TravelSky Technology Limited - Proxy Solicitation & Information Statement 2012

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 or registered institution in securities, 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 registered institution in securities 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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(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 0696)

CONTINUING CONNECTED TRANSACTIONS AND

CHANGE OF INTERNATIONAL AUDITOR AND PRC AUDITOR 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 5 to 19 of this circular. A letter from the Independent Board Committee is set out on page 20 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 21 to 36 of this circular.

A notice convening the EGM to be held at Conference Room, Prime Hotel, 2 Wangfujing Ave., Dongcheng District, Beijing, the PRC at 10 a.m. on Wednesday, 22 February 2012 is set out on pages 40 to 42 of this circular. Whether or not you intend to be present at the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the branch share registrar of the Company in Hong Kong, Hong Kong Registrars Limited., 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 7 Yu Min Da Street, Houshayu Town, Shunyi District, Beijing 101308, the PRC (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.

6 January 2012

		Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM	THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
LETTER FROM	THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . .	20
LETTER FROM	CHINA MERCHANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
APPENDIX –	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		40

– 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
“Annual Cap(s)” the expected maximum aggregate annual amount of the Continuing Connected Transactions for each of the three years ending 31 December 2014, as set out in the paragraph headed “Annual Caps” in this circular
“Annual Cap(s)”
“associate(s)”
have the same meaning ascribed to it under Chapters 1 and 19A of the Listing Rules
“Auditors” the international auditor and the PRC auditor of the Group
“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
“CE Airline Transaction”
the continuing connected transactions between the Group and Eastern Airlines and its subsidiaries in relation to the provision of technology services as set out in this circular
“China Merchants”

China Merchants Securities (HK) Co., Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Continuing Connected Transactions and the Annual Caps, and a licensed corporation 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

“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

– 1 –

DEFINITIONS

“connected person” has the same meaning as ascribed to it under the Listing Rules
“Continuing Connected CE Airline Transaction, Eastern Wuhan Transaction, Transactions” Southern Airline Transaction and Sichuan Airline Transaction
“Director(s)” the director(s) of the Company
“Domestic Shares” domestic shares of book value of RMB1.00 each in the share capital of the Company
“Eastern Air”
China Eastern Air Holding Limited (中國東方航空集團有限公司), a substantial Shareholder with a shareholding of 11.22% in the Company
“Eastern Airlines”
China Eastern Airlines Corporation Limited (中國東方航空股份有限公司), a subsidiary of Eastern Air, with a shareholding of 0.86% in the Company
“Eastern Wuhan Airlines”
China Eastern Airlines Wuhan Company Limited (中國東方航空武漢有限責任公司), a subsidiary of Eastern Air, with a shareholding of 0.13% in the Company
“Eastern Wuhan Airline Transaction”
the continuing connected transactions between the Group and Eastern Wuhan Airlines in relation to the provision of technology services as set out in this circular
“EGM”
the extraordinary general meeting of the Company to be convened for the purpose of, among other things, approving (i) the Continuing Connected Transactions (ii) the Annual Caps (iii) the change of Auditors, and the notice of which is set out in this circular
“Group”
the Company and its subsidiaries, including ACCA
“HK$”
Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”
the Hong Kong Special Administrative Region of the PRC
“H Shares”
H shares of book value of RMB1.00 each in the share capital of the Company

– 2 –

DEFINITIONS

“Independent Board Committee”
the independent board committee of the Company formed by the Company to advise the Independent Shareholders in respect of the Continuing Connected Transactions and the Annual Caps
“Independent Shareholders” the Shareholders who are not required to abstain from voting on resolutions for approving the relevant Continuing Connected Transaction and the Annual Caps at the EGM
“Latest Practicable Date”
3 January 2012, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information for inclusion in this circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“PRC”
the People’s Republic of China and, for the purpose of this circular, excludes the Macau Special Administrative Region of the PRC and Hong Kong
“RMB” Renminbi, the lawful currency of the PRC
“SFO” Securities and Futures Ordinance
“Shareholder(s)” the shareholders of the Company
“Sichuan Airlines”
Sichuan Airlines Company Limited (四川航空股份有限公司), which is owned as to 39% by Southern Airlines
“Sichuan Airline Transaction”
the continuing connected transactions between the Group and Sichuan Airlines in relation to the provision of the revenue management systems development and support services and passenger and cargo revenue accounting and settlement services as set out in this circular
“Southern Air”
China Southern Air Holding Company (中國南方航空集團公司), a substantial Shareholder with a shareholding of 11.94% in the Company
“Southern Airlines”
China Southern Airlines Company Limited (中國南方航空股份有限公司), a subsidiary of Southern Air

– 3 –

DEFINITIONS

“Southern Airline Transaction”

the continuing connected transactions between the Group and Southern Airlines in relation to the provision of the revenue management systems development and support services and passenger and cargo revenue accounting and settlement services as set out in this circular

“Stock Exchange”

The Stock Exchange of Hong Kong Limited

“Waiver”

a conditional waiver from strict compliance with the requirement of having written agreements under Rule 14A.35(1) of the Listing Rules with respect to the Continuing Connected Transactions. Such waiver is for a three-year term commencing from expiry of the respective terms of the existing Continuing Connected Transactions

“%” per cent.

For the purpose of this circular, unless otherwise indicated, the exchange rate at HK$1 = RMB0.82 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.

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LETTER FROM THE BOARD

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(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 0696)

Directors: Xu Qiang (Chairman) Cui Zhixiong Xiao Yinhong Wang Quanhua[#] Luo Chaogeng[#] Sun Yude[#] Cheung Yuk Ming[##] Zhou Deqiang[##] Pan Chongyi[##]

Registered office in the PRC: 7 Yu Min Da Street, Houshayu Town, Shunyi District, Beijing 101308 the PRC

Principal place of business in Hong Kong: Room 3606, 36/F China Resources Building 26 Harbour Road Wan Chai Hong Kong

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

6 January 2012

To the Shareholders

Dear Sir/Madam

CONTINUING CONNECTED TRANSACTIONS AND CHANGE OF INTERNATIONAL AUDITOR AND PRC AUDITOR AND NOTICE OF EGM

INTRODUCTION

Reference is made to the Company’s announcement dated 14 December 2011. The Stock Exchange has granted the Waiver and the Board proposed to seek a general mandate with a three-year term from the Independent Shareholders in respect of the Continuing Connected Transactions under the Waiver that have their existing terms expiring on 31 December 2011 but will continue after such date. In the event that the terms of 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.

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LETTER FROM THE BOARD

Reference is also made to the Company’s announcement dated 26 August 2011 regarding the change of Auditors.

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) the change of Auditors, and to give you notice of the EGM.

A. CONTINUING CONNECTED TRANSACTIONS

BACKGROUND AND REASONS FOR APPLICATION OF THE WAIVER

The Group plays a strategic and critical role in the proper functioning of civil aviation in the PRC and the services provided by the Group are akin to public services. It is in no position to stop or even partially cease operating its services, even as regards one airlines, simply for the absence of written agreement with the associates of the Substantial Shareholders which are commercial airlines, as any such interruption would bring untold inconvenience and financial loss to all market participants including dependant industries such as tourism and hospitality sectors.

