TravelSky Technology Limited - Proxy Solicitation & Information Statement 2009

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 appropriate independent 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.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim 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 AND NOTICE OF EGM

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

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A letter from the Board is set out on pages 1 to 31 of this circular. A letter from the Independent Board Committee is set out on page 32 of this circular. A letter from China Merchants containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 33 to 54 of this circular.

A notice convening the EGM to be held at Conference Room of the Company, 8/F, No. 157, Dongsi West Street, Dongcheng District, Beijing, the People’s Republic of China at 11:00 a.m. on Wednesday, 30 December 2009 is set out on pages 59 to 64 of this circular. Whether or not you intend to be present at the EGM, you are requested to complete and return the same 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 (in case of holders of H shares) or the registered office of the Company at Floor 18-20, South Wing, Park C, Raycom InfoTech Park, No. 2 Ke Xue Yuan South Road, Haidian District, Beijing, the People’s Republic of China (in case of holders of domestic shares), 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.

13 November 2009

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . .	32
LETTER FROM CHINA MERCHANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
APPENDIX — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	55
NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	59

— i —

DEFINITIONS

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

“ACCA” Accounting Centre of China Aviation Limited Company（中國航空結算有限責任公司）, a wholly-owned subsidiary of the Company
“Air China” Air China Limited（中國國際航空股份有限公司） “Air China Transactions” the continuing connected transactions between the Group and Air China in relation to the provision of technology services, revenue accounting systems development and support services and passenger and cargo revenue accounting and settlement services as set out in this circular
“Annual Cap(s)” the expected maximum aggregate annual amount of the Continuing Connected Transactions for each of the three years ending 31 December 2012, as set out in the paragraph headed “Annual Caps” in this circular
“Articles” 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
“Board” the board of Directors “CAAC” Civil Aviation Administration of China（中國民用航空局）, the administrative authority in the civil aviation industry in the PRC
“Changan Airlines” Changan Airlines Limited（長安航空有限責任公司）, a Promoter with a shareholding of 0.08% in the Company
“China Merchants” China Merchants Securities (HK) Co., Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders and a corporation licensed to carry on Type 1 (dealing in securities), Type 2 (dealing 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 Airlines” Chongqing Airlines Company Limited（重慶航空有限公司）

— ii —

DEFINITIONS

“Chongqing Cares”
Cares Chongqing Information Technology Co., Ltd.（重慶民航凱亞信息技術有限公司）

“Company”

TravelSky Technology Limited, a company incorporated under the laws of the PRC whose shares are listed on the Main Board of the Stock Exchange and whose American depositary shares are traded on the over-the-counter market in the United States of America

“connected person(s)”

has the same meaning as ascribed to it under the Listing Rules

“Connected Service Companies”
Huadong Cares, Shanghai Cares, Xinan Cares, Qingdao Cares, Hainan Cares, Hubei Cares, Chongqing Cares, Yunan Cares, Xiamen Cares, Xi’an Cares, Xinjiang Cares, Dongbei Cares, Shenzhen Cares and Guangzhou Airport which are the connected persons of the Company under Chapter 14A of the Listing Rules
“Continuing Connected Transactions” (i) the continuing connected transactions under the Waiver, including Air China Transactions, Southern Airlines Transactions, Lucky Airlines Transactions, Shandong Airlines Transactions, Eastern Airlines Transactions, Macau Airlines Transactions, Xiamen Airlines Transactions, Hainan Airlines Transactions; (ii) the transactions between the Company and the Connected Service Companies contemplated under the New Network Services Agreement; and (iii) the Sichuan Airlines Transactions
“Director(s)” the director(s) of the Company
“Dongbei Cares” Shenyang Civil Aviation Cares of Northeast China, Ltd.（瀋陽民航東北凱亞有限公司）
“Eastern Airlines” China Eastern Airlines Corporation Limited（中國東方航空股份有限公司）, a Promoter with a shareholding of 0.27% in the Company
“Eastern Airlines Transactions” the continuing connected transactions between ACCA and Eastern Airlines in relation to the provision of revenue accounting systems development and support services and passenger and cargo revenue accounting and settlement services as set out in this circular
“Eastern Holding” China Eastern Air Holding Limited（中國東方航空集團公司）, a Promoter with a shareholding of 11.22% in the Company and thus a substantial shareholder of the Company
“Eastern Wuhan” China Eastern Airlines Wuhan Company Limited（中國東方航空武漢有限責任公司）, a Promoter with a shareholding of 0.13% in the Company and a subsidiary of Eastern Holding

— iii —

DEFINITIONS

“EGM”	extraordinary general meeting of the Company to be held on
	Wednesday, 30 December 2009 for the purpose of approving (i) a
	general mandate with a three-year term ending 31 December 2012
	in order to continue the continuing connected transactions under the
	Waiver; and (ii) the Continuing Connected Transactions and the
	Annual Caps, and the notice of which is set out on pages 59 to 64
	of this circular
“Group”	the Company and its subsidiaries, including ACCA
“Guangzhou Airport”	Guangzhou Airport AirSpan Information Technology Co. Ltd.（廣州
	空港航翼信息科技有限公司）
“Hainan Airlines”	Hainan Airlines Company Limited（海南航空股份有限公司）, a
	Promoter with a shareholding of 1.13% in the Company
“Hainan Airlines Transactions”	the continuing connected transactions between ACCA and Hainan
	Airlines in relation to the provision of interline data exchange services
	as set out in this circular
“Hainan Cares”	Hainan Civil Aviation Cares Co., Ltd.（海南民航凱亞有限公司）
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Huadong Cares”	Shanghai Civil Aviation East China Cares System Integration Co.,
	Ltd.（上海民航華東凱亞系統集成有限公司）
“Hubei Cares”	Cares Hubei Co., Ltd.（湖北民航凱亞有限公司）
“Independent Board Committee”	the independent board committee of the Company established by the
	Company which comprises Yick Wing Fat, Simon, Yuan Yaohui and
	Chua Keng Kim to advise the Independent Shareholders in respect
	of the Continuing Connected Transactions and the Annual Caps
“Independent Shareholders”	the shareholders of the Company who are not required to abstain
	from voting in respect of the relevant Continuing Connected
	Transactions at the EGM
“Independent Third Parties”	third parties independent of the Company and the connected persons
	of the Company
“Latest Practicable Date”	9 November 2009, being the latest practicable date prior to the
	printing of this circular for the purpose of ascertaining certain
	information for inclusion in this circular

— iv —

DEFINITIONS

“Listing Rules”	the Rules Governing the Listing of Securities on the Stock Exchange
“Lucky Airlines”	Yunnan Lucky Airlines Company Limited（雲南祥鵬航空有限責任
	公司）
“Lucky Airlines Transactions”	the continuing connected transactions between the Company and
	Lucky Airlines in relation to the provision of technology services as
	set out in this circular
“Macau Airlines”	Air Macau Company Limited（澳門航空股份有限公司）
“Macau Airlines Transactions”	the continuing connected transactions between ACCA and Macau
	Airlines in relation to the provision of passenger and cargo revenue
	accounting and settlement services as set out in this circular
“Major Promoters”	Southern Holding, Eastern Holding, National Aviation Holding,
	Xiamen Airlines, Eastern Airlines and Eastern Wuhan
“Minority Promoters”	Changan Airlines, Xinhua Airlines, Hainan Airlines and Shandong
	Airlines
“National Aviation Holding”	China National Aviation Holding Company（中國航空集團公司）, a
	Promoter with a shareholding of 9.17% in the Company
“New Network Services Agreement”	the framework agreement entered into between the Company and 25
	Service Companies in relation to network services on 4 November
	2009
“PRC”	the People’s Republic of China and, for the purpose of this circular,
	excludes the Macau Special Administrative Region and the Hong
	Kong Special Administrative Region
“Promoter”	promoter of the Company
“Qingdao Cares”	Civil Aviation Cares of Qingdao Limited（青島民航凱亞系統集成
	有限公司）
“RMB”	Renminbi, the lawful currency of the PRC
“Service Company(ies)”	the companies which entered into the New Network Services
	Agreement with the Company on 4 November 2009 and details of
	such companies are set out in this circular

— v —

DEFINITIONS

“SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Shandong Airlines” Shandong Airlines Company Limited（山東航空股份有限公司）, a Promoter with a shareholding of 0.45% in the Company
“Shandong Airlines Transactions” the continuing connected transactions between the Group and Shandong Airlines in relation to the provision of technology services, revenue accounting systems development and support services and passenger and cargo revenue accounting and settlement services as set out in this circular
“Shanghai Airlines” Shanghai Airlines Co., Ltd.（上海航空股份有限公司） “Shanghai Airlines Transactions” the transactions between ACCA and Shanghai Airlines in relation to the provision of revenue accounting systems development and support services and passenger and cargo revenue accounting and settlement services as set out in this circular
“Shanghai Cares” Shanghai Dongmei Aviation Tourism Online Co., Ltd.（上海東美在線旅行社有限公司）
“Shareholder(s)” shareholder(s) of the Company “Shenzhen Airlines” Shenzhen Airlines Company Limited（深圳航空有限責任公司）, a Promoter with a shareholding of 0.64% in the Company
“Shenzhen Cares” Cares Shenzhen Co., Ltd.（深圳民航凱亞有限公司） “Sichuan Airlines” Sichuan Airlines Company Limited（四川航空股份有限公司） “Sichuan Airline the agreement dated 26 January 2005 and entered into between the Services Agreement” Company and Sichuan Airlines in relation to the provision of technology services by the Company to Sichuan Airlines for an initial term of three years up to 1 January 2008, which had been extended by two one-year terms up to 31 December 2009 as agreed between the Company and Sichuan Airlines on 14 November 2007 and 30 December 2008 as disclosed earlier, and which will be further extended for one year up to 31 December 2010 as agreed between the Company and Sichuan Airlines on 9 November 2009
“Sichuan Airlines Transactions” the transactions contemplated under the Sichuan Airline Services Agreement

— vi —

DEFINITIONS

“Sichuan Group” Sichuan Air Group Company（四川航空集團公司）, a Promoter with a shareholding of 0.18% in the Company
“Southern Airlines” China Southern Airlines Company Limited（中國南方航空股份有限公司）
“Southern Airlines Transactions” the continuing connected transactions between the Company, Southern Airlines, Xiamen Airlines and Chongqing Airlines in relation to the provision of technology services to Southern Airlines, Xiamen Airlines and Chongqing Airlines as set out in this circular
“Southern Holding” China Southern Air Holding Company（中國南方航空集團公司）, a Promoter with a shareholding of 11.94% in the Company and thus a substantial shareholder of the Company
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“substantial shareholder” has the same meaning as ascribed to it under the Listing Rules
“Supervisor(s)” the supervisor(s) of the Company
“Waiver” a waiver granted by the Stock Exchange from strict compliance with the requirement of having written agreements under Rule 14A.35(1) of the Listing Rules with respect to Air China Transactions, Southern Airlines Transactions, Lucky Airlines Transactions, Shandong Airlines Transactions, Eastern Airlines Transactions, Macau Airlines Transactions, Xiamen Airlines Transactions and Hainan Airlines Transactions. Such waiver is for a three-year term commencing from the expiry of the respective terms of the existing transactions above
“Xiamen Airlines” Xiamen Airlines Company Limited（廈門航空有限公司）, a Promoter with a shareholding of 2.25% in the Company and a subsidiary of Southern Holding
“Xiamen Airlines Transactions” the continuing connected transactions between ACCA and Xiamen Airlines in relation to the provision of interline data exchange services as set out in this circular
“Xiamen Cares” Civil Aviation Cares of Xiamen Ltd.（廈門民航凱亞有限公司） “Xi’an Cares” Civil Aviation Cares of Xi’an Ltd.（西安民航凱亞科技有限公司）

— vii —

DEFINITIONS

“Xinan Cares”	Aviation Cares of Southwest Chengdu, Ltd.（成都民航西南凱亞有
	限責任公司）
“Xinhua Airlines”	China Xinhua Airlines Company Limited（中國新華航空有限責任
	公司）, a Promoter with a shareholding of 0.78% in the Company
“Xinjiang Cares”	Civil Aviation Cares Technology of Xinjiang Ltd.（新疆民航凱亞信
	息網絡有限責任公司）
“Yunnan Cares”	Aviation Cares of Yunnan Information Co., Ltd.（雲南民航凱亞信
	息有限公司）
“2006 Network Services	the framework agreement entered into between the Company and 21
Agreement”	Service Companies in relation to network services on 30 December
	2006
“%”	per cent.

For the purpose of this circular, unless otherwise indicated, the exchange rate at HK$1= RMB0.88 has 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.

— viii —

LETTER FROM THE BOARD

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(Stock Code: 0696)

Directors: Xu Qiang (Chairman) Cui Zhixiong Xiao Yinhong Wang Quanhua[#] Luo Chaogeng[#] Cao Guangfu[#] Yick Wing Fat, Simon[##] Yuan Yaohui[##] Chua Keng Kim[##]

Registered office:

Floor 18-20, South Wing, Park C Raycom InfoTech Park No. 2 Ke Xue Yuan South Road Haidian District, Beijing 100190 the PRC

# Non-executive Directors
## Independent non-executive Directors

13 November 2009

To the Shareholders

Dear Sir/Madam

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF EGM

1. BACKGROUND

As set out in the Company’s announcements dated 4 November 2009 and 9 November 2009, the Directors proposes to seek (i) a general mandate with a three-year term ending 31 December 2012 from the Independent Shareholders in order to continue the continuing connected transactions under the Waiver, and (ii) the Independent Shareholders’ approval for the Continuing Connected Transactions in relation to the New Network Services Agreement and the Sichuan Airline Services Agreement and the respective Annual Caps at the EGM.

