TravelSky Technology Limited — Proxy Solicitation & Information Statement 2007

Mar 7, 2007

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)

CONTINUING CONNECTED TRANSACTIONS, AMENDMENTS TO ARTICLES OF ASSOCIATION AND NOTICE OF EGM

Independent financial adviser to the Independent Board Committee and the Independent Shareholders on the Continuing Connected Transactions

A letter from the Board is set out on pages 1 to 23 of this circular. A letter from the Independent Board Committee is set out on page 24 of this circular. A letter from China Merchants, 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 on the Continuing Connected Transactions is set out on pages 25 to 42 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 Ke Xue Yuan South Road, Haidian District, Beijing, People’s Republic of China at 10:00 a.m. on Wednesday, 25 April 2007 is set out on pages 50 to 60 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 March 2007

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
LETTER FROM CHINA MERCHANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
APPENDIX – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	43
NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	50

— i —

DEFINITIONS

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

• “2003 Announcement”

• the Company’s announcement dated 17 October 2003 in relation to, among other things, the Continuing Connected Transactions

• “2006 Circular” the Company’s circular dated 7 April 2006 in relation to, among other things, the Technology Service and Ancillary Support Agreement and the airline services agreement dated 21 December 2004 entered into between the Company and Shenzhen Airlines in relation to the Technology Services (and its predecessor agreement)

• “2006 EGM” the extraordinary general meeting of the Company held on 25 May 2006

• “2007 Announcement” the Company’s announcement dated 13 February 2007 in relation to, among other things, the Non-exempt Continuing Connected Transactions

• “Air China” 中國國際航空股份有限公司(Air China Limited), a subsidiary of CNA Holding and a company listed on the Main Board of the Stock Exchange

• “Air China Airline Services Agreement”

• the airline services agreement dated 1 December 2006 entered into between the Company and Air China in relation to the Technology Services. In this circular, unless the context requires otherwise, the continuing connected transactions entered or to be entered into between the Company and Air China under the Air China Airline Services Agreement shall include the continuing connected transactions entered into between the Company and CNA Holding under the Technology Services and Ancillary Support Agreement

• “Air Transport Community”

• the air transport community consists of the many communities of interest within the air transport industry, including members of SITA and customers and also the many associations, councils and committees that represent the community across the world. The main activity of these companies and organisations is related to air transport

• “Airline Services Promoters”

Air China and Shenzhen Airlines

• “Airline Services Promoters Independent Shareholders”

• shareholders of the Company, other than Air China, CNA Holding, Shenzhen Airlines and their respective associates

— ii —

DEFINITIONS

“Airline Services Agreements”

the Air China Airline Services Agreement and the Shenzhen Airlines Airline Services Agreement

• “APP” Airport Passenger Processing System

• “Annual Caps” the expected maximum amount of the SITA Transactions, the transactions contemplated under the InfoSky Cargo Services Agreement, the Network Services Agreement, the Dongsi Tenancy Agreement, the Dongxingli Tenancy Agreement and the Airline Services Agreements for the Relevant Period, as set out in the paragraph headed “Annual Caps” in the letter from the Board in this circular

• “Articles of Association” the articles of association of the Company

• “associate(s)” have the same meaning ascribed to it under Chapters 1 and 19A of the Listing Rules

• “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

• “China Merchants” China Merchants Securities (HK) Co., Ltd., the independent financial adviser to the Independent Board Committee and the Independent Shareholders and a licensed corporation to carry on type 1 (dealings in securities), type 2 (dealings in futures contracts), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO

• “Chongqing Cares” 重慶民航凱亞信息技術有限公司(Cares Chongqing Information Technology Co., Ltd.), a company established in the PRC and is owned as to 51% by the Company, 24.5% by Air China and 24.5% by 重慶機場(集團)有限公司(Chongqing Airport Group Limited)

• “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

• “Company Law” the Company Law of the PRC, as enacted by the Standing Committee of the Eighth National People’s Congress on 29 December 1993 and effective on 1 July 1994, as amended, supplemented or otherwise modified from time to time

— iii —

DEFINITIONS

• “Continuing Connected Transactions” the Exempt Continuing Connected Transaction and the Non-exempt Continuing Connected Transactions

• “CNA Holding”

• China National Aviation Holding Company (中國航空集團公司), a Promoter

• “CTHC” China TravelSky Holding Company, a substantial shareholder of the Company holding 22.35% of the entire issued share capital of the Company as at the Latest Practicable Date

• “CTHC Independent Shareholders” shareholders of the Company, other than CTHC and its associates

• “Directors” the directors of the Company

• “Dongbei Cares” 瀋陽民航東北凱亞有限公司(Shenyang Civil Aviation Cares of Northeast China, Ltd.), a company established in the PRC and is owned as to 46% by the Company, 42% by 中國南方航空集團公 司(China Southern Air Holding Company) and 12% by 遼寧省機 場管理集團公司(Liaoning Airport Management Group Company)

• “Dongsi Property” part of an office building situated at No. 155 Dongsi Western Street, Dongcheng District, Beijing, the PRC

• “Dongsi Tenancy Agreement” the tenancy agreement dated 18 October 2000 and entered into between the Company and CTHC in respect of the Dongsi Property (including supplemental agreements dated 31 December 2001, 15 December 2004 and 30 December 2006)

• “Dongxingli Property” an office building situated at No. 11 Dongxingli, No. 3 Happy Village, Chaoyang District, Beijing, the PRC

• “Dongxingli Tenancy Agreement” the tenancy agreement dated 18 October 2000 and entered into between the Company and CTHC in respect of the Dongxingli Property (including supplemental agreements dated 31 December 2001, 18 April 2002, 15 December 2004 and 30 December 2006)

• “EGM” extraordinary general meeting of the Company convened to be held on 25 April 2007 for the purpose of, among other things, approving the Non-exempt Continuing Connected Transactions and the relevant Annual Caps by the Independent Shareholders and the proposed amendments to the Articles of Association, and the notice of which is set out on pages 50 to 60 of this circular

— iv —

DEFINITIONS

• “Exempt Continuing Connected Transaction”

• the continuing connected transactions contemplated under the InfoSky Cargo Services Agreement

• “Group”

the Company and its subsidiaries

• “Hainan Cares”

• 海南民航凱亞有限公司(Hainan Civil Aviation Cares Co., Ltd.), a company established in the PRC and is owned as to 64.78% by the Company, 22.74% by 中國南方航空集團公司(China Southern Air Holding Company), 4.16% by Air China, 4.16% by 海南航空股份 有限公司(Hainan Airlines Company Limited) and 4.16% by中國東 方航空股份有限公司(China Eastern Airlines Corporation Limited)

• “Huadong Cares” 上海民航華東凱亞系統集成有限公司(Shanghai Civil Aviation East China Cares System Integration Co., Ltd.), a company established in the PRC and is owned as to 41% by the Company, 41% by 中國 東方航空股份有限公司 (China Eastern Airlines Corporation Limited) and 18% by 上海國際機場股份有限公司(Shanghai International Airport Company Limited)

• “Hubei Cares”

• 湖北民航凱亞有限公司(Cares Hubei Co., Ltd.), a company established in the PRC and is owned as to 50% by the Company, 12.5% by 中國東方航空武漢有限責任公司(China Eastern Airlines Wuhan Limited), 12.5% by 中國南方航空股份有限公司湖北分公 司工會委員會 (committee of labour union of Wubei Branch China Southern Airlines Company Limited), 12.5% by 武漢天河機場有限 責任公司(Wuhan Tianhe Airport Limited) and 12.5% by Shenzhen Cares

• “ICS” Inventory Control System

• “Independent Board Committee”

• the independent board committee of the Company established by the Company to advise the Independent Shareholders as to whether the terms of the Non-exempt Continuing Connected Transactions are fair and reasonable and whether the Non-exempt Continuing Connected Transactions are in the interests of the Company and the shareholders of the Company as a whole

• “Independent Shareholders”

• the CTHC Independent Shareholders, the SITA Independent Shareholders, the Services Companies Independent Shareholders and the Airline Services Promoters Independent Shareholders, being shareholders of the Company who and their beneficial owners are independent of and are not connected with the connected persons (within the meanings of the Listing Rules) of the Company in relation to the Non-exempt Continuing Connected Transactions as set out in this circular

— v —

DEFINITIONS

• “Independent Third Party(ies)” third party independent of and not connected with the Company and connected persons (within the meaning of the Listing Rules) of the Company

• “InfoSky” 天信達信息技術有限公司 (the English name being InfoSky Technology Company Limited), a sino-foreign joint venture company incorporated in the PRC on 20 September 2000 which is a 51% subsidiary of the Company

• “InfoSky Cargo Services Agreement” the provision of cargo services contract dated as of 5 December 2002 and entered into between InfoSky and SITA INC UK (as supplemented by the supplemental agreement dated 19 July 2004)

• “Interested Promoters” 中國南方航空集團公司(China Southern Air Holding Company), CNA Holding, 中國新華航空有限責任公司(China Xinhua Airlines Company Limited), Shenzhen Airlines, 四川航空集團公司(Sichuan Airlines Group Company), 海南航空股份有限公司(Hainan Airlines Company Limited), 中國東方航空集團公司(China Eastern Air Holding Company), 中國東方航空武漢有限責任公司(China Eastern Airlines Wuhan Limited) and廈門航空有限公司 (Xiamen Airlines Limited Company)

• “Latest Practicable Date” 5 March 2007, 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

• “Network Services Agreement” the service agreement dated 30 December 2006 and entered into between, among others, the Company and the Services Companies

• “Non-exempt Continuing the SITA Transactions and the continuing connected transactions Connected Transactions” contemplated under the Network Services Agreement, the Dongsi Tenancy Agreement, the Dongxingli Tenancy Agreement and the Airline Services Agreements

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

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

• “Promoter(s)” the promoters of the Company

— vi —

DEFINITIONS

• “Qingdao Cares” 青島民航凱亞系統集成有限公司(Civil Aviation Cares of Qingdao Limited), a company established in the PRC and is owned as to 51% by the Company, 36% by 青島國際機場集團有限公司(Qingdao International Airport Company Limited) and 13% by Huadong Cares. It provides to the Company with similar services as the Services Companies under the Network Services Agreement

• “Relevant Period” a period from 1 January 2007 to 31 December 2009 and, in respect of the transactions contemplated under the Air China Airline Services Agreement, a period from 1 January 2007 to 31 December 2008

• “RMB” Renminbi, the lawful currency of the PRC “Savills” Savills Valuation and Professional Services Limited “SFO” the Securities and Futures Ordinance (Cap 571 of the Laws of Hong Kong)

• “Services Companies” Shenzhen Cares, Hainan Cares, Hubei Cares, Chongqing Cares, Yunnan Cares, Xiamen Cares, Xi’an Cares, Xinjiang Cares and Dongbei Cares

• “Services Companies Independent shareholders of the Company, other than the Interested Promoters Shareholders” and their respective associates

• “Share(s)” H share(s) of RMB1.00 each in the capital of the Company “Shanghai Cares” 上海東美在線旅行社有限公司(Shanghai Dongmei Aviation Tourism Online Co., Ltd.), a company established in the PRC and is owned as to 50% by the Company and 50% by 上海東美航空旅遊有限公 司(Shanghai Dongmei Aviation Travel Limited). 上海東美航空旅 遊有限公司(Shanghai Dongmei Aviation Travel Limited) is owned as to 55% by中國東方航空集團公司(China Eastern Air Holding Company), a Promoter, and 45% by中國東方航空股份有限公司 (China Eastern Airlines Corporation Limited), a subsidiary of中國 東方航空集團公司(China Eastern Air Holding Company) which is a Promoter

• “Shenzhen Airlines” 深圳航空有限責任公司(Shenzhen Airlines Company Limited), a Promoter

• “Shenzhen Airlines Airline the airline services agreement dated 23 January 2007 entered into Services Agreement” between the Company and Shenzhen Airlines in relation to the Technology Services

— vii —

DEFINITIONS

“Shenzhen Cares”	深圳民航凱亞有限公司(Cares Shenzhen Co., Ltd.), a company
	established in the PRC and is owned as to 61.47% by the Company,
	5.59% by中國北方航空公司(China Northern Airline Company),
	5.59% by Air China, 5.59% by中國新華航空有限責任公司(China
	Xinhua Airline Company Limited), 5.59% by (Shenzhen Airlines,
	5.59% by深圳市機場股份有限公司(Shenzhen Airport Company
	Limited), 5.59% by中國南方航空(集團)深圳公司(China Southern
	Airline (Group) Shenzhen Company) and 5.00% by四川航空集團
	公司(Sichuan Airlines Group Company)
“SITAGCH”	Société Internationale de Télécommunications Aeronautiques Greater
	China Holdings Limited, an investment holding company and holder
	of 49% of the registered capital of InfoSky. It is a direct wholly
	owned subsidiary of SITA INC BV
“SITA”	Société Internationale de Télécommunications Aronautiques S.C., a
	co-operative, non-profit-making organization founded in Belgium
“SITA Data Network Services”	global telecommunications and information network services for the
	aviation industry provided by SITA
“SITA INC BV”	SITA Information Networking Computing BV, a Dutch limited liability
	company, the intermediate holding company of SITAGCH
“SITA INC UK”	SITA Information Networking Computing (UK) Limited, a company
	incorporated under the laws of England and Wales, a wholly owned
	subsidiary of SITA NV
“SITA NV”	Société Internationale de Télécommunications Aronqutiques NV, a
	Dutch limited liability company, the holding company of SITA INC
	BV and SITA INC UK
“SITA Independent Shareholders”	shareholders of the Company, other than SITA and its associates
“SITA Membership Fees”	annual fees to SITA required to be paid by the members of SITA as
	their share of funding of SITA’s working capital needs
“SITA Telecommunication	the agreement dated 30 July 2004 entered into between the Company
Services Agreement”	and SITA
“SITA Transactions”	the continuing connected transactions contemplated under the SITA
	Telecommunication Services Agreement and the SITA Membership
	Fees payable by the Company to SITA
“Supervisors”	supervisors of the Company

— viii —

DEFINITIONS

• “Supervisory Committee”

supervisory committee of the Company

• “Stock Exchange” The Stock Exchange of Hong Kong Limited

• “Technology Services” various aviation information technology services and ancillary support provided by the Group to the Airline Services Promoters set out in the paragraph headed “Airline Services Agreements” in the letter from the Board in this circular

• “Technology Services and Ancillary Support Agreement”

• the technology services and ancillary support agreement entered into between the Company and CNA Holding in relation to the Technology Services and renewed on 21 November 2005, particulars of which are set out in the 2006 Circular

• “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 Continuing Connected Transactions (other than the transactions under the Technology Service and Ancillary Support Agreement and the airline services agreement dated 21 December 2004 entered into between the Company and Shenzhen Airlines in relation to the Technology Services (and its predecessor agreement)) for the period from 1 January 2004 to 31 December 2006 granted by the Stock Exchange

• “Xi’an Cares” 西安民航凱亞科技有限公司(Civil Aviation Cares of Xi’an Ltd.), a company established in the PRC and is owned as to 51% by the Company, 32% by 中國東方航空西北公司(China Eastern AirlinesNorthwest Company) and 17% by 陝西省機場管理集團公司(Shanxi Airport Management Group Company)

• “Xiamen Cares” 廈門民航凱亞有限公司(Civil Aviation Cares of Xiamen Ltd.), a company established in the PRC and is owned as to 51% by the Company, 28.5% by 廈門航空有限公司 (Xiamen Airlines Company Limited) and 20.5% by 廈門國際航空港股份有限公司(Xiamen International Aviation Company Limited)

• “Xinan Cares” 成都民航西南凱亞有限責任公司(Aviation Cares of Southwest Chengdu, Ltd.), a company established in the PRC and is owned as to 44% by the Company, 35% by Air China, 16% by 四川省機場 集團有限公司(Sichuan Airport Group Limited) and 5% by 四川航 空集團公司(Sichuan Airlines Group Company)

— ix —

DEFINITIONS

“Xinjiang Cares”	新疆民航凱業信息網絡有限責任公司(Civil Aviation Cares
	Technology of Xinjiang Ltd.), a company established in the PRC and
	is owned as to 51% by the Company, 24.5% by新疆機場集團有限
	責任公司(Xinjiang Airport Group Company Limited) and 24.5% by
	中國南方航空集團公司(China Southern Air Holding Limited)
“Yunnan Cares”	雲南民航凱業信息有限公司(Aviation Cares of Yunnan Information
	Co., Ltd.), a company established in the PRC and is owned as to 51%
	by the Company and 49% by中國東方航空雲南公司(China Eastern
	Airlines-Yunnan Company)

For the purpose of this circular, unless otherwise indicated, the exchange rates at HK$1 = RMB1.00 and US$1 = HK$7.80 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.