The requirement of having written agreements under Rule 14A.35(1) of the Listing Rules has been taken advantage by the associates of the Substantial Shareholders against the Group with respect to their negotiation of agreements with the Company in attempts to extract advantages, including without limitation to bargain for discounts. Further, despite that the Company has made attempt to start negotiating the renewal of the Continuing Connected Transactions with the associates of the Substantial Shareholders a few months before the expiration of the previous agreements in relation to the Continuing Connected Transactions, they have applied delay tactic in the negotiation process until such time when the previous agreements are about to expire as they know that the Group has little bargaining power due to the time constraint. Furthermore, given the environment in the information technology market changes rapidly, it is not meaningful to start any negotiation of terms (such as the scope of services, products and the pricing) too early as there can always be changes. It is also not the usual norm for this kind of agreement to negotiate far too ahead. The airlines do not think that the late entry of written agreements will cause any problem, as airlines need the Group’s technological services for their ordinary daily operation and the Group’s provision of services cannot be interrupted. But in any event, written agreements will be entered into but at a later stage.

Therefore, the Company considers that compliance with the requirement of having written agreements under Rule 14A.35(1) of the Listing Rules would be unduly burdensome and impractical and would prejudice and seriously affect the interests of the Group as the Group would be forced to accept detrimental terms offered by the associates of the Substantial Shareholders for the sake of complying with such requirements.

– 6 –

LETTER FROM THE BOARD

In view of the foregoing, the Company has recently applied to the Stock Exchange for the Waiver.

APPLICABLE LISTING RULES

Rule 14A.35 states that:

“When an issuer enters into a continuing connected transaction not falling under rule 14A.33, it must:

(1) in respect of each connected transaction, enter into written agreement(s) with the connected person. The agreement must set out the basis of the calculation of the payments to be made. The period for the agreement must be fixed and reflect normal commercial terms and, except in special circumstances, must not exceed 3 years...”.

GRANT OF WAIVER

The Stock Exchange has granted the Group a waiver from strict compliance with the requirement of having written agreements under Rule 14A.35(1) of the Listing Rules with respect to the following Continuing Connected Transactions between the Group on the one part and the associates of the Substantial Shareholders 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 and has been granted on condition that the Company publishes an announcement as soon as possible.

CONTINUING CONNECTED TRANSACTIONS UNDER THE WAIVER

Details of the Continuing Connected Transactions under the Waiver are set out below:

(a) Provision of Technology Services to Eastern Airlines

Parties: Service provider: The Company Service recipient: Eastern Airlines Terms: 1 January 2012 to 31 December 2014

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LETTER FROM THE BOARD

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 tickets 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 are currently 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.

In accordance with CAAC’s prescribed prices, depending on the types of system through which the transactions are processed, Eastern Airlines are required to pay the Company 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.

– 8 –

LETTER FROM THE BOARD

In addition, the fees payable by Eastern Airlines to the Company for the services 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.

The service fees will not in any circumstance materially deviate from the price range as prescribed by CAAC. The Directors are of the view that the basis of determination of the service fees mentioned above is fair and reasonable.

(b) Provision of Technology Services to Eastern Wuhan Airlines

Parties: Service provider:

The Company

Service recipient:

Eastern Wuhan Airlines

Terms: 1 January 2012 to 31 December 2014

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;

– 9 –

LETTER FROM THE BOARD

(ii) Electronic travel distribution system services which provide, among other services, flight information display, real-time flight reservation, automatic tickets sales, tickets price display and other travel-related services;
(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 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 prescribed prices, depending on the types of system through which the transactions are processed, Eastern Wuhan Airlines are required to pay the Company 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 fees payable by Eastern Wuhan Airlines to the Company for the services 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.

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LETTER FROM THE BOARD

The service fees shall be calculated on 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.

(c) Provision of the revenue management systems development and support services and passenger and cargo revenue accounting and settlement services to Southern Airlines

Parties: Service provider: ACCA

Service recipient:

Southern Airlines

Terms: 1 January 2012 to 31 December 2014

Services: The scope of technology services consists of the following:

(i) Revenue management systems development and support services – the main services provided by ACCA include installation of application software for revenue management system and setting up of the database; technical and application support; maintenance of the software, hardware environment and system safety, etc; setting up of the communication connection solution in respect of the revenue management systems and assisting Southern Airlines in relevant application, installation and testing works; provision of necessary system training, operation and maintenance guidelines.
(ii) Passenger and cargo revenue accounting and settlement services – provision of business clearing and settlement; sorting, archiving, managing, proofreading, mailing, clearing and business handling of passenger and cargo air tickets; data collection and handling as provided to Southern Airlines by foreign and domestic airlines, report examination and correction, initial and subsequent examinations and adjustment, mail and telegraph preparation and handling, invoice preparation, sorting, archiving, managing, proofreading, mailing, clearing and business handling, etc of invoices and tickets.

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LETTER FROM THE BOARD

Service fees:

Charge rates of revenue management systems development and support services are determined by negotiation with reference to the costs and specifications of the relevant type of services provided and vary depending on the transaction volume (i.e. the higher the transaction volume, the lower the rate). The rate of unit price for revenue management systems development and support services for domestic passengers and for domestic cargo are no more than RMB0.4 and RMB1.8, respectively. The rate of unit price for revenue management systems development and support services for international passengers and for international cargo are no more than RMB1.65 and RMB5.2, respectively.

The fees of revenue accounting and settlement services for passengers, cargo and miscellaneous 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 the percentage rate (which is no more than 1%) of the total amount involved for the revenue accounting.

Additional services:
Service fees:
Provision of commercial analysis products application services

Service fees consist of the following:

(a) a fixed monthly fee for usage and operation maintenance for each type of product;
(b) a one-off system implementation fee of RMB100,000; and
(c) a commercial development fee of RMB2,000 per person per day (such fee is payable if it is incurred for more than 150 days for the first year of implementation; and for more than 100 days for the second year of implementation).

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LETTER FROM THE BOARD

(d) Provision of the revenue management systems development and support services and passenger and cargo revenue accounting and settlement services to Sichuan Airlines

Parties:

Service provider: ACCA

Service recipient: Sichuan Airlines

Terms:

1 January 2012 to 31 December 2014

Services:

Revenue management systems development and support services – the main services provided by ACCA consists of installing application software and database maintenance, providing technical and application support; maintenance of the software, hardware environment and system safety, etc; provision of necessary system training, operation and maintenance guidelines.

Passenger and cargo revenue accounting and settlement services – provision of outward billing; handling of outward billing and invoice, including sorting, archiving, managing, proofreading, mailing, clearing and business handling for international passenger and cargo outward billing business; provision of registration of invoices and management, data collection and handling, report examination and correction, examination, sorting, archiving, managing, proofreading, mailing, clearing, etc of invoices for international passenger and cargo inward examination business.

Service fees:

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

The fees of revenue accounting and settlement services for passengers, cargo and miscellaneous 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 the percentage rate (which is no more than 3%) of the total amount involved for the revenue accounting.

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LETTER FROM THE BOARD

HISTORICAL TRANSACTION RECORDS

Set out below is a summary of the aggregated amounts of the Continuing Connected Transactions for the three years ended 31 December 2010 and ten months ended 31 October 2011:

				10 months ended
	Year ended 2008	Year ended 2009	Year ended 2010	31 October 2011
CE Airline	RMB371,960,000	RMB409,174,000	RMB478,285,000	RMB362,506,000
Transaction and	(equivalent to	(equivalent to	(equivalent to	(equivalent to
Eastern Wuhan Airline	approximately	approximately	approximately	approximately
Transaction	HK$453,610,000)	HK$498,993,000)	HK$583,274,000)	HK$442,080,000)
Southern Airline	RMB26,212,000	RMB29,068,000	RMB35,578,000	RMB36,655,000
Transaction	(equivalent to	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately	approximately
	HK$31,966,000)	HK$35,449,000)	HK$43,388,000)	HK$44,701,000)
Sichuan Airline	RMB2,692,000	RMB2,897,000	RMB3,211,000	RMB2,927,000
Transaction	(equivalent to	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately	approximately
	HK$3,283,000)	HK$3,533,000)	HK$3,916,000)	HK$3,570,000)

Note: the historical transaction figures for the years ended 2008, 2009 and 2010 are audited figures of the Group and the figures for the 10 months ended 31 October 2011 are internal management account figures.