— 1 —

LETTER FROM THE BOARD

The purposes of this circular are to provide you with, among other things, (i) further details of the Continuing Connected Transactions; (ii) a letter of advice from China Merchants to the Independent Board Committee and the Independent Shareholders on the Continuing Connected Transactions and the Annual Caps; (iii) the recommendation of the Independent Board Committee regarding the Continuing Connected Transactions and the Annual Caps to the Independent Shareholders; and (iv) a notice of the EGM.

2. CONTINUING CONNECTED TRANSACTIONS

I. Continuing Connected Transactions under the Waiver

Reference is made to the announcement of the Company dated 2 September 2009 relating to the grant by the Stock Exchange of a waiver from strict compliance with the requirement of having written agreements under Rule 14A.35(1) of the Listing Rules with respect to certain continuing connected transactions between the Group on the one part and the Major Promoters, the Minority Promoters and/or their respective associates on the other part. The Waiver is for a three-year term commencing from the expiry of the respective terms of the existing continuing connected transactions.

Details of the continuing connected transactions under the Waiver are set out below:

(a) Provision of Technology Services

Parties: Service provider:

The Company

Service recipients:

(1) Air China
(2) Southern Airlines (including Xiamen Airlines and Chongqing Airlines)
(3) Lucky Airlines
(4) Shandong Airlines

— 2 —

LETTER FROM THE BOARD

Term:

1 January 2010 to 31 December 2012

Services:

The scope of technology services consists of the following: -

(i) flight control system services which provide, among other services, the consolidated information, flight formation, flight control, flight tickets sales, automatic tickets sales and announcement of freight price;
(ii) electronic travel distribution system services which provide, among other services, flight information display, real-time flight reservation, automatic ticket sales, tickets price display and other travel-related services;
(iii) airport passenger processing system services which provide check-in, boarding and load planning services; and
(iv) civil aviation and commercial data network services which provide, among other services, the network transmission services and connection services.

Service fees:

The service fees for the technology services are currently determined in accordance with the existing pricing schedule prescribed by CAAC, which is same as the one disclosed in the Company’s prospectus dated 29 January 2001.

In accordance with CAAC’s pricing schedule, depending on the types of system through which the transactions are processed, a per passenger booking fee is payable for domestic routes ranging from RMB4.5 to RMB6.5 depending on the monthly booking volume and for international and regional routes ranging from RMB6.5 to RMB7.

— 3 —

LETTER FROM THE BOARD

In addition, the service fees include (i) fees for each boarding passenger handled by the airport passenger processing system up to maximum allowable price of RMB7 for international and regional routes and up to a maximum of allowable price of RMB4 for domestic routes depending on the types of the route, volume, level of services etc, (ii) load balancing fees for each flight handled by the airport passenger processing system up to maximum allowable price of RMB500 depending on the size of the aircraft, and (iii) fees for using the Company’s data network services such as physical identified device (“PID”) connection fees and maintenance fees depending on type and quantity of equipment at the rate prescribed by CAAC.

The service fees shall be calculated on a monthly basis and shall be paid within 30 days after receipt of the invoice by cash. The invoice shall be issued by the Company on the 20th day of each month for the amount charged for the immediately preceding month.

(b) Provision of (i) Revenue Accounting Systems Development and Support Services and (ii) Passenger and Cargo Revenue Accounting and Settlement Services

Parties:

Service provider:

ACCA

Service recipients:

(1) Eastern Airlines (2) Air China (3) Macau Airlines

(4) Shandong Airlines

Term: 1 January 2010 to 31 December 2012

— 4 —

LETTER FROM THE BOARD

Services:

The scope of revenue accounting systems development and support services consists of the provision of computer system application development and support services including self-developed computer application systems in respect of both international and domestic passengers revenue accounting system, international and domestic cargo revenue accounting system, mail revenue accounting system, airport miscellaneous charges accounting system, data service system, international and domestic clearing and settlement system.

The scope of passenger and cargo revenue accounting and settlement services consists of the provision of data capturing, sales reporting control, sales auditing, prorating, uplift processing, outward and inward billing, coupon matching, accounting, reconciliation and management reporting services for passenger and cargo (as the case may be) revenue accounting and settlement services.

Service fees:

Charge rates of revenue accounting systems development and support services are determined by negotiation with reference to the costs and specifications of the relevant type of services provided and varies depending on the transaction volume (i.e. the higher the transaction volume, the lower the rate). The rates of unit price for international and domestic passengers revenue accounting system development and support services are no more than RMB1.65 and RMB0.6 respectively. The rates of unit price for international and domestic cargo revenue accounting system development and support services are no more than RMB5.2 and RMB1.8 respectively.

The fees of passenger and cargo revenue accounting and settlement services are determined by negotiation with reference to the rates and rules prescribed in the relevant document issued by the CAAC. The prices of the provision of the services are based on the calculation of (i) the transaction volume times unit price ranging from RMB0.15 to RMB6 and (ii) the percentage rate of the total accounting amount ranging from 0.3% to 3%.

— 5 —

LETTER FROM THE BOARD

(c) Provision of interline data exchange services

Parties: Service provider: ACCA Service recipients: (1) Xiamen Airlines (2) Hainan Airlines Term: 1 January 2010 to 31 December 2012 Services: The scope of interline data exchange services consists of the provision of services which include receiving interline outward billing data from various airline companies, identifying the airlines to be charged for receipt of such services (“ Billed Airlines ”), consolidating the data from all of the airline companies on behalf of the Billed Airlines and delivering the data to such Billed Airlines.

Service fees: A fixed annual service fee of RMB120,000.

II. THE NEW NETWORK SERVICES AGREEMENT

Date: 4 November 2009 Parties: (a) The Company Service Companies:

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

— 6 —

LETTER FROM THE BOARD

(d) Dalian TravelSky Airport Technology Limited（大連航信空港網絡有限責任公司）
(e) Hebei TravelSky Airport Technology Limited（河北航信空港網路有限公司）
(Companies (b) to (e) are associated companies of the Company. Company (b) is owned as to 40% by the Company and each of companies (c) to (e) is owned as to 50% by the Company. The remaining interests in companies (b) to (e) are owned by Independent Third Parties.)
(f) TravelSky Technology (Hong Kong) Limited（中國民航信息網絡股份（香港）有限公司）
(g) TravelSky Technology (Singapore) Limited（中國民航信息網絡股份（新加坡）有限公司）
(h) TravelSky Technology (Japan) Limited（中國民航信息網絡股份（日本）有限公司）
(i) TravelSky Technology (Korea) Limited（中國民航信息網絡股份（韓國）有限公司）
(j) InfoSky Technology Company Limited（天信達信息技術有限公司）
(k) Shanghai TravelSky Information Technology Limited（上海民航信息科技有限公司）
(l) Guangzhou TravelSky Information Technology Limited（廣州民航信息技術有限公司）
(Companies (f) to (l) are wholly owned subsidiaries of Company)
(m) Huadong Cares
(n) Shanghai Cares
(o) Xinan Cares
(p) Qingdao Cares

— 7 —

LETTER FROM THE BOARD

(q) Hainan Cares (r) Hubei Cares (s) Chongqing Cares (t) Yunnan Cares (u) Xiamen Cares (v) Xi’an Cares (w) Xinjiang Cares (x) Dongbei Cares (y) Shenzhen Cares

(z) Guangzhou Airport (Companies (m) to (z) are collectively referred to as the “ Connected Service Companies ”)

Term: From 1 January 2010 to 31 December 2012, renewable automatically for a successive term of three years commencing from the date of the expiry of such term, if no written opposition raised by either party three months in advance.

Services: The Service Companies shall (i) establish, operate and maintain regional network nodes, facilities and connections to the network and systems of the Company in their respective regions and serve 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, the installation of equipment, maintenance, technical support and other network services; (ii) provide technical services to the users of the Company’s aviation information technology systems in respect of the Company’s nationwide data network; (iii) provide marketing and distribution services for the products of the Company; and (iv) provide technology development services ((iii) and (iv) are collectively referred to as the “ Additional Services ”) .

— 8 —

LETTER FROM THE BOARD

The Company shall lease the major equipment required for the network node for use by the Service Companies and shall be responsible for the design of network configuration layout, installation, testing and maintenance of the equipment according to the needs of the Service Companies.

Service fees:

The basis of service fees are generally determined: (i) according to the rates prescribed by the government regulatory bodies (such as CAAC) where the services are regulated by the government regulatory bodies; (ii) through negotiation between the Company and the respective Service Companies with reference to guide prices proposed by the government regulatory bodies; (iii) through negotiation between the Company and the respective Service Companies based on the prevailing market prices (if any) or the previous prescribed rates or guide prices, or on a cost basis, where no prescribed rates or guide prices are available, or they have been cancelled or are no longer applicable.

With respect to connection to the Company’s network and system, the Service Companies shall pay (i) connection fees on a monthly basis in cash for connection to the Company’s network based on the usage with reference to the rates prescribed by CAAC; (ii) PID technical service fees on a monthly basis in cash based on the usage with reference to the rates prescribed by CAAC; and (iii) technical service fees on a monthly basis in cash for connection to the Company’s mainframe via the Internet and use of the products of the Company based on the usage at the rates prescribed by the Company or according to separate agreements to be entered into between the Company and the respective Service Companies on each product.

With respect to equipment leasing and maintenance, (i) the Service Companies shall pay equipment lease fees (if any) on a cost basis or at the prevailing market prices or according to separate agreements to be entered into between the Company and the respective Service Companies; and (ii) the Company shall pay the equipment maintenance fees on a cost basis or at the prevailing market prices or according to separate agreements to be entered into between the Company and the respective Service Companies.

— 9 —

LETTER FROM THE BOARD

With respect to marketing and distribution of services and products of the Company, (i) the Company shall pay for technical support services provided by the Service Companies to the users of the Company (if any) and such fees may be determined according to separate agreements to be entered into between the Company and the respective Service Companies; and (ii) the Company shall pay market services fees at an agreed price based on the transaction volume processed by the Service Companies on the e-commerce system platform and the Service Companies shall pay system processing fees based on the agreed prices or according to separate agreements to be entered into between the Company and the respective Service Companies; and (iii) the Company shall share the revenue from e- ticketing services with the Service Companies on a pro-rata basis according to market prevailing prices or pursuant to separate agreements to be entered into between the Company and the respective Service Companies; and (iv) the Company shall pay service fees for distribution of hotel services on a pro-rata basis or pursuant to separate agreements to be entered into between the Company and the respective Service Companies.

With respect to technology development services, the Company shall pay technology development service fees (if any) for engaging the professional personnel from the Service Companies for provision of, amongst others, product development services and such fees may be determined according to a separate agreements to be entered into between the Company and the respective Service Companies.

— 10 —

LETTER FROM THE BOARD

III. THE SICHUAN AIRLINE SERVICES AGREEMENT

The Company has been providing certain technology services to Sichuan Airlines under the Sichuan Airline Services Agreement. The existing term of the Sichuan Airline Services Agreement will expire on 31 December 2009. Having been satisfied with the existing good working relationship, the Company and Sichuan Airlines have reached an agreement on 9 November 2009 to renew the Sichuan Airline Services Agreement for a further term up to 31 December 2010 upon the expiry of the existing term on 31 December 2009.

Details of the Sichuan Airline Services Agreement are set out below :

Parties: Service provider :

The Company

Service recipients :

Sichuan Airlines

Term : 1 January 2010 to 31 December 2010

Services :

The same as those described in the section headed “I. Continuing Connected Transactions under the Waiver — (a) Provision of Technology Services” above.

Service fees : The same as those described in the section headed “I. Continuing Connected Transactions under the Waiver — (a) Provision of Technology Services” above.

— 11 —

LETTER FROM THE BOARD

3. HISTORICAL TRANSACTION RECORDS

Set out below is a summary of the aggregated amounts of the Continuing Connected Transactions for the two years ended 31 December 2008 and eight months ended 31 August 2009:

	Respective types
	of Continuing
	Connected
	Transactions
	with reference
	to the section
	headed “Continuing
	Connected			Eight
	Transactions”	Year ended 31 December		months ended
	above	2007	2008	31 August 2009
Air China Transactions	I(a)	RMB241,469,000	RMB239,727,000	RMB125,168,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$274 million)	HK$272 million)	HK$142 million)
	I(b)	RMB48,032,000	RMB46,321,000	RMB27,829,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$55 million)	HK$53 million)	HK$32 million)
Southern Airlines	I(a)	RMB347,507,000	RMB336,495,000	RMB181,126,000
Transactions		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$395 million)	HK$382 million)	HK$206 million)
Lucky Airlines Transactions	I(a)	—	RMB8,697,000	RMB9,264,000
			(equivalent to	(equivalent to
			approximately	approximately
			HK$10 million)	HK$11 million)

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LETTER FROM THE BOARD

Shandong Airlines	I(a)	RMB33,668,000	RMB33,427,000	RMB18,291,000
Transactions		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$38 million)	HK$38 million)	HK$21 million)
	I(b)	RMB2,886,000	RMB2,891,000	RMB1,920,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$3 million)	HK$3 million)	HK$2 million)
Eastern Airlines Transactions	I(b)	RMB53,506,000	RMB49,349,000	RMB29,186,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$61 million)	HK$56 million)	HK$33 million)
Shanghai Airlines Transactions	I(b)	RMB8,710,000	RMB10,627,000	RMB4,803,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$10 million)	HK$12 million)	HK$5 million)
Macau Airlines Transactions	I(b)	RMB9,530,000	RMB7,941,000	RMB3,751,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$11 million)	HK$9 million)	HK$4 million)
Xiamen Airlines Transactions	I(c)	RMB120,000	RMB120,000	RMB80,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$136,000)	HK$136,000)	HK$91,000)
Hainan Airlines Transactions	I(c)	RMB120,000	RMB120,000	RMB80,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$136,000)	HK$136,000)	HK$91,000)