— x —

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[#] Sun Yongtao[#] Liu Dejun[#] Xia Yi[#] Song Jian[#] Chow Kwok Wah, James[##] Yick Wing Fat, Simon[##] Yuan Yaohui[##]

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 March 2007

To the Shareholders

Dear Sir / Madam

CONTINUING CONNECTED TRANSACTIONS AND AMENDMENTS TO ARTICLES OF ASSOCIATION

1. BACKGROUND

As set out in the 2007 Announcement, the Company has entered into the SITA Transactions, the Network Services Agreement, the supplemental agreement to each of the Dongxingli Tenancy Agreement and the Dongsi Tenancy Agreement and the Airline Services Agreements in relation to the Non-exempt Continuing Connected Transactions for the Relevant Period.

— 1 —

LETTER FROM THE BOARD

Immediately prior to the listing of the Company in 2001, the Company has entered into the SITA Transactions, the transactions contemplated under the Network Services Agreement, the Dongsi Tenancy Agreement and the Dongxingli Tenancy Agreement and has been granted the Waiver in December 2003 in respect of such transactions for the period from 1 January 2004 up to 31 December 2006, details of which and the above transactions were set out in the 2003 Announcement.

As set out in the 2006 Circular, the Company and CNA Holding renewed the Technology Services and Ancillary Support Agreement in relation to the Technology Services. After the expiry of the Technology Services and Ancillary Support Agreement, the Company and Air China, a subsidiary of CNA Holding, entered into the Air China Airline Services Agreement in relation to the Technology Services for the Relevant Period. After the expiry of the airline services agreement dated 21 December 2004 entered into between the Company and Shenzhen Airlines, the Company entered into the Shenzhen Airlines Airline Services Agreement with Shenzhen Airlines in relation to the Technology Services for the Relevant Period. The annual caps for the transactions under (1) the Technology Services and Ancillary Support Agreement, and (2) the predecessor technology services and ancillary support agreement and the predecessor airline services agreement dated 21 December 2004 entered into between the Company and Shenzhen Airlines for the year ended 31 December 2006 were approved at the 2006 EGM.

In view of the expiry of the Waiver in respect of the Continuing Connected Transactions (other than the transactions under the Technology Service and Ancillary Support Agreement and the airline services agreement dated 21 December 2004 entered into between the Company and Shenzhen Airlines in relation to the Technology Services (and its predecessor agreement)) and to ensure compliance with the requirements under the Listing Rules in respect of the Continuing Connected Transaction for the Relevant Period, the Company publish the 2007 Announcement in accordance with Chapter 14A of the Listing Rules.

As set out in the paragraph headed “Listing Rules Requirements” below, the Non-exempt Continuing Connected Transactions (i.e. the SITA Transactions, the transactions contemplated under the Network Services Agreement, the Dongsi Tenancy Agreement, the Dongxingli Tenancy Agreement and the Airline Services Agreements) are subject to the reporting, announcement and independent shareholders’ approval requirements under the Listing Rules.

The Directors propose to seek the Independent Shareholders’ approval for the Non-exempt Continuing Connected Transactions for the Relevant Period at the EGM.

The purposes of this circular are to provide you with, among other things, (i) details of the Non-exempt Continuing Connected Transactions; (ii) a letter from China Merchants containing its advice to the Independent Board Committee and the Independent Shareholders on the Non-exempt Continuing Connected Transactions; (iii) the recommendation of the Independent Board Committee regarding the Non-exempt Continuing Connected Transactions to the Independent Shareholders; and (iv) the proposed amendments to the Articles of Association; (v) a notice of the EGM to consider, if thought fit, pass the necessary resolutions to approve the Non-exempt Continuing Connected Transactions and the proposed amendments to the Articles of Association.

— 2 —

LETTER FROM THE BOARD

2. NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

(a) SITA Transactions

The SITA Transactions comprise the SITA Membership Fees payable by the Company to SITA and the continuing connected transactions contemplated under the SITA Telecommunication Services Agreement.

(i) SITA Membership Fees

The Company is a member of SITA. Being a member of SITA, the Company is entitled to use the services provided by SITA and is required to pay to SITA the SITA Membership Fees. The SITA Membership Fees payable by the Company in each financial year is determined by reference to the ratio of the aggregate eligible revenue for the provision of services in the ordinary course of business in the previous financial year billed by SITA, SITA NV or their respective 100% owned subsidiaries (“ Eligible Revenue ”) to the Company to the aggregate Eligible Revenue of all members of SITA for that financial year. The SITA Membership Fees are calculated and are payable on monthly basis in arrears by cash. Given that the about determination basis is applicable to all members of SITA, the Directors consider that the SITA Membership Fees are reasonable and fair.

(ii) SITA Telecommunication Services Agreement

Date: 30 July 2004 Parties: The Company (as recipient of services); and SITA (as provider of services)

Services: Pursuant to the SITA Telecommunication Services Agreement, SITA has agreed to provide the SITA Data Network Services to the Company

Term: From 1 July 2004 until it is terminated by either party by giving 6 months’ notice to the other party or otherwise terminated according to the terms of the SITA Telecommunication Services Agreement

Consideration: The network data usage fees payable by the Company will be determined by reference to the usage and the pricing schedule set by SITA which is applicable to all users of the SITA Data Network Services. The Directors consider that it is fair and reasonable to determine the usage fees by reference to the usage and the pricing schedule which is applicable to all users of the SITA Data Network Services

• Payment term: The network data usage fees shall be calculated on monthly basis and shall be paid monthly in arrears by cash

— 3 —

LETTER FROM THE BOARD

(b) Network Services Agreement

Date: 30 December 2006

Parties: (a) The Company

• (b) 雲南航信空港網絡有限公司 (Yunnan TravelSky Airport Technology Limited)

• (c) 黑龍江航信空港網絡有限公司 (Heilongjiang TravelSky Airport Technology Limited)

• (d) 大連航信空港網絡有限責任公司 (Dalian TravelSky Airport Technology Limited)

• (e) Huadong Cares

• (f) Shanghai Cares

• (g) Xinan Cares

• (Companies (b) to (g) are associated companies of the Company)

• (h) TravelSky Technology (Hong Kong) Limited (中國民航信息網絡股份 （香港）有限公司)

• (i) TravelSky Technology (Singapore) Limited(中國民航信息網絡股份 （新加坡）有限公司)

• (j) TravelSky Technology (Japan) Limited(中國民航信息網絡股份（日本） 有限公司)

• (k) TravelSky Technology (Korea) Limited(中國民航信息網絡股份（韓國） 有限公司)

• (Companies (h) to (k) are wholly owned subsidiaries of the Company)

• (l) InfoSky

• (m) Qingdao Cares

• (Companies (l) and (m) are non wholly owned subsidiaries of the Company)

• (n) Hainan Cares

• (o) Hubei Cares

• (p) Chongqing Cares

— 4 —

LETTER FROM THE BOARD

• (q) Yunnan Cares

• (r) Xiamen Care

• (s) Xi’an Cares

• (t) Xinjiang Cares

• (u) Dongbei Cares

• (v) Shenzhen Cares (Companies (n) to (v) are collectively referred to as the “Services Companies”)

Services: Pursuant to the Network Services Agreement, (i) the Company has agreed to let the Services Companies use the Company’s mainframe resources and connect to the Company’s network of data transmission equipment, terminals and printers; (ii) the Services Companies have agreed to provide front end technical supports for the users of the Company’s airport passenger processing system (APP system); and (iii) the Company may lease certain major connection equipment at the request of the Service Companies

Term:

From 1 January 2007 to 31 December 2009, renewable automatically for a successive term of three years commencing from the date of the expiry of the term of the Network Services Agreement, if no written opposition raised by either party three months in advance

Service fees: The Services Companies shall pay (i) connection fees for connections to the Company’s network of data transmission equipment, terminals and printers at rates prescribed by CAAC; and (ii) PID fees for utilization of mainframe resources at rates prescribed by CAAC; and (iii) equipment lease fees on a cost basis.

If any Service Company provides front end technical supports to the users of the Company’s APP system, the Company will share the revenue generated from the Company’s APP system with the relevant Services Company in such amount determined in accordance with (i) the actual amount of service provided by the relevant Service Company and (ii) the pricing schedule as set out in the agreement to be entered into between the Company, the relevant Services Company and (if applicable) the airport which provides services to the users of the Company’s APP system, which will be formulated by reference to the estimated revenue deriving from the Company’s APP system and the estimated costs incurred by the Services Company in provision of the service as requested by the particular user of the Company’s APP system The Directors consider that the above determination basis is fair and reasonable.

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LETTER FROM THE BOARD

Payment term: The Services Companies shall pay (i) connection fees and PID fees on monthly basis in arrears by cash; (ii) (if applicable) rental for leasing equipment according to the separate lease agreement to be entered into between the Company and the relevant Services Company.

The Company shall pay to the Services Companies for services provided by the Services Companies to the users of the Company’s APP system (if any) according to the terms set out in the agreement to be entered into between the Company, the relevant Services Companies and (if applicable) the airport which provides services to the users of the Company’s APP system.

(c) Dongxingli Tenancy Agreement

The Company (as tenant) and CTHC (as lessor) have entered into the Dongxingli Tenancy Agreement, pursuant to which CTHC has agreed to lease the Dongxingli Property to the Company for 10 years from the date of the Dongxingli Tenancy Agreement (being 18 October 2000). The average rental payable by the Company under the Dongxingli Tenancy Agreement are subject to review every three years by reference to the then prevailing market rate from the commencement of the lease (i.e. 18 October 2000). On 30 December 2006, the Company (as tenant) and CTHC (as lessor) entered into the supplemental agreement to the Dongxingli Tenancy Agreement regarding the average rental payable by the Company for the Relevant Period under the Dongxingli Tenancy Agreement. Set out below are the details of the Dongxingli Tenancy Agreement:

Date: 18 October 2000 Parties: CTHC (as leasor); and The Company (as tenant). Lease: Pursuant to the Dongxingli Tenancy Agreement, CTHC has agreed to lease the Dongxingli Property to the Company Property: The Dongxingli Property, the gross floor area of which currently used by the Company is approximately 12,003.74 square metres Term: 10 years from the date of the Dongxingli Tenancy Agreement (being 18 October 2000) Rental and Average rental (including property management fee) of RMB3.8 per square usage fee: metre per day payable to CTHC (this price is reflected in the supplemental agreement entered into between CTHC and the Company on 30 December 2006, and reflects the current market average rental price as confirmed by Savills, an independent property valuer). Such amounts are subject to review every three years by reference to the then prevailing market rate from the commencement of the lease (i.e. 18 October 2000). The Directors are of the view that the average rental mentioned above is fair and reasonable. Please also refer to the paragraph headed “Confirmation by an independent property valuer” below for details of the confirmation of Savills

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LETTER FROM THE BOARD

Payment term: The rental and usage fees shall be paid quarterly within the first 30 days of each quarter by cash

Other terms: The Company is entitled to renew the term of use for an additional 10 years by serving a notice to CTHC six months before the expiry of the term.

CTHC agrees to indemnify the Company against any loss or damage caused by, or arising from, any challenge to, or interference with, the Company’s right to use the property in issue during the stipulated term.

(d) Dongsi Tenancy Agreement

The Company (as tenant) and CTHC (as lessor) have entered into the Dongsi Tenancy Agreement, pursuant to which CTHC has agreed to lease the Dongsi Property to the Company for 10 years from the date of the Dongsi Tenancy Agreement (being 18 October 2000). The average rental payable by the Company under the Dongsi Tenancy Agreement are subject to review every three years by reference to the then prevailing market rate from the commencement of the lease (i.e. 18 October 2000). On 30 December 2006, the Company (as tenant) and CTHC (as lessor) entered into the supplemental agreement to the Dongsi Tenancy Agreement regarding the average rental payable by the Company for the Relevant Period under the Dongsi Tenancy Agreement. Set out below are the details of the Dongsi Tenancy Agreement:

Date: 18 October 2000 Parties: CTHC (as leasor); and The Company (as tenant) Lease: Pursuant to the Dongsi Tenancy Agreement, CTHC has agreed to lease the Dongsi Property to the Company Property: The Dongsi Property, the gross floor area of which currently used by the Company is approximately 13,369.51 square metres Term: 10 years from the date of the Dongsi Tenancy Agreement (being 18 October 2000) Rental: Average rental (including property management fee) of RMB4.5 per square metre per day payable to CTHC (this price is reflected in the supplemental agreement entered into between CTHC and the Company on 30 December 2006, and reflects the current market average rental price as confirmed by Savills, an independent property valuer). Such amounts are subject to review every three years by reference to the then prevailing market rate from the commencement of the lease (i.e. 18 October 2000). The Directors are of the view that the average rental mentioned above is fair and reasonable. Please also refer to the paragraph headed “Confirmation by an independent property valuer” below for details of the confirmation of Savills

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LETTER FROM THE BOARD

• Payment term: The rental and usage fees shall be paid quarterly within the first 30 days of each quarter by cash

• Other terms: The Company may request to renew the term of use for an additional 10 years by serving a notice to CTHC three months before the expiry of the term.

CTHC has also undertaken to indemnify the Company against any loss or damage caused by, or arising from, any challenge to, or interference with, the Company’s right to use the property during the 10-year term.

(e) Airline Services Agreements

The Company and each of the Airline Services Promoters have entered into the Airline Services Agreements in relation to the Technology Services as set out below:

		Date of
	Airline Services	Airline Services	Term of Airline	Number of years
No.	Promoters	Agreement	Services Agreement (year)	of renewal
1.	Air China	1 December 2006	1 January 2006-	One
			31 December 2008
			(three years)
2.	Shenzhen Airlines	23 January 2007	1 January 2007-	Three
			31 December 2009
			(three years)

Technology Services

Pursuant to the Airline Services Agreements, the Company (including its subsidiaries) shall provide the Airline Services Promoters the Technology Services, 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 (APP) 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.

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LETTER FROM THE BOARD

Services fees

The service fees payable by the Airline Services Promoters for the Technology Services under the Airline Services 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 Airline Services Promoters are required to pay the Company a per passenger booking fee for domestic routes ranging from RMB4.5 to RMB 6.5 depending on the monthly booking volume and for international and regional routes ranging from RMB 6.5 to RMB 7.0.

In addition, the fees payable by the Airline Services Promoters to the Company for the Technology Services include (i) fees for each boarding passenger handled by the Company’s Airport Passenger Processing (APP) system up to maximum allowable price of RMB 7.0 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 RMB 500 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.

The service fees shall be calculated on monthly basis and shall be paid within 60 days after receipt of the invoice by cash.

The Directors are of the view that the basis of determination of the service fees mentioned above is fair and reasonable.

