Annual Report 2008

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humidity in balance

Annual Report 2008

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CTT in brief

CTT Systems AB is a Swedish technology group opera- ting in the aviation industry. CTT develops and markets humidity control systems for commercial aircraft. Custo- mers include both aircraft manufacturers and airlines.

The parent company has its headquarters in Nyköping, Sweden, and is listed since 1999 on the OMX Nordic Exhange Stockholm, Small Cap.

Financial Calendar

The printed annual report for July - December 2009 is distributed to all registered shareholders. Information is published regularly on www.ctt.se.

Annual General Meeting: Maj 7, 2009 Interim report, Jan–March: Maj 7, 2009 Interim report, Jan–June: Aug 14, 2009

Annual General Meeting

The Annual General Meeting will be held at 5 pm on Thursday, May 7, 2009 at the company’s premises, Bruk- slagarevägen 5, Nyköping, Sweden. Shareholders wishing to attend the Annual General Meeting must be registered in the VPC share register no later than April 30, 2009, and notify the company of their intended participation no later than Monday, May 4, 2009.

In order to vote, shareholders whose shares are adminis- tered through a bank’s trustee department or private fund administrator must temporarily re-register their shares in their own name.

Registration must be completed no later than April 30, 2009.

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Vi passerar en milstolpe då vi leverar till A380, A350 och Boeing 737.

CTT in brief 2

The year in brief 4

Review by the President 6

High-Level Dehumidification 9

Another milestone passed... 10

Humidity in balance 12

Challenge 1: Too much moisture 14

Challenge 2: Too little/Not enough moisture 15

Market overview 16

Market potential 18

Customer overview 20

Competition 21

Dehumidification system 22

Humidification system 23

Fast route from Boeing 787 to ... 24 Trimmed and tagged production dept. 26 Hope for the future at Bribo Mekaniska 27

The CTT share 28

Background, organisation and quality 30

Administrative report 32

Risk analysis 36

Five-year summary – The Group 38

Income statement – The Group 39

Balance sheet – The Group 40

Shareholders’ equity – The Group 41 Cash flow statement – The Group 41 Income statement – The Parent Company 42 Balance sheet – The Parent Company 43 Shareholders’ equity – The Parent Company 44 Cash flow statement – The Parent Company 44

Accounting principles 45

Notes of the financial statements 47

Auditor’s report 56

CTT Corporate Governance Report 2008 57

Senior executives 60

Board of directors and auditors 62

Another milestone passed...

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Milestone for cabin humidification

A350 project secured. Airbus offers CTT’s system for dehumidification and humidification as an option. For the first time even in the passenger cabin!

Milestone for the environment

Air New Zealand orders 42 Zonal Drying™

systems with the aim of strengthening its

”environmental position”.

Strong VIP year

8 VIP aircraft moistened and demoistened by CTT.

120 100 80 60 40 20 MSEK –20 –40

Order intake Net sales Loss

08

04–05 05–06 06–07 07

The year in brief

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Business concept

The company’s business concept is to solve the two moisture problems currently encountered in commercial aircraft, i.e. preventing condensation between the cabin and the outer skin, and raising the cabin humidity level to enhance comfort and wellbeing for both crew and passengers.

Strategy

CTT’s strategy is to consolidate its position as the leading player on the market through on-going development of products in the Dehumidification and Humidification product sector.

Marketing communications will aim to emphasize the humidity-related problems that currently prevail in aircraft. CTT will take an active part in discus- sions surrounding health and comfort in the cabin.

By entering into alliances with other subcontractors

The long-term goals in terms of volume will be achieved by supplying aircraft manufacturers directly.

Mission

Our mission is to create a better climate both inside and outside the aircraft and thereby provide economic and environmental benefits to the airline.

The key is to balance humidity levels on board. Our concept increases passenger wellbeing, contributes to a better environment and improves airline economy, simultaneously. We call it ”Humidity in Balance”.

Vision

CTT’s vision is that all airlines shall be able to offer the same level of comfort in the cabin as in a normal indoor climate, in terms of air humidity.