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 2014:

	Year	ending 31 December	ending 31 December
	2012	2013		2014
CE Airline	RMB631,336,000	RMB757,603,000		RMB909,124,000
Transaction and	(equivalent to	(equivalent to		(equivalent to
Eastern Wuhan Airline	approximately	approximately		approximately
Transaction	HK$769,922,000)	HK$923,906,000)	HK$1,108,688,000)
Southern Airline	RMB55,591,000	RMB69,488,000		RMB86,860,000
Transaction	(equivalent to	(equivalent to		(equivalent to
	approximately	approximately		approximately
	HK$67,794,000)	HK$84,741,000)		HK$105,927,000)
Sichuan Airline	RMB5,017,000	RMB6,272,000		RMB7,839,000
Transaction	(equivalent to	(equivalent to		(equivalent to
	approximately	approximately		approximately
	HK$6,118,000)	HK$7,649,000)		HK$9,560,000)

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LETTER FROM THE BOARD

BASIS OF THE ANNUAL CAPS FOR THE CONTINUING CONNECTED TRANSACTIONS

(a) Provision of technology services under the CE Airline Transaction and the Eastern Wuhan Airline Transaction

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 2010 and the ten months ended 31 October 2011 and the historical annual growth of business with Eastern Airlines and Eastern Wuhan Airlines in 2011; (ii) the estimated annual growth rate of 20% in the transaction volume taking into account of the anticipated growth of the PRC’s aviation and travel industry and economy in general; and (iii) the expansion of the airlines’ businesses from time to time through acquisition of other airlines or establishing more subsidiaries or branches.

(b) Provision of (i) revenue management systems development and support services and (ii) passenger and cargo revenue accounting and settlement services under the Southern Airline Transaction and the Sichuan Airline Transaction

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 2010 and the ten months ended 31 October 2011 and the historical annual growth of business with Southern Airlines and Sichuan Airlines in 2011; (ii) an estimated annual growth rate of 25% in the level of service and scope of services provided by the Group taking into account of the anticipated growth of the PRC’s aviation and travel industry and economy in general; and (iii) the expansion of the airlines’ businesses from time to time through acquisition of other airlines or establishing more subsidiaries or branches.

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, 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 “Continuing Connected Transactions under the Waiver” is 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 Directors 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 as a whole.

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LETTER FROM THE BOARD

INFORMATION ABOUT THE CONNECTED COUNTERPARTIES

Eastern Airlines

Eastern Air is a substantial Shareholder. To the best knowledge of the Directors, Eastern Air holds approximately 62.1% and 55.2% of the total issued A shares and H shares of Eastern Airlines respectively as at the Latest Practicable Date. Eastern Airlines, being a subsidiary of Eastern Air, therefore is an associate of Eastern Air. Therefore, according to Rule 14A.11(4) of the Listing Rules, Eastern Airlines, being an associate of a connected person, is also a connected person of the Company.

Eastern Airlines is a company listed on the Main Board of the Stock Exchange (Stock Code: 670) and is principally engaged in the operation of civil aviation, including the provision of passenger, cargo, mail delivery and other extended transportation services.

Eastern Wuhan Airlines

Eastern Wuhan Airlines is owned as to 96% by Eastern Airlines, a subsidiary of Eastern Air. Therefore, Eastern Wuhan Airlines is a connected person of the Company by virtue of its being an associate of Eastern Air. Eastern Wuhan Airlines is principally engaged in airline operation in the PRC.

Southern Airlines

Southern Air is a substantial Shareholder. To the best knowledge of the Directors, Southern Air holds approximately 59.0% and 38.1% of the total issued A shares and H shares of Southern Airlines respectively as at the Latest Practicable Date. Southern Airlines, being a subsidiary of Southern Air, therefore is an associate of Southern Air. Therefore, according to Rule 14A.11(4) of the Listing Rules, Southern Airlines, being an associate of a connected person, is also a connected person of the Company.

Southern Airlines is a company listed on the Main Board of the Stock Exchange (Stock Code: 1055) and is principally engaged in the provision of domestic, Hong Kong and Macau and international passenger, cargo and mail airline services.

Sichuan Airlines

Sichuan Airlines is owned as to 40% by Sichuan Air Group Company (四川航空集團有限責任公司), 39% by Southern Airlines, 10% by Shanghai Airlines Company Limited (上海航空股份有限公司), 10% by Shandong Airlines Company Limited (山東航空股份有限公司) and 1% by an independent third party. By virtue of its being an associate of Southern Airlines, which is a subsidiary of Southern Air (a substantial Shareholder), Sichuan Airlines is therefore a connected person of the Company under Rule 14A.11(4) of the Listing Rules. It is principally engaged in airline operation in the PRC.

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LETTER FROM THE BOARD

IMPLICATIONS UNDER THE LISTING RULES

The Company proposes to seek a general mandate with a three-year term ending 31 December 2014 from the Independent Shareholders in order to continue the Continuing Connected Transactions under the Waiver that have their existing terms expiring on 31 December 2011 but will continue after such date. In the event that the terms of 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.

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 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 as a whole. The Independent Board Committee has been formed to advise the Independent Shareholders on how to vote a the EGM on the resolutions in respect of the Continuing Connected Transactions and the Annual Caps, after taking into account the recommendations of China Merchants.

Mr Wang Quanhua has abstained from voting on the board resolution for approving the Southern Airline Transaction and Mr Luo Chaogeng has abstained from voting on the board resolution for approving the CE Airline Transaction. Save as disclosed above, none of the Directors has a material interest in the Continuing Connected Transactions and none of them has abstained from voting on the relevant board resolutions.

B. CHANGE OF AUDITORS

Pursuant to the relevant regulations issued by the State-owned Assets Supervision and Administration Commission of the State Council of China (“ SASAC ”), the appointment of PricewaterhouseCoopers (“ PwC ”) and PricewaterhouseCoopers Zhong Tian CPAs Limited Company (“ PwC Zhong Tian ”) as the international auditor and PRC auditor of the Group for the year 2011 was terminated (the “ Termination ”) as PwC and PwC Zhong Tian have provided audit services to the Group for a term exceeding the limit prescribed by SASAC. The Termination was approved at the Board meeting held on 26 August 2011 and took effect from the conclusion of such Board meeting. As for the agreed upon services provided by PwC and PwC Zhong Tian for the six months ended 30 June 2011, the Company has paid for their services as considered reasonable by all parties after arm’s length negotiation. PwC and PwC Zhong Tian have confirmed that there is no matter relating to the Termination that needs to be brought to the attention of the Shareholders.

On 26 August 2011, the Board approved the appointment of Baker Tilly Hong Kong and Baker Tilly China as the international auditor and PRC auditor of the Group respectively to fill the vacancy and in place of PwC and PwC Zhong Tian with effect from the conclusion of the Board meeting, for a term ending on the date of the next general meeting of the Company.

Pursuant to the articles of association of the Company, the resignation and the appointment of Auditors have to be approved by the Shareholders. The change of international auditor and PRC auditor by the Company in August 2011 will therefore be submitted for consideration and approval by the Shareholders at the EGM.