3. CONFIRMATION BY AN INDEPENDENT PROPERTY VALUER

The Company has engaged Savills to evaluate the Dongxingli Property and the Dongsi Property for determining the prevailing market rent for the Dongxingli Property and the Dongsi Property as at 1 September 2006. Savills is in the list of firms providing professional consultancy services of general practice surveying of The Hong Kong Institute of Surveyors. Savills, an independent property valuer, has issued a report which indicates that the current rental arrangements (i.e. the aggregate rental (including property management fees) specified in the supplemental agreements entered into between CTHC and the Company on 30 December 2006) for the Dongxingli Property and the Dongsi Property for use of property, are fair, reasonable and in line with the market level. The current rental arrangements are valued by Savills on market rent basis as according to the HKIS Valuation Standards on Properties (First edition 2005) published by The Hong Kong Institute of Surveyors.

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LETTER FROM THE BOARD

4. INFORMATION ON SITA, SERVICES COMPANIES, CTHC, AIR CHINA AND SHENZHEN AIRLINES

SITA

SITAGCH is a connected person of the Company as it is a substantial shareholder of InfoSky, a subsidiary of the Company. To the best knowledge and belief of the Directors having made all reasonable enquiry, both SITAGCH and SITA are collectively owned, directly or indirectly, by the members of the Air Transport Community, a group of companies and organisations for which the main activity is related to air transport. Therefore, SITA is also considered as a connected person of the Company.

SITA is a global service provider of IT business solutions and communications services to air transport industry.

Services Companies

The Services Companies comprising Shenzhen Cares, Hainan Cares, Hubei Cares, Chongqing Cares, Yunnan Cares, Xiamen Cares, Xi’an Cares, Xinjiang Cares and Dongbei Cares are connected persons of the Company for the following reasons

• (a) Shenzhen Cares is owned as to (i) 61.47% by the Company; (ii) 5.59% by 中國北方航空公司 (China Northern Airline Company), a branch company of a subsidiary of 中國南方航空集團 公司(China Southern Air Holding Company) which is a Promoter; (iii) 5.59% by Air China, a subsidiary of CNA Holding which is a Promoter; (iv) 5.59% by 中國新華航空有限責任公 司(China Xinhua Airlines Company Limited), a Promoter; (v) 5.59% by Shenzhen Airlines, a Promoter; (vi) 5.59% by 深圳市機場股份有限公司(Shenzhen Airport Company Limited), an Independent Third Party; (vii) 5.59% by 中國南方航空(集團)深圳公司(China Southern Airlines (Group) Shenzhen Company), a subsidiary of 中國南方航空集團公司(China Southern Air Holding Company) which is a Promoter; and (viii) 5.00% by 四川航空集團公司(Sichuan Airlines Group Company), a Promoter. As certain Promoters and their respective associates are together entitled to exercise, or control the exercise of, 10% or more of the voting power of any general meeting of Shenzhen Cares, Shenzhen Cares is a connected person of the Company pursuant to Rule 14A.11(5) of the Listing Rules.

• (b) Hainan Cares is owned as to (i) 64.78% by the Company; (ii) 22.74% by 中國南方航空集團 公司(China Southern Air Holding Company), a Promoter; (iii) 4.16% by Air China, a subsidiary of CNA Holding which is a Promoter; (iv) 4.16% by 海南航空股份有限公司(Hainan Airlines Company Limited), a Promoter; and (v) 4.16% by中國東方航空股份有限公司(China Eastern Airlines Corporation Limited), a subsidiary of中國東方航空集團公司(China Eastern Air Holding Company) which is a Promoter. As certain Promoters and their respective associates are together entitled to exercise, or control the exercise of, 10% or more of the voting power of any general meeting of Hainan Cares, Hainan Cares is a connected person of the Company pursuant to Rule 14A.11(5) of the Listing Rules.

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LETTER FROM THE BOARD

• (c) Hubei Cares is treated as a subsidiary of the Company and 12.5% of its registered capital is owned by中國東方航空武漢有限責任公司(China Eastern Airlines Wuhan Limited), a Promoter. As a Promoter is entitled to exercise, or control the exercise of, 10% or more of the voting power of any general meeting of Hubei Cares, Hubei Cares is a connected person of the Company pursuant to Rule 14A.11(5) of the Listing Rules.

• (d) Chongqing Cares is a 51% subsidiary of the Company and 24.5% of its registered capital is owned by Air China. Air China is a subsidiary of CNA Holding which is a Promoter and is an associate of a Promoter. As an associate of a Promoter is entitled to exercise, or control the exercise of, 10% or more of the voting power of any general meeting of Chongqing Cares, Chongqing Cares is a connected person of the Company pursuant to Rule 14A.11(5) of the Listing Rules.

• (e) Yunnan Cares is a 51% subsidiary of the Company and 49% of its registered capital is owned by中國東方航空雲南公司(China Eastern Airlines-Yunnan Company), a branch company of 中 國東方航空股份有限公司(China Eastern Airlines Corporation Limited). 中國東方航空股份 有限公司(China Eastern Airlines Corporation Limited) is a subsidiary of 中國東方航空集團 公司(China Eastern Air Holding Company) which is a Promoter, it is an associate of a Promoter. As an associate of a Promoter is entitled to exercise, or control the exercise of, 10% or more of the voting power of any general meeting of Yunnan Cares, Yunnan Cares is a connected person of the Company pursuant to Rule 14A.11(5) of the Listing Rules.

• (f) Xiamen Cares is a 51% subsidiary of the Company and 28.5% of its registered capital is owned by 廈門航空有限公司 (Xiamen Airlines Limited Company), a Promoter. As a Promoter is entitled to exercise, or control the exercise of, 10% or more of the voting power of any general meeting of Xiamen Cares, Xiamen Cares is a connected person of the Company pursuant to Rule 14A.11(5) of the Listing Rules.

• (g) Xi’an Cares is a 51% subsidiary of the Company, and 32% of its registered capital is owned by中國東方航空西北公司 (China Eastern Airlines Northwest Company), a branch company of 中國東方航空股份有限公司(China Eastern Airlines Corporation Limited). 中國東方航空 股份有限公司(China Eastern Airlines Corporation Limited) is a subsidiary of 中國東方航空 集團公司(China Eastern Air Holding Company) which is a Promoter, it is an associate of a Promoter. As an associate of a Promoter is entitled to exercise, or control the exercise of, 10% or more of the voting power of any general meeting of Xi’an Cares, Xi’an Cares is a connected person of the Company pursuant to Rule 14A.11(5) of the Listing Rules.

• (h) Xinjiang Cares is a 51% subsidiary of the Company and 24.5% of its registered capital is owned by中國南方航空集團公司(China Southern Air Holding Company), a Promoter. As a Promoter is entitled to exercise, or control the exercise of, 10% or more of the voting power of any general meeting of Xinjiang Cares, Xinjiang Cares is a connected person of the Company pursuant to Rule 14A.11(5) of the Listing Rules.

• (i) 42% of the registered capital of Dongbei Cares, an associated company of the Company, is owned by 中國南方航空集團公司(China Southern Air Holding Company) which is a Promoter. As中國南方航空集團公司(China Southern Air Holding Company), a Promoter, is entitled to exercise, or control the exercise of, 30% or more of the voting power of any general meeting of Dongbei Cares, Dongbei Cares is an associate of a Promoter and therefore a connected person of the Company pursuant to Rule 14A.11(4) of the Listing Rules.

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LETTER FROM THE BOARD

The Services Companies are the companies established for distributing the products of the Company and provide better services to customers in different regions. The Services Companies construct, operate and maintain regional network nodes, facilities and connections to the network and systems of the Company in their respective regions. The Services Companies provide technical services to the user of the Company’s aviation information technology systems in respect of the Company’s nationwide data network. These services include serving as local service centers for the Company’s data network operations, and providing services such as connections to the network’s nodes, data transmission equipment, terminals and printers, the installation of equipment, maintenance, training, technical support and other network services.

CTHC

CTHC is a Promoter and a substantial shareholder of the Company holding about 22.35% of the entire issued share capital of the Company as at the Latest Practicable Date. Therefore, CTHC is a connected person of the Company.

CTHC is principally engaged in the management of the state-owned assets and state-owned equity interests resulting from investments of the States in the group companies and its invested entities.

AIR CHINA

Air China is a subsidiary of CNA Holding, which is a Promoter and a substantial shareholder of the Company holding about 10.07% of the entire issued share capital of the Company as at the Latest Practicable Date. Air China is an associate of CNA Holding and therefore, a connected person of the Company.

Air China (together with its subsidiaries) is principally engaged in the provision of air passenger, air cargo and airline-related services in the PRC.

SHENZHEN AIRLINES

Shenzhen Airlines is a Promoter holding about 0.7 per cent of the entire issued share capital of the Company as at the Latest Practicable Date and therefore a connected person of the Company. Shenzhen Airlines is engaged in the airline operations in the PRC.

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LETTER FROM THE BOARD

5. HISTORICAL TRANSACTION RECORDS

Set out below is a summary of the transaction records of the Non-exempt Continuing Connected Transactions for the three years ended 31 December 2006:

		Year ended 31 December	Year ended 31 December
	2004	2005	2006
			(Note)
SITA Transactions	RMB45,480,450	RMB38,576,816	RMB56,000,000
	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately
	HK$45,480,450)	HK$38,576,816)	HK56,000,000)
Transactions under	RMB17,600,000	RMB29,942,000	RMB31,000,000
the Network Services	(equivalent to	(equivalent to	(equivalent to
Agreement	approximately	approximately	approximately
	HK$17,600,000)	HK$29,942,000)	HK$31,000,000)
Transactions under the	RMB34,570,760	RMB38,609,000	RMB38,609,000
Dongxingli Tenancy	(equivalent to	(equivalent to	(equivalent to
Agreement and	approximately	approximately	approximately
the Dongsi Tenancy	HK$34,570,760)	HK$38,609,000)	HK$38,609,000)
Agreement
Transactions under the	RMB221,025,000	RMB281,616,000	RMB310,000,000
Technology Services and	(equivalent to	(equivalent to	(equivalent to
Ancillary Support	approximately	approximately	approximately
Agreement and	HK$221,025,000)	HK$281,616,000)	HK$310,000,000)
the airline services
agreement dated
21 December 2004
entered into between
the Company and
Shenzhen Airlines
(or the predecessor agreement)

Note: These amounts are derived from the unaudited management accounts of the Group for the year ended 31 December 2006.

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LETTER FROM THE BOARD

6. THE ANNUAL CAPS APPROVED BY THE WAIVER OR AT THE 2006 EGM

		Year ending 31 December	Year ending 31 December
	2004	2005	2006
SITA Transactions	RMB72,000,000	RMB72,000,000	RMB72,000,000
(Note 1)	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately
	HK$72,000,000)	HK$72,000,000)	HK$72,000,000)
Transactions under	RMB84,000,000	RMB84,000,000	RMB84,000,000
the Network Services	(equivalent to	(equivalent to	(equivalent to
Agreement (Note 1)	approximately	approximately	approximately
	HK$84,000,000)	HK$84,000,000)	HK$84,000,000)
Transactions under	RMB40,000,000	RMB40,000,000	RMB40,000,000
the Dongxingli	(equivalent to	(equivalent to	(equivalent to
Tenancy Agreement	approximately	approximately	approximately
and the Dongsi	HK$40,000,000)	HK$40,000,000)	HK$40,000,000)
Tenancy Agreement
(Note 1)
Transactions under	(Note 2)	(Note 2)	RMB404,460,000
Technology Services			(equivalent to
and Ancillary Support			approximately
Agreement and the airline			HK$404,460,000)
services agreement dated			(Note 3)
21 December 2004 entered
into between the Company
and Shenzhen Airlines
(or the predecessor agreement)

Notes:

1. The relevant Non-exempt Continuing Connected Transactions for the two years ended 31 December 2005 did not exceed the annual caps for the two years ended 31 December 2005 as approved by the Waiver. It is also expected that the relevant Non-exempt Continuing Connected Transactions for the year ended 31 December 2006 will not exceed the annual caps for the year ended 31 December 2006 as approved by the Waiver.

2. As set out in the 2006 Circular, the relevant waiver granted by the Stock Exchange in respect of the transactions under the Technology Services and Ancillary Support Agreement and the airline services agreement dated 21 December 2004 entered into between the Company and Shenzhen Airlines (and its predecessor agreement), which did not specify any maximum amount of the transactions, was deemed to have lapsed on 25 October 2004. Therefore, no annual cap was applicable to such transactions for the period from 25 October 2004 to 31 December 2005. The transactions under the Technology Services and Ancillary Support Agreement and the airline services agreement dated 21 December 2004 entered into between the Company and Shenzhen Airlines (and its predecessor agreement) for the two years ended 31 December 2005 have been approved and ratified at the 2006 EGM.

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LETTER FROM THE BOARD

3. As set out in the 2006 Circular, the aggregate annual cap in respect of the transactions contemplated under the relevant technology services and ancillary support agreements and the airline services agreements entered into between the Company and the relevant Promoters or their associates (including CNA Holding and Shenzhen Airlines) for the year ended 31 December 2006, which was subsequently approved at the 2006 EGM, is RMB 1,498,000,000 (equivalent to approximately HK$1,498,000,000), as to RMB 299,600,000 (equivalent to approximately HK$299,600,000) is attributable to the transactions under the Technology Services and Ancillary Support Agreement and as to RMB104,860,000 (equivalent to approximately HK$104,860,000) is attributable to the transactions contemplated under the airline services agreement dated 21 December 2004 entered into between the Company and Shenzhen Airlines. It is expected that the transactions under the Technology Services and Ancillary Support Agreement and the airline services agreement dated 21 December 2004 entered into between the Company and Shenzhen Airlines for the year ended 31 December 2006 will not exceed the annual cap approved at the 2006 EGM mentioned above.

7. ANNUAL CAPS

ANNUAL CAPS
		Year ending 31 December
	2007	2008	2009
SITA Transactions	RMB67,000,000	RMB80,000,000	RMB96,000,000
	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately
	HK$67,000,000)	HK$80,000,000)	HK$96,000,000)
Transactions under	RMB37,200,000	RMB44,640,000	RMB53,568,000
the Network Services	(equivalent to	(equivalent to	(equivalent to
Agreement	approximately	approximately	approximately
	HK$37,200,000)	HK$44,640,000)	HK$53,568,000)
Transactions under the	RMB40,000,000	RMB40,000,000	RMB40,000,000
Dongxingli Tenancy	(equivalent to	(equivalent to	(equivalent to
Agreement and	approximately	approximately	approximately
the Dongsi Tenancy	HK$40,000,000)	HK$40,000,000)	HK$40,000,000)
Agreement
Transactions under	RMB403,000,000	RMB523,900,000	RMB175,760,000
the Airline Services	(equivalent to	(equivalent to	(equivalent to
Agreement	approximately	approximately	approximately
	HK$403,000,000)	HK$523,900,000)	HK$175,760,000)
			(Note)

Note: This is the annual cap for the transactions contemplated under the Shenzhen Airlines Airline Service Agreement only as the initial term of the Air China Airline Services Agreement will expire on 31 December 2008.

The Annual Caps of the transactions contemplated under the Dongxingli Tenancy Agreement and the Dongsi Tenancy Agreement are determined by reference to the aggregate annual rental (including the property management fees) payable by the Company under such agreements.

