this circular is important and requires your … · a letter from the board is set out on pages 5...

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.

(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

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.

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

CONTENTS

– i –

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

“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

DEFINITIONS

– 1 –

“connected person” has the same meaning as ascribed to it under the Listing

Rules

“Continuing Connected

Transactions”

CE Airline Transaction, Eastern Wuhan Transaction,

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

DEFINITIONS

– 2 –

“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

DEFINITIONS

– 3 –

“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.

DEFINITIONS

– 4 –


(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


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.

LETTER FROM THE BOARD

– 5 –

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 –

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


– 7 –

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 –

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


The Company

Service recipient:

Eastern Wuhan Airlines



(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 –

(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.


– 10 –

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


ACCA

Service recipient:

Southern Airlines



(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.


– 11 –

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:

Provision of commercial analysis products application

services

Service fees: 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).






– 12 –

(d) Provision of the revenue management systems development and support

services and passenger and cargo revenue accounting and settlement services

to Sichuan Airlines


ACCA

Service recipient:

Sichuan Airlines


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

Passenger and cargo revenue accounting and settlementservices – provision of outward billing; handling of outwardbilling and invoice, including sorting, archiving, managing,proofreading, mailing, clearing and business handling forinternational passenger and cargo outward billing business;provision of registration of invoices and management, datacollection and handling, report examination and correction,examination, sorting, archiving, managing, proofreading,mailing, clearing, etc of invoices for international passengerand cargo inward examination business.

Service fees: Charge rates of revenue management systems developmentand support services are determined by negotiation withreference to the costs and specifications of the relevant typeof services provided and vary depending on the transactionvolume (i.e. the higher the transaction volume, the lower therate). The rate of unit price for revenue management systemsdevelopment and support services for domestic passengersand for domestic cargo are no more than RMB0.6 andRMB1.8, respectively.

The fees of revenue accounting and settlement services forpassengers, cargo and miscellaneous are determined bynegotiation with reference to the rates and rules prescribed inthe relevant document issued by the CAAC. The prices of theprovision of the services are based on the calculation of thepercentage rate (which is no more than 3%) of the totalamount involved for the revenue accounting.

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


– 13 –

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:

Year ended 2008 Year ended 2009 Year ended 2010

10 months ended

31 October 2011

CE Airline

Transaction and

Eastern Wuhan Airline

Transaction

RMB371,960,000

(equivalent to

approximately

HK$453,610,000)

RMB409,174,000

(equivalent to

approximately

HK$498,993,000)

RMB478,285,000

(equivalent to

approximately

HK$583,274,000)

RMB362,506,000

(equivalent to

approximately

HK$442,080,000)

Southern Airline

Transaction

RMB26,212,000

(equivalent to

approximately

HK$31,966,000)

RMB29,068,000

(equivalent to

approximately

HK$35,449,000)

RMB35,578,000

(equivalent to

approximately

HK$43,388,000)

RMB36,655,000

(equivalent to

approximately

HK$44,701,000)

Sichuan Airline

Transaction

RMB2,692,000

(equivalent to

approximately

HK$3,283,000)

RMB2,897,000

(equivalent to

approximately

HK$3,533,000)

RMB3,211,000

(equivalent to

approximately

HK$3,916,000)

RMB2,927,000

(equivalent to

approximately

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

2012 2013 2014

CE Airline

Transaction and


Transaction

RMB631,336,000

(equivalent to

approximately

HK$769,922,000)

RMB757,603,000

(equivalent to

approximately

HK$923,906,000)

RMB909,124,000

(equivalent to

approximately

HK$1,108,688,000)

Southern Airline

Transaction

RMB55,591,000

(equivalent to

approximately

HK$67,794,000)

RMB69,488,000

(equivalent to

approximately

HK$84,741,000)

RMB86,860,000

(equivalent to

approximately

HK$105,927,000)

Sichuan Airline

Transaction

RMB5,017,000

(equivalent to

approximately

HK$6,118,000)

RMB6,272,000

(equivalent to

approximately

HK$7,649,000)

RMB7,839,000

(equivalent to

approximately

HK$9,560,000)


– 14 –

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.


– 15 –

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 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.


– 16 –

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.