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LETTER FROM THE BOARD

EGM

The EGM will be held at Conference Room, Prime Hotel, 2 Wangfujing Ave., Dongcheng District, Beijing, the PRC at 10 a.m. on Wednesday, 22 February 2012 to consider and, if thought fit, approve, among other matters, (i) the Continuing Connected Transactions; (ii) the Annual Caps; and (iii) the change of Auditors. Notice of the EGM is set out on pages 40 to 42 of this circular.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you intend to be present at the EGM, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to the branch share registrar of the Company in Hong Kong, Hong Kong Registrars Limited, 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 7 Yu Min Da Street, Houshayu Town, Shunyi District, Beijing 101308, the PRC (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.

VOTING ARRANGEMENTS

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 and their respective associates 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:

Transactions Shareholders and their respective associates to abstain from voting CE Airline Transaction Eastern Air, Eastern Airlines, Eastern Wuhan Airlines Eastern Wuhan Airline Eastern Air, Eastern Airlines, Eastern Wuhan Transaction Airlines Southern Airline Transaction Southern Air and its subsidiary, Xiamen Airlines Company Limited (廈門航空有限公司) Sichuan Airline Transaction Southern Air and its subsidiary, Xiamen Airlines Company Limited (廈門航空有限公司), and the controlling shareholder of Sichuan Airlines, Sichuan Airlines Company Limited (四川航空集團有限責任公司)

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 resolutions to be proposed at the EGM in accordance with the articles of association of the Company.

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

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LETTER FROM THE BOARD

RECOMMENDATIONS

Your attention is drawn to the letter from the Independent Board Committee set out on page 20 of this circular in connection with the Continuing Connected Transactions and the Annual Caps. Your attention is also drawn to 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 21 to 36 of this circular.

The Independent Board Committee, having taken into account the advice of China Merchants, considers that (i) the Continuing Connected Transactions are in the ordinary and usual course of business of the Group, (ii) the terms of the transactions under the Continuing Connected Transactions are on normal commercial terms and (iii) the terms of the Continuing Connected Transactions 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 for approving the Continuing Connected Transactions and the Annual Caps at the EGM.

With respect to the change of Auditors, the Board considers that the ordinary resolution to approve the resignation of PwC and PwC Zhong Tian and the appointment of Baker Tilly Hong Kong and Baker Tilly China as Auditors is in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders to vote in favor of the ordinary resolution at the EGM.

GENERAL

Your attention is also 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

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 0696)

6 January 2012

To the Independent Shareholders

Dear Sir/Madam,

CONTINUING CONNECTED TRANSACTIONS

We refer to the circular issued by the Company to its shareholders dated 6 January 2012 (the “ Circular ”) 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 transactions contemplated under the Continuing Connected Transactions and the Annual Caps. 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 (i) the transactions under the Continuing Connected Transactions are in the ordinary and usual course of business of the Group, (ii) the terms of the transactions under the Continuing Connected Transactions are on normal commercial terms and (iii) the terms of the Continuing Connected Transactions 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 Cheung Yuk Ming Zhou Deqiang Pan Chongyi

Independent Non-executive Directors

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LETTER FROM CHINA MERCHANTS

The following is the text of a letter from China Merchants for the purpose of incorporation in this circular, in connection with its advice to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Continuing Connected Transactions contemplated under the Waiver.

==> picture [28 x 28] intentionally omitted <==

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

6 January 2012

To: the Independent Board Committee and the Independent Shareholders

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 terms (including the Annual Caps) for the Continuing Connected Transactions, details of which are set out in the letter from the Board (the “Letter from the Board”) contained in the circular dated 6 January 2012 (the “Circular”) issued by the Company to the Shareholders, of which this letter forms part. Unless the context otherwise requires, capitalised terms used in this letter shall have the same meanings as defined in the Circular.

As referred to in the Letter from the Board, the Company proposes to seek a general mandate with a three-year term ending 31 December 2014 from the Independent Shareholders in order to continue the Continuing Connected Transactions under the Waiver that have their existing terms expiring on 31 December 2011 but will continue after such date. In the event that the terms of 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.

THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprising all the Company’s three independent non-executive Directors, namely Mr. Cheung Yuk Ming, Mr. Zhou Deqiang and Mr. Pan Chongyi, has been formed 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 are in the interests of the Company and the shareholders of the

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LETTER FROM CHINA MERCHANTS

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. We, China Merchants Securities (HK) Co., Limited have been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard.

BASIS OF OUR OPINION

In formulating our advice and opinion, we have relied on the accuracy of the information and facts supplied, and the opinions and representations expressed to us, by the Company, its Directors and its management. We have assumed that all information, facts, statements of belief, opinions and intentions and representations made to us by the Directors or referred to in the Circular were reasonably made after due and careful enquiry and are based on honestly-held opinions. We have also assumed that all information, representations and opinions made or referred to in the Circular and provided to us by the Company, its Directors and its management, for which they were solely and wholly responsible, were true, accurate and complete at the time they were made and continued to be true, accurate and complete at the date of the EGM. We have no reason to doubt the truth, accuracy and completeness of the information and representations referred to in the Circular and provided to us by the Company, its Directors and its management and have been advised by the Directors that they have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular, and have confirmed that no material facts have been omitted from the information provided to us and referred to in the Circular. We have also assumed that all policies/statement of intentions as advised by the Directors as set out in this letter and the Circular will be implemented.

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 have not, however, conducted any form of in-depth investigation 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 Company and its Directors and management.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating and giving our advice to the Independent Board Committee and the Independent Shareholders, we have taken into account the following principal factors and reasons:

I. BACKGROUND

1. Information on the Group

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LETTER FROM CHINA MERCHANTS

The Group’s turnover for each of the three years ended 31 December 2010 is set out below:

			Year	ended 31 December	ended 31 December
			2008	2009	2010
			(RMB’	(RMB’	(RMB’
			million)	million)	million)
			(Audited)	(Audited)	(Audited)
The	Group’s	turnover	2,271.2	2,619.5	3,054.4

Source: the annual reports of the Company for the year ended 31 December 2009 and 2010

The Group’s information in respect of bookings on seats of commercial airlines of the PRC for each of the three years ended 31 December 2010 is set out below:

			Year	ended 31 December	ended 31 December
			2008	2009	2010
Number	of	bookings	202,787,304	240,391,741	280,652,646

Source: the official website of the Company

From the year ended 31 December 2008 to the year ended 31 December 2010, (i) the Group’s audited turnover achieved a compound average growth rate (“CAGR”) of approximately 16.0% per annum; and (ii) the Group’s total bookings on seats of flights of commercial airlines of the PRC achieved a CAGR of approximately 17.6% per annum. As advised by the Directors, the growth in the Group’s turnover and total bookings on seats of flights of commercial airlines of the PRC were mainly 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.

2. Information on the connected counterparties

Eastern Airlines

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LETTER FROM CHINA MERCHANTS

Eastern Airlines is a company listed on the Main Board of the Stock Exchange (stock code: 670) and is principally engaged in the operation of civil aviation, including the provision of passenger, cargo, mail delivery and other extended transportation services.

Eastern Wuhan Airlines

Southern Airlines

Sichuan Airlines

Sichuan Airlines is owned as to 40% by Sichuan Air Group Company (四川航空集團公司), 39% by Southern Airlines, 10% by Shanghai Airlines Company Limited (上海航空股份有限公司), 10% by Shandong Airlines Company Limited (山東航空股份有限公司) and 1% by an independent third party. By virtue of its being an associate of Southern Airlines, which is a subsidiary of Southern Air (a substantial shareholder of the Company), Sichuan Airlines is therefore a connected person of the Company under Rule 14A.11(4) of the Listing Rules. It is principally engaged in airline operation in the PRC.