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LETTER FROM THE BOARD

The Annual Caps for the SITA Transactions and the transactions contemplated under the Network Services Agreement are determined by reference to (1) the historical annual amount of the relevant transactions for the year ended 31 December 2005; (2) the unaudited amount of the SITA Transactions of approximately RMB56,000,000 (equivalent to approximately HK$56,000,000) and the unaudited amount of the transactions contemplated under the Network Services Agreement of approximately RMB31,000,000 (equivalent to approximately HK$31,000,000) for the year ended 31 December 2006, as derived from the Group’s unaudited management accounts for the year ended 31 December 2006; (3) the compound annual growth rate of approximately 20% of the turnover of the Company between the year ended 31 December 2004 and the expected turnover for the year ended 31 December 2006; and (4) the estimated growth of the transaction volume of the relevant 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 above transactions will increase by about 20% per annum and 20% is used in determining the amount of the Annual Caps. The Annual Caps for the SITA Transactions and the transactions contemplated under the Network Services Agreement mentioned above are calculated based on the compound annual growth of 20% for the respective transactions for the three years ending 31 December 2009.

The Annual Caps for the transactions contemplated under the Airline Services Agreements are determined by reference to (1) the historical annual amount of the relevant transactions for the year ended 31 December 2005; (2) the unaudited amount of the transactions contemplated under the Airline Services Agreements of approximately RMB310,000,000 (equivalent to approximately HK$310,000,000) for the year ended 31 December 2006, as derived from the Group’s unaudited management accounts for the year ended 31 December 2006; (3) the estimated growth of the transaction volume of the relevant 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; and (4) the initial term of the Air China Airline Services Agreement will expire on 31 December 2008 whereas the Shenzhen Airlines Airline Services Agreement will expire on 31 December 2009. The Directors estimate that the above transactions will increase by about 30% per annum and 30% is used in determining the amount of the Annual Caps. The Annual Caps for the transactions contemplated under the Airline Services Agreements mentioned above are calculated based on the compound annual growth of 30% for the respective transactions for the two years ending 31 December 2008 or (if applicable) three years ending 31 December 2009.

The basis of the determination of the Annual Caps for the transactions contemplated under the Airline Services Agreements mentioned above is the same as that of the annual caps for the continuing connected transactions contemplated under the relevant technology services and ancillary support agreements and the airline services agreements entered into between the Company and the relevant Promoters or their associates (including CNA Holding and Shenzhen Airlines) as set out in the 2006 Circular for the three years ending 31 December 2008.

The Directors are of the view that the Annual Caps in respect of each of the Non-exempt Continuing Connected Transactions for the three years ending 31 December 2009 are fair and reasonable.

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LETTER FROM THE BOARD

8. REASONS FOR AND BENEFITS OF THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

The Group is principally engaged in provision of aviation information technology services in the PRC. The aviation data and services provided by SITA under the SITA Telecommunication Services Agreement are essential to the aviation information technology services provided by the Group.

The Directors consider that it is in the interest of the Company to continue to engage SITA to provide SITA Data Network Services for the following reasons:

• (i) the network of SITA provides wide industry coverage as many participants in the air transport industry worldwide rely on its network solutions and many customers of the Company are also using SITA’s network services;

• (ii) SITA has a long co-operative history with the Company and various players in the civil aviation industry of China; and

• (iii) the stability of the Company’s business may be severely affected if its engagement with SITA is terminated.

As mentioned in the paragraph headed “Information on SITA, Services Companies, CTHC, Air China and Shenzhen Airlines” above, the Services Companies are the companies established between the Company and other parties for distributing the products of the Company and provide better services to customers in different regions.

The Dongsi Property and the Dongxingli Property have been used as data centres of the Company since 2000. It is in the best interests of the Company to continue to lease and use such properties to ensure normal and stable operation of the Company.

As mentioned in the paragraph headed “Information on SITA, Services Companies, CTHC, Air China and Shenzhen Airlines” above, Air China and its subsidiaries are principally engaged in provision of air passenger, air cargo and airline-related services in the PRC while Shenzhen Airlines is engaged in airlines operation in the PRC. The provision of the Technology Services to the Airline Services Promoters is in the ordinary and usual course of business of the Group.

The Non-exempt Continuing Connected Transactions have been and will be conducted in the ordinary and usual course of business of the Group.

The Non-exempt Continuing 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 Non-exempt Continuing Connected Transactions are on normal commercial terms and the terms of the Non-exempt Continuing Connected Transactions are fair and reasonable and in the interests of the shareholders of the Company as a whole.

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LETTER FROM THE BOARD

9. LISTING RULES REQUIREMENTS

Given that each of SITA, the Services Companies, CTHC, Air China and Shenzhen Airlines are connected persons of the Company as mentioned above, each of the Non-exempt Continuing Connected Transactions for the Relevant Period constitute connected transactions for the Company under Chapter 14A of the Listing Rules.

The Group did not have any previous transactions with any connected persons in respect of the Nonexempt Continuing Connected Transactions which required aggregation under Rule 14A.25 of the Listing Rules.

The Percentage Ratios for each of the Non-exempt Continuing Connected Transactions (i.e. the SITA Transactions, the transactions contemplated under the Network Services Agreement, the Dongsi Tenancy Agreement, the Dongxingli Tenancy Agreement and the Airline Services Agreements) on an annual basis are more than 2.5%, the Non-exempt Continuing Connected Transaction for the Relevant Period are subject to the reporting, announcement and independent shareholders’ approval requirements under the Listing Rules.

The contract duration of each of the SITA Telecommunication Services Agreement, the Dongxingli Tenancy Agreement, and the Dongsi Tenancy Agreement is more than three years. The Directors are of the view that the contract duration of the above agreements of more than three years is commercially beneficial to the Company and of normal business practice for contracts of these types to be of such duration and they are in compliance with Rule 14A.35(1) of the Listing Rules. Details of the views of China Merchants, the independent financial adviser, on the contract duration of the above agreements are set out in the Letter from China Merchants on pages 25 to 42 of this circular.

As set out in the 2007 Announcement, the aggregate rentals payable by the Company under the Dongsi Tenancy Agreement and the Dongxingli Tenancy Agreement for the period from 1 January 2007 to 31 January 2007 amount to approximately RMB3,279,000 and the Percentage Ratios thereof are more than 0.1% but less than 2.5%. Given that the supplemental agreements which set out the current market average rental price were entered into between the Company and CTHC on 30 December 2006, the Company has made best endeavour to comply with the applicable Listing Rules in respect of these transactions as well as the other Continuing Connected Transactions (including publication of the 2007 Announcement) as soon as practicable.

Based on the unaudited management accounts of the Group for the month ended 31 January 2007 (1) the Percentage Ratios of the amount of the transactions contemplated under the InfoSky Cargo Services Agreement for the period from 1 January 2007 to 31 January 2007 are not more than 0.1%, and (2) the Percentage Ratios of the amount of the transactions contemplated under the Network Services Agreement and the Airline Services Agreement and the SITA Transactions for the period from 1 January 2007 to 31 January 2007 are more than 0.1% but less than 2.5%.

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LETTER FROM THE BOARD

As set out in the 2007 Announcement and the information disclosed above, the Company has failed to comply with Rule 14A.47(1) of the Listing Rules in respect of the Continuing Connected Transactions. The Company considered that it would be more appropriate and cost effective to inform the shareholders of the Company of the Continuing Connected Transactions at the same time and seek their approval at the same general meeting, the Company proposed to publish the 2007 Announcement after it entered into all agreements in respect of the Continuing Connected Transactions with each of the relevant connected persons. However, the Company was unable to enter into or, if applicable, renew the Airline Services Agreements with all the relevant Promoters or their associates until 23 January 2007. Given that the Company (a) entered into the Network Services Agreement, the supplemental agreements to each of the Dongxingli Tenancy Agreement and the Dongsi Tenancy Agreement and the Airline Services Agreement with the relevant connected persons in late December 2006, and the Shenzhen Airlines Airline Services Agreement on 23 January 2007, and (b) obtained SITA’ s confirmation regarding accuracy of the disclosure relating to SITA and its group companies set out in the Announcement in January 2007, though the Company sought SITA’s confirmation on 20 December 2006, the Company was unable to obtain prior independent shareholders’ approval for the Continuing Connected Transactions before the transactions commenced in 2007.

The Company will disclose information in relation to the Continuing Connected Transactions in its subsequent published annual report and accounts in accordance with Rule 14A.45 of the Listing Rules.

10. PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

Due to an equity transfer agreement entered into between Changan Air Industrial Co., a Promoter, and Changan Air Company Limited on 28 June 2006, whereby Changan Air Industrial Co. transferred 799,500 shares in the Company to Changan Air Company Limited, the Company proposes to amend the list of Promoters in the Articles of Association at the EGM.

To facilitate the business operations of the Company, the Company proposes to amend the Articles of Association at the EGM by enabling the subsidiaries of the Company to name themselves with “TravelSky Airport”.

Furthermore, as announced by the president of the PRC in his order no. 42 dated 27 October 2005, certain provisions of the Company Law have been revised and amended based on the results of the Eighteenth meeting of the Standing Committee of the Tenth National People’s Congress of the PRC. Such revisions and amendments became effective on 1 January 2006.

To ensure compliance with the Company Law, the Company proposes to amend the Articles of Association at the EGM. In general, the following is a summary of the proposed amendments to the Articles of Association:

• (a) enhancing the power of the general meetings by allowing the review of the proposals made by shareholders of the Company representing 3% or more of shares carrying the right to vote at the general meetings of the Company, as opposed to the shareholding of 5% or more currently;

• (b) vesting the power to review matters regarding the acquisition or disposal of any major assets by the Company within one year, of which the amount exceeds 30%, of the latest audited total assets of the Company at the general meetings of the Company, and such matters have to be approved by way of special resolutions;

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LETTER FROM THE BOARD

• (c) a more flexible and easier access to propose new motions to the Company at general meetings is to be adopted, in that the Board, Supervisory Committee and shareholder(s) of the Company individually or collectively holding 3% or more of shares carrying the right to vote can make such proposals, as opposed to the need for 5% or more currently;

• (d) the shares held by the Company are not to be carrying any voting rights at the general meeting;

• (e) for better corporate governance, the Supervisory Committee (or the shareholder(s) of the Company individually or collectively holding 10% or more of shares carrying the right to vote for 90 consecutive days if the Supervisory Committee fails to do so) shall convene and chair the general meeting if the appropriate member(s) of the Board fails to perform his/their duty to convene one;

• (f) continuing obligations are to be imposed on the part of the Directors and/or Supervisors to perform their duties as Directors upon the expiry of their office in the event that new Directors and/or Supervisors cannot be elected on timely basis, or the number of which falls below the minimum statutory quorum;

• (g) a more flexible and easier access to convene an extraordinary general meeting is to be adopted, in that Shareholders holding more than one-tenth of the shares carrying voting rights or more than one-third of the Board or the Supervisory Committee can propose such convention, as opposed to the need for the requisition of the chairman (“ Chairman ”) of the Board or two directors or the manager of the Company currently;

• (h) Chairman’s of the Borad casting vote in case of deadlocks is to be removed;

• (i) a Director is to be required to abstained from voting for any issue to which he/she is connected; and proposed resolutions are to be considered at the general meetings as opposed to the board meetings at which less than three Directors who are not interested in the proposed resolutions are present;

• (j) for better corporate governance, the number of Supervisors is to be increased from 8 to 9; a proportion of at least one-third of staff representative Supervisors is to be required in the Supervisory Committee; the vice-chairman of the Supervisory Committee (or a Supervisor elected by a majority of Supervisors if that vice-chairman fails to do so) shall convene and preside over the meetings of the Supervisory Committee if the chairman of the Supervisory Committee fails to perform his duty to convene one; the constituents of the Supervisory Committee are to be changed; the scope of duties of the Supervisory Committee is to be enlarged; and every decision made by the Supervisory Committee is to be recorded;

• (k) the profit after taxation of the Company is to be appropriated in certain order: firstly to compensate loss, secondly to appropriate into the statutory surplus reserve, thirdly to appropriate into the discretionary surplus reserve, and lastly to pay dividend for ordinary shares of the Company;

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LETTER FROM THE BOARD

• (l) the need for appropriating a certain amount of profit after taxation into the Company’s statutory welfare reserve is to be abolished;

• (m) dividend is to be distributed to shareholders of the Company according to their shareholding while the shares held by the Company are not entitled to profit distribution; and

• (n) the need to withhold tax from dividend distributions is to be removed.

To align the Articles of Association with the requirements of the Company Law, the Board wishes to propose special resolutions at the EGM to amend the relevant articles of the Articles of Association. A full text of the proposed amendments to the Articles of Association is set out in resolutions numbered 5 to 7 in the notice of EGM set out on pages 50 to 60 of this circular.

11. EGM

The EGM will be held at Conference Room 1907, South Wing, Park C, Raycom InfoTech Park, No. 2 Ke Xue Yuan South Road, Haidian District, Beijing, People’s Republic of China at 10:00 a.m. on 25 April 2007 to consider and, if thought fit, approve, among other matters, the transactions contemplated under the Non-exempt Continuing Connected Transactions, the relevant Annual Caps and the proposed amendments to the Articles of Association. Notice of the EGM is set out on pages 50 to 60 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.

12. VOTING ARRANGEMENTS

Under the Listing Rules, the SITA Transactions are subject to the approval of the SITA Independent Shareholders. As at the Latest Practicable Date, SITA INC BV was interested in 1.75% of the issued share of the Company. As both SITA INC BV and SITA are collectively owned, directly or indirectly, by the members of the Air Transport Community, a group of companies and organisations for which the main activity is related to air transport, SITA INC BV is an associate of SITA. SITA INC BV therefore will be required to abstain from voting at the resolutions to consider and approve the SITA Transactions.

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LETTER FROM THE BOARD

Under the Listing Rules, the Network Services Agreement and the transactions contemplated thereunder are subject to the approval of the Services Companies Independent Shareholders. Accordingly, the Interested Promoters and their respective associates will abstain from voting on the resolution to consider and approve the Network Services Agreement and the transactions contemplated thereunder.

Under the Listing Rules, the Dongsi Tenancy Agreement and the Dongxingli Tenancy Agreement and the transactions contemplated thereunder are subject to the approval of the CTHC Independent Shareholders. Accordingly, CTHC and its associates will abstain from voting on the resolution to consider and approve the Dongsi Tenancy Agreement and the Dongxingli Tenancy Agreement and the transactions contemplated thereunder.

Under the Listing Rules, the Airline Services Agreements and the transactions contemplated thereunder are subject to the approval of the Airline Services Promoters Independent Shareholders. Accordingly, CNA Holding, Air China, Shenzhen Airlines and their respective associates will abstain from voting on the resolution to consider and approve the Airline Services Agreements and the transactions contemplated thereunder.

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

13. POLL PROCEDURE

Pursuant to Article 73 of the Articles of Association, 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.

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LETTER FROM THE BOARD

14. RECOMMENDATIONS

Your attention is drawn to the letter from the Independent Board Committee set out on page 24 of this circular and the letter of advice from China Merchants to the Independent Board Committee and the Independent Shareholders in connection with the Non-exempt Continuing Connected Transactions and the principal factors and reasons considered by them in arriving at such advice set out on pages 25 to 42 of this circular.

The Independent Board Committee, having taken into account the advice of China Merchants, considers that the Non-exempt Continuing Connected Transactions and the relevant Annual Cap are fair and reasonable in so far as the Independent Shareholders are concerned and the Non-exempt Continuing Connected Transactions and the relevant Annual Caps are in the interests 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 resolutions approving the Non-exempt Continuing Connected Transactions and the relevant Annual Caps at the EGM.

The Board considers that the special resolutions in relation to the proposed amendments to the Articles of Association are in the best interests of the Company and the shareholders of the Company as a whole and recommends the shareholders of the Company to vote in favour of such resolutions at the EGM.