OuR MISSION IS TO CReATe A BeTTeR CLIMATe BOTH INSIDe AND OuTSIDe THe AIRCRAFT AND THeReBy PROvIDe eCONOMIC AND eNvIRONMeNTAL BeNeFITS TO THe AIRLINe. THe key IS TO BALANCe HuMIDITy LeveLS ON BOARD. OuR CONCePT INCReASeS PASSeNGeR weLL-BeING, CONTRIBuTeS TO A BeTTeR eNvIRONMe- NT AND IMPROveS AIRLINe eCONOMy, SIMuLTANeOuSLy.

we CALL IT ”HuMIDITy IN BALANCe”.

The CTT mission is to create a better in-flight climate and thereby provide economic and environmental benefits to the airline. The key is to balance humidity levels on board. Our concept increases passenger well-being, contributes to a better environment and improves airline economy, simultaneously. We call it Humidity in Balance.

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2008 has been a year of mixed fortunes for CTT.

During the spring, Boeing announced a further delay in the B787 project and the dollar fell successively to a rate below six Crowns.

Summer arrived and in July we succeeded in securing the Airbus A350 project, in September we won the Air New Zealand order and the dollar began its recovery.

I think we will remem- ber 2008 as the year when things turned.

Stable OeM supplier with great opportunities When we commenced with the development of our humidifiers in the year 2000, we could never have dreamt that we would be so successful with Airbus and Boeing new long-distance airliners. In 2003, we were awarded the contract to develop humidifiers for pilot and cabin crews’ rest compartments on the Airbus A380. In 2005, it was the turn of Boeing’s B787, for which the Zonal Drying™ system became standard equipment and humidifiers optional for cockpit and the pilots and cabin crews’ rest compartments.

During 2008, we completed our hat-trick when all of our systems were offered as an option for the Airbus’

new A350. Apart from the Zonal Drying™ System, we now have the opportunity to supply humidifiers, not only for cockpit and the pilots and cabin crews’

rest compartments, but also for parts of the passenger cabin! Within the space of five years, CTT’s system for humidity control has been selected for all of Airbus’ and Boeing’s new long-distance aircraft families.

Thanks to the sales successes of these three projects, CTT has been able to create an extensive and very

stable foundation for the business. Deliveries of these three Airbus and Boeing aircraft types will increase successively in the coming years. In the year 2015, it is expected that Airbus will deliver around thirty A380s and nearly eighty A350s, whereas Boe- ing foresees deliveries of at least 120 B787s.

For CTT this means that our sales, based solely on these three projects, face the prospect of stable growth for a long period. Moreover, their aftermar- ket share will steadily increase year after year, thanks primarily to the sale of pads for the humidifiers.

Considering the strong position we have attained, CTT has excellent prospects of winning still more OEM contracts. First and foremost, it is likely that we will be awarded further contracts for long-distance aircraft. It is possible that Boeing could con- sider the introduction of passenger cabin humidification on the B787. Airbus might possibly choose to humidify the passenger cabin and f light deck of the A380 or/and dehumidify the aircraft’s fuselage with the Zonal Drying™ System. In the longer term, it is

also conceivable that Boeing will launch an upgrad- ing project for the B777 family, where humidification of the passenger cabin could also be of interest.

Within the coming ten-year period, the planned, new narrow body aircraft will certainly take to the skies. Both Airbus and Boeing are working (even if the projects haven’t been formally launched) on suc-

Torbjörn Johansson, President.

250 200 150 100 50

A380 B787 A350

2009 2010 2011 2012 2013 2014 2015

Review by the President

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cessors of the A320 and B737 families. It would be realistic to expect these new jets to be equipped with some form of drying system to prevent condensation. So why shouldn’t CTT – an established OEM supplier with moisture control expertise – also succeed with these aircraft types?

Retrofit sales gives birth to OeM sales

Throughout the years, we have always been aware that direct sales to the airlines on the Retrofit market have had a positive impact on Airbus’ and Boe- ing’s view of our Zonal Drying™ System. That the system is now standard equipment on the B787 is undoubtedly linked to the fact that we have refer- ences of successful installations with numerous airlines. Now we enter an era where Retrofit sales will not only give birth to OEM sales, but vice versa.

There is no doubt that our deal with Air New Zea- land was significantly inf luenced by Boeing’s decision to select the system as standard equipment for the B787. As an increasing number of airlines put the B787 into service over the next few years, I’m convinced that new sales opportunities will mate- rialize, especially where Cair™ is concerned. Un- til now, the system has been highly successful with large VIP aircraft, which has prompted an