— 13 —

LETTER FROM THE BOARD

Transactions with Huadong	II	RMB848,000	RMB3,633,000	RMB11,439,000
Cares under the 2006		(equivalent to	(equivalent to	(equivalent to
Network Services Agreement		approximately	approximately	approximately
		HK$1 million)	HK$4 million)	HK$13 million)
Transactions with Shanghai	II	—	—	—
Cares under the 2006
Network Services Agreement
Transactions with Xinan Cares	II	RMB1,459,000	RMB5,375,000	RMB3,772,000
under the 2006 Network		(equivalent to	(equivalent to	(equivalent to
Services Agreement		approximately	approximately	approximately
		HK$2 million)	HK$6 million)	HK$4 million)
Transactions with Qingdao	II	RMB723,000	RMB777,000	RMB514,000
Cares under the 2006		(equivalent to	(equivalent to	(equivalent to
Network Services Agreement		approximately	approximately	approximately
		HK$1 million)	HK$1 million)	HK$1 million)
Transactions with Hainan	II	RMB1,430,000	RMB2,087,000	RMB1,353,000
Cares under the 2006		(equivalent to	(equivalent to	(equivalent to
Network Services Agreement		approximately	approximately	approximately
		HK$2 million)	HK$2 million)	HK$2 million)
Transactions with Hubei Cares	II	RMB4,076,000	RMB3,883,000	RMB3,077,000
under the 2006 Network		(equivalent to	(equivalent to	(equivalent to
Services Agreement		approximately	approximately	approximately
		HK$5 million)	HK$4 million)	HK$3 million)
Transactions with Chongqing	II	RMB1,263,000	RMB1,251,000	RMB838,000
Cares under the 2006		(equivalent to	(equivalent to	(equivalent to
Network Services Agreement		approximately	approximately	approximately
		HK$1 million)	HK$1 million)	HK$1 million)
Transactions with Yunnan Cares	II	RMB2,380,000	RMB2,390,000	RMB1,608,000
under the 2006 Network		(equivalent to	(equivalent to	(equivalent to
Services Agreement		approximately	approximately	approximately
		HK$3 million)	HK$3 million)	HK$2 million)

— 14 —

LETTER FROM THE BOARD

Transactions with Xiamen	II	RMB4,228,000	RMB2,176,000	RMB1,359,000
Cares under the 2006		(equivalent to	(equivalent to	(equivalent to
Network Services Agreement		approximately	approximately	approximately
		HK$5 million)	HK$2 million)	HK$2 million)
Transactions with Xi’an Cares	II	RMB2,850,000	RMB2,679,000	RMB2,290,000
under the 2006 Network		(equivalent to	(equivalent to	(equivalent to
Services Agreement		approximately	approximately	approximately
		HK$3 million)	HK$3 million)	HK$3 million)
Transactions with Xinjiang	II	RMB2,973,000	RMB2,655,000	RMB1,891,000
Cares under the 2006		(equivalent to	(equivalent to	(equivalent to
Network Services Agreement		approximately	approximately	approximately
		HK$3 million)	HK$3 million)	HK$2 million)
Transactions with Dongbei	II	RMB4,369,000	RMB3,987,000	RMB2,694,000
Cares under the 2006		(equivalent to	(equivalent to	(equivalent to
Network Services Agreement		approximately	approximately	approximately
		HK$5 million)	HK$5 million)	HK$3 million)
Transactions with Shenzhen	II	RMB10,319,000	RMB9,695,000	RMB6,812,000
Cares under the 2006		(equivalent to	(equivalent to	(equivalent to
Network Services Agreement		approximately	approximately	approximately
		HK$12 million)	HK$11 million)	HK$8 million)
Transactions with Guangzhou	II	—	—	—
Airport under the 2006
Network Services Agreement
Sichuan Airlines Transactions	III	RMB68,420,000	RMB68,071,000	RMB40,843,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$78 million)	HK$77 million)	HK$46 million)

— 15 —

LETTER FROM THE BOARD

4. ANNUAL CAPS

Set out below is a summary of the Annual Caps for the Continuing Connected Transactions proposed for the three years ending 31 December 2012:

	Respective types
	of Continuing
	Connected
	Transactions
	with reference
	to the section
	headed “Continuing
	Connected
	Transactions”	Year	ending 31 December
	above	2010	2011	2012
Air China Transactions	I(a)	RMB345,207,000	RMB414,248,000	RMB497,098,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$392 million)	HK$471 million)	HK$565 million)
	I(b)	RMB66,702,000	RMB80,043,000	RMB96,051,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$76 million)	HK$91 million)	HK$109 million)
Southern Airlines Transactions	I(a)	RMB484,553,000	RMB581,463,000	RMB697,756,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$551 million)	HK$661 million)	HK$793 million)
Lucky Airlines Transactions	I(a)	RMB25,047,000	RMB30,057,000	RMB36,068,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$28 million)	HK$34 million)	HK$41 million)

— 16 —

LETTER FROM THE BOARD

Shandong Airlines Transactions	I(a)	RMB48,135,000	RMB57,762,000	RMB69,314,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$55 million)	HK$66 million)	HK$79 million)
	I(b)	RMB4,163,000	RMB4,996,000	RMB5,995,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$5 million)	HK$6 million)	HK$7 million)
Eastern Airlines Transactions	I(b)	RMB86,365,000	RMB103,639,000	RMB124,366,000
(taking into account the		(equivalent to	(equivalent to	(equivalent to
estimated amounts of		approximately	approximately	approximately
the Shanghai Airlines		HK$98 million)	HK$118 million)	HK$141 million)
Transactions)
Macau Airlines Transactions	I(b)	RMB11,435,000	RMB13,722,000	RMB16,466,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$13 million)	HK$16 million)	HK$19 million)
Xiamen Airlines Transactions	I(c)	RMB120,000	RMB120,000	RMB120,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$136,000)	HK$136,000)	HK$136,000)
Hainan Airlines Transactions	I(c)	RMB120,000	RMB120,000	RMB120,000
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$136,000)	HK$136,000)	HK$136,000)
Transactions with Huadong	II	RMB37,138,000	RMB44,566,000	RMB53,479,000
Cares under the New		(equivalent to	(equivalent to	(equivalent to
Network Services Agreement		approximately	approximately	approximately
		HK$42 million)	HK$51 million)	HK$61 million)

— 17 —

LETTER FROM THE BOARD

Transactions with	II	RMB280,000	RMB336,000	RMB403,000
Shanghai Cares under		(equivalent to	(equivalent to	(equivalent to
the New Network		approximately	approximately	approximately
Services Agreement		HK$0.3 million)	HK$0.4 million)	HK$0.5 million)
Transactions with	II	RMB26,510,000	RMB31,812,000	RMB38,174,000
Xinan Cares under		(equivalent to	(equivalent to	(equivalent to
the New Network		approximately	approximately	approximately
Services Agreement		HK$30 million)	HK$36 million)	HK$43 million)
Transactions with	II	RMB4,840,000	RMB5,808,000	RMB6,970,000
Qingdao Cares under		(equivalent to	(equivalent to	(equivalent to
the New Network		approximately	approximately	approximately
Services Agreement		HK$6 million)	HK$7 million)	HK$8 million)
Transactions with	II	RMB3,672,000	RMB4,406,000	RMB5,288,000
Hainan Cares under		(equivalent to	(equivalent to	(equivalent to
the New Network		approximately	approximately	approximately
Services Agreement		HK$4 million)	HK$5 million)	HK$6 million)
Transactions with	II	RMB6,229,000	RMB7,475,000	RMB8,970,000
Hubei Cares under		(equivalent to	(equivalent to	(equivalent to
the New Network		approximately	approximately	approximately
Services Agreement		HK$7 million)	HK$8 million)	HK$10 million)
Transactions with	II	RMB2,470,000	RMB2,964,000	RMB3,557,000
Chongqing Cares under		(equivalent to	(equivalent to	(equivalent to
the New Network		approximately	approximately	approximately
Services Agreement		HK$3 million)	HK$3 million)	HK$4 million)
Transactions with	II	RMB4,211,000	RMB5,053,000	RMB6,064,000
Yunnan Cares under		(equivalent to	(equivalent to	(equivalent to
the New Network		approximately	approximately	approximately
Services Agreement		HK$5 million)	HK$6 million)	HK$7 million)

— 18 —

LETTER FROM THE BOARD

Transactions with	II	RMB3,802,000	RMB4,562,000	RMB5,475,000
Xiamen Cares under		(equivalent to	(equivalent to	(equivalent to
the New Network		approximately	approximately	approximately
Services Agreement		HK$4 million)	HK$5 million)	HK$6 million)
Transactions with	II	RMB4,619,000	RMB5,543,000	RMB6,651,000
Xi’an Cares under		(equivalent to	(equivalent to	(equivalent to
the New Network		approximately	approximately	approximately
Services Agreement		HK$5 million)	HK$6 million)	HK$8 million)
Transactions with	II	RMB4,232,000	RMB5,078,000	RMB6,094,000
Xinjiang Cares under		(equivalent to	(equivalent to	(equivalent to
the New Network		approximately	approximately	approximately
Services Agreement		HK$5 million)	HK$6 million)	HK$7 million)
Transactions with	II	RMB6,611,000	RMB7,933,000	RMB9,520,000
Dongbei Cares under		(equivalent to	(equivalent to	(equivalent to
the New Network		approximately	approximately	approximately
Services Agreement		HK$8 million)	HK$9 million)	HK$11 million)
Transactions with	II	RMB15,257,000	RMB18,308,000	RMB21,970,000
Shenzhen Cares under		(equivalent to	(equivalent to	(equivalent to
the New Network		approximately	approximately	approximately
Services Agreement		HK$17 million)	HK$21 million)	HK$25 million)
Transactions with	II	RMB1,000,000	RMB1,200,000	RMB1,440,000
Guangzhou Airport under		(equivalent to	(equivalent to	(equivalent to
the New Network		approximately	approximately	approximately
Services Agreement		HK$1 million)	HK$1 million)	HK$2 million)
Sichuan Airlines Transactions	III	RMB98,022,000	—	—
		(equivalent to
		approximately
		HK$111 million)

— 19 —

LETTER FROM THE BOARD

5. BASIS OF THE ANNUAL CAPS FOR THE CONTINUING CONNECTED TRANSACTIONS

(a) Provision of technology services

(b) Provision of (i) revenue accounting systems development and support services and (ii) passenger and cargo revenue accounting and settlement services

The Annual Caps are determined with reference to (i) the historical transaction amounts of such type of transactions between the Group and the connected persons for the year ended 31 December 2008 and the eight months ended 31 August 2009; (ii) an estimated annual increase of 20% in the level of service and scope of services provided by the Group taking into account of the future growth rate of aviation industry and the historical growth of airlines’ business in the recent years. In respect of the Eastern Airlines Transactions, the Annual Caps have taken into account the historical transaction amounts involving Shanghai Airlines in view of the absorption of Shanghai Airlines by Eastern Airlines to be expected in the near future.

(c) Provision of interline data exchange services

The Annual Caps are determined based on the fixed amount of annual service fee charged under the previous agreements. It is expected that there will be no major change in the level of service fee for the period from 2010 to 2012.

(d) Provision of network services

The Annual Caps are determined with reference to (i) the historical transaction amounts of the transactions with the Connected Service Companies under the 2006 Network Services Agreement for the year ended 31 December 2008 and the eight months ended 31 August 2009; and (ii) the Additional Services to be provided under the New Network Services Agreement other than those provided under the 2006 Network Services Agreement; and (iii) the estimated annual growth rate of 20% in the transaction volume of the existing and additional services taking into account of the anticipated growth of the PRC’s aviation and travel industry as well as the increasing frequency of business trips.

— 20 —

LETTER FROM THE BOARD

The Directors (other than the independent non-executive Directors whose opinion is set out in the “Letter from the Independent Board Committee” in this circular) believe that the Annual Caps are fair and reasonable in so far as the Company and the shareholders of the Company are concerned. The Independent Board Committee will give their recommendations, after taking into account the advice of the independent financial adviser, in their letter to the Independent Board Committee and the Independent Shareholders to be included in the Company’s circular.

6. REASONS FOR AND BENEFITS OF THE CONTINUING CONNECTED TRANSACTIONS

The Group is principally engaged in provision of aviation information technology services in the PRC as well as provision of accounting, settlement and clearing services and information system development and support services to domestic and worldwide airline companies.

ACCA, which has become a wholly owned subsidiary of the Company since 3 March 2009, is principally engaged in the provision of accounting, settlement and clearing services and information system development and support services to commercial airlines and other aviation companies.

The provision of the various services as described in the section headed “I. Continuing Connected Transactions under the Waiver” and “III. Sichuan Airline Services Agreement” are in the ordinary and usual course of business of the Group. The Group will receive service fees for provision of such services and thus such transactions will increase the total revenue of the Group.

The Company entered into the 2006 Network Services Agreement with 21 Service Companies on 30 December 2006. The existing term of such agreement will expire on 31 December 2009. The Company therefore entered into the New Network Services Agreement with 25 Service Companies on 4 November 2009. The Service Companies are companies established by the Company and other parties for distributing the products of the Company and provide better services to customers in different regions.

The Directors (other than the independent non-executive Directors whose opinion is set out in the “Letter from the Independent Board Committee” in this circular) are of the view that the Continuing Connected Transactions are conducted in the ordinary and usual course of business of the Group and on normal commercial terms, and the terms of the Continuing Connected Transactions and the Annual Caps are fair and reasonable and in the interests of the Company and the shareholders of the Company as a whole.

— 21 —

LETTER FROM THE BOARD

7. INFORMATION ABOUT THE CONNECTED COUNTERPARTIES

Air China

Air China is a subsidiary of National Aviation Holding, which is a Promoter of the Company, and is therefore a connected person of the Company under Rule 14A.11(4) of the Listing Rules. Air China (together with its subsidiaries) is principally engaged in the provision of air passenger, air cargo and airline-related services in the PRC.

Southern Airlines

Southern Airlines is a subsidiary of Southern Holding, which is a Promoter and a substantial shareholder of the Company, and is therefore a connected person of the Company under Rule 14A.11(4) of the Listing Rules. Southern Airlines is principally engaged in the provision of domestic, Hong Kong and Macau and international passenger, cargo and mail airline services. It is also a company listed on the Main Board of the Stock Exchange.