15. GENERAL

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

Yours faithfully, By order of the Board TravelSky Technology Limited Zhu Yong Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(Stock Code: 0696)

7 March 2007

To the Independent Shareholders

Dear Sir / Madam,

We refer to the circular (“ Circular ”) issued by the Company to its shareholders dated 7 March 2007 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 Non-exempt Continuing Connected Transactions. China Merchants 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 China Merchants set out in the Circular. Having considered the principal factors and reasons considered by, and the advice of, China Merchants set out in its letter of advice set out in the Circular, we consider that the Non-exempt Continuing Connected Transactions and the relevant Annual Caps are fair and reasonable in so far as the Independent Shareholders are concerned and the Non-exempt Continuing Connected Transactions and the relevant Annual Caps are in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions approving the Nonexempt Continuing Connected Transactions and the relevant Annual Caps at the EGM.

Yours faithfully,

For and on behalf of the

Independent Board Committee Chow Kwok Wah, James Yick Wing Fat, Simon Yuan Yaohui

Independent non-executive Directors

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LETTER FROM CHINA MERCHANTS

The following is the text of the letter of advice from China Merchants to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of inclusion in this circular.

48th Floor, One Exchange Square Central, Hong Kong

7 March 2007

TravelSky Technology Limited Raycom InfoTech Park No. 2, Ke Xue Yuan South Road Haidian District, Beijing 100080, PRC

To the Independent Board Committee and the Independent Shareholders of TravelSky Technology Limited

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in respect of the Non-exempt Continuing Connected Transactions and the relevant Annual Caps. Details of the Non-exempt Continuing Connected Transactions and the relevant Annual Caps are set out in the letter from the Board (the “ Letter from the Board ”) contained in the circular dated 7 March 2007 (the “ Circular ”) issued by the Company to its shareholders, of which this letter forms part. This letter contains our advice to the Independent Board Committee and the Independent Shareholders as to whether or not (i) the Nonexempt Continuing Connected Transactions are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and are in the interests of the Company and the Independent Shareholders as a whole; (ii) the contract durations of the SITA Telecommunication Services Agreement, the Dongxingli Tenancy Agreement and the Dongsi Tenancy Agreement of more than 3 years are commercially beneficial to the Company and that it is normal business practice for contracts of this type to be of such duration; (iii) the relevant Annual Caps of the Non-exempt Continuing Connected Transactions are fair and reasonable and in the interests of the Company and its shareholders as a whole; and (iv) it would be fair and reasonable for the Independent Shareholders to approve the Non-exempt Continuing Connected Transactions and the relevant Annual Caps. Terms used in this letter have the same meanings as defined in the Circular unless the context otherwise requires.

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LETTER FROM CHINA MERCHANTS

In formulating our advice and recommendation, we have relied on the accuracy of the information and facts supplied, and the opinions expressed, by the Company, its Directors and its management to us. We have also assumed that all statements of belief and intention made by the Directors in the Circular were made after due enquiry. We have assumed that all information, representations and opinion made or referred to in the Circular were true, accurate and complete at the time they were made and continued to be true at the date of the EGM. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company, its Directors and its management and have been advised by the Directors that no material facts have been omitted from the information provided and referred to in the Circular.

We consider that we have reviewed sufficient information to reach an informed view and to justify our reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation. We have not, however, conducted any form of in-depth investigation into the business affairs, financial position or future prospects of the Group or the counterparties of the Non-exempt Continuing Connected Transactions nor carried out any independent verification of the information supplied, representations made or opinions expressed by the Company, its Directors and its management.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion in respect of the Non-exempt Continuing Connected Transactions and the relevant Annual Caps to the Independent Board Committee and the Independent Shareholders, we have considered the following principal factors and reasons:

1. Background of the Company and the Non-exempt Continuing Connected Transactions

The Group is principally engaged in the provision of aviation information technology services in the PRC. The Group provides advanced aviation information technology and related services to the Chinese commercial airlines and distributes commercial airlines products and services to travel service distributors, ticketing offices and individual consumer and is taking a leading role.

The Company has entered into the Non-exempt Continuing Connected Transactions for the Relevant Period. Immediately prior to the listing of the Company in 2001, the Company has entered into the SITA Transactions, the transactions contemplated under the Network Services Agreement, the Dongsi Tenancy Agreement and the Dongxingli Tenancy Agreement and has been granted the Waiver in December 2003 in respect of such transactions for the period from 1 January 2004 up to 31 December 2006, details of which and the above transactions were set out in the 2003 Announcement.

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LETTER FROM CHINA MERCHANTS

As set out in the 2006 Circular, the Company and CNA Holding renewed the Technology Services and Ancillary Support Agreement in relation to the Technology Services. After the expiry of the Technology Services and Ancillary Support Agreement, the Company and Air China, a subsidiary of CNA Holding, entered into the Air China Airline Services Agreement in relation to the Technology Services for the Relevant Period. After the expiry of the airline services agreement dated 21 December 2004 entered into between the Company and Shenzhen Airlines, the Company entered into the Shenzhen Airlines Airline Services Agreement with Shenzhen Airlines in relation to the Technology Services for the Relevant Period. The annual caps for the transactions under (i) the Technology Services and Ancillary Support Agreement, and (ii) the predecessor technology services and ancillary support agreement and the predecessor airline services agreement dated 21 December 2004 entered into between the Company and Shenzhen Airlines for the year ended 31 December 2006 were approved at the 2006 EGM.

In view of the expiry of the Waiver in respect of the continuing connected transactions (other than the transactions under the Technology Service and Ancillary Support Agreement and the airline services agreement dated 21 December 2004 entered into between the Company and Shenzhen Airlines in relation to the Technology Services (and its predecessor agreement)) and to ensure compliance with the requirements under the Listing Rules in respect of the Continuing Connected Transaction for the Relevant Period, the Company publish the 2007 Announcement in accordance with Chapter 14A of the Listing Rules.

Given that each of SITA, the Services Companies, CTHC, Air China and Shenzhen Airlines are connected persons of the Company as mentioned in the Letter from the Board, each of the Non-exempt Continuing Connected Transactions for the Relevant Period constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules. The Percentage Ratios for each of the Nonexempt Continuing Connected Transactions (i.e. the SITA Transactions, the transactions contemplated under the Network Services Agreement, the Dongsi Tenancy Agreement, the Dongxingli Tenancy Agreement and the Airline Services Agreements) on an annual basis are more than 2.5%, the Nonexempt Continuing Connected Transaction for the Relevant Period are subject to the reporting, announcement and independent shareholders’ approval requirements under the Listing Rules.

As the contract durations of the SITA Telecommunication Services Agreement, the Dongxingli Tenancy Agreement and the Dongsi Tenancy Agreement are more than 3 years, an independent financial adviser is required to explain why a longer period for such agreements are required and to confirm that it is normal business practice for contracts of this type to be of such duration.

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LETTER FROM CHINA MERCHANTS

In this connection, we have been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders as to whether or not (i) the Non-exempt Continuing Connected Transactions are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and are in the interests of the Company and its shareholders as a whole; (ii) the contract durations of the SITA Telecommunication Services Agreement, the Dongxingli Tenancy Agreement and the Dongsi Tenancy Agreements of more than 3 years are normal business practice for contracts of this type to be of such duration; (iii) the relevant Annual Caps of the Non-exempt Continuing Connected Transactions are fair and reasonable and in the interests of the Company and its shareholders as a whole; and (iv) it would be fair and reasonable for the Independent Shareholders to approve the Non-exempt Continuing Connected Transactions and the relevant Annual Caps.

2. Reasons for the Non-exempt Continuing Connected Transactions

The reasons for the Non-exempt Continuing Connected Transactions are set out below:

(i) SITA Transactions

(a) SITA Membership Fees

As set out in the Letter from the Board, the Company is a member of SITA. Being a member of SITA, the Company is entitled to use the services provided by SITA and is required to pay SITA the SITA Membership Fees. Given that the SITA Membership Fees is applicable to all members of SITA and that it is a prerequisite for the Company to enjoy the services provided by SITA and the services provided by SITA is essential for the provision of data transmission network to the Company’s customers, the Directors consider that it is in the interest of the Company to continue to be a member of SITA and pay the respective membership fee.

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LETTER FROM CHINA MERCHANTS

• (b) SITA Telecommunication Services Agreement

According to SITA’s website, SITA is the world’s leading service provider of information technology business solutions and communications services to the air transport industry. The Directors advised that the SITA Data Network Services provided by SITA include an airline protocol service which is suitable for most air transport and travel industry applications, such as global distribution system access for airline offices and booking agents, airline check-in at airports, and baggage tracking which is cost effective and hence the SITA Date Network Services provided by SITA are essential to the aviation information technology services provided by the Group to its customers. By entering into the SITA Telecommunication Services Agreement, the Company can acquire the SITA Data Network Services at a rate which is determined by reference to the usage and the pricing schedule set by SITA which is applicable to all users of the SITA data network including the Company’s customers.

As set out in the Letter from the Board, the Directors consider that it is in the interest of the Company to continue to engage SITA to provide SITA Data Network Services for the following reasons:

• (a) the network of SITA provides wide industry coverage as many participants in the air transport industry worldwide rely on its network solutions and many customers of the Company are also using SITA’s network services;

• (b) SITA has a long co-operative history with the Company and various players in the civil aviation industry of China; and

• (c) the stability of the Company’s business may be severely affected if its engagement with SITA is terminated.

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LETTER FROM CHINA MERCHANTS

(ii) Network Services Agreement

As set out in the Letter from the Board, the Services Companies are the companies established for distributing the products of the Company and provide better services to customers in different regions. The Services Companies construct, operate and maintain regional network nodes, facilities and connections to the network and systems of the Company in their respective regions. The Services Companies provide technical services to the user of the Company’s aviation information technology systems in respect of the Company’s nationwide data network. These services include serving as local service centers for the Company’s data network operations, and providing services such as connections to the network’s nodes, data transmission equipment, terminals and printers, the installation of equipment, maintenance, training, technical support and other network services.

Pursuant to the Network Services Agreement, (i) the Company has agreed to let the Services Companies use the Company’s mainframe resources and connect to the Company’s network of data transmission equipment, terminals and printers; (ii) the Services Companies have agreed to provide front end technical supports for the users of the Company’s airport passenger processing system (APP system); and (iii) the Company may lease certain major connection equipment at the request of the Services Companies.

The Directors believe that the Services Companies have been playing an important role to provide technical support to their customers for the usage of the Company’s APP system and to facilitate the promotion of new products by the Company and etc. and have a strong market presence in the PRC. Thus the Directors considered that it is in the interest of the Company to enter into the Network Services Agreement as it would be difficult for the Company to provide network services directly to the customers in different regions.

(iii) Dongxingli Tenancy Agreement and Dongsi Tenancy Agreement

As set out in the Letter from the Board, the Dongxingli Property and the Dongsi Property have been used as data centres of the Company since 2000. The Directors consider that it is in the best interests of the Company to continue to lease and use such properties to ensure normal and stable operation of the Company since it would not be feasible and cost effective to move the equipment and ancillary products which have been embedded into the server. Moreover, the relocation of data centres of the Company will affect the stability of information technology services provided by the Company to the airline operators in the PRC which may not be able to assure the travelling safety function of air passengers.

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LETTER FROM CHINA MERCHANTS

(iv) Airline Services Agreements

Pursuant to the Airline Services Agreements, the Company (including its subsidiaries) shall provide the Airline Services Promoters the Technology Services, 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 (APP) 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.

As advised by the Directors, the aviation industry in the PRC is subject to extensive supervision of the PRC authorities and there is barrier to entry into the industry. As such, the number of airline operators in the PRC is limited and given the Company is the dominant market player in the aviation information technology services industry, the Company is able to capture most of the market share and stimulate turnover growth to the Group. Since the Group’s main customers are airline operators which are either the Promoters or their associates, all being connected persons of the Company (as defined in the Listing Rules), the Directors are of the view that it is in the best interests of the Group to enter into the Airline Services Agreements in order to secure the recurring income and to develop and expand the business in Technology Services.

In view of (i) the SITA Data Network Services provided by SITA are essential to the aviation information technology services provided by the Group; (ii) it would be difficult for the Company to provide network services directly to the customers in different regions; (iii) the Dongxingli Property and the Dongsi Property have been used as data centres of the Company since 2000 and it would not be feasible to move the equipment and ancillary products which have been embedded into the server and the relocation of data centres of the Company will affect the stability of information technology services provided by the Company to the airline operators in the PRC which may not be able to assure the travelling safety function of air passengers; and (iv) that the provision of Technology Services contemplated under the Airline Services Agreements is in the best interests of the Group and secure the recurring income, we concur with the Directors’ view that it is reasonable for the Group to enter into the Non-exempt Continuing Connected Transactions and the Non-exempt Continuing Connected Transactions have been entered into in the ordinary and usual course of business of the Group and are in the interests of the Group and its shareholders as a whole.

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LETTER FROM CHINA MERCHANTS

3. Reasons for the duration of more than three years for the SITA Telecommunication Services Agreement, the Dongxingli Tenancy Agreement and the Dongsi Tenancy Agreement

(i) SITA Telecommunication Services Agreement

According to SITA, all members of SITA including the Company shall be bound by the standard terms in the SITA Telecommunication Services Agreement for the provision of data network services and that the SITA Telecommunication Services Agreement shall continue to be in full force and effect unless terminated in accordance with the terms and conditions set out therein. In addition, SITA Data Network Services provided by SITA are essential to the daily operation of the Company, and also the customers of the Company rely heavily on the services provided by the Group via SITA. As advised by SITA, the SITA Telecommunication Services Agreement with contract duration of more than 3 years which the Company has entered with SITA is a standard term which applies to all users of the SITA Data Network Services including the Independent Third Parties. As a result, we concur with the Directors’ view that it is commercially beneficial to the Company to have a longer period.

In order to further assess whether it is normal business practice for contracts of this type to be of such duration, we have conducted research from Bloomberg and found that there are no relevant comparables to SITA. Therefore as an alternative, we have consulted SITA for the provision of their competitors to us and found out that their competitor, ARINC Incorporated of the United States, with one of its line of service also include the provision of data network services to the aviation industry which is comparable to the SITA Data Network Services. In this regard, we have searched the website of ARINC Incorporated on 3 February 2007 and discovered that it had also the experience of entering into a contract with Continental Airlines for 7 years for the provision of multiple air or ground data link services on 14 March 2006.

Based on the foregoing, we concur with the Directors’ view that the contract duration of the SITA Telecommunication Services Agreement of more than 3 years is commercially beneficial to the Company and that it is normal business practice for contracts of this type to be of such duration.

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LETTER FROM CHINA MERCHANTS

(ii) Dongxingli Tenancy Agreement and Dongsi Tenancy Agreement

As stated above, the Dongxingli Property and the Dongsi Property have been used as data centres of the Company since 2000 and it would be difficult and costly to move the equipment and ancillary products which have been embedded into the server. To ensure stable operations of the Group, we concur with the Directors that the Company would have to rent the Dongxingli Property and the Dongsi Property for a longer period and the contract duration of the Dongxingli Tenancy Agreement and the Dongsi Tenancy Agreement of more than 3 years is commercially beneficial to the Company.

In accessing whether the duration of the Dongxingli Tenancy Agreement and the Dongsi Tenancy Agreement is of normal business practice, we have reviewed all continuing connected transactions circulars from 1 January 2005 to the Latest Practicable Date for companies listed on the Stock Exchange in terms of property lease agreements executed solely used for their business operations and have identified the following 4 property lease agreements with duration of more than 3 years:

Company	Leasing term	Date of circular
Petrochina Company Limited	20 years	22 September 2005
(Stock code: 857)
ZTE Corporation (Stock code: 763)	20 years	10 November 2006
Beijing Capital International
Airport Company Limited
(Stock code: 694)	20 years	17 November 2006
Wai Yuen Tong Medicine
Holdings Limited
(Stock code: 897)	10 years	5 March 2007

As illustrated in the above table, we note that the comparable property lease agreements have leasing term of 10-20 years. As such, we concur with the Directors’ view that the contract duration of the Dongxingli Tenancy Agreement and the Dongsi Tenancy Agreement of more than 3 years are of normal business practice.