3. Economy and aviation industry in the PRC

Based on the article headed “Production statistics report for nationwide airports in 2010” (《2010年全國機場生產統計公報》) published on the official website of CAAC on 15 March 2011, the number of passenger traffic of the PRC airports (measured by number of passengers) in the PRC increased to approximately 564 million for the year ended 31 December 2010, representing an increase of approximately 16.1% as compared with that for the year ended 31 December 2009.

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LETTER FROM CHINA MERCHANTS

Based on China Statistical Yearbook 2010 (《中國統計年鑑–2010年》) published by the National Bureau of Statistics of China (中華人民共和國國家統計局) and the figures published on the official website of the National Bureau of Statistics of China (中華人民共和國國家統計局), from 2000 to 2010, the PRC’s gross domestic product increased from approximately RMB20,941 billion to approximately RMB39,798 billion, representing a CAGR of approximately 14.9% per annum.

Taking into account (i) the robust growth in the passenger traffic of the aviation industry in the PRC; (ii) the steady and continuous growth of the gross domestic product in the PRC; and (iii) the CAGR of the Group’s turnover of approximately 16.0% per annum from the year ended 31 December 2008 to the year ended 31 December 2010, the Directors expect that the Group’s turnover will continue to achieve a stable growth in the coming years.

II. THE CONTINUED CONNECTED TRANSACTIONS

1. Background and reasons for application of the Waiver, and reasons and benefits of the Continuing Connected Transactions

As stated in the “Letter from the Board”, the Group plays a strategic and critical role in the proper functioning of civil aviation in the PRC and the services provided by the Group are akin to public services. It is in no position to stop or even partially cease operating its services, even as regards one airlines, simply for the absence of written agreement with the associates of the Substantial Shareholders which are commercial airlines, as any such interruption would bring untold inconvenience and financial loss to all market participants including dependant industries such as tourism and hospitality sectors.

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LETTER FROM CHINA MERCHANTS

technological services for their ordinary daily operation and the Group’s provision of services cannot be interrupted. But in any event, written agreements will be entered into but at a later stage.

In view of the foregoing, the Company has recently applied to the Stock Exchange for, and the Stock Exchange has granted, the Waiver.

Also, as stated in the “Letter from the Board”, the Group will receive service fees for provision of various services under the Continuing Connected Transactions and thus such transactions will increase the total revenue of the Group.

Given that (i) the requirement of having written agreements under Rule 14A.35(1) of the Listing Rules has been taken advantage by the associates of the Substantial Shareholders against the Group with respect to their negotiation of agreements with the Company in attempts to extract advantages; (ii) the major terms of the Continuing Connected Transactions under the Waiver are contained in the Circular for the approval of the Independent Shareholders, in the event that the terms of 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, thus it is ensured that the Company will not conduct the Continuing Connected Transactions with terms which are materially different from those being approved by the Independent Shareholders; (iii) the then independent shareholders of the Company has approved a general mandate with a three-year term ending 31 December 2012 to conduct a number of continuing connected transaction under a waiver (the “2009 Waiver”) from strict compliance with the requirement of having written agreements under Rule 14A.35(1) of the Listing Rules in the extraordinary general meeting of the Company held on 30 December 2009, details of which are contained in the circular issued by the Company on 13 November 2009, and the terms of the written agreements in relation to the 2009 Waiver are not materially different from those approved by the then independent shareholders; (iv) the major terms of the Continuing Connected Transactions under the Waiver are on normal commercial terms, detailed analysis of which is contained in the section “2. The terms of the Continuing Connected Transactions” below; (v) the Waiver is of a three-year term which does not exceed the requirement of Rule 14A.35(1) that the period for the agreement must not exceed 3 years; and (vi) the Group will receive service fees for provision of such services and thus, will achieve accretion in earning in the future, we are of the view that the

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LETTER FROM CHINA MERCHANTS

Waiver would not result in undue risk to the Independent Shareholders or cause the Continuing Connected Transactions become unfair to the Independent Shareholders because (a) the major terms of the Continuing Connected Transactions require the approval of the Independent Shareholders; (b) in the event that the terms of 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; and (c) the Company has the track record of entering into written agreements in relation to the 2009 Waiver which are not materially different from those approved by the then independent shareholders. We also consider that the Continuing Connected Transactions contemplated under the Waiver are on normal commercial terms, in the ordinary and usual course of business of the Group, fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole. In addition, we concur with the Directors’ view that the Continuing Connected Transactions will increase the total revenue of the Group.

2. The terms of the Continuing Connected Transactions

(i) Provision of technology services to Eastern Airlines and Eastern Wuhan Airlines

As stated in the Letter from the Board, the service fees for the provision of technology services payable by Eastern Airlines and Eastern Wuhan Airlines are currently 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.

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 by Eastern Airlines and Eastern Wuhan Airlines 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, service fees including (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, is payable by Eastern Airlines and Eastern Wuhan Airlines.

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LETTER FROM CHINA MERCHANTS

The service fees payable by Eastern Airlines and Eastern Wuhan Airlines 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.

The service fee will not in any circumstance materially deviate from the price range as prescribed by CAAC.

In assessing the fairness and reasonableness of the terms of the CE Airline Transaction and the Eastern Wuhan Airline Transaction, we have reviewed (i) the service fees payable by Eastern Airlines and Eastern Wuhan Airlines for the CE Airline Transaction and the Eastern Wuhan Airline Transaction under the Waiver; (ii) the existing pricing schedule prescribed by CAAC; and (iii) the service fees for the provision of technology services payable by a number of domestic airlines in the PRC, which include independent third party, to the Company. And it is noted that both of (a) the services fees payable by Eastern Airlines and Eastern Wuhan Airlines for the CE Airline Transaction and the Eastern Wuhan Airline Transaction under the Waiver; and (b) the service fees for the provision of technology services payable by the domestic airlines in the PRC, are determined in accordance with the pricing schedule prescribed by CAAC, where the pricing schedule is solely determined by CAAC and applies to the relevant transactions between the Company and all of its clients. Based on the aforesaid, we consider that the CE Airline Transaction and the Eastern Wuhan Airline Transaction are on normal commercial terms and are 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.

(ii) Provision of the revenue management systems development and support services and passenger and cargo revenue accounting and settlement services

To Southern Airlines

As stated in the Letter from the Board, charge rates of revenue management systems development and support services payable by Southern Airlines are determined by negotiation with reference to the costs and specifications of the relevant type of services provided and vary depending on the transaction volume (i.e. the higher the transaction volume, the lower the rate). The rate of unit price per transaction handled for revenue management systems development and support services for domestic passengers and for domestic cargo payable by Southern Airlines are no more than RMB0.4 and RMB1.8, respectively. The rate of unit price per transaction handled for revenue management systems

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LETTER FROM CHINA MERCHANTS

development and support services for international passengers and for international cargo payable by Southern Airlines are no more than RMB1.65 and RMB5.2, respectively.

The fees of revenue accounting and settlement services for passengers, cargo and miscellaneous payable by Southern Airlines 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 payable by Southern Airlines are based on the calculation of the percentage rate (which is no more than 1%) of the total amount involved for the revenue accounting.

The service fees for the provision of commercial analysis products application services payable by Southern Airlines consist of (a) a fixed monthly fee for usage and operation maintenance for each type of product; (b) a one-off system implementation fee of RMB100,000; and (c) a commercial development fee of RMB2,000 per person per day (such fee is payable if it is incurred for more than 150 days for the first year of implementation; and for more than 100 days for the second year of implementation).

The service fees will not in any circumstance materially deviate from the price range as prescribed by CAAC.