Xiamen Airlines

Xiamen Airlines is a Promoter and a subsidiary of Southern Airlines and thus a connected person of the Company under Rule 14A.11(3) of the Listing Rules. Its principal business activity is civil aviation in the PRC.

Chongqing Airlines

Chongqing Airlines is a subsidiary of Southern Airlines and thus a connected person of the Company under Rule 14A.11(4) of the Listing Rules. Its principal business activity is civil aviation in the PRC.

Lucky Airlines

Both Hainan Airlines and Lucky Airlines are subsidiaries of Da Xin Hua Airlines Limited（大新華航空有限公司）. Lucky Airlines is an associate of Hainan Airlines and thus a connected person of the Company under Rule 14A.11(4) of the Listing Rules. Lucky Airlines is principally engaged in the operation of civil aviation.

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LETTER FROM THE BOARD

Shandong Airlines

Shandong Airlines is a Promoter and thus a connected person of the Company under Rule 14A.11(3) of the Listing Rules. Shandong Airlines is principally engaged in airline operation in the PRC.

Eastern Airlines

Eastern Airlines is a subsidiary of Eastern Holding, which is a Promoter and a substantial shareholder of the Company, and is therefore a connected person of the Company under Rule 14A.11(4) of the Listing Rules. Eastern Airlines is a company listed on the Main Board of the Stock Exchange and is principally engaged in the operation of civil aviation, including the provision of passenger, cargo, mail delivery and other extended transportation services.

Macau Airlines

Macau Airlines is a subsidiary of Air China, which is a subsidiary of National Aviation Holding (a Promoter), and is therefore a connected person of the Company under Rule 14A.11(4) of the Listing Rules. Its principal business activity is civil aviation.

Hainan Airlines

Hainan Airlines is a Promoter and thus a connected person of the Company under Rule 14A.11(3) of the Listing Rules. It is principally engaged in airline operation in the PRC.

Sichuan Airlines

Sichuan Airlines is owned as to 40% by Sichuan Group, 39% by Southern Airlines, 10% by Shanghai Airlines, 10% by Shandong Airlines and 1% by an independent third party. By virtue of being an associate of Southern Airlines, which is a subsidiary of Southern Holding (being a Promoter), Sichuan Airlines is therefore a connected person of the Company under Rule 14A.11(4) of the Listing Rules.

Connected Service Companies

The Connected Service Companies comprising Huadong Cares, Shanghai Cares, Xinan Cares, Qingdao Cares, Hainan Cares, Hubei Cares, Chongqing Cares, Yunnan Cares, Xiamen Cares, Xi’an Cares, Xinjiang Cares, Dongbei Cares, Shenzhen Cares and Guangzhou Airport are connected persons of the Company for the following reasons:

(a) Huadong Cares is owned as to 41% by the Company, 41% by Eastern Airlines (a Promoter) and 18% by Shanghai International Airport Company Limited（上海國際機場股份有限公司）. As an associate of a Promoter, Huadong Cares is a connected person of the Company under Rule 14A.11(4) of the Listing Rules. Huadong Cares is principally engaged in provision of computer software and hardware development and data network services.

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LETTER FROM THE BOARD

(b) Shanghai Cares is owned as to 50% by the Company and 50% by Shanghai Dongmei Aviation Travel Limited（上海東美航空旅遊有限公司）, which is a subsidiary of Eastern Holding (a Promoter). As an associate of a Promoter, Shanghai Cares is a connected person of the Company under Rule 14A.11(4) of the Listing Rules. Shanghai Cares is principally engaged in e- commerce, sales of computers and related parts and provision of network and technical services and economic information consultation services.
(c) Xinan Cares is owned as to 44% by the Company, 35% by Air China, 16% by Sichuan Airport Group Limited（四川省機場集團有限公司）and 5% by Sichuan Group. Air China is a subsidiary of National Aviation Holding which is a Promoter. As an associate of a Promoter, Xinan Cares is a connected person of the Company under Rule 14A.11(4) of the Listing Rules. Xinan Cares is principally engaged in provision of computer software and hardware development and data network services.
(d) Qingdao Cares is a non-wholly owned subsidiary of the Company owned as to 51% by the Company, 36% by Qingdao International Airport Company（青島國際機場集團有限公司）and 13% by Huadong Cares. Huadong Cares is owned as to 41% by Eastern Airlines which is a Promoter. Qingdao Cares is therefore a connected person of the Company pursuant to Rule 14A.11(5) of the Listing Rules. Qingdao Cares is principally engaged in provision of computer software and hardware development and data network services.
(e) Hainan Cares is a non-wholly owned subsidiary of the Company owned as to 64.78% by the Company, 22.74% by Southern Holding (a Promoter), 4.16% by Air China, a subsidiary of National Aviation Holding (a Promoter), 4.16% by Hainan Airlines (a Promoter) and 4.16% by China Eastern Airlines Northwest Company（中國東方航空西北公司）, a branch company of Eastern Airlines which is a subsidiary of Eastern Holding (a Promoter). Hainan Cares is therefore a connected person of the Company pursuant to Rule 14A.11(5) of the Listing Rules. Hainan Cares is principally engaged in provision of electronic travel distribution and cargo management services, and sale and installation of the related information systems.
(f) Hubei Cares is a non-wholly owned subsidiary of the Company owned as to 50% by the Company, 12.50% by Shenzhen Cares (a non-wholly owned subsidiary of the Company), 12.5% by Eastern Wuhan (a Promoter), 12.50% by the committee of labour union of China Southern Airlines Company Limited（中國南方航空股份有限公司湖北分公司工會委員會）, 12.50% by Wuhan Tianhe Airport Limited（武漢天河機場有限責任公司）. Hubei Cares is therefore a connected person of the Company pursuant to Rule 14A.11(5) of the Listing Rules. Hubei Cares is principally engaged in provision of electronic travel distribution, airport passenger processing and cargo management services, and sale and installation of the related information systems.

— 24 —

LETTER FROM THE BOARD

(g) Chongqing Cares is a non-wholly owned subsidiary of the Company owned as to 51% by the Company, 24.50% by Air China which is a subsidiary of National Aviation Holding (a Promoter), and 24.50% by Chongqing Airport Group Limited（重慶機場（集團）有限公司）. Chongqing Cares is therefore a connected person of the Company pursuant to Rule 14A.11(5) of the Listing Rules. Chongqing Cares is principally engaged in provision of electronic travel distribution, airport passenger processing and cargo management services, and sale and installation of the related information systems.
(h) Yunnan Cares is a non-wholly owned subsidiary of the Company owned as to 51% by the Company and 49% by China Eastern Airlines-Yunnan Company（中國東方航空雲南公司）, a wholly-owned subsidiary of Eastern Airlines (a Promoter) which is a subsidiary of Eastern Holding (a Promoter). As an associate of a Promoter, Yunnan Cares is a connected person of the Company under Rule 14A.11(4) of the Listing Rules. Yunnan Cares is principally engaged in provision of computer software and hardware development and data network services.
(i) Xiamen Cares is a non-wholly owned subsidiary of the Company owned as to 51% by the Company, 28.5% by Xiamen Airlines (a Promoter), and 20.5% by Xiamen International Aviation Company Limited（廈門國際航空港股份有限公司）. Xiamen Cares is therefore a connected person of the Company pursuant to Rule 14A.11(5) of the Listing Rules. Xiamen Cares is principally engaged in provision of computer software and hardware development and data network services.
(j) Xi’an Cares is a non-wholly owned subsidiary of the Company owned as to 51% by the Company, 32% by China Eastern Airlines Northwest Company（中國東方航空西北公司） which is a branch company of Eastern Airlines, and 17% by China West Airport Group（西部機場集團）. Eastern Airlines (a Promoter) is a subsidiary of Eastern Holding which is a Promoter. Xi’an Cares is therefore a connected person of the Company pursuant to Rule 14A.11(5) of the Listing Rules. Xi’an Cares is principally engaged in provision of computer software and hardware development and data network services.
(k) Xinjiang Cares is a non-wholly owned subsidiary of the Company owned as to 51% by the Company, 24.5% by Xinjiang Airport Group Company Limited（新疆機場集團有限責任公司）, and 24.5% by Southern Holding (a Promoter). Xinjiang Cares is therefore a connected person of the Company pursuant to Rule 14A.11(5) of the Listing Rules. Xinjiang Cares is principally engaged in provision of computer software and hardware development and data network services.

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LETTER FROM THE BOARD

(l) Dongbei Cares is owned as to 46% by the Company, 42% by Southern Holding (a Promoter), and 12% by Liaoning Airport Management Group Company（遼寧省機場管理集團公司）. As an associate of a Promoter, Dongbei Cares is a connected person of the Company under Rule 14A.11(4) of the Listing Rules. Dongbei Cares is principally engaged in provision of computer software and hardware development and data network services.
(m) Shenzhen Cares is a non-wholly owned subsidiary of the Company owned as to 61.47% by the Company, 5.59% by Southern Holding (a Promoter), 5.59% by Air China, a subsidiary of National Aviation Holding (a Promoter), 5.59% by Xinhua Airlines, 5.59% by Shenzhen Airlines (a Promoter), 5.59% by Shenzhen Airport Company Limited（深圳市機場股份有限公司）, 5.59% by China Southern Airlines (Group) Shenzhen Company（中國南方航空（集團）深圳公司）, a subsidiary of Southern Holding (a Promoter) and 5.00% by Sichuan Group. Shenzhen Cares is therefore a connected person of the Company pursuant to Rule 14A.11(5) of the Listing Rules. Shenzhen Cares is principally engaged in provision of electronic travel distribution and cargo management services, and sale and installation of the related information systems.
(n) Guangzhou Airport is owned as to 20% by the Company, 39% by Southern Airlines which is a subsidiary of Southern Holding (a Promoter) and 41% by Guangdong Airport Management Corporation（廣東省機場管理集團公司）. As an associate of a Promoter, Guangzhou Airport is a connected person of the Company under Rule 14A.11(4) of the Listing Rules. Guangzhou Airport is principally engaged in provision of computer software and hardware development and technical consulting services.

— 26 —

LETTER FROM THE BOARD

8. IMPLICATIONS UNDER THE LISTING RULES

The Company proposes to seek a general mandate with a three-year term ending 31 December 2012 from the Independent Shareholders in order to continue the continuing connected transactions under the Waiver that have their existing terms expiring on 31 December 2009 but will continue after such date. In the event that the terms of the new written agreements are materially different from those being approved by the Independent Shareholders, the Company will re-comply with the reporting, announcement and/or independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Since the assets ratio and the revenue ratio with reference to the largest Annual Caps for the transactions with the Connected Service Companies under the New Network Services Agreement in aggregate exceeds 2.5%, the New Network Services Agreement is subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Since the revenue ratio with reference to the Annual Cap for the Sichuan Airline Services Agreement exceeds 2.5%, the Sichuan Airline Services Agreement is subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Company has established the Independent Board Committee to advise the Independent Shareholders as to whether the Continuing Connected Transactions are (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms; and (iii) fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the shareholders of the Company as a whole, and whether the Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the shareholders of the Company as a whole. The Independent Board Committee has been formed to advise the Independent Shareholders on how to vote at the EGM on the resolutions in respect of the Continuing Connected Transactions and the Annual Caps, after taking into account the recommendations of the independent financial adviser.

— 27 —

LETTER FROM THE BOARD

9. THE EGM

The EGM will be held at Conference Room of the Company, 8/F, No. 157, Dongsi West Street, Dongcheng District, Beijing, the PRC at 11:00 a.m. on 30 December 2009 to consider and, if thought fit, approve, among other matters, the transactions contemplated under the Continuing Connected Transactions and the Annual Caps. Notice of the EGM is set out on pages 59 to 64 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 such meetings, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to the Registrar at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong (in case of holders of H shares) or the Company’s registered office at Floor 18-20, South Wing, Park C, Raycom InfoTech Park, No. 2 Ke Xue Yuan South Road, Haidian District, Beijing, the PRC (in case of holders of domestic shares of the Company), 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.

10. VOTING ARRANGEMENTS

Voting at the EGM will be conducted by poll. Pursuant to the Listing Rules, shareholders with a material interest in the Continuing Connected Transactions and their respective associates shall abstain from voting on the relevant resolution(s). The table below sets out the shareholders of the Company who will abstain from voting on the resolutions to consider and approve the general mandate in respect of the continuing connected transactions under the Waiver, the New Network Services Agreement and/ or the Sichuan Airline Services Agreement:

Transactions

Shareholders of the Company to abstain from voting

Air China Transactions

National Aviation Holding
(holding 178,867,000 shares in the Company representing
about 9.17% of the total issued share capital of the Company)
Shandong Airlines
(holding 8,697,000 shares in the Company representing

about 0.45% of the total issued share capital of the Company)

— 28 —

LETTER FROM THE BOARD

Southern Airlines Transactions	— Southern Holding
	(holding 232,921,000 shares in the Company representing
	about 11.94% of the total issued share capital of the Company)
	— Xiamen Airlines
	(holding 43,849,000 shares in the Company representing
	about 2.25% of the total issued share capital of the Company)
Lucky Airlines Transactions	— Hainan Airlines
	(holding 22,100,000 shares in the Company representing
	about 1.13% of the total issued share capital of the Company)
	— Xinhua Airlines
	(holding 15,119,000 shares in the Company representing
	about 0.78% of the total issued share capital of the Company)
	— Changan Airlines
	(holding 1,599,000 shares in the Company representing
	about 0.08% of the total issued share capital of the Company)
Shandong Airlines Transactions	— Shandong Airlines
Eastern Airlines Transactions	— Eastern Airlines
	(holding 5,317,000 shares in the Company representing
	about 0.27% of the total issued share capital of the Company)
	— Eastern Holding
	(holding 218,829,000 shares in the Company representing
	about 11.22% of the total issued share capital of the Company)
	— Eastern Wuhan
	(holding 2,600,000 shares in the Company representing
	about 0.13% of the total issued share capital of the Company)
Macau Airlines Transactions	— National Aviation Holding
	— Shandong Airlines
Xiamen Airlines Transactions	— Southern Holding
	— Xiamen Airlines
Hainan Airlines Transactions	— Hainan Airlines
	— Xinhua Airlines
	— Changan Airlines

— 29 —

LETTER FROM THE BOARD

New Network Services — Southern Holding Agreement — Eastern Holding — National Aviation Holding — Xiamen Airlines — Eastern Airlines — Eastern Wuhan — Shenzhen Airlines (holding 12,480,000 shares in the Company representing about 0.64% of the total issued share capital of the Company) — Xinhua Airlines — Hainan Airlines — Sichuan Group (holding 3,445,000 shares in the Company representing about 0.18% of the total issued share capital of the Company) Sichuan Airlines Transactions — Sichuan Group — Southern Holding — Xiamen Airlines

Pursuant to Rule 13.39(4) of the Listing Rules, all votes of the Shareholders at the EGM must be taken by poll. The Chairman of the EGM will demand a poll for the resolution to be proposed at the EGM in accordance with the Articles.