Based on the foregoing, we concur with the Directors’ view that the contract duration of the Dongxingli Tenancy Agreement and the Dongsi Tenancy Agreement of more than 3 years is commercially beneficial to the Company and that it is normal business practice for contracts of this type to be of such duration.

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LETTER FROM CHINA MERCHANTS

4. Basis of price/rental determination of the Non-exempt Continuing Connected Transactions

(i) SITA Transactions

(a) SITA Membership Fees

According to SITA, all members are required to pay membership fees as prescribed in the SITA Revenue and Funding Rules handbook with standard terms and conditions to all members to SITA. According to the SITA Revenue and Funding Rules handbook, the SITA Membership Fees payable by the Company in each financial year is determined by reference to the ratio of the aggregate eligible revenue for the provision of services in the ordinary course of business in the previous financial year billed by SITA, SITA NV or their respective 100% owned subsidiaries (“ Eligible Revenue ”) to the Company to the aggregate Eligible Revenue of all members of SITA for that financial year. Given that the determination basis of the SITA Membership Fees is applicable to all members of SITA, we concur with the Directors’ view that the SITA Membership Fees is fair and reasonable.

(b) SITA Telecommunication Services Agreement

According to the Directors, SITA is currently a major provider of data network services in the aviation industry in the PRC. Since this industry is regulated by the CAAC, there is barrier to entry for other competitors to enter this industry and to provide relative data network services for the airline operators.

According to SITA, the SITA Telecommunication Services Agreement for the provision of data network services to the Company is an agreement with standard terms and conditions that applies to all its customers. As set out in the Letter from the Board, the Company is required to pay to SITA the network data usage fees based on the usage and the pricing schedule set by SITA which is applicable to all users of the SITA Data Network Services.

Based on the above, we are of the view that the price governing the services provided by SITA as stipulated in the SITA Telecommunication Services Agreement is on normal commercial terms, fair and reasonable and in the interest of the Company and its shareholders as a whole.

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LETTER FROM CHINA MERCHANTS

(ii) Network Services Agreement

According to the Network Services Agreement, the Services Companies shall pay (i) connection fees for connections to the Company’s network of data transmission equipment, terminals and printers at rates prescribed by CAAC; (ii) PID fees for utilization of mainframe resources at rates prescribed by CAAC; and (iii) equipment lease fees on a cost basis. If any of the Services Companies provide front end technical supports to the users of the Company’s APP system, the Company will share the revenue generated from the Company’s APP system with the relevant Services Companies in such amount determined in accordance with (i) the actual amount of service provided by the relevant Services Companies and (ii) pricing schedule as set out in the agreement to be entered into between the Company, the relevant Services Companies and (if applicable) the airport which provides services to the users of the Company’s APP system.

We have noticed that in the past, the fees paid by the Company on the whole to other Independent Third Parties for the provision of front end technical supports to the users of the Company’s APP system were the same as the total fees paid by the Company to the relevant Services Companies and certain airports for the provision of front end technical supports to the users of the Company’s APP system.

Based on the foregoing, we consider the service fees paid by the Company to the Services Companies were no less favourable than the fees paid to other Independent Third Parties. Hence, we are of the view that the service fees to be paid by the Company are fair and reasonable and in the interests of the Company and its shareholders as a whole.

(iii) Dongxingli Tenancy Agreement and Dongsi Tenancy Agreement

According to the Dongxingli Tenancy Agreement and the Dongsi Tenancy Agreement, the amount of the rentals for the Dongxingli Property and Dongsi Property would be reviewed once every three years by reference to the then prevailing market rate from the commencement of the lease of the Dongxingli Property and the Dongsi Property respectively. As stated in the Letter from the Board, the average rental (including property management fee) of each of Dongxingli Property and the Dongsi Property of RMB3.8 and RMB4.5 per square meter per day payable to CTHC is equal to the average market rental as at 1 September 2006 as evaluated by Savills, an independent property valuer.

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LETTER FROM CHINA MERCHANTS

In accessing the fairness and reasonableness of the valuations of the market rental as at 1 September 2006, we have reviewed the valuation report prepared by Savills which indicates that the current rental arrangements (i.e. the aggregate rental (including property management fees) specified in the supplemental agreements entered into between CTHC and the Company on 30 December 2006) for the Dongxingli Property and the Dongsi Property for use of property, are fair, reasonable and in line with the market level. The current rental arrangements are valued by Savills on market rent basis as according to the HKIS Valuation Standards on Properties (First edition 2005) published by The Hong Kong Institute of Surveyors. We have also discussed with Savills on the methodology adopted and assumptions used in arriving at their valuations of the market rental as at 1 September 2006. In the course of our discussion with Savills, nothing material has come to our attention that would lead us to believe that the valuations of the market rentals were not prepared on a reasonable basis nor reflect the methodology and assumptions which have been adopted and arrived at after due and careful consideration. We have no reason to doubt the fairness and appropriateness of the methodology adopted and assumptions used by Savills in arriving at the valuations of such market rental.

In this regard, we consider the average rental of each of the Dongxingli Property and the Dongsi Property are on normal commercial terms, fair and reasonable and in the interests of the Company and its shareholders as a whole.

(iv) Airline Services Agreements

As set out in the Letter from the Board, the service fees payable by the Airline Services Promoters for the Technology Services under the Airline Services Agreements are currently determined in accordance with the pricing schedule prescribed by CAAC.

We have also reviewed the fees charged by the Company to Air China and Shenzhen Airlines as stipulated in the Airline Services Agreements and conclude that the services fees charged by the Company to Air China and Shenzhen Airlines are within the respective price ranges prescribed by the CAAC.

We have also reviewed sample copies of the Technology Services and Ancillary Support Agreement entered 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 the same service fees as the Company would charge Air China and Shenzhen Airlines as set out in the Airline Services Agreements.

Based on the foregoing, we consider the services fees to be charged by the Company to Air China and Shenzhen Airlines are on normal commercial terms, fair and reasonable and in the interests of the Company and its shareholders as a whole.

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LETTER FROM CHINA MERCHANTS

5. Basis of determining the Annual Caps

Historical Transaction records

Set out below is a summary of the transaction records of the Non-exempt Continuing Connected Transactions for the three years ended 31 December 2006:

		Year ended 31 December	Year ended 31 December
	2004	2005	2006
			(Note)
SITA Transactions	RMB45,480,450	RMB38,576,816	RMB56,000,000
	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately
	HK$45,480,450)	HK38,576,816)	HK$56,000,000)
Transactions under	RMB17,600,000	RMB29,942,000	RMB31,000,000
the Network Services	(equivalent to	(equivalent to	(equivalent to
Agreement	approximately	approximately	approximately
	HK$17,600,000)	HK$29,942,000)	HK$31,000,000)
Transactions under	RMB34,570,760	RMB38,609,000	RMB38,609,000
the Dongxingli	(equivalent to	(equivalent to	(equivalent to
Tenancy Agreement	approximately	approximately	approximately
and the Dongsi	HK$34,570,760)	HK$38,609,000)	HK$38,609,000)
Tenancy Agreement
Transactions under	RMB221,025,000	RMB281,616,000	RMB310,000,000
the Technology	(equivalent to	(equivalent to	(equivalent to
Services and	approximately	approximately	approximately
Ancillary Support	HK$221,025,000)	HK$281,616,000)	HK$310,000,000)
Agreement and the
airline services
agreement dated
21 December 2004
entered into between
the Company and
Shenzhen Airlines
(or the predecessor
agreement)

Note: These amounts are derived from the unaudited management accounts of the Group for the year ended 31 December 2006.

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LETTER FROM CHINA MERCHANTS

Annual Caps

Set out below is a summary of the relevant Annual Caps of the Non-exempt Continuing Connected Transactions for each of the three years ending 31 December 2009:

		Year ending 31 December	Year ending 31 December
	2007	2008	2009
SITA Transactions	RMB67,000,000	RMB80,000,000	RMB96,000,000
	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately
	HK$67,000,000)	HK$80,000,000)	HK$96,000,000)
Transactions under	RMB37,200,000	RMB44,640,000	RMB53,568,000
the Network	(equivalent to	(equivalent to	(equivalent to
Services Agreement	approximately	approximately	approximately
	HK$37,200,000)	HK$44,640,000)	HK$53,568,000)
Transactions under the	RMB40,000,000	RMB40,000,000	RMB40,000,000
Dongxingli Tenancy	(equivalent to	(equivalent to	(equivalent to
Agreement and	approximately	approximately	approximately
the Dongsi Tenancy	HK$40,000,000)	HK$40,000,000)	HK$40,000,000)
Agreement
Transactions under	RMB403,000,000	RMB523,900,000	RMB175,760,000
the Airline	(equivalent to	(equivalent to	(equivalent to
Services Agreement	approximately	approximately	approximately
	HK$403,000,000)	HK$523,900,000)	HK$175,760,000)
			(Note)

Note: This is the annual cap for the transactions contemplated under the Shenzhen Airlines Airline Services Agreement only as the initial term of the Air China Airline Services Agreement will expire on 31 December 2008.

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LETTER FROM CHINA MERCHANTS

Basis of the Annual Caps

The basis of the Annual Caps is set out below:

(i)(a) SITA Transactions and Network Services Agreement

As stated in the Letter from the Board, the Annual Caps for the SITA Transactions and the Network Services Agreement are determined by reference to (i) the historical annual amount of the respective agreement for the year ended 31 December 2005; (ii) the unaudited amount of the SITA Transactions of approximately RMB56,000,000 (equivalent to approximately HK$56,000,000) and the unaudited amount of the transactions contemplated under the Network Services Agreement of approximately RMB31,000,000 (equivalent to approximately HK$31,000,000) for the year ended 31 December 2006, as derived from the Group’s unaudited management accounts for the year ended 31 December 2006; (iii) the compound annual growth rate of approximately 20% of the turnover of the Company between the year ended 31 December 2004 and the expected turnover for the year ended 31 December 2006; and (iv) the estimated growth of the transaction volume of the relevant 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. As stated in the Letter from the Board, the Annual Caps for the SITA Transactions and the transactions contemplated under the Network Services Agreement are calculated based on the compound annual growth of 20% for the respective transactions for the three years ending 31 December 2009.

In order to assess the fairness and reasonableness of the proposed Annual Caps for the SITA Transactions and the transactions contemplated under the Network Services Agreement, we have reviewed the transactions amount for the three years ended 31 December 2006 for both the SITA Transactions and the transactions contemplated under the Network Services Agreement and noted that the average compound annual growth rate for the SITA Transactions between the period for the two years ended 31 December 2005 and between the period for the two years ended 31 December 2006 was approximately 15%, and the average compound annual growth rate for the transactions contemplated under the Network Services Agreement between the period for the two years ended 31 December 2005 and between the period for the two years ended 31 December 2006 was approximately 12%. Based on the sound market growth for the China’s aviation and travel industry as well as the increasing frequency of business trips, the relevant Annual Caps represent an embedded compound annual growth of approximately 20% for the respective transactions for the Relevant Period.

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LETTER FROM CHINA MERCHANTS

(i)(b) Airline Services Agreements

The Annual Caps for the transactions contemplated under the Airline Services Agreements are determined by reference to (i) the historical annual amount of the relevant transactions for the year ended 31 December 2005; (ii) the unaudited amount of the transactions contemplated under the Airline Services Agreements of approximately RMB310,000,000 (equivalent to approximately HK$310,000,000 ) for the year ended 31 December 2006, as derived from the Group’s unaudited management accounts for the year ended 31 December 2006; (iii) the estimated growth of the transaction volume of the relevant 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; and (iv) in respect of the transactions contemplated under the Airline Services Agreements, the initial term of the Air China Airline Services Agreement will expire on 31 December 2008 whereas the Shenzhen Airlines Airline Services Agreement will expire on 31 December 2009. As stated in the Letter from the Board, the Annual Caps for the transactions contemplated under the Airline Services Agreements are calculated based on the compound annual growth of 30% for the respective transactions for the two years ending 31 December 2008 or (if applicable) three years ending 31 December 2009.

We have reviewed the transaction amount for the three years ended 31 December 2006 for the transactions contemplated under the Technology Services and Ancillary Support Agreement and the airline services agreement dated 21 December 2004 entered into between the Company and Shenzhen Airlines (or the predecessor agreement) and noted that the average compound annual growth rate between the period for the two years ended 31 December 2004 and between the period for the two years ended 31 December 2006 for the transactions contemplated under the Technology Services and Ancillary Support Agreement and the airline services agreement dated 21 December 2004 entered into between the Company and Shenzhen Airlines (or the predecessor agreement) was approximately 20%. Based on the sound market growth for the China’s aviation and travel industry as well as the increasing frequency of business trips, the relevant Annual Caps represent an embedded compound annual growth of approximately 30% for the transactions contemplated under the Airline Services Agreements for the Relevant Period.

To further assess the fairness and reasonableness of the relevant Annual Caps for the SITA Transactions, the Network Services Agreement and the Airline Services Agreements, we have conducted research on the China’s aviation and travel industry:

According to an article published by CAAC dated 10 March 2006, the number of air passengers traveling in the PRC is approximately 138 million in 2005, which is greater than the growth in 2000 of 105.7%, and that the compound annual growth rate of 15.5% for 2000-2005 has increased substantially than 1995-2000 of 5.6%. The Directors are of the view that the increase in business traveling and disposable income among the Chinese population and the change in spending patterns would trigger the money spent on transportation by Chinese consumers in the foreseeable future.

— 40 —

LETTER FROM CHINA MERCHANTS

According to the website of tdctrade.com from the TDC Business Info Centre, Air China is expected to purchase 24 of A320 planes which are expected to be delivered to China between 2007 and 2010, and will help to upgrade its carrying capacity and cement Beijing’s position as a communication hub. Moreover, China Aviation Supplies Corporation has ordered 150 of Airbus A320 planes, which will be distributed to Air China and Shenzhen Airlines amongst 4 other domestic airlines in the PRC.

In conjunction with the 2008 Olympic Games which will be held in Beijing, the traffic volumes are anticipated to outperform the market as more tourists visit the PRC in the coming year. In addition, a cut of 20% in the fuel surcharge on domestic flights due to a reduction in the wholesale price of aviation kerosene would trigger the demand for air traveling since the surcharge per air passenger on domestic flights will be reduced.

In view of the sound industry prospect, we consider that the annual growth of 20% and 30% of the Annual Caps for (i) the SITA Transactions and the Network Services Agreement for each of the three years ending 31 December 2009; and (ii) the Airline Services Agreements for each of the two years ending 31 December 2008 or (if applicable) three years ending 31 December 2009 respectively have been determined on a fair and reasonable basis and in the interests of the Company and its shareholders as a whole, taking into account a modest buffer to accommodate the possible fluctuation in the turnover of the Group.

(ii) Dongxingli Tenancy Agreement and Dongsi Tenancy Agreement

The Annual Caps of the transactions contemplated under the Dongxingli Tenancy Agreement and the Dongsi Tenancy Agreement above are determined by reference to the aggregate annual rental (including the property management fees) of RMB3.8 (equivalent to approximately HK$3.8) and RMB4.5 (equivalent to approximately HK$4.5) respectively payable by the Company under such agreements. As such, we are of the view that the Annual Caps for the transactions contemplated under the Dongxingli Tenancy Agreement and the Dongsi Tenancy Agreement have been determined on a fair and reasonable and in the interests of the Company and its shareholders as a whole.