To Sichuan Airlines

As stated in the Letter from the Board, charge rates of revenue management systems development and support services payable by Sichuan Airlines are determined by negotiation with reference to the costs and specifications of the relevant type of services provided and vary depending on the transaction volume (i.e. the higher the transaction volume, the lower the rate). The rates of unit price per transaction handled for revenue management systems development and support services for domestic passengers and for domestic cargo payable by Sichuan Airlines are no more than RMB0.6 and RMB 1.8 respectively.

The fees of revenue accounting and settlement services for passengers, cargo and miscellaneous payable by Sichuan Airlines 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 payable by Sichuan Airlines are based on the calculation of the percentage rate (which is no more than 3%) of the total amount involved for the revenue accounting.

The service fees will not in any circumstance materially deviate from the price range as prescribed by CAAC.

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LETTER FROM CHINA MERCHANTS

To the best knowledge, information and belief of the Directors, ACCA has been 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 since its establishment. In addition, the Directors advised that ACCA also provides other domestic airlines in the PRC with services (the “Similar Services”) to the revenue management systems development and support services, passenger and cargo revenue accounting and settlement services, and commercial analysis products application services.

In assessing the fairness and reasonableness of the terms of the Southern Airline Transaction and the Sichuan Airline Transaction, we have reviewed (i) the service fees payable by Southern Airlines and Sichuan Airlines for the Southern Airline Transaction and the Sichuan Airline Transaction under the Waiver; and (ii) the services fees for the provision of Similar Services payable by a number of domestic airlines in the PRC, which include independent third party, to ACCA. And it is noted that (i) ACCA applied the same pricing principle to determine the service fees for the provision of the revenue management systems development and support services (i.e. the higher the transaction volume, the lower the rate, as a result, the rate of unit price per transaction handled for revenue management systems development and support services for domestic passengers of no more than RMB0.4 for Southern Airlines is lower than that of Sichuan Airlines of no more than RMB0.6) to Southern Airlines, Sichuan Airlines and the other domestic airlines in the PRC, where the charge rates for Southern Airlines and Sichuan Airlines are comparable to the other domestic airlines in the PRC with similar level of transaction volume respectively; (ii) ACCA applied the same pricing principle to determine the service fees for the provision of the passenger and cargo revenue accounting and settlement services (i.e. based on the calculation of the percentage rate of the total amount involved for the revenue account, and the higher the total amount, the lower the percentage rate, as a result, the percentage rate for the fees of revenue accounting and settlement services of no more than 1% for Southern Airlines is lower than that of Sichuan Airlines of no more than 3%) to Southern Airlines, Sichuan Airlines and the other domestic airlines in the PRC, where the percentage rate for Southern Airlines and Sichuan Airlines are comparable to the other domestic airlines in the PRC with similar level of total amount respectively; and (iii) the service fees for the provision of commercial analysis products application services payable by Southern Airlines are comparable to those offered by ACCA to other domestic airlines in the PRC. Based on the aforesaid, we consider that the Southern Airline Transaction and the Sichuan Airline Transaction are on normal commercial terms and are 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.

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LETTER FROM CHINA MERCHANTS

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 2014:

	Year	ending 31 December	ending 31 December
	2012	2013	2014
CE Airline Transaction	RMB631,336,000	RMB757,603,000	RMB909,124,000
and Eastern Wuhan	(equivalent to	(equivalent to	(equivalent to
Airline Transaction	approximately	approximately	approximately
	HK$769,922,000)	HK$923,906,000)	HK$1,108,688,000)
Southern Airline	RMB55,591,000	RMB69,488,000	RMB86,860,000
Transaction	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately
	HK$67,794,000)	HK$84,741,000)	HK$105,927,000)
Sichuan Airline	RMB5,017,000	RMB6,272,000	RMB7,839,000
Transaction	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately
	HK$6,118,000)	HK$7,649,000)	HK$9,560,000)

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 three years ended 31 December 2010 and ten months ended 31 October 2011:

				Ten months
				ended
	Year ended 31 December			30 October
	2008	2009	2010	2011
CE Airline	RMB371,960,000	RMB409,174,000	RMB478,285,000	RMB362,506,000
Transaction and	(equivalent to	(equivalent to	(equivalent to	(equivalent to
Eastern Wuhan	approximately	approximately	approximately	approximately
Airline	HK$453,610,000)	HK$498,993,000)	HK$583,274,000)	HK$442,080,000)
Transaction
Southern Airline	RMB26,212,000	RMB29,068,000	RMB35,578,000	RMB36,655,000
Transaction	(equivalent to	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately	approximately
	HK$31,966,000)	HK$35,449,000)	HK$43,388,000)	HK$44,701,000)
Sichuan Airline	RMB2,692,000	RMB2,897,000	RMB3,211,000	RMB2,927,000
Transaction	(equivalent to	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately	approximately
	HK$3,283,000)	HK$3,533,000)	HK$3,916,000)	HK$3,570,000)

Note: The historical transaction figures for the years ended 2008, 2009 and 2010 are audited figures of the Group and the figures for the ten months ended 31 October 2011 are internal management account figures.

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LETTER FROM CHINA MERCHANTS

3. The basis for the Annual Caps

As stated in the Letter from the Board:

(i) Provision of technology services under the CE Airline Transaction and the Eastern Wuhan Airline Transaction

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 2010 and the ten months ended 31 October 2011 and the historical annual growth of business with Eastern Airlines and Eastern Wuhan Airlines in 2011; and (ii) the estimated annual growth rate of 20% (the “Adopted Growth Rate for Eastern Airlines and Eastern Wuhan Airlines”) in the transaction volume taking into account of the anticipated growth of the PRC’s aviation and travel industry and economy in general; and (iii) the expansion of the airlines’ businesses from time to time through acquisition of other airlines or establishing more subsidiaries or branches.

(ii) Provision of (a) revenue management systems development and support services and (b) passenger and cargo revenue accounting and settlement services under the Southern Airline Transaction and the Sichuan Airline Transaction

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 2010 and the ten months ended 31 October 2011 and the historical annual growth of business with Southern Airlines and Sichuan Airlines in 2011; (ii) an estimated annual growth rate of 25% (the “Adopted Growth Rate for Southern Airlines and Sichuan Airlines”) in the level of service and scope of services provided by the Group taking into account of the anticipated growth of the PRC’s aviation and travel industry and economy in general; and (iii) the expansion of the airlines’ businesses from time to time through acquisition of other airlines or establishing more subsidiaries or branches.

It is noted that, from the year ended 31 December 2008 to the year ended 31 December 2010, (i) the Group’s audited turnover achieved a CAGR of approximately 16.0% per annum; and (ii) the Group’s total bookings on seats of flights of commercial airlines of the PRC achieved a CAGR of approximately 17.6% per annum; and (iii) the annualized actual transaction amount for 2011 for the CE Airline Transaction and Eastern Wuhan Airline Transaction decreased by 9.0% when compared to the transaction amount for 2010 (the “2011 Annualized Growth Rate for Eastern Airlines and Eastern Wuhan Airlines”), and the annualized actual transaction amount for 2011 for

