09:51     CNAC<01110> - Announcement (3)                                      

    because for the purpose of ensuring that the Wet Lease                    
    Agreement complies with the aviation requirements in                      
    both Macau and the PRC, the parties have spent                            
    considerable amount of time to finalise the detail                        
    technical terms of the Wet Lease Agreement. However,                      
    for the purpose of better utilizing its aircrafts,                        
    Air Macau has agreed to commence the wet leasing of                       
    the Aircraft to Air China on the understanding that                       
    Air China will pay an agreed monthly rental payment                       
    and both parties would use their best endeavours to                       
    finalise the terms of the Wet Lease Agreement.                            
                                                                              
    As the monthly rental payment in respect of the wet                       
    lease of the Aircraft would exceed the amount allowed                     
    by the de minimus rule under Rule 14A.33(3) of the                        
    Listing Rules as soon as the first instalment of the                      
    rental payment was received by Air Macau, such                            
    connected transaction was subject to disclosure by                        
    way of publishing an announcement on or about 15                          
    October, 2004.                                                            
                                                                              
    The Directors explain that the delay in disclosing                        
    details of the wet leasing of the Aircraft is due to                      
    late reporting of such transaction from the                               
    management of Air Macau. As explained by the                              
    management of Air Macau, they were of the view that                       
    such transaction would not trigger any disclosure                         
    requirement until a formal agreement has been signed                      
    between the parties. In that regard, such transaction                     
    was not reported to the Company until the Wet Lease                       
    Agreement was entered into on 15 March, 2005. The                         
    Company has only discovered that the wet leasing of                       
    the Aircraft constitutes a connected transaction and                      
    requires to disclose when the Air Macau informed the                      
    management of the Company after the signing of the                        
    Wet Lease Agreement. Accordingly, the delay of                            
    disclosure is directly due to the unawareness of the                      
    obligation to disclose such transaction by the                            
    management of Air Macau and such delay could be                           
    avoided in the future by means of better                                  
    communications between the management of Air Macau                        
    and the Company and the Company providing training                        
    to the management of Air Macau on the relevant                            
    provisions and disclosure obligations under the                           
    Listing Rules.                                                            
                                                                              
    INFORMATION ON THE GROUP                                                  
    The Group is principally engaged in the provision of                      
    air transportation services through Dragonair and Air                     
    Macau, airport ground handling services and logistics                     
    services. For the two years ended 31 December, 2002                       
    and 2003, the Group recorded an audited profit                            
    attributable to shareholders of the Company                               
    approximately HK$317,417,000 and an audited loss                          
    attributable to shareholders of the Company of                            
    approximately HK$18,747,000, respectively. The                            
    audited net asset value of the Group as at 31 December,                   
    2003 was approximately HK$2,642,331,000.                                  
                                                                              
    INFORMATION ON AIR CHINA                                                  
    Air China is principally engaged in the provision of                      
    air transportation services and investment in                             
    aviation-related businesses. Air China is the flag                        
    carrier of the PRC and as at 31 December, 2004 has                        
    a fleet size of about 150 aircraft.                                       
                                                                              
    GENERAL                                                                   
    Air Macau is principally engaged in the operation of                      
    international air services and programme charter                          
    services in Macau. Air Macau is indirectly owned as                       
    to 51% by the Company, which in turn is owned as to                       
    approximately 69% by Air China. Since Air China is                        
    a substantial shareholder of the Company, the