— 41 —

LETTER FROM CHINA MERCHANTS

RECOMMENDATION

Having considered the abovementioned principal factors and reasons, we consider that: (i) the Non-exempt Continuing Connected Transactions are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and are in the interests of the Company and the Independent Shareholders as a whole; (ii) the contract durations of the SITA Telecommunication Services Agreement and the Dongxingli Tenancy Agreement, the Dongsi Tenancy Agreement of more than 3 years are commercially beneficial to the Company and are normal business practice for contracts of this type to be of such duration; (iii) the relevant Annual Caps of the Non-exempt Continuing Connected Transactions are fair and reasonable and in the interests of the Company and its shareholders as a whole; and (iv) it would be fair and reasonable for the Independent Shareholders to approve the Non-exempt Continuing Connected Transactions and the relevant Annual Caps. We therefore recommend that the Independent Board Committee advises the Independent Shareholders to vote in favour of the respective resolutions relating to the Non-exempt Continuing Connected Transactions and their respective Annual Caps at the EGM. We also recommend the Independent Shareholders to vote in favour of the respective resolutions relating to the Non-exempt Continuing Connected Transactions and their respective Annual Caps at the EGM.

Yours faithfully, For and on behalf of China Merchants Securities (HK) Co., Ltd. Tony Wu Executive Director

— 42 —

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.

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GENERAL INFORMATION

APPENDIX

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 the Directors, 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:

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

			Approximate	Approximate
			percentage of	Percentage of
		Class and no. of	respective class	total share
Name of shareholder	Capacity	securities	of share capital	capital
		(Note 1)
Templeton Asset Management Limited	Investment manager	26,988,000 H Shares	8.68%	3.04%
		of RMB1 each (L)
Matthews International	Investment manager	28,239,000 H Shares	9.08%	3.18%
Capital Management, LLC		of RMB1 each (L)
Platinum Asset Management Limited	Investment manager	4,324,876 H Shares	1.39%	0.49%
		of RMB1 each (L)
	Trustee (other than	14,407,050 H Shares	4.63%	1.62%
	a bare trustee)	of RMB1 each (L)
JPMorgan Chase & Co.	Investment manager	8,688,000 H Shares	2.79%	0.98%
		of RMB1 each (L)
	Custodian	13,047,000 H Shares	4.20%	1.46%
		of RMB1 each (L)
	(Note 2)	13,047,000 H Shares	4.20%	1.46%
		of RMB1 each
		(lending pool)
J.P.Morgan Fleming Asset	Investment manager	22,199,000 H Shares	7.14%	2.50%
Management (Asia) Inc.		of RMB1 each (L)

— 44 —

GENERAL INFORMATION

APPENDIX

J.P.Morgan Fleming Asset	Investment manager	22,199,000 H Shares	7.14%	2.50%
Management Holdings Inc.		of RMB1 each (L)
JF Asset Management Limited	Investment manager	22,199,000 H Shares	7.14%	2.50%
		of RMB1 each (L)
OppenheimerFunds, Inc.	Investment manager	42,467,220 H Shares	9.65%	4.78%
		of RMB1 each (L)	(Note 3)
		(Note 3)
China TravelSky Holding Company	Beneficial owner	198,496,500	34.38%	22.35%
		domestic Shares
		of RMB1 each (L)
China Southern Air Holding Company	Beneficial owner	116,460,500	20.17%	13.11%
		domestic Shares
		of RMB1 each (L)
China Eastern Air Holding Company	Beneficial owner	109,414,500	18.95%	12.32%
		domestic Shares
		of RMB1 each (L)
China National Aviation	Beneficial owner	89,433,500	15.49%	10.07%
Holding Company		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 JPMorgan Chase & Co..

3. Such information is extracted from the corporate substantial shareholder notice of OppenheimerFunds, Inc. filed on 6 December 2006 as shown on the website of the Stock Exchange. However, the number of H Shares held by OppenheimerFunds, Inc. stated in such notice was 42,467,220, which, if correct, represents approximately 13.66%, instead of 9.65% (as stated in such notice) of the total issued H shares of the Company as at the Latest Practicable Date. OppenheimerFunds Inc. had not filed any corporate substantial shareholder notice with the Company. The Company is also unable to ascertain the actual number of H Shares held by OppenheimerFunds Inc. from the register of members of the Company as none of the H Shares was registered in the name of OppenheimerFunds Inc. as at the Latest Practicable Date.

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GENERAL INFORMATION

APPENDIX

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 the Directors, 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
			percentage
Name of subsidiary	Name of shareholder	Registered Capital	of interest
Hainan Cares	China Southern Air Holding Company	RMB1,505,000	22.74%
	（中國南方航空集團公司）
Hubei Cares	Wuhan Tinhe Airport Limited	RMB625,000	12.50%
	（武漢天河機場有限責任公司）
Hubei Cares	Committee of labour union of Wubei Branch of	RMB625,000	12.50%
	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）
Hubei Cares	China Eastern Air Wuhan Limited	RMB625,000	12.50%
	（中國東方航空武漢有限責任公司）
Hubei Cares	Shenzhen Cares	RMB625,000	12.50%
Chongqing Cares	Air China	RMB2,401,000	24.50%
Chongqing Cares	Chongqing Airport (Group) Limited	RMB2,401,000	24.50%
	（重慶機場 （集團）有限公司）

— 46 —

GENERAL INFORMATION

APPENDIX

Yunnan Cares	China Eastern Airlines–Yunnan Company	RMB980,000	49.00%
	（中國東方航空雲南公司）
InfoSky	SITAGCH	US$1,372,000	49.00%
Xiamen Cares	Xiamen Airlines Company Limited	RMB1,140,000	28.50%
	（廈門航空有限公司）
Xiamen Cares	Xiamen International Aviation Company Limited	RMB820,000	20.50%
	（廈門國際航空港股份有限公司）
Qingdao Cares	Qingdao International Airport Company Limited	RMB720,000	36%
	（青島國際機場集團有限公司）
Qingdao Cares	Huadong Cares	RMB260,000	13%
Xi’an Cares	Shanxi Airport Management Group Company	RMB850,000	17%
	（陝西省機場管理集團公司）
Xi’an Cares	China Eastern Airlines-Northwest Company	RMB1,600,000	32%
	（中國東方航空西北公司）
Xinjiang Cares	China Southern Air Holding Company	RMB735,000	24.50%
	（中國南方航空集團公司）
Xinjiang Cares	Xinjiang Airport Group Company Limited	RMB735,000	24.50%
	（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 the Directors, 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.

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).

— 47 —

GENERAL INFORMATION

APPENDIX

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 2005, 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 China Merchants had any interest, direct or indirect, in any asset which had been since 31 December 2005, 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.

9. EXPERT

China Merchants is licensed under the SFO for type 1 (dealings in securities), type 2 (dealings in futures contracts), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities as defined under the SFO and is the independent financial adviser to the Independent Board Committee and the Independent Shareholders in connection with the the Non-exempt Continuing Connected Transactions and the relevant 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.

China Merchants 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, China Merchants 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.

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GENERAL INFORMATION

APPENDIX

10. GENERAL

The English text of this circular shall prevail over the Chinese text in case of inconsistency save that the Chinese text of the amendments to the Articles of Association shall prevail over the English text in case of inconsistency.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents 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:

• (i) The SITA Telecommunication Services Agreement;

• (ii) The Network Services Agreement;

• (iii) The Dongxingli Tenancy Agreement;

• (iv) The Dongsi Tenancy Agreement; and

• (v) The Airline Services Agreements.

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NOTICE OF EGM

==> picture [417 x 62] 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 Conference Room 1907, Floor 19, South Wing, Park C, Raycom InfoTech Park, No.2 Ke Xue Yuan South Road, Haidian District, Beijing, People’s Republic of China, at 10:00 a.m. on Wednesday, 25 April 2007 to consider and, if thought fit, pass with or without amendments, the following resolutions:

ORDINARY RESOLUTIONS

1. “ THAT :

• (a) the transactions contemplated under the agreement (“ SITA Telecommunication Services Agreement ”) dated 30 July 2004 (a copy of which has been produced to the meeting marked “A” and signed by the chairman of the meeting for the purpose of identification) and made between the Company and SITA (as defined in the circular (“ Circular ”) of the Company dated 7 March 2007 (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 the provision of the SITA Data Network Services (as defined in the Circular) by SITA to the Company and the payment of SITA Membership Fees (as defined in the Circular) (together with SITA Telecommunication Services Agreement, referred to as the “ SITA Transactions ”) by the Company to SITA, and

• (b) the Annual Caps (as defined in the Circular) for the SITA Transactions for the three years ending 31 December 2009 as shown in the Circular;

be and they are hereby approved and that the directors (“ 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 SITA Transactions and the other transactions contemplated thereby.”

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NOTICE OF EGM

1. “ THAT :

2. (a) the form and substance of the agreement (“ Network Services Agreement ”) dated 30 December 2006 (a copy of which has been produced to the meeting marked “C” and signed by the chairman of the meeting for the purpose of identification) and made between (1) the Company; (2) 雲 南航信空港網絡有限公司 (Yunnan TravelSky Airport Technology Limited); (3) 黑龍江航 信空港網絡有限公司 (Heilongjiang TravelSky Airport Technology Limited); (4) 大連航信 空港網絡有限責任公司 (Dalian TravelSky Airport Technology Limited); (5) 上海民航華東 凱亞系統集成有限公司 (Shanghai Civil Aviation East China Cares System Integration Co., Ltd.); (6) 上海東美在線旅行社有限公司 (Shanghai Dongmei Aviation Tourism Online Co., Ltd.); (7) 成都民航西南凱亞有限責任公司 (Aviation Cares of Southwest Chengdu, Ltd.); (8) TravelSky Technology (Hong Kong) Limited（中國民航信息網絡股份（香港）有限公司）; (9) TravelSky Technology (Singapore) Limited（中國民航信息網絡股份（新加坡）有限公司）; (10) TravelSky Technology (Japan) Limited （中國民航信息網絡股份（日本）有限公司）; (11) TravelSky Technology (Korea) Limited （中國民航信息網絡股份（韓國）有限公司）; (12) 天 信達信息技術有限公司 (InfoSky Technology Company Limited); (13) 青島民航凱亞系統 集成有限公司 (Civil Aviation Cares of Qingdao Limited); (14) 海南民航凱亞有限公司 (Hainan Civil Aviation Cares Co., Ltd.); (15) 湖北民航凱亞有限公司 (Cares Hubei Co., Ltd.); (16) 重慶民航凱亞信息技術有限公司 (Cares Chongqing Information Technology Co., Ltd.); (17) 雲南民航凱亞信息有限公司 (Aviation Cares of Yunnan Information Co., Ltd.); (18) 廈 門民航凱亞有限公司 (Civil Aviation Cares of Xiamen Ltd.); (19) 西安民航凱亞科技有限 公司 (Civil Aviation Cares of Xi’an Ltd.); (20) 新疆民航凱亞信息網絡有限責任公司 (Civil Aviation Cares Technology of Xinjiang Ltd.); (21) 瀋陽民航東北凱亞有限公司(Shenyang Civil Aviation Cares of Northeast China, Ltd.); and (22) 深圳民航凱亞有限公司 (Cares Shenzhen Co., Ltd.) in relation to, among other matters, the provision of services relating to the Company’s mainframe resources and connection with the Company’s network of data transmission equipment, terminals and printers etc. as more particularly set out in the Circular and all the transactions contemplated thereby; and

3. (b) the Annual Caps (as defined in the Circular) for the transactions contemplated under the Network Services Agreement for the three years ending 31 December 2009 as shown in the Circular,

be and they are hereby approved and that and that the Directors be and they are hereby authorised to take any step as they consider necessary, desirable or expedient in connection with the Network Services Agreement and the transactions contemplated thereby.”

1. “ THAT :

2. (a) the form and substance of the supplemental agreement dated 30 December 2006 to the agreement dated 18 October 2000 (including the supplemental agreements dated 31 December 2001, 18 April 2002 and 15 December 2004) (“ Dongxingli Tenancy Agreement ”) (a copy of which has been produced to the meeting marked “D” and signed by the chairman of the meeting for the purpose of identification) and made between China TravelSky Holding Company (“ CTHC ”) and the Company in relation to the leasing of an office building situated at No. 11 Dongxingli, No. 3 Happy Village, Chaoyang District, Beijing, the People’s Republic of China to the Company by CTHC and all the transactions contemplated thereby;

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NOTICE OF EGM

• (b) the form and substance of the supplemental agreement dated 30 December 2006 to the agreement dated 18 October 2000 (including the supplemental agreements dated 31 December 2001 and 15 December 2004) (“ Dongsi Tenancy Agreement ”) (a copy of which has been produced to the meeting marked “E” and signed by the chairman of the meeting for the purpose of identification) and made between CTHC and the Company in relation to the leasing of part of an office building situated at No. 155 Dongsi Western Street, Dongcheng District, Beijing, the People’s Republic of China to the Company by CTHC and all the transactions contemplated thereby; and

• (c) the Annual Caps (as defined in the Circular) for the transactions contemplated under the Dongxingli Tenancy Agreement and Dongsi Tenancy Agreement for the three years ending 31 December 2009 as shown in the Circular,

be and they are hereby approved and that the Directors be and they are hereby authorised to take any step as they consider necessary, desirable or expedient in connection with the Dongxingli Tenancy Agreement and Dongsi Tenancy Agreement and the transactions contemplated thereby.”

1. “ THAT :

2. (a) the form and substance of the agreement (“ Air China Airline Services Agreement ”) dated 1 December 2006 (a copy of which has been produced to the meeting marked “F” and signed by the chairman of the meeting for the purpose of identification) and made between the Company and 中國國際航空股份有限公司 (Air China Limited) (“ Air China ”) in relation to the provision of the Technology Services (as defined in the Circular) to Air China by the Group (as defined in the Circular) and all the transactions contemplated thereby; and

3. (b) the form and substance of the agreement (“ Shenzhen Airlines Airline Services Agreement ”) dated 23 January 2007 (a copy of which has been produced to the meeting marked “G” and signed by the chairman of the meeting for the purpose of identification) and made between the Company and 深圳航空有限責任公司 (Shenzhen Airlines Company Limited) (“ Shenzhen Airlines ”) relating to the provision of the Technology Services to Shenzhen Airlines by the Group and all the transactions contemplated thereby; and

4. (c) the Annual Caps (as defined in the Circular) for the transactions contemplated under the Air China Airline Services Agreement and Shenzhen Airlines Airline Services Agreement (collectively, the “ Airline Services Agreements ”) for the two years ending 31 December 2008 or, if appropriate, the three years ending 31 December 2009 as shown in the Circular,

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

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NOTICE OF EGM

SPECIAL RESOLUTIONS

1. “ THAT the shareholder 14 “Changan Air Industrial Co.” stated in the third paragraph of existing article 1 of the articles of association (“ Articles of Association ”) of the Company be amended to “Changan Air Company Limited” with effect upon registration and filing with the State Administration for Industry and Commerce. Following the aforesaid amendments, the third paragraph of existing article 1 of the Articles of Association be read as follows:

“The Company’s promoters are:

Shareholder 1: China TravelSky Holding Company Shareholder 2: China Southern Air Holding Company Shareholder 3: China Eastern Air Holding Company Shareholder 4: China Aviation Holding Corporation Shareholder 5: Air Greatwall Company Shareholder 6: Xiamen Airlines Limited Company Shareholder 7: Hainan Airlines Company Limited Shareholder 8: China Xinhua Airlines Company Limited Shareholder 9: Shenzhen Airlines Limited Shareholder 10: Shanghai Airlines Company Limited Shareholder 11: Shandong Airlines Company Limited Shareholder 12: Sichuan Air Group Company Shareholder 13: China Eastern Air Wuhan Company Limited Shareholder 14: Changan Air Company Limited Shareholder 15: Shanxi Air Industrial Company””

1. “ THAT the words “or invested” be added after the words “may establish controlled” in the first sentence of the first paragraph of the existing article 14 of the Articles of Association; and the words “or ‘Travelsky Airport’” be added after the words “and ‘Cares’” in the first paragraph of the existing article 14 of the Articles of Association. Following the aforesaid amendments, the first paragraph of Article 14 be read as follows:

“The Company may establish controlled or invested subsidiaries, branches, representative offices or other branch organisations based on its business requirements. Subsidiaries should be named with the abbreviation of Travelsky Technology Limited and the word(s) “Cares” or “Travelsky Airport”. Branches should be named with the full name of Travelsky Technology Limited.””