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LETTER FROM CHINA MERCHANTS

the Southern Airline Transaction and the Sichuan Airline Transaction increased by 23.6% and 9.4% respectively when compared to the transaction amount for 2010 (the “2011 Annualized Growth Rate for Southern Airlines” and the “2011 Annualized Growth Rate for Sichuan Airlines” respectively). Notwithstanding the fact that the Adopted Growth Rate for Eastern Airlines and Eastern Wuhan Airlines (being 20%) and the Adopted Growth Rate for Southern Airlines and Sichuan Airlines (being 25%) are higher than the CAGR for each of (i) the Group’s audited turnover from the year ended 31 December 2008 to the year ended 31 December 2010; (ii) the Group’s total bookings on seats of flights of commercial airlines of the PRC from the year ended 31 December 2008 to the year ended 31 December 2010; and (iii) the 2011 Annualized Growth Rate for Eastern Airlines and Eastern Wuhan Airlines, the 2011 Annualized Growth Rate for Southern Airlines and the 2011 Annualized Growth Rate for Sichuan Airlines, we consider that the Adopted Growth Rate for Eastern Airlines and Eastern Wuhan Airlines, and the Adopted Growth Rate for Southern Airlines and Sichuan Airlines are acceptable, taking into account:

(i) the transaction amount of the CE Airline Transaction and Eastern Wuhan Airline Transaction recorded a CAGR of 13.4% per annum from the year ended 31 December 2008 to the year ended 31 December 2010;
(ii) the transaction amount of the Southern Airline Transaction for the year ended 31 December 2010 increased by approximately 22.4% from the year ended 31 December 2009, and the transaction amount of the Southern Airline Transaction for the ten months ended 31 October 2011 is already higher than the whole year amount for the year ended 31 December 2010;
(iii) the transaction amount of the Sichuan Airline Transaction for the year ended 31 December 2010 increased by approximately 10.8% from the year ended 31 December 2009, and the transaction amount of the Sichuan Transaction for the ten months ended 31 October 2011 has already amounted to approximately 91.2% of the whole year amount for the year ended 31 December 2010;
(iv) as advised by the Directors, it is expected that the audited transaction amount for 2011 for the CE Airline Transaction and Eastern Wuhan Airline Transaction, the Southern Airline Transaction and the Sichuan Airline Transaction would be higher than their respective annualized actual transaction amounts for 2011 because the aggregated amounts of the Continuing Connected Transactions for the ten months ended 31 October 2011 are extracted from the management accounts of the Group which have not recognized some transactions which had happened and the

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LETTER FROM CHINA MERCHANTS

actual transaction amount could be underestimated by as much as 10% according to the Group’s past experience where we have reviewed the relevant historical management accounts of the Group and compared it with the audited transaction amount which was underestimated, and it is also expected that the transaction amounts of the Continuing Connected Transactions for the two months ending 31 December 2011 would recorded higher annual growth rate when compared with that of the ten months ended 31 October 2011; and

(v) 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 2014.

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

(i) the historical growth in the Group’s turnover and the bookings on seats of commercial airlines of the PRC through the Group’s operations, in particular, we have discussed with the management of the Group on the expected transaction amounts of the Continuing Connected Transactions for the two months ending 31 December 2011 and it is understood that the management of the Group expect that the transaction amounts of the Continuing Connected Transactions for the two months ending 31 December 2011 would record higher annual growth rate when compared with that of the ten months ended 31 October 2011 due to the pickup in the aviation industry in the PRC, in this regard, we have reviewed the Group’s information in respect of bookings on seats of commercial airlines of the PRC and noted that it recorded higher annual growth rate for November 2011 when compared with that of the ten months ended 31 October 2011, and we concur with the Directors’ view that the transaction amounts of the Continuing Connected Transactions for the two months ending 31 December 2011 would record higher annual growth rate when compared with that of the ten months ended 31 October 2011;
(ii) the Adopted Growth Rate for Eastern Airlines and Eastern Wuhan Airlines, and the Adopted Growth Rate for Southern Airlines and Sichuan Airlines are acceptable taking into account the growth in the historical transaction amount of the CE Airline Transaction and Eastern Wuhan Airline Transaction, the Southern Airline Transaction and the Sichuan Airline Transaction as described above;
(iii) although the Annual Cap for the CE Airline Transaction and Eastern Wuhan Airline Transaction for 2012 represents an increase of more than 40% when compared with its annualized actual transaction amount for

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LETTER FROM CHINA MERCHANTS

2011, we are of the view that it is fair and reasonable as the difference between the Annual Cap for the CE Airline Transaction and Eastern Wuhan Airline Transaction for 2012 and the actual transaction amount of the CE Airline Transaction and Eastern Wuhan Airline Transaction for 2011 would be closer to the Adopted Growth Rate for Eastern Airlines and Eastern Wuhan Airlines of 20% because (i) it is expected that the transaction amount of the CE Airline Transaction and Eastern Wuhan Airline Transaction for the two months ending 31 December 2011 would record higher annual growth rate when compared with that of the ten months ended 31 October 2011; and (ii) the transaction amount of the CE Airline Transaction and Eastern Wuhan Airline Transaction for the ten months ended 31 October 2011 is extracted from the management accounts of the Group which have not recognized some transactions which had happened and the actual transaction amount could be underestimated by as much as 10% according to the Group’s past experience;

(iv) although the Annual Cap for the Sichuan Airline Transaction for 2012 represents an increase of more than 40% when compared with its annualized actual transaction amount for 2011, we are of the view that it is fair and reasonable as the difference between the Annual Cap for the Sichuan Airline Transaction for 2012 and the actual transaction amount of the Sichuan Airline Transaction for 2011 would be closer to the Adopted Growth Rate for Sichuan Airlines of 25% because (i) it is expected that the transaction amount of the Sichuan Airline Transaction for the two months ending 31 December 2011 would record higher annual growth rate when compared with that of the ten months ended 31 October 2011; and (ii) the transaction amount of the Sichuan Airline Transaction for the ten months ended 31 October 2011 is extracted from the management accounts of the Group which have not recognized some transactions which had happened and the actual transaction amount could be underestimated by as much as 10% according to the Group’s past experience, and the Group is discussing with Sichuan Airlines to expand the scale of services provided by the Group which would increase the transaction amount of the Sichuan Airline Transaction going forward; and
(v) the Annual Caps have taken in account the expansion of the businesses of Eastern Airlines, Eastern Wuhan Airlines, Southern Airlines and Sichuan Airlines from time to time through acquisition of other airlines or establishing more subsidiaries or branches, which would facilitate the Group’s business growth with them for the three years ending 31 December 2014.

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 of the Company as a whole.

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LETTER FROM CHINA MERCHANTS

RECOMMENDATION

Having considered the above principal factors and reasons, 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 are in the interests of the Company and the shareholders of the Company 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 of the Company 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.

Yours faithfully For and on behalf of

China Merchants Securities (HK) Co., Ltd. Tam Kin Fong

Executive Director

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing for the purpose of giving information with regard to the Company. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. INTERESTS AND SHORT POSITIONS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ASSOCIATED CORPORATIONS

As at the Latest Practicable Date, none of the Directors, supervisors or chief executive 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 (中國民航信息集團公司), Southern Air and Eastern Air had interest in the Shares 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) Mr Xu Qiang (Chairman of the Company and an executive Director) is the general manager of China TravelSky Holding Company;
(b) Mr Wang Quanhua (a non-executive Director) is an employee of Southern Air; and
(c) Mr Luo Chaogeng (a non-executive Director) is an employee of Eastern Air.

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.

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GENERAL INFORMATION

APPENDIX

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)).

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 2010, 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 2010, 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 a licensed corporation to carry out 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. Its letter of advice to the Independent Board Committee and the Independent Shareholders in respect of the Continuing Connected Transactions and the Annual Caps 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.

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GENERAL INFORMATION

APPENDIX

(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 2010, 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.
(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.

