herein.

Tai Fook has given and has not withdrawn its written consent to the issue of this circular with copy of its letter and the reference to its name and its advice included in this circular in the form and context in which they respectively appear.

As at the Latest Practicable Date, Tai Fook did not have any shareholding, directly or indirectly, in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

10. GENERAL

The Chinese text of this circular shall prevail over the English text in case of inconsistency.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the Promoter Services Agreements will be available for inspection at the offices of Chiu & Partners, 41st Floor, Jardine House, 1 Connaught Place, Central, Hong Kong during normal business hours from the date of this circular up to and including the date of the EGM.

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NOTICE OF EGM

==> picture [417 x 63] intentionally omitted <==

(Stock Code: 0696)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (“EGM”) of TravelSky Technology Limited (“Company”) will be held at 9:30 a.m. on Thursday, 25 May 2006 at Conference Room 1907, Floor 19, South Wing, Park C, Raycom InfoTech Park, No.2 Ke Xue Yuan South Road, Haidian District, Beijing, the People’s Republic of China to consider and, if thought fit, pass with or without amendments, the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

1. “ THAT

2. (a) agreements (“Promoter Services Agreements”) (copies of which have been produced to the meeting marked “A” and signed by the chairman of the meeting for the purpose of identification) made between the Company and each of the Promoters (as defined in the circular (“Circular”) of the Company dated 7 April 2006 (copy of which has been produced to the meeting marked “B” and signed by the chairman of the meeting for the purpose of identification)) relating to certain ongoing connected transactions and all the transactions contemplated thereby; and

3. (b) the Annual Caps (as defined in the Circular) for the transactions contemplated under the Promoter Services Agreements for the three years ending 31 December 2008 as shown in the Circular,

be and they are hereby approved and that the directors of the Company be and they are hereby authorised to take any step as they consider necessary, desirable or expedient in connection with the Promoter Services Agreements or the transactions contemplated thereby.”

1. “ THAT the Ongoing Connected Transactions (as defined in the Circular) for each of the two years ended 31 December 2005 are and they are hereby approved, confirmed and ratified.”

By the order of the Board

TravelSky Technology Limited

Zhu Yong Chairman

Beijing, 7 April 2006

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NOTICE OF EGM

Registered office:

Raymon InfoTech Park No. 2 Ke Xue Yuan South Road

Haidian District, Beijing 100080 People’s Republic of China

Notes:

1. A member entitled to attend and vote at the EGM is entitled to appoint one or more than one proxy to attend and vote instead of him/her. A proxy need not be a member of the Company.

2. To be valid, the form of proxy must be duly completed and signed in accordance with the instructions printed thereon and together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof, must be deposited at the branch share registrar of the Company in Hong Kong, Hong Kong Registrars Ltd. at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong not less than 24 hours before the time for scheduled for holding the meeting or adjourned meeting thereof.

3. Completion and return of the form of proxy will not preclude a member from attending and voting in person at the meeting or any adjournment thereof. If such member attends the meeting, his form of proxy will be deemed to have been revoked.

4. Shareholders who intend to attend the EGM in person or by proxy should return the reply slip for attending the EGM to the registered address of the Company on or before Friday, 5 May 2006 personally or by mail or fax.

5. Since the transactions contemplated under the Promoter Services Agreements will constitute non-exempt continuing connected transactions for the Company under Chapter 14A of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”), the resolutions proposed at the meeting will be voted on a poll pursuant to Rule 13.39(4) of the Listing Rules.

6. As at the date of this notice, the board of the directors of the Company comprises:

Chairman: Mr Zhu Yong; Executive Directors: Non-executive Directors:

Mr Zhu Xiaoxing, Mr Ding Weiping and Mr Song Jinxiang; Mr Wang Quanhua, Mr Cao Jianxiong, Mr Gong Guokui, Mr Rong Gang, Mr Yang Yatie, Mr Li Xiaoguang, Mr Si Yupei, and Mr Song Jian; Mr Wu Jiapei, Mr Chow Kwok Wah, James and Mr Yick Wing Fat, Simon.

Independent non-executive Directors:

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