– 17 –

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


Transaction

Eastern Air, Eastern Airlines, Eastern Wuhan

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.


– 18 –

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


– 19 –


(Stock Code: 0696)

6 January 2012

To the Independent Shareholders

Dear Sir/Madam,


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

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

– 20 –

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.

48th Floor,

One Exchange Square,

Central,

Hong Kong

6 January 2012

To: the Independent Board Committee and

the Independent Shareholders

Dear Sirs,


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

LETTER FROM CHINA MERCHANTS

– 21 –

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

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.


– 22 –

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

set out below:

Year ended 31 December

2008 2009 2010

(RMB’

million)

(RMB’

million)

(RMB’

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:


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

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.


– 23 –

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 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.


– 24 –

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.

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


– 25 –

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.

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


– 26 –

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.


– 27 –

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


– 28 –

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.


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.


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.


– 29 –

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.


– 30 –

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

2012 2013 2014

CE Airline Transaction

and Eastern Wuhan

Airline Transaction

RMB631,336,000

(equivalent to

approximately

HK$769,922,000)

RMB757,603,000

(equivalent to

approximately

HK$923,906,000)

RMB909,124,000

(equivalent to

approximately

HK$1,108,688,000)

Southern Airline

Transaction

RMB55,591,000

(equivalent to

approximately

HK$67,794,000)

RMB69,488,000

(equivalent to

approximately

HK$84,741,000)

RMB86,860,000

(equivalent to

approximately

HK$105,927,000)

Sichuan Airline

Transaction

RMB5,017,000

(equivalent to

approximately

HK$6,118,000)

RMB6,272,000

(equivalent to

approximately

HK$7,649,000)

RMB7,839,000

(equivalent to

approximately

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

30 October

20112008 2009 2010

CE Airline

Transaction and

Eastern Wuhan

Airline

Transaction

RMB371,960,000

(equivalent to

approximately

HK$453,610,000)

RMB409,174,000

(equivalent to

approximately

HK$498,993,000)

RMB478,285,000

(equivalent to

approximately

HK$583,274,000)

RMB362,506,000

(equivalent to

approximately

HK$442,080,000)

Southern Airline

Transaction

RMB26,212,000

(equivalent to

approximately

HK$31,966,000)

RMB29,068,000

(equivalent to

approximately

HK$35,449,000)

RMB35,578,000

(equivalent to

approximately

HK$43,388,000)

RMB36,655,000

(equivalent to

approximately

HK$44,701,000)

Sichuan Airline

Transaction

RMB2,692,000

(equivalent to

approximately

HK$3,283,000)

RMB2,897,000

(equivalent to

approximately

HK$3,533,000)

RMB3,211,000

(equivalent to

approximately

HK$3,916,000)

RMB2,927,000

(equivalent to

approximately

HK$3,570,000)

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


– 31 –

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


– 32 –

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


– 33 –

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


– 34 –

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.


– 35 –

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


Company as a whole, and the Annual Caps are fair and reasonable so far as the Independent


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


– 36 –

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.

APPENDIX GENERAL INFORMATION

– 37 –

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.


– 38 –

(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.


– 39 –

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.


(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

1. “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.”

2. “THAT:


the Directors to carry out the Southern Airline Transaction (as defined in the


NOTICE OF EGM

– 40 –

(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.”

3. “THAT:


the Directors to carry out the Sichuan Airline Transaction (as defined in the


(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.”

4. “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

NOTICE OF EGM

– 41 –

Notes:

1. 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.

2. A member entitled to attend and vote at the EGM is entitled to appoint one or more than one proxy to attend

and vote instead of him. A proxy need not be a member of the Company.

3. 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.

4. Completion and return of the form of proxy will not preclude a member from attending and voting in person

at the EGM or any adjournment thereof. If such member attends the EGM, his form of proxy will be deemed

to have been revoked.

5. Shareholders who intend to attend the EGM in person or by proxy should return the reply slip for attending

the EGM to the registered address of the Company on or before 1 February 2012 personally or by mail or fax.

6. 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.

7. 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.

NOTICE OF EGM

– 42 –

this circular is important and requires your … · a letter from the board is set out on pages 5...

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