The results of the voting will be announced in accordance with Rule 2.07C of the Listing Rules after the EGM.

— 30 —

LETTER FROM THE BOARD

11. RECOMMENDATIONS

With respect to the Continuing Connected Transactions, your attention is drawn to the letter from the Independent Board Committee set out on page 32 of this circular and the letter of advice from China Merchants to the Independent Board Committee and the Independent Shareholders in connection with the Continuing Connected Transactions and the Annual Caps and the principal factors and reasons considered by it in arriving at such advice set out on pages 33 to 54 of this circular.

The Independent Board Committee, having taken into account the advice of China Merchants, considers that the Continuing Connected Transactions are (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms; and (iii) fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole, and the Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolutions approving the Continuing Connected Transactions and the Annual Caps at the EGM.

12. GENERAL

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

Yours faithfully, By order of the Board TravelSky Technology Limited Xu Qiang Chairman

— 31 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [416 x 62] intentionally omitted <==

(Stock Code: 0696)

13 November 2009

To the Independent Shareholders

Dear Sir/Madam,

CONTINUING CONNECTED TRANSACTIONS

We refer to the circular (“ Circular ”) issued by the Company to its shareholders dated 13 November 2009 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 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 Continuing Connected Transactions are (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms; and (iii) fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole, and the Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions approving the Continuing Connected Transactions and the Annual Caps at the EGM.

Yours faithfully, For and on behalf of the

Independent Board Committee

Yick Wing Fat, Simon Yuan Yaohui Chua Keng Kim

Independent Non-executive Directors

— 32 —

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.

==> picture [193 x 26] intentionally omitted <==

48th Floor, One Exchange Square, Central, Hong Kong

13 November 2009

TravelSky Technology Limited Floor 18-20, South Wing, Park C, Raymon InfoTech Park, No. 2 Ke Xue Yuan South Road, Haidian District, Beijing 100190, The 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 as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Continuing Connected Transactions and the Annual Caps, details of which are contained in the letter from the Board (the “ Letter from the Board ”) of the circular dated 13 November 2009 (the “ Circular ”) issued by the Company to the Shareholders, of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires.

As referred to in the Letter from the Board, the Company proposes to seek a general mandate with a threeyear term ending 31 December 2012 from the Independent Shareholders in order to continue the continuing connected transactions under the Waiver that have their existing terms expiring on 31 December 2009 but will continue after such date. Given that the assets ratio and the revenue ratio with reference to the largest Annual Caps for the transactions with the Connected Service Companies under the New Network Services Agreement in aggregate exceeds 2.5%, the New Network Services Agreement constitutes non-exempt continuing connected transactions for the Company under the Chapter 14A of the Listing Rules. In addition, since the revenue ratio with reference to the Annual Cap for Sichuan Airline Services Agreement exceeds 2.5%, the Sichuan Airline Services Agreement is subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules. Thus, the Continuing Connected Transactions are subject to the approval by the Independent Shareholders at the EGM.

— 33 —

LETTER FROM CHINA MERCHANTS

In our capacity as the independent financial adviser to the Independent Board Committee and the Independent Shareholders, our role is to provide you with an independent opinion and recommendation as to whether (1) the Continuing Connected Transactions are (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms; and (iii) fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole; (2) the Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole; and (3) it would be fair and reasonable for the Independent Shareholders to approve the Continuing Connected Transactions and the Annual Caps.

BASIS OF OUR OPINION

In formulating our advice and recommendation, we have relied on the accuracy of the information and facts supplied, and the opinions expressed by the Group, the Directors and the Group’s management to us. We have assumed that all statements of belief and intention made by the Directors in the Circular were made after due and careful enquiries. We have also 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 will continue 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 Group, the Directors and the Group’s management, and have been advised by the Directors that no material facts have been omitted from the information provided by or referred to in the Circular.

In rendering our opinion, we have researched, analyzed and relied on information in relation to the Group, the Continuing Connected Transactions and the Annual Caps as set out below:

(i) the existing services agreements between the Group on one part and the Major Promoters, the Minority Promoters and/or their respective associates on the other part;
(ii) the 2006 Network Services Agreement;
(iii) the New Network Services Agreement;
(iv) the Sichuan Airline Services Agreement;
(v) the annual report of the Company for the year ended 31 December 2007 (the “ 2007 Annual Report ”);
(vi) the annual report of the Company for the year ended 31 December 2008 (the “ 2008 Annual Report ”);
(vii) the official website of the Company;
(viii) the announcement dated 2 September 2009 issued by the Company;
(ix) the announcement dated 4 November 2009 issued by the Company;
(x) the announcement dated 9 November 2009 issued by the Company;
(xi) the circular dated 7 March 2007; and
(xii) the Circular.

— 34 —

LETTER FROM CHINA MERCHANTS

We have also researched, analyzed and relied on information as set out below:

(i) China Statistical Yearbook 2008（《中國統計年鑑－2008年》）published by the National Bureau of Statistics of China（中華人民共和國國家統計局);
(ii) the report headed “Production statistics report for civil aviation airports in 2007”（《2007年民航機場生產統計公報》）published on the official website of CAAC on 6 March 2008;
(iii) the report headed “Production statistics report for civil aviation airports in 2008”（《2008年民航機場生產統計公報》）published on the official website of CAAC on 16 March 2009; and
(iv) the statistics published on the official websites of Air China (including Macau Airlines), Southern Airlines (including Xiamen Airlines and Chongqing Airlines), Shandong Airlines, Eastern Airlines, and Hainan Airlines.

We have assumed such information to be accurate and reliable and have not carried out any independent verification on the accuracy of such information. Such relevant information provides us with a basis on which we have been able to formulate our independent opinion.

We consider that we have reviewed sufficient information to reach an informed view to justify our reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation. We also consider that we have performed all reasonable steps as required under Rule 13.80 of the Listing Rules (including the notes thereto) to formulate our opinion and recommendation. We have not, however, conducted any form of in-depth investigations into the business affairs, financial position and future prospects of the Group and the parties to the Continuing Connected Transactions, nor carried out any independent verification of the information supplied, representations made or opinions expressed by the Group, the Directors and the Group’s management.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation regarding the Continuing Connected Transactions and the Annual Caps, we have taken into account the following principal factors and reasons:

I. BACKGROUND

1. Information on the Group

The Group is principally engaged in provision of aviation information technology services in the PRC. As referred to in the 2008 Annual Report, being a leading provider of information technology solutions for the China’s aviation and travel industry, the Group is at a core position along the value chain of China’s aviation and travel service distribution. While the Group provides advanced aviation information technology and extended services to the Chinese commercial airlines, it also distributes commercial airline products and services to travel agents, travel service distributors, ticketing offices, corporate clients and individual consumers.

— 35 —

LETTER FROM CHINA MERCHANTS

The Group’s turnover for each of the three years ended 31 December 2008 is set out below:

	Year	ended 31 December
	2006	2007	2008
	(RMB’000)	(RMB’000)	(RMB’000)
	(Audited)	(Audited)	(Audited)
The Group’s turnover	1,711,705	2,001,903	2,005,168

Source: the 2007 Annual Report and the 2008 Annual Report

The Group’s information in respect of bookings of seats of commercial airlines of the PRC for each of the four years ended 31 December 2008 is set out below:

Bookings of seats of commercial airlines of the PRC

Bookings

==> picture [318 x 157] intentionally omitted <==

----- Start of picture text -----

250,000,000
200,000,000
150,000,000
100,000,000
50,000,000
0
2005 2006 2007 2008
Years
----- End of picture text -----

Source: the official website of the Company

From the year ended 31 December 2006 to the year ended 31 December 2008, (i) the Group’s audited turnover achieved a compound average growth rate (“ CAGR ”) of approximately 8.2% per annum; and (ii) the Group’s total bookings on seats of flights of commercial airlines of the PRC achieved a CAGR of approximately 10.5% per annum. As advised by the Directors, the growth in the Group’s turnover and total bookings of seats of flights of commercial airlines of the PRC were attributable to: (i) the rapid economic growth in the PRC; (ii) the increase of international trade between the PRC and other countries; and (iii) the growing aviation and tourist industries in the PRC.

— 36 —

LETTER FROM CHINA MERCHANTS

2. Information on Air China, Southern Airlines, Xiamen Airlines, Chongqing Airlines, Lucky Airlines, Shandong Airlines, Eastern Airlines, Macau Airlines, Hainan Airlines, Sichuan Airlines and the Connected Service Companies

Set out below is the background of each of Air China, Southern Airlines, Xiamen Airlines, Chongqing Airlines, Lucky Airlines, Shandong Airlines, Eastern Airlines, Macau Airlines, Hainan Airlines, Sichuan Airlines and the Connected Service Companies:

Entities

Background

Air China

Air China is a subsidiary of National Aviation Holding, which is a Promoter of the Company. Air China and its subsidiaries are principally engaged in the provision of air passenger, air cargo and airline-related services in the PRC.

Southern Airlines

Southern Airlines is a subsidiary of Southern Holding, which is a Promoter and a substantial shareholder of the Company. Southern Airlines is principally engaged in the provision of domestic, Hong Kong and Macau and international passenger, cargo and mail airline services.

Xiamen Airlines

Xiamen Airlines is a Promoter and a subsidiary of Southern Airlines. Its principal business activity is civil aviation in the PRC.
Chongqing Airlines
Chongqing Airlines is a subsidiary of Southern Airlines. Its principal business activity is civil aviation in the PRC.
Lucky Airlines
Both Hainan Airlines and Lucky Airlines are subsidiaries of Da Xin Hua Airlines Limited. Lucky Airlines is an associate of Hainan Airlines. Lucky Airlines is principally engaged in the operation of civil aviation.
Shandong Airlines
Shandong Airlines is a Promoter, which is principally engaged in airline operation in the PRC.
Eastern Airlines
Eastern Airlines is a subsidiary of Eastern Holding, which is a Promoter and a substantial shareholder of the Company. Eastern Airlines is principally engaged in the operation of civil aviation, including the provision of passenger, cargo, mail delivery and other extended transportation services.
Macau Airlines
Macau Airlines is a subsidiary of Air China, which is a subsidiary of National Aviation Holding, is a Promoter. Its principal business activity is civil aviation.

— 37 —

LETTER FROM CHINA MERCHANTS

Hainan Airlines

Hainan Airlines is a Promoter and a shareholder of the Company. It is principally engaged in airline operation in the PRC.

Sichuan Airlines

Sichuan Airlines is an associate of Southern Holding, which is a Promoter.

Connected Service Companies The Connected Service Companies, which comprise Huadong Cares, Shanghai Cares, Xinan Cares, Qingdao Cares, Hainan Cares, Hubei Cares, Chongqing Cares, Yunnan Cares, Xiamen Cares, Xi’an Cares, Xinjiang Cares, Dongbei Cares, Shenzhen Cares and Guangzhou Airport, are connected persons of the Company.

The information on audited operating revenues of Lucky Airlines, the Connected Service Companies and Sichuan Airlines are not available to us. Set out below are the audited operating revenues of Air China (including Macau Airlines), Southern Airlines (including Xiamen Airlines and Chongqing Airlines), Shandong Airlines, Eastern Airlines, and Hainan Airlines from 2006 to 2008:

	Year	ended 31 December	ended 31 December
	2006	2007	2008	CAGR
	(RMB’million)	(RMB’million)	(RMB’million)
	(Audited)	(Audited)	(Audited)
Air China’s (including Macau Airlines)	44,937	51,082	52,908	8.5%
audited operating revenue
(prepared under International
Financial Reporting Standards (“IFRS”))
Southern Airlines’ (including Xiamen	46,081	54,401	55,288	9.5%
Airlines and Chongqing Airlines)
audited operating revenue
(prepared under IFRS)
Shandong Airlines’ audited operating	4,231	4,630	5,049	9.2%
revenue (prepared under PRC
Generally Accepted Accounting
Principles (“PRC GAAP”))
Eastern Airlines’ audited operating revenue	37,557	42,534	41,073	4.6%
(prepared under IFRS)
Hainan Airlines’ audited operating revenue	12,756	13,525	13,552	3.1%
(prepared under PRC GAAP)

— 38 —

LETTER FROM CHINA MERCHANTS

Based on the above, we noted that, from the year ended 31 December 2006 to the year ended 31 December 2008, the audited operating revenue of Air China (including Macau Airlines), Southern Airlines (including Xiamen Airlines and Chongqing Airlines), Shandong Airlines, Eastern Airlines, and Hainan Airlines achieved CAGR ranged between approximately 3.1% and 9.5% per annum. We consider that the aforesaid increases in the audited operating revenue by Air China (including Macau Airlines), Southern Airlines (including Xiamen Airlines and Chongqing Airlines), Shandong Airlines, Eastern Airlines, and Hainan Airlines demonstrated the business growth of these airlines.