9. GENERAL

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

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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 [408 x 49] intentionally omitted <==

(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 0696)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ EGM ”) of TravelSky Technology Limited (the “ Company ”) will be held at Conference Room, Prime Hotel, 2 Wangfujing Ave., Dongcheng District, Beijing, the PRC, at 10 a.m. on Wednesday, 22 February 2012 to consider and, if thought fit, approve the following resolutions:

ORDINARY RESOLUTIONS

“ THAT :
(a) the grant of a general mandate with a three-year term ending 31 December 2014 to the directors of the Company (“ Directors ”) to carry out the CE Airline Transaction (as defined in the circular of the Company dated 6 January 2012 (“ Circular ”)) and all the transactions contemplated thereunder; and
(b) the grant of a general mandate with a three-year term ending 31 December 2014 to the Directors to carry out the Eastern Wuhan Airline Transaction (as defined in the Circular) and all the transactions contemplated thereunder; and
(c) the Annual Caps (as defined in the Circular) for the transactions contemplated under the CE Airline Transaction and the Eastern Wuhan Airline Transaction for each of the three years ending 31 December 2014 as shown in the Circular, be and are hereby approved and that the Directors be and are hereby authorized to take any step as they consider necessary, desirable or expedient in connection with the CE Airline Transaction and the Eastern Wuhan Airline Transaction and the transactions contemplated thereunder.”
“ THAT :
(a) the grant of a general mandate with a three-year term ending 31 December 2014 to the Directors to carry out the Southern Airline Transaction (as defined in the Circular) and all the transactions contemplated thereunder; and

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NOTICE OF EGM

(b) the Annual Caps for the transactions contemplated under the Southern Airline Transaction for each of the three years ending 31 December 2014 as shown in the Circular, be and are hereby approved and that the Directors be and are hereby authorized to take any step as they consider necessary, desirable or expedient in connection with the Southern Airline Transaction and the transactions contemplated thereunder.”
“ THAT :
(a) the grant of a general mandate with a three-year term ending 31 December 2014 to the Directors to carry out the Sichuan Airline Transaction (as defined in the Circular) and all the transactions contemplated thereunder; and
(b) the Annual Caps for the transactions contemplated under the Sichuan Airline Transaction for each of the three years ending 31 December 2014 as shown in the Circular, be and are hereby approved and that the Directors be and are hereby authorized to take any step as they consider necessary, desirable or expedient in connection with the Sichuan Airline Transaction and the transactions contemplated thereunder.”
“ THAT :
(a) the termination of appointment of PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian CPAs Limited Company as the international auditor and PRC auditor of the Company and its subsidiaries (the “ Group ”) respectively for the year 2011 be and is hereby approved, confirmed and ratified;
(b) the appointment of Baker Tilly Hong Kong and Baker Tilly China as the international auditor and PRC auditor of the Group respectively to fill the vacancy and in place of PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian CPAs Limited Company for a term ending on the date hereof be and is hereby approved, confirmed and ratified; and
(c) Baker Tilly Hong Kong and Baker Tilly China be and are hereby appointed as the international auditor and PRC auditor of the Group respectively, and each to hold office until the conclusion of the next annual general meeting of the Company and that the board of Directors be authorized to fix their remuneration.”

By order of the Board TravelSky Technology Limited Xu Qiang Chairman

Beijing, the PRC 6 January 2012

Registered office:

7 Yu Min Da Street, Houshayu Town Shunyi District, Beijing 101308 the PRC

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NOTICE OF EGM

Notes:

The register of holders of H shares of the Company (“ H Shares ”) will be closed from 21 January 2012 to 22 February 2012 (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 21 January 2012 are entitled to attend the EGM. Transfers of H Shares must be lodged with 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, Wanchai, Hong Kong by 4:30 p.m. on 21 January 2012 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.
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 1 February 2012 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: Mr Xu Qiang (Chairman) , Mr Cui Zhixiong and Mr Xiao Yinhong; Non-executive directors: Mr Wang Quanhua, Mr Luo Chaogeng and Mr Sun Yude; Independent non-executive directors: Mr Cheung Yuk Ming, Mr Zhou Deqiang and Mr Pan Chongyi.

– 42 –

AI assistant

TravelSky Technology Limited — Proxy Solicitation & Information Statement 2012

49402_rns_2012-01-05_ab020fda-67b6-413f-9cd7-57fd6132f9a4.pdf

CONTINUING CONNECTED TRANSACTIONS AND

CHANGE OF INTERNATIONAL AUDITOR AND PRC AUDITOR AND NOTICE OF EGM

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

To the Shareholders

CONTINUING CONNECTED TRANSACTIONS AND CHANGE OF INTERNATIONAL AUDITOR AND PRC AUDITOR AND NOTICE OF EGM

INTRODUCTION

A. CONTINUING CONNECTED TRANSACTIONS

BACKGROUND AND REASONS FOR APPLICATION OF THE WAIVER

APPLICABLE LISTING RULES

GRANT OF WAIVER

CONTINUING CONNECTED TRANSACTIONS UNDER THE WAIVER

(a) Provision of Technology Services to Eastern Airlines

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

HISTORICAL TRANSACTION RECORDS

ANNUAL CAPS

BASIS OF THE ANNUAL CAPS FOR THE CONTINUING CONNECTED TRANSACTIONS

(a) Provision of technology services under the CE Airline Transaction and the Eastern Wuhan Airline Transaction

REASONS FOR AND BENEFITS OF THE CONTINUING CONNECTED TRANSACTIONS

INFORMATION ABOUT THE CONNECTED COUNTERPARTIES

Eastern Airlines

Eastern Wuhan Airlines

Southern Airlines

Sichuan Airlines

IMPLICATIONS UNDER THE LISTING RULES

B. CHANGE OF AUDITORS

EGM

VOTING ARRANGEMENTS

RECOMMENDATIONS

GENERAL

CONTINUING CONNECTED TRANSACTIONS

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

THE INDEPENDENT BOARD COMMITTEE

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

I. BACKGROUND

1. Information on the Group

2. Information on the connected counterparties

Eastern Airlines

Eastern Wuhan Airlines

Southern Airlines

Sichuan Airlines

3. Economy and aviation industry in the PRC

II. THE CONTINUED CONNECTED TRANSACTIONS

1. Background and reasons for application of the Waiver, and reasons and benefits of the Continuing Connected Transactions

LETTER FROM CHINA MERCHANTS

2. The terms of the Continuing Connected Transactions

(i) Provision of technology services to Eastern Airlines and Eastern Wuhan Airlines

(ii) Provision of the revenue management systems development and support services and passenger and cargo revenue accounting and settlement services

To Southern Airlines

To Sichuan Airlines

LETTER FROM CHINA MERCHANTS

III. THE ANNUAL CAPS

1. The Annual Caps

2. The historical transaction amounts of the Continuing Connected Transactions

3. The basis for the Annual Caps

(i) Provision of technology services under the CE Airline Transaction and the Eastern Wuhan Airline Transaction

(ii) Provision of (a) revenue management systems development and support services and (b) passenger and cargo revenue accounting and settlement services under the Southern Airline Transaction and the Sichuan Airline Transaction

LETTER FROM CHINA MERCHANTS

LETTER FROM CHINA MERCHANTS

RECOMMENDATION

China Merchants Securities (HK) Co., Ltd. Tam Kin Fong

1. RESPONSIBILITY STATEMENT

2. INTERESTS AND SHORT POSITIONS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ASSOCIATED CORPORATIONS

3. SERVICE AGREEMENT

4. MATERIAL CHANGES

5. INTEREST IN ASSETS

6. MATERIAL INTEREST IN CONTRACTS

7. COMPETING INTEREST

8. EXPERT

9. GENERAL

NOTICE OF EXTRAORDINARY GENERAL MEETING

TravelSky Technology Limited Proxy Solicitation & Information Statement 2012