1. “ THAT the Articles of Association be and they are hereby altered in the following manner:

2. (a) Article 47 of the Articles of Association:

By deleting the words “50” from and substituting therefor the words “44” in the second paragraph of the existing article 47. Following the aforesaid amendments, the second paragraph of existing article 47 be read as follows:

“Applications for a reissuance of share certificate by domestic shareholders who lost the same shall be addressed pursuant to Article 144 of the Company Law.”

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NOTICE OF EGM

• (b) Article 56 of the Articles of Association:

By deleting the word “5%” and substituting therefor the word “3%” in clause (13) of the existing article 56. Following the aforesaid amendments, clause (13) of the existing article 56 be read as follows:

“(13) reviewing proposals from shareholders representing 3%, inclusive, or more of shares carrying the voting rights in the Company;”

By changing clause (14) of the existing article 56 into clause (15) of existing article 56; clause (14) of the existing article 56 shall be replaced by the sentence “reviewing matters regarding the acquisition or disposal of any major assets by the Company within one year, of which the amount exceeds 30% of the latest audited total assets of the Company”. Following the aforesaid amendments, clauses 14 and 15 of the existing article 56 be read as follows:

“(14) reviewing matters regarding the acquisition or disposal of any major assets by the Company within one year, of which the amount exceeds 30% of the latest audited total assets of the Company;

(15) such other matters which are subject to the approval by shareholders at the general meeting under the requirements as stipulated by laws, administrative rules and regulations and Articles of Association.”

• (c) Article 60 of the Articles of Association:

By deleting the existing Article 60 in its entirety and substituting therefor:

“When the Company convenes the general meeting, the Board of Directors, Supervisory Committee and shareholders individually or collectively holding more than 3% of the shares of the Company are entitled to propose new motions to the Company, and the Company shall include in the agenda such matters which are within the scope of the general meeting, clear issues for discussion and matters to be resolved which are in compliance with the requirements as stipulated by laws, administrative rules and regulations and this Articles of Association.

The motion shall be delivered to the Company within 30 days after the notice of the meeting has been issued. The convener shall issue a supplementary notice of the general meeting 2 working days after the motion has been received to announce the provisional motion, and may postpone the meeting if appropriate.

Save for the requirements under the preceding provision, the convener shall not amend such motions as stated in the notice of general meeting or add any new motion upon the issue of the announcement of the notice of general meeting.

Motions which are not included in the notice of general meeting or which do not meet the requirement of this article shall not be voted on and resolved at the general meeting.”

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NOTICE OF EGM

(d) Article 72 of Articles of Association:

By adding a new paragraph “The shares held by the Company do not carry any voting rights, and that part of the shares shall not be included in the total number of shares carrying voting rights and present at the general meeting.” as the second paragraph of the existing article 72.

(e) Article 78 of the Articles of Association:

By changing clause (5) of the existing Article 78 into clause (6) of the existing Article 78 and by deleting the words “considered and resolved by way of an ordinary resolution at the general meeting” and substituting therefor the sentence “approved by the way of an ordinary resolution at the general meeting, as are required by laws, administrative rules and regulations or this Articles of Association”; and by adding clause (5) of the existing article 78 the words “regarding the acquisition or disposal of any major asset or the guarantee given by the Company within one year, of which the amount exceeds 30% of the latest audited amount of total assets;”. Following aforesaid amendments, clauses (5) and (6) of the existing article 78 be read as follows:

“(5) Matters regarding the acquisition or disposal of any major asset or the guarantee given by the Company within one year, of which the amount exceeds 30% of the latest audited amount of total assets;

(6) Such other matters provided by the laws, administrative rules and regulations or this Articles of Association and considered to have material impact over the Company at the general meeting in the manner of ordinary resolution and need to be approved by special resolution.”

(f) Article 81 of the Articles of Association:

By deleting the sentences “A general meeting shall be convened and chaired by the Chairman of the Board. If failing him for any reasons, the Vice Chairman shall convene and preside at the meeting as chairman, or failing them, the Board of Directors may designate a director of the Company to convene and preside over the meeting as chairman on their behalf;” from the existing article 81 and substituting therefor the following as first and second paragraphs of the existing article 81:

“The general meeting shall be convened by the Board and chaired by the Chairman of the Board. In the event the Chairman is unable to perform his/her duties or does not perform his/her duties, the Vice Chairman shall chair the meeting; in the event the Vice Chairman is unable to perform his/her duties or does not perform his/her duties, a director elected by a majority of the directors shall chair the meeting.

In the event that the Board fails to perform or does not perform its duty to convene the general meeting, the Supervisory Committee shall convene and chair such meeting on timely basis; in the event that the Supervisory Committee fails to or does not convene and preside over a general meeting, shareholders individually or collectively holding more than 10% of the Company’s shares for more than 90 consecutive days may convene and preside over the meeting on a unilateral basis.”

The words and sentences retained in the existing article 81 will be changed accordingly as the third paragraph of the existing article 81.

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NOTICE OF EGM

• (g) Article 95 of the Articles of Association:

By adding the following sentence immediately after the last sentence of the first paragraph of the existing article 95: “If, upon the expiry of a director’s term of office, a new director cannot be elected on a timely basis, or the resignation of any director during term of office causes the number of directors to fall below the minimum statutory quorum of directors, such director shall continue to perform his/her duties under the requirements as stipulated by laws, administrative rules and regulations and this Articles of Association until a new director is elected and assumes his/her office.”

• (h) Article 99 of the Articles of Association:

• (i) By deleting the sentences “Where any urgent matter arises, an extraordinary board meeting can be convened upon the requisition of the Chairman or two directors or the manager of the Company, and shall not be restricted by Article 100 regarding the notice of the meeting.” from the first paragraph of the existing article 99 and substituting therefor the sentences “shareholders holding more than one-tenth of the shares carrying voting rights, or more than one-third of the Board of Directors or the Supervisory Committee may propose to convene an extraordinary board meeting and shall not be restricted by Article 100 regarding the notice of meeting. Chairman shall convene and preside over the extraordinary board meeting within ten days upon receipt of the request.” Following the aforesaid amendments, the first paragraph of the existing article 99 be read as “At least two board meetings shall be convened by the Chairman in a year. Notice shall be given to all directors 10 days in advance of the relevant meeting. Shareholders holding more than one-tenth of the shares carrying voting rights, or more than one-third of the Board of Directors or the Supervisory Committee may propose to convene an extraordinary board meeting and shall not be restricted by Article 100 regarding the notice of meeting. Chairman shall convene and preside over the extraordinary board meeting within ten days upon receipt of the request.”

• (ii) By adding the words “Where there is no further notification,” immediately before “the board meeting will be held at the premises of the Company” in the second paragraph of the existing article 99. Following the aforesaid amendments, the second paragraph of the existing article 99 be read as “Where there is no further notification, the board meeting will be held at the premises of the Company.”

• (i) Article 102 of the Articles of Association:

• (i) By deleting the words “In the event the number of votes for and against are equal, the Chairman is entitled to cast a vote” in the existing article 102 and substituting therefor the sentence “Each director shall have one vote in voting on resolutions of the board meeting”

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NOTICE OF EGM

• (ii) By adding a new paragraph “In the event that a director is connected to companies associated with matters to be resolved at the board meeting, such director shall not exercise his/her voting rights on such resolution, nor shall he/she votes on behalf of other directors. The board meeting may be convened with a majority of the independent directors. Resolutions shall be approved by a majority of independent directors at the board meeting. When there is less than three independent directors present at the board meeting, such matters shall be submitted to the general meeting for consideration.” as the second paragraph to the existing article 102.

• (j) Article 117 of the Articles of Association:

• (i) By deleting the word “eight” from the first paragraph of the existing article 117 and substituting therefor the word “nine”; deleting the “.” at the end of the first paragraph of the existing article 117 and substituting therefor the sentence “; the number of staff representative supervisors shall not be less than one-third of the total number of supervisors.” Following the aforesaid amendments, the first paragraph of the existing article 117 be read as follows:

“The Supervisory Committee shall comprise 9 members. External supervisors (being supervisors not internally employed by the Company, similarly thereinafter) shall account for more than one-half of the number of members of the Supervisory Committee, of which more than one independent supervisors (being supervisors independent from the shareholders of the Company and not internally employed by the Company, similarly thereinafter); the number of staff representative supervisors shall not be less than onethird of the total number of supervisors.”

• (ii) By deleting the second and third paragraphs from the existing article 117 and substituting therefor the following paragraphs:

“The term of office for supervisors is three years and shall be eligible for re-election. If supervisors are not re-elected before the expiry of their terms of office or resignations of supervisors during the terms of office cause the number of supervisors to fall below the minimum statutory quorum of supervisors, the current supervisors shall continue to perform their duties according to the laws, administrative rules and regulations and this Articles of Association until new supervisors are elected and assume their office.

The Supervisory Committee shall appoint a Chairman and a Vice Chairman. The Chairman and Vice Chairman of the Supervisory Committee are appointed and removed on election by a majority of supervisors.”

• (iii) By adding the following sentences at the end of the fourth paragraph of the existing article 117: “In the event that the Chairman of the Supervisory Committee fails to perform or does not perform his/her duties, the Vice Chairman of the Supervisory Committee shall convene and preside over meeting of the Supervisory Committee. In the event that the Vice Chairman of the Supervisory Committee fails to perform or does not perform his/ her duties, a supervisor elected by a majority of supervisors shall convene and preside over meeting of the Supervisory Committee.”

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NOTICE OF EGM

• (k) Article 118 of the Articles of Association:

By deleting the first paragraph of the existing article 118 and substituting therefor the following:

“Members of Supervisory Committee comprise: external supervisors (i.e., shareholder representative supervisors and independent supervisors), and staff representative supervisors who are representatives of staff of the Company. Shareholder representative supervisors and independent supervisors shall be elected and removed by general meeting; staff representative supervisors shall be elected and removed by staff representative meeting of the Company or other democratic elections.”

• (l) Article 121 of the Articles of Association:

• (i) By deleting clause (2) of the existing article 121 and substituting therefor the sentences “to supervise conducts of the Company’s directors and senior management during the performance of their duties, and shall make recommendations for removal of directors and senior management for any violation of the laws, administrative rules and regulations, this Articles of Association or resolutions of general meetings;”

• (ii) By adding the sentences “ to convene and preside over general meetings when the Board fails to perform its duties in convening and presiding over general meetings in accordance with this Articles of Association; to make proposals to the general meetings;” immediately after the sentence “suggest to convene an extraordinary general meeting” in clause (5) of the existing article 121.

• (iii) By adding the words “and senior management” immediately after the word “directors” in clause (6) of the existing article 121. Following the aforesaid amendments, clause (6) of the existing article 121 be read as follows: “to negotiate with the directors and senior management on behalf of the Company or initiate litigation against the directors and senior management;”

• (m) Article 122 of the Articles of Association:

By adding a new paragraph “The Supervisory Committee shall cause decisions made during the meeting to be reduced to minutes of meetings, and attending supervisors shall sign on the minutes of meetings.” as the second paragraph to the existing article 122.

• (n) Article 151 of the Articles of Association:

• (i) By adding the following as the first paragraph of the existing article 151:

  • “The profit after taxation of the Company shall be appropriated in the following order:

  • (1) Compensation of loss;

  • (2) Appropriation of statutory surplus reserve;

  • (3) Appropriation of discretionary surplus reserve;

  • (4) Payment of dividend for ordinary shares.”

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NOTICE OF EGM

• (ii) By changing the first paragraph of the existing article 151 into second paragraph of the existing article 151 and by deleting the sentence “, and the Company shall appropriate 5% to 10% of the profit into the Company’s statutory welfare reserve”. Following the aforesaid amendments, the second paragraph of the existing article 151 be read as follows: “When distribution is made out of the after-tax profits for the current year, the Company shall appropriate 10% of the profit to the Company’s statutory surplus reserve. No further appropriation of the Company’s statutory surplus reserve will be required when the accumulated fund in statutory surplus reserve exceeds 50% of the Company’s registered capital.”

• (iii) By changing the second paragraph of the existing article 151 into the third paragraph of the existing article 151 and by deleting the sentence “and statutory welfare reserve” therefrom. Following the aforesaid amendments, the third paragraph of the existing article 151 be read as follows: “If the Company’s statutory surplus reserve is insufficient to make up for losses from the previous year, the profits in the current year must be applied to make up for such losses before making any appropriation of the statutory surplus reserve as mentioned in the preceding clause.”

• (iv) By deleting the third and fourth paragraphs of the existing article 151 and by adding the sentence “Appropriation of the Company’s statutory surplus reserve and its proportion and the distribution of dividend shall be formulated by the Board of Directors based on the operating and business requirements of the Company and subject to the approval by the general meeting.” as the fourth paragraph of the existing article 151.

• (o) Article 152 of the Articles of Association:

By deleting the words “and welfare reserve” from the existing article 152. Following the aforesaid amendments, article 152 be read as follows: “The Company shall not allocate dividends or make any other allocations by way of bonus prior to its making up for any loss and appropriation of the statutory surplus reserve.”

• (p) Article 155 of the Articles of Association:

By deleting the existing article 155 in its entirety and by substituting therefor the following:

“Dividend will be distributed to shareholders according to their shareholding, while the shares of the Company held by the Company are not entitled to profit distribution.”

• (q) Article 160 of the Articles of Association:

By deleting the existing article 160 in its entirety and the numbering of the Articles of Association will be changed accordingly.”

The above is the English translation of the Chinese version of the proposed amendments to the Articles of Association. Should there be any inconsistencies between the English version and the Chinese version, the Chinese version shall prevail.

By order of the Board TravelSky Technology Limited Zhu Yong Chairman

Beijing, the People’s Republic of China, 7 March 2007

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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. The register of members of the Company will be closed from 26 March 2007 to 25 April 2007 (both days inclusive), during which no share transfers will be effected. Holders of the Company’s H shares and domestic shares whose names appear on the register of members of the Company at the close of business on 23 March 2007 are entitled to attend the EGM. Transfer documents of the Company’s H shares must be lodged with the Company’s branch share registrar in Hong Kong at or before 4:00 p.m. on 23 March 2007 to entitle the transferee to attend the EGM.

2. 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. A proxy need not be a member of the Company.

3. 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 EGM or adjournment thereof.

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

5. 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 4 April 2007 personally or by mail or fax.

6. Since the transactions referred to in resolutions no. 1 to 4 constitute 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 aforesaid resolutions proposed at the EGM will be voted on a poll pursuant to Rule 13.39(4) of the Listing Rules.

7. As at the date of this notice, the board of the Directors comprises:

Chairman: Mr Zhu Yong; Executive Directors: Mr Zhu Xiaoxing, Mr Ding Weiping and Mr Song Jinxiang; Non-executive Directors: Mr Wang Quanhua, Mr Cao Jianxiong, Mr Gong Guokui, Mr Rong Gang, Mr Sun Yongtao, Mr Liu Dejun, Mr Xia Yi and Mr Song Jian; Independent non-executive Directors: Mr Chow Kwok Wah, James, Mr Yick Wing Fat, Simon

Mr Chow Kwok Wah, James, Mr Yick Wing Fat, Simon and Mr Yuan Yaohui.

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