3. Economy and aviation industry in the PRC

Based on (i) the report headed “Production statistics report for civil aviation airports in 2008” （《2008年民航機場生產統計公報》）published on the official website of CAAC on 16 March 2009; and (ii) the report headed “Production statistics report for civil aviation airports in 2007” （《2007年民航機場生產統計公報》）published on the official website of CAAC on 6 March 2008, the number of passenger traffic of the PRC airports (measured by number of passengers) in the PRC increased from approximately 387.6 million for the year ended 31 December 2007 to approximately 405.8 million for the year ended 31 December 2008, representing an increase of approximately 4.7% per annum.

Based on China Statistical Yearbook 2008（《中國統計年鑑 — 2008年》）published by the National Bureau of Statistics of China（中華人民共和國國家統計局）, from 2000 to 2007, the PRC’s gross domestic product increased from approximately RMB9,921 billion to approximately RMB24,953 billion, representing a CAGR of approximately 14.1% per annum.

Taking into account (i) the robust growth in the passenger traffic of the aviation industry in the PRC; (ii) the steady growth of the gross domestic product in the PRC; and (iii) the CAGR of the Group’s turnover of approximately 8.2% per annum from the year ended 31 December 2006 to the year ended 31 December 2008, the Directors expect that the Group’s turnover will continue to achieve a growth in the coming years.

II. THE CONTINUED CONNECTED TRANSACTIONS

1. Reasons for and benefits of the Continuing Connected Transactions

The details of the existing transactions relating to the grant by the Stock Exchange of a waiver from strict compliance with the requirement of having written agreements under Rule 14A.35(1) of the Listing Rules were already set out in the announcement dated 2 September 2009 issued by the Company. As advised by the Directors, the Company proposes to seek a general mandate with a three-year term ending on 31 December 2012 from the Independent Shareholders in order to continue the continuing connected transactions under the Waiver that have their existing terms expiring on 31 December 2009 but will continue after such date.

— 39 —

LETTER FROM CHINA MERCHANTS

In addition, the details of the 2006 Network Services Agreement were already set out in the circular dated 7 March 2007, and such agreement was already approved at the extraordinary general meeting of the Company held on 25 April 2007. The Company entered into the New Network Services Agreement with 25 Service Companies on 4 November 2009.

After reviewing the continuing connected transactions under the Waiver and the Sichuan Airlines Transactions, we noted that such transactions are similar to the core business of the Group. The Group will receive service fees for provision of such services and thus, will achieve accretion in earning in the future.

Pursuant to the New Network Services Agreement, the Directors believe that the Service Companies have been playing an important role to provide technical support to users of the Company’s network and to facilitate the promotion of new products by the Company 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 New Network Services Agreement as it would be difficult for the Company to provide network services directly to the customers in different regions of the PRC.

In light of the above, we consider that the Continued Connected Transactions are in the ordinary and usual course of business of the Group. In addition, we concur with the Directors’ view that the Continuing Connected Transactions would offer important sources of revenue to the Group.

2. The terms of the Continuing Connected Transactions

(i) Provision of technology services in relation to the transactions under the Waiver

As referred to in the Letter from the Board, the service fees for the technology services are determined in accordance with the existing pricing schedule prescribed by CAAC, which is the same as the one disclosed in the Company’s prospectus dated 29 January 2001. We have discussed with the Directors and were informed that the services fees to be charged by the Group are governed by the aforesaid pricing schedule prescribed by CAAC.

— 40 —

LETTER FROM CHINA MERCHANTS

In accordance with CAAC’s pricing schedule, depending on the types of system through which the transactions are processed, a per passenger booking fee for domestic routes ranging from RMB4.5 to RMB6.5 depending on the monthly booking volume, and for international and regional routes ranging from RMB6.5 to RMB7.

In addition, the service fees include (i) fees for each boarding passenger handled by the airport passenger processing system up to maximum allowable price of RMB7 for international and regional routes and up to a maximum of allowable price of RMB4 for domestic routes depending on the types of the route, volume, level of services etc.; (ii) load balancing fees for each flight handled by the airport passenger processing system up to maximum allowable price of RMB500 depending on the size of the aircraft; and (iii) fees for using the Company’s data network services such as PID connection fees and maintenance fees depending on type and quantity of equipment at the rate prescribed by CAAC.

In this regard, we have reviewed the services fees to be charged by the Group, and noted that they are within the respective price ranges prescribed by CAAC. Based on the aforesaid, we consider that the service fees for the service recipients, which are based on the price ranges prescribed by CAAC, are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

(ii) Provision of (a) revenue accounting systems development and support services and (b) passenger and cargo revenue accounting and settlement services in relation to the transactions under the Waiver

As referred to in the Letter from the Board, charge rates of revenue accounting systems development and support services are determined by negotiation with reference to the costs and specifications of the relevant type of services provided and varies depending on the transaction volume (i.e. the higher the transaction volume, the lower the rate). The rates of unit price for international and domestic passengers revenue accounting system development and support services are no more than RMB1.65 and RMB0.6 respectively. The rates of unit price for international and domestic cargo revenue accounting system development and support services are no more than RMB5.2 and RMB1.8 respectively.

The fees of passenger and cargo revenue accounting and settlement services are determined by negotiation with reference to the rates and rules prescribed in the relevant document issued by the CAAC. The prices of the provision of the services are based on the calculation of (i) the transaction volume times unit price ranging from RMB0.15 to RMB6; and (ii) the percentage rate of the total accounting amount ranging from 0.3% to 3%.

— 41 —

LETTER FROM CHINA MERCHANTS

To the best knowledge, information and belief of the Directors, ACCA is currently the only provider in the PRC in respect of accounting, settlement and clearing services and information system and support services to commercial airlines and other aviation companies. In addition, the Directors advised that ACCA also provides other airlines (being independent third parties) with services (the “ Similar Services ”) which are similar to the revenue accounting systems development and support services as well as passenger and cargo revenue accounting and settlement services.

In light of the above, we have reviewed the agreements in respect of the Similar Services, and we noted that pricing bases for the revenue accounting systems development and support services, as well as passenger and cargo revenue accounting and settlement services, were comparable to the Similar Services. Accordingly, we consider that the pricing bases of the revenue accounting systems development and support services, as well as the passenger and cargo revenue accounting and settlement services, are acceptable.

Based on the aforesaid, we consider that the service fees for the service recipients are on normal commercial terms and is fair and reasonable so far as the Independent Shareholders are concerned.

(iii) Provision of interline data exchange services in relation to the transactions under the Waiver

As referred to in the Letter from the Board, the service is charged at a fixed annual service fee of RMB120,000. In this regard, we have reviewed the fees to be charged by the Group, and noted that the fixed annual service fee is charged by the Group to both the connected parties and the independent third parties.

Based on the aforesaid, we consider that the service fees for the service recipients are on normal commercial terms and is fair and reasonable so far as the Independent Shareholders are concerned.

(iv) Provision of network services under the New Network Services Agreement

According to the New Network Services Agreement, the basis of services fees are generally determined: (i) according to the rates prescribed by the government regulatory bodies (such as CAAC) where the services are regulated by the government regulatory bodies; (ii) through negotiation between the Company and the respective Service Companies with reference to guide prices proposed by the government regulatory bodies; (iii) through negotiation between the Company and the respective Service Companies based on the prevailing market prices (if any) or the previous prescribed rates or guide prices, or on a cost basis, where no prescribed rates or guide prices are available, or they have been cancelled or are no longer applicable.

— 42 —

LETTER FROM CHINA MERCHANTS

With respect to marketing and distribution of services and products of the Company, (i) the Company shall pay for technical support services provided by the Service Companies to the users of the Company (if any) and such fees may be determined according to separate agreements to be entered into between the Company and the respective Service Companies; (ii) the Company shall pay market services fees at an agreed price based on the transaction volume processed by the Service Companies on the e-commerce system platform and the Service Companies shall pay system processing fees based on the agreed prices or according to separate agreements to be entered into between the Company and the respective Service Companies; (iii) the Company shall share the revenue from e- ticketing services with the Service Companies on a pro-rata basis according to market prevailing prices or pursuant to separate agreements to be entered into between the Company and the respective Service Companies; and (iv) the Company shall pay service fees for distribution of hotel services on a pro-rata basis or pursuant to separate agreements to be entered into between the Company and the respective Service Companies.

With respect to technology services, the Company shall pay technology development service fees (if any) for engaging the professional personnel from the Service Companies for provision of, amongst others, product development services and such fees may be determined according to a separate agreements to be entered into between the Company and the respective Service Companies.

We have noticed that in the past, the services fees paid by the Company were charged at the same charge rates by the Group to both independent third parties as well as the Connected Service Companies. In respect of the provision (i) marketing and distribution services for the products of the Company; and (ii) technology development services to be provided under the New Network Services Agreement, we noticed that the services fees to be paid by the Company were charged at the same charge rates by the Group to both independent third parties as well as the Connected Service Companies.

— 43 —

LETTER FROM CHINA MERCHANTS

Based on the foregoing, we consider the service fees paid by the Company to the Connected Service 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.

(v) Provision of technology services under the Sichuan Airline Services Agreement

According to the Sichuan Airline Services Agreement, the fee basis is the same as the provision of technology services under the Waiver in Section II.2(i) of this letter.

In this regard, we have reviewed the services fees to be charged by the Group, and noted that they are within the respective price ranges prescribed by CAAC. Based on the aforesaid, we consider that the service fees for Sichuan Airlines, which are based on the price ranges prescribed by CAAC, are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

Overall, we consider that the terms of the Continuing Connected Transactions are (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms; and (iii) fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

III. THE ANNUAL CAPS

1. The Annual Caps

Set out below is a summary of the Annual Caps for the Continuing Connected Transactions proposed for the three years ending 31 December 2012:

	Respective types
	of Continuing
	Connected
	Transactions
	with reference
	to Section 2 of
	the Letter from		Year ending 31	December
	the Board	2010	2011		2012
Air China Transactions	I(a)	RMB345,207,000	RMB414,248,000	RMB497,098,000
	I(b)	RMB66,702,000	RMB80,043,000	RMB96,051,000
Southern Airlines Transactions	I(a)	RMB484,553,000	RMB581,463,000	RMB697,756,000
Lucky Airlines Transactions	I(a)	RMB25,047,000	RMB30,057,000	RMB36,068,000

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LETTER FROM CHINA MERCHANTS

Shandong Airlines Transactions	I(a)	RMB48,135,000	RMB57,762,000	RMB69,314,000
	I(b)	RMB4,163,000	RMB4,996,000	RMB5,995,000
Eastern Airlines Transactions	I(b)	RMB86,365,000	RMB103,639,000	RMB124,366,000
(taking into account the
estimated amounts of the
Shanghai Airlines Transactions)
Macau Airlines Transactions	I(b)	RMB11,435,000	RMB13,722,000	RMB16,466,000
Xiamen Airlines Transactions	I(c)	RMB120,000	RMB120,000	RMB120,000
Hainan Airlines Transactions	I(c)	RMB120,000	RMB120,000	RMB120,000
Transactions with Huadong Cares	II	RMB37,138,000	RMB44,566,000	RMB53,479,000
under the New Network
Services Agreement
Transactions with Shanghai Cares	II	RMB280,000	RMB336,000	RMB403,000
under the New Network
Services Agreement
Transactions with Xinan Cares	II	RMB26,510,000	RMB31,812,000	RMB38,174,000
under the New Network
Services Agreement
Transactions with Qingdao Cares	II	RMB4,840,000	RMB5,808,000	RMB6,970,000
under the New Network
Services Agreement
Transactions with Hainan Cares	II	RMB3,672,000	RMB4,406,000	RMB5,288,000
under the New Network
Services Agreement
Transactions with Hubei Cares	II	RMB6,229,000	RMB7,475,000	RMB8,970,000
under the New Network
Services Agreement
Transactions with Chongqing	II	RMB2,470,000	RMB2,964,000	RMB3,557,000
Cares under the New
Network Services Agreement
Transactions with Yunnan Cares	II	RMB4,211,000	RMB5,053,000	RMB6,064,000
under the New Network
Services Agreement

— 45 —

LETTER FROM CHINA MERCHANTS

Transactions with Xiamen Cares	II	RMB3,802,000	RMB4,562,000	RMB5,475,000
under the New Network
Services Agreement
Transactions with Xi’an Cares	II	RMB4,619,000	RMB5,543,000	RMB6,651,000
under the New Network
Services Agreement
Transactions with Xinjiang Cares	II	RMB4,232,000	RMB5,078,000	RMB6,094,000
under the New Network
Services Agreement
Transactions with Dongbei Cares	II	RMB6,611,000	RMB7,933,000	RMB9,520,000
under the New Network
Services Agreement
Transactions with Shenzhen Cares	II	RMB15,257,000	RMB18,308,000	RMB21,970,000
under the New Network
Services Agreement
Transactions with Guangzhou	II	RMB1,000,000	RMB1,200,000	RMB1,440,000
Airport under the New
Network Services Agreement
Sichuan Airlines Transactions	III	RMB98,022,000	—	—
Source: Letter from the Board

— 46 —

LETTER FROM CHINA MERCHANTS

2. The historical transaction amounts of the Continuing Connected Transactions

Set out below is a summary of the aggregated amounts of the Continuing Connected Transactions for the two years ended 31 December 2008 and eight months ended 31 August 2009:

	Respective types
	of Continuing
	Connected
	Transactions
	with reference
	to the Section 2			Eight months
	of the Letter	Year ended	31 December	ended
	from the Board	2007	2008	31 August 2009
Air China Transactions	I(a)	RMB241,469,000	RMB239,727,000	RMB125,168,000
	I(b)	RMB48,032,000	RMB46,321,000	RMB27,829,000
Southern Airlines Transactions	I(a)	RMB347,507,000	RMB336,495,000	RMB181,126,000
Lucky Airlines Transactions	I(a)	—	RMB8,697,000	RMB9,264,000
Shandong Airlines Transactions	I(a)	RMB33,668,000	RMB33,427,000	RMB18,291,000
	I(b)	RMB2,886,000	RMB2,891,000	RMB1,920,000
Eastern Airlines Transactions	I(b)	RMB53,506,000	RMB49,349,000	RMB29,186,000
Shanghai Airlines Transactions	I(b)	RMB8,710,000	RMB10,627,000	RMB4,803,000
Macau Airlines Transactions	I(b)	RMB9,530,000	RMB7,941,000	RMB3,751,000
Xiamen Airlines Transactions	I(c)	RMB120,000	RMB120,000	RMB80,000
Hainan Airlines Transactions	I(c)	RMB120,000	RMB120,000	RMB80,000
Transactions with Huadong	II	RMB848,000	RMB3,633,000	RMB11,439,000
Cares under the 2006
Network Services Agreement
Transactions with Shanghai	II	—	—	—
Cares under the 2006
Network Services Agreement

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LETTER FROM CHINA MERCHANTS

Transactions with Xinan Cares	II	RMB1,459,000	RMB5,375,000	RMB3,772,000
under the 2006 Network
Services Agreement
Transactions with Qingdao	II	RMB723,000	RMB777,000	RMB514,000
Cares under the 2006
Network Services Agreement
Transactions with Hainan	II	RMB1,430,000	RMB2,087,000	RMB1,353,000
Cares under the 2006
Network Services Agreement
Transactions with Hubei Cares	II	RMB4,076,000	RMB3,883,000	RMB3,077,000
under the 2006 Network
Services Agreement
Transactions with Chongqing	II	RMB1,263,000	RMB1,251,000	RMB838,000
Cares under the 2006 Network
Services Agreement
Transactions with Yunnan	II	RMB2,380,000	RMB2,390,000	RMB1,608,000
Cares under the 2006
Network Services Agreement
Transactions with Xiamen	II	RMB4,228,000	RMB2,176,000	RMB1,359,000
Cares under the 2006
Network Services Agreement
Transactions with Xi’an	II	RMB2,850,000	RMB2,679,000	RMB2,290,000
Cares under the 2006
Network Services Agreement
Transactions with Xinjiang	II	RMB2,973,000	RMB2,655,000	RMB1,891,000
Cares under the 2006
Network Services Agreement
Transactions with Dongbei	II	RMB4,369,000	RMB3,987,000	RMB2,694,000
Cares under the 2006
Network Services Agreement
Transactions with Shenzhen	II	RMB10,319,000	RMB9,695,000	RMB6,812,000
Cares under the 2006
Network Services Agreement

— 48 —

LETTER FROM CHINA MERCHANTS

Transactions with Guangzhou	II	—	—	—
Airport under the 2006
Network Services Agreement
Sichuan Airlines Transactions	III	RMB68,420,000	RMB68,071,000	RMB40,843,000

Source: Letter from the Board

3. The comparison of historical amount of the Continuing Connected Transactions and the Annual Caps for the year ending 31 December 2012

(i) Provision of technology services in relation to the transactions under the Waiver

In respect of provision of technology services in relation to the transactions under the Waiver, the aggregated Annual Caps of Air China, Southern Airlines (including Xiamen Airlines and Chongqing Airlines), Lucky Airlines and Shandong Airlines for the year ended 31 December 2012 is RMB1,300,236,000, which is higher than the aggregated historical transaction amount of Air China, Southern Airlines (including Xiamen Airlines and Chongqing Airlines), Lucky Airlines and Shandong Airlines for the year ended 31 December 2008 of RMB618,346,000 by approximately 110%. Such increase is equivalent to CAGR of approximately 20.4% from 2008 to 2012.

(ii) Provision of (a) revenue accounting systems development and support services and (b) passenger and cargo revenue accounting and settlement services in relation to the transactions under the Waiver

In respect of provision of: (a) revenue accounting systems development and support services and (b) passenger and cargo revenue accounting and settlement services in relation to the transactions under the Waiver, the aggregated Annual Caps of Eastern Airlines, Air China, Macau Airlines and Shandong Airlines for the year ended 31 December 2012 is RMB242,878,000, which is higher than the aggregated historical transaction amount of Eastern Airlines, Air China, Macau Airlines and Shandong Airlines for the year ended 31 December 2008 of RMB117,129,000 by approximately 107%. Such increase is equivalent to CAGR of approximately 20.0% from 2008 to 2012.

(iii) Provision of interline data exchange services in relation to the transactions under the Waiver

In respect of provision of interline data exchange services in relation to the transactions under the Waiver, the aggregated Annual Caps of Xiamen Airlines and Hainan Airlines for the three years ended 31 December 2012 are identical to the aggregated historical transaction amount of Xiamen Airlines and Hainan Airlines for the year ended 31 December 2008. As referred to in the Letter from the Board, the service is charged at a fixed annual service fee of RMB120,000.

— 49 —

LETTER FROM CHINA MERCHANTS

(iv) Provision of network services under the New Network Services Agreement

In respect of provision of network services under the New Network Services Agreement, the aggregated Annual Caps of the Service Companies for the year ended 31 December 2012 is RMB174,055,000, which is higher than the aggregated historical transaction amount of the Service Companies for the year ended 31 December 2008 of RMB40,588,000 by approximately 329%. Such increase is equivalent to CAGR of approximately 43.9% from 2008 to 2012 as a result of: (i) existing network services provided under the 2006 Network Services Agreement; and (ii) the Additional Services to be provided other than those provided under the 2006 Network Service Agreement during 2010, 2011 and 2012 under the New Network Services Agreement.

(v) Provision of technology services under the Sichuan Airline Services Agreement

In respect of provision of technology services under the Sichuan Airline Services Agreement, the Annual Caps of the Service Companies for the year ended 31 December 2010 is RMB98,022,000, which is higher than the aggregated historical transaction amount of Sichuan Airlines for the year ended 31 December 2008 of RMB68,071,000 by approximately 44%. Such increase is equivalent to CAGR of approximately 20.0% from 2008 to 2010.

4. The basis for the Annual Caps

As referred to in the Letter from the Board:

(i) Provision of technology services in relation to the transactions under the Waiver

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LETTER FROM CHINA MERCHANTS

(ii) Provision of (a) revenue accounting systems development and support services and (b) passenger and cargo revenue accounting and settlement services in relation to the transactions under the Waiver

(iii) Provision of interline data exchange services in relation to the transactions under the Waiver

(iv) Provision of network services under the New Network Services Agreement

The Annual Caps are determined with reference to (i) the historical transaction amounts under the 2006 Network Services Agreement for the year ended 31 December 2008 and the eight months ended 31 August 2009; (ii) the Additional Services to be provided under the New Network Services Agreement other than those provided under the 2006 Network Services Agreement; and (iii) the estimated annual growth rate of 20% in the transaction volume of the existing and additional services taking into account of the anticipated growth of the PRC’s aviation and travel industry as well as the increasing frequency of business trips.

(v) Provision of technology services under the Sichuan Airline Services Agreement

— 51 —

LETTER FROM CHINA MERCHANTS

The Directors estimate that the transaction amount of the Continuing Connected Transactions will increase by about 20% per annum. Thus, a growth rate of 20% (the “ Adopted Growth Rate ”) is adopted by the Group in determining the amount of the Annual Caps. We noted that the Adopted Growth Rate is in line with the CAGR of each of (i) provision of technology services in relation to the transactions under the Waiver; (ii) provision of: (a) revenue accounting systems development and support services and (b) passenger and cargo revenue accounting and settlement services in relation to the transactions under the Waiver; and (iii) provision of interline data exchange services in relation to the transactions under the Waiver during 2008 to 2012 based on the comparison between the applicable Annual Caps in the year ending 31 December 2012 and the applicable historical transaction amounts in the year ended 31 December 2008.

We also noted that the Adopted Growth Rate is lower than the CAGR of provision of network services during 2008 to 2012, based on the comparison between the Annual Cap in the year ending 31 December 2012 and the applicable historical transaction amount in the year ended 31 December 2008. As advised by the Directors, the Annual Cap of provision of network services will increase at a higher growth rate during the three years ending 31 December 2012 due to the Additional Services to be provided other than those provided under the 2006 Network Service Agreement during 2010, 2011 and 2012.

Further, we noted that the Adopted Growth Rate is in line with the CAGR of provision of technology services under the Sichuan Airline Services Agreement during 2008 to 2010 based on the comparison between the applicable Annual Caps in the year ending 31 December 2010 and the applicable historical transaction amounts in the year ended 31 December 2008.

We wish to draw the attention of the Independent Board Committee and the Independent Shareholders that:

(i) as illustrated in Section I.1 of this letter, from the year ended 31 December 2006 to the year ended 31 December 2008, (i) the Group’s audited turnover achieved a CAGR of approximately 8.2% per annum; and (ii) the Group’s total bookings on seats of flights of commercial airlines of the PRC achieved a CAGR of approximately 10.5% per annum; and
(ii) as illustrated in Section I.2 of this letter, from the year ended 31 December 2006 to the year ended 31 December 2008, the CAGR of the audited operating revenue of Air China (including Macau Airlines), Southern Airlines (including Xiamen Airlines and Chongqing Airlines), Shandong Airlines, Eastern Airlines, and Hainan Airlines ranged between approximately 3.1% and 9.5% per annum.

— 52 —

LETTER FROM CHINA MERCHANTS

Based on the foregoing, we consider that the Adopted Growth Rate is acceptable, taking into account (1) the Group’s business growth during the three years ended 31 December 2008; (2) the increase in the increase in audited operating revenue of Air China (including Macau Airlines), Southern Airlines (including Xiamen Airlines and Chongqing Airlines), Shandong Airlines, Eastern Airlines and Hainan Airlines during the three years ended 31 December 2008; and (3) the Annual Caps provide buffer to cater for the unanticipated growth in the Group’s turnover, which in turn will benefit the Group’s business growth in the three years ending 31 December 2012. We also consider that the higher growth rate of Annual Caps of provision of network services is acceptable, taking into account the Additional Services to be provided other than those provided under the 2006 Network Service Agreement during 2010, 2011 and 2012 under the New Network Services Agreement.

5. Overall opinion on the Annual Caps

We consider that the Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned, taking into account:

(i) the positive outlook of the aviation industry in the PRC;
(ii) the historical growth in the Group’s turnover and the booking of seats of commercial airlines of the PRC through the Group’s operations;
(iii) the historical growth in the audited operating revenue of the connected persons; and
(iv) the Annual Caps would facilitate the Group’s business growth for the three years ending 31 December 2012.

Based on the aforesaid, we consider that the Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned, and are in the interests of the Company and the Shareholders as a whole.

— 53 —

LETTER FROM CHINA MERCHANTS

RECOMMENDATION

Having considered the above principal factors and reasons, we consider that (1) the Continuing Connected Transactions are (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms; and (iii) fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole; and (2) the Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the proposed resolutions to approve the Continuing Connected Transactions and the Annual Caps at the EGM. We also advise the Independent Shareholders to vote in favour of the proposed resolutions to approve the Continuing Connected Transactions and the Annual Caps at the EGM.

For and on behalf of China Merchants Securities (HK) Co., Limited Tony Wu Leo Chan Managing Director and Head of Executive Director and Co-Head of Investment Banking Department Investment Banking Department

— 54 —

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 EXECUTIVES IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ASSOCIATED CORPORATIONS

As at the Latest Practicable Date, the interests or short positions 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) held by the Directors, Supervisors or chief executives of the Company which are 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 are required to be entered in the register maintained in accordance with Section 352 of the SFO, or are required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 to the Listing Rules are as follow:

			Approximate	Approximate
			percentage of	percentage to
Name of	Number and		respective class of	the total
Director	class of shares	Capacity	share capital	share capital
	(Note 1)			(Note 2)
Chua Keng Kim	417,000 H shares (L) of	Interest of spouse	0.07%	0.02%
	RMB1 each

Notes:

(L) — Long position
The percentage to the total share capital is calculated based on the total number of 1,950,806,393 shares in issue of the Company as at the Latest Practicable Date.

— 55 —

GENERAL INFORMATION

APPENDIX

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, Supervisors or chief executives of the Company had any interests or short positions in any shares, underlying shares and debentures of the Company or any of its associated corporations (as defined in Part XV of the SFO) which are 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 are required to be entered in the register maintained in accordance with Section 352 of the SFO, or are required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 to the Listing Rules.

As at the Latest Practicable Date, each of China TravelSky Holding Company, Southern Holding, Eastern Holding and National Aviation Holding had interest in the 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.

As at the Latest Practicable Date,

(a) each of Mr Xu Qiang (Chairman of the Company) and Mr Cui Zhixiong (an executive Director) is an employee of China TravelSky Holding Company;
(b) Mr Cao Guangfu (a non-executive Director) is an employee of National Aviation Holding;
(c) Mr Wang Quanhua (a non-executive Director) is an employee of Southern Holding; and
(d) Mr Luo Chaogeng (a non-executive Director) is an employee of China Eastern Air Holding Company.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or Supervisors of the Company is a director, supervisor or employee of a company which had an interest or short position in the 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.

3. SERVICE AGREEMENT

As at the Latest Practicable Date, none of the Directors or Supervisors had entered or proposed to enter into a service agreement 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)).

— 56 —

GENERAL INFORMATION

APPENDIX

4. MATERIAL CHANGES

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2008, being the date to which the latest published audited financial statements of the Group were made up.

5. INTEREST IN ASSETS

As at the Latest Practicable Date, none of the Directors or Supervisors had any interest, direct or indirect, in any assets which had been since 31 December 2008, 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.

6. MATERIAL INTEREST IN CONTRACTS

As at the Latest Practicable Date, none of the Directors or Supervisors 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.

7. COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors or their respective associates had any interest in any business apart from the Company’s business which competes or is likely to compete, either directly or indirectly, with the Company’s business.

8. EXPERT

(a) China Merchants is licensed under the SFO for Type 1 (dealing in securities), Type 2 (dealing 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. 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.
(b) 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.
(c) As at the Latest Practicable Date, China Merchants did not have any interest, direct or indirect, in any assets which had been since 31 December 2008, 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.

— 57 —

GENERAL INFORMATION

APPENDIX

(d) 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.
(e) The letter given by China Merchants is given as at of the date of this circular for incorporation herein.

9. GENERAL

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

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the offices of JSM, 16th-19th Floors, Prince’s Building, 10 Chater Road, Central, Hong Kong during normal business hours from the date of this circular up to and including the date of the EGM:

(a) the 2006 Network Services Agreement;
(b) the New Network Services Agreement; and
(c) the Sichuan Airline Services Agreement.

— 58 —

NOTICE OF EGM

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this notice, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this notice.

==> picture [416 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 of the Company, 8/F, No. 157, Dongsi West Street, Dongcheng District, Beijing, the People’s Republic of China, at 11:00 a.m. on Wednesday, 30 December 2009 to consider and, if thought fit, pass with or without amendments, the following ordinary resolutions:

“ THAT:
(a) the grant of a general mandate with a three-year term ending 31 December 2012 to the directors of the Company (“ Directors ”) to carry out the Air China Transactions (as defined in the circular (“ Circular ”) of the Company dated 13 November 2009) and all the transactions contemplated thereunder; and
(b) the Annual Caps (as defined in the Circular) for the transactions contemplated under the Air China Transactions for each of the three years ending 31 December 2012 as shown in the Circular, be and are hereby approved and that the Directors be and are hereby authorised to take any step as they consider necessary, desirable or expedient in connection with the Air China Transactions and the transactions contemplated thereunder.”
“ THAT:
(a) the grant of a general mandate with a three-year term ending 31 December 2012 to the Directors to carry out the Southern Airlines Transactions (as defined in the Circular) and all the transactions contemplated thereunder; and
(b) the Annual Caps for the transactions contemplated under the Southern Airlines Transactions for each of the three years ending 31 December 2012 as shown in the Circular, be and are hereby approved and that the Directors be and are hereby authorised to take any step as they consider necessary, desirable or expedient in connection with the Southern Airlines Transactions and the transactions contemplated thereunder.”

— 59 —

NOTICE OF EGM

“ THAT:
(a) the grant of a general mandate with a three-year term ending 31 December 2012 to the Directors to carry out the Lucky Airlines Transactions (as defined in the Circular) and all the transactions contemplated thereunder; and
(b) the Annual Caps for the transactions contemplated under the Lucky Airlines Transactions for each of the three years ending 31 December 2012 as shown in the Circular, be and are hereby approved and that the Directors be and are hereby authorised to take any step as they consider necessary, desirable or expedient in connection with the Lucky Airlines Transactions and the transactions contemplated thereunder.”
“ THAT:
(a) the grant of a general mandate with a three-year term ending 31 December 2012 to the Directors to carry out the Shandong Airlines Transactions (as defined in the Circular) and all the transactions contemplated thereunder; and
(b) the Annual Caps for the transactions contemplated under the Shandong Airlines Transactions for each of the three years ending 31 December 2012 as shown in the Circular, be and are hereby approved and that the Directors be and are hereby authorised to take any step as they consider necessary, desirable or expedient in connection with the Shandong Airlines Transactions and the transactions contemplated thereunder.”
“ THAT:
(a) the grant of a general mandate with a three-year term ending 31 December 2012 to the Directors to carry out the Eastern Airlines Transactions (as defined in the Circular) and all the transactions contemplated thereunder; and
(b) the Annual Caps for the transactions contemplated under the Eastern Airlines Transactions for each of the three years ending 31 December 2012 as shown in the Circular, be and are hereby approved and that the Directors be and are hereby authorised to take any step as they consider necessary, desirable or expedient in connection with the Eastern Airlines Transactions and the transactions contemplated thereunder.”

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NOTICE OF EGM

“ THAT:
(a) the grant of a general mandate with a three-year term ending 31 December 2012 to the Directors to carry out the Macau Airlines Transactions (as defined in the Circular) and all the transactions contemplated thereunder; and
(b) the Annual Caps for the transactions contemplated under the Macau Airlines Transactions for each of the three years ending 31 December 2012 as shown in the Circular, be and are hereby approved and that the Directors be and are hereby authorised to take any step as they consider necessary, desirable or expedient in connection with the Macau Airlines Transactions and the transactions contemplated thereunder.”
“ THAT:
(a) the grant of a general mandate with a three-year term ending 31 December 2012 to the Directors to carry out the Xiamen Airlines Transactions (as defined in the Circular) and all the transactions contemplated thereunder; and
(b) the Annual Caps for the transactions contemplated under the Xiamen Airlines Transactions for each of the three years ending 31 December 2012 as shown in the Circular, be and are hereby approved and that the Directors be and are hereby authorised to take any step as they consider necessary, desirable or expedient in connection with the Xiamen Airlines Transactions and the transactions contemplated thereunder.”
“ THAT:
(a) the grant of a general mandate with a three-year term ending 31 December 2012 to the Directors to carry out the Hainan Airlines Transactions (as defined in the Circular) and all the transactions contemplated thereunder; and
(b) the Annual Caps for the transactions contemplated under the Hainan Airlines Transactions for each of the three years ending 31 December 2012 as shown in the Circular, be and are hereby approved and that the Directors be and are hereby authorised to take any step as they consider necessary, desirable or expedient in connection with the Hainan Airlines Transactions and the transactions contemplated thereunder.”

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NOTICE OF EGM

“ THAT:
(a) the form and substance of the agreement (“ New Network Services Agreement ”) dated 4 November 2009 (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 (1) the Company; (2) Yunnan TravelSky Airport Technology Limited（雲南航信空港網絡有限公司）; (3) Heilongjiang TravelSky Airport Technology Limited（黑龍江航信空港網絡有限公司）; (4) Dalian TravelSky Airport Technology Limited（大連航信空港網絡有限責任公司）; (5) Hebei TravelSky Airport Technology Limited（河北航信空港網路有限公司）; (6) TravelSky Technology (Hong Kong) Limited（中國民航信息網絡股份（香港）有限公司）; (7) TravelSky Technology (Singapore) Limited（中國民航信息網絡股份（新加坡）有限公司）; (8) TravelSky Technology (Japan) Limited （中國民航信息網絡股份（日本）有限公司）; (9) TravelSky Technology (Korea) Limited （中國民航信息網絡股份（韓國）有限公司）; (10) InfoSky Technology Company Limited
（天信達信息技術有限公司）; (11) Shanghai TravelSky Information Technology Limited（上海民航信息科技有限公司）; (12) Guangzhou TravelSky Information Technology Limited（廣州民航信息技術有限公司）; (13) Shanghai Civil Aviation East China Cares System Integration Co., Ltd.（上海民航華東凱亞系統集成有限公司）; (14) Shanghai Dongmei Aviation Tourism Online Co., Ltd.（上海東美在線旅行社有限公司）; (15) Aviation Cares of Southwest Chengdu, Ltd.（成都民航西南凱亞有限責任公司）; (16) Civil Aviation Cares of Qingdao Limited（青島民航凱亞系統集成有限公司）; (17) Hainan Civil Aviation Cares Co., Ltd.（海南民航凱亞有限公司）; (18) Cares Hubei Co., Ltd.（湖北民航凱亞有限公司）; (19) Cares Chongqing Information Technology Co., Ltd.（重慶民航凱亞信息技術有限公司）; (20) Aviation Cares of Yunnan Information Co., Ltd.（雲南民航凱亞信息有限公司）; (21) Civil Aviation Cares of Xiamen Ltd. (廈門民航凱亞有限公司）; (22) Civil Aviation Cares of Xi’an Ltd.（西安民航凱亞科技有限公司）; (23) Civil Aviation Cares Technology of Xinjiang Ltd.（新疆民航凱亞信息網絡有限責任公司）; (24) Shenyang Civil Aviation Cares of Northeast China, Ltd.（瀋陽民航東北凱亞有限公司）; (25) Cares Shenzhen Co., Ltd.（深圳民航凱亞有限公司）; and (26) Guangzhou Airport Airspan Information Technology Co. Ltd.（廣州空港航翼信息科技有限公司） in relation to the provision of network services as more particularly set out in the Circular and all the transactions contemplated thereunder; and
(b) the Annual Caps for the transactions contemplated under the New Network Services Agreement between the Company and the Connected Service Companies for each of the three years ending 31 December 2012 as shown in the Circular, be and are hereby approved and that the Directors be and are hereby authorised to take any step as they consider necessary, desirable or expedient in connection with the New Network Services Agreement and the transactions contemplated thereunder.”

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NOTICE OF EGM

“ THAT:
(a) the renewal of the Sichuan Airline Services Agreement (as defined in the Circular) (a copy of which has been produced to the meeting marked “B” and signed by the chairman of the meeting for the purpose of identification) for a further term of one year from 1 January 2010 to 31 December 2010 in relation to provision of technology services as more particularly set out in the Circular and all the transactions contemplated thereunder; and
(b) the Annual Cap for the transactions contemplated under the Sichuan Airline Services Agreement for the year ending 31 December 2010 as shown in the Circular, be and are hereby approved and that the Directors be and are hereby authorised to take any step as they consider necessary, desirable or expedient in connection with the Sichuan Airline Services Agreement and the transactions contemplated thereunder.”

By order of the Board TravelSky Technology Limited Xu Qiang Chairman

Beijing, the People’s Republic of China 13 November 2009

Registered office:

Floor 18-20, South Wing, Park C Raycom InfoTech Park No. 2 Ke Xue Yuan South Road Haidian District, Beijing 100190 the People’s Republic of China

Notes:

The register of holders of H shares of the Company (“ H Shares ”) will be closed from 30 November 2009 to 30 December 2009 (both days inclusive), during which time no transfer of H Shares will be effected. Holders of H Shares and domestic Shares of the Company (“ Domestic Shares ”) whose names appear on the register of members of the Company at the close of business on 27 November 2009 are entitled to attend the EGM. Transfers of H Shares must be lodged with the branch share registrar of the Company’s in Hong Kong, Hong Kong Registrars Ltd., at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong by 4:30 p.m. on 27 November 2009 in order to entitle the transferee to attend the EGM.
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.

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NOTICE OF EGM

The instrument appointing a proxy must be in writing under the hand of the appointer or his attorney duly authorised in writing, or in the case of a legal person, must either be executed under its seal or under the hand of a legal representative or other attorney duly authorised to sign the same. If that instrument is signed by an attorney of the appointer, the power of attorney authorising that attorney to sign, or other document of authorisation, must be notarially certified. To be valid, for holders of Domestic Shares, the notarially certified power of attorney, or other document of authorisation, and the form of proxy must be delivered to the registered address of the Company no later than 24 hours before the time appointed for the holding of the meeting. To be valid, for holders of H Shares, the above documents must be delivered to Hong Kong Registrars Ltd. within the same period of time.
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.
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 9 December 2009 personally or by mail or fax.
The EGM is expected to last for half a day. Shareholders (or their proxies) attending the EGM are responsible for their own transportation and accommodation expenses.
As at the date hereof, the board of the directors of the Company comprises:

Executive directors: Non-executive directors: Independent non-executive directors:

Mr Xu Qiang (Chairman) , Mr Cui Zhixiong and Mr Xiao Yinhong; Mr Wang Quanhua, Mr Luo Chaogeng and Mr Cao Guangfu; Mr Yick Wing Fat, Simon, Mr Yuan Yaohui and Mr Chua Keng Kim.

— 64 —

AI assistant

TravelSky Technology Limited — Proxy Solicitation & Information Statement 2009

49402_rns_2009-11-12_84f2b75a-897a-4ab7-8641-4d5b13723705.pdf

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF EGM

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

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF EGM

1. BACKGROUND

LETTER FROM THE BOARD

2. CONTINUING CONNECTED TRANSACTIONS

I. Continuing Connected Transactions under the Waiver

(a) Provision of Technology Services

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

II. THE NEW NETWORK SERVICES AGREEMENT

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

III. THE SICHUAN AIRLINE SERVICES AGREEMENT

3. HISTORICAL TRANSACTION RECORDS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

4. ANNUAL CAPS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

5. BASIS OF THE ANNUAL CAPS FOR THE CONTINUING CONNECTED TRANSACTIONS

(a) Provision of technology services

(b) Provision of (i) revenue accounting systems development and support services and (ii) passenger and cargo revenue accounting and settlement services

(c) Provision of interline data exchange services

(d) Provision of network services

6. REASONS FOR AND BENEFITS OF THE CONTINUING CONNECTED TRANSACTIONS

7. INFORMATION ABOUT THE CONNECTED COUNTERPARTIES

Air China

Southern Airlines

Xiamen Airlines

Chongqing Airlines

Lucky Airlines

Shandong Airlines

Eastern Airlines

Macau Airlines

Hainan Airlines

Sichuan Airlines

Connected Service Companies

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

8. IMPLICATIONS UNDER THE LISTING RULES

9. THE EGM

10. VOTING ARRANGEMENTS

Transactions

Shareholders of the Company to abstain from voting

11. RECOMMENDATIONS

12. GENERAL

CONTINUING CONNECTED TRANSACTIONS

LETTER FROM CHINA MERCHANTS

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

LETTER FROM CHINA MERCHANTS

BASIS OF OUR OPINION

LETTER FROM CHINA MERCHANTS

PRINCIPAL FACTORS AND REASONS CONSIDERED

I. BACKGROUND

1. Information on the Group

LETTER FROM CHINA MERCHANTS

Bookings of seats of commercial airlines of the PRC

Bookings

LETTER FROM CHINA MERCHANTS

Entities

Background

TravelSky Technology Limited Proxy Solicitation & Information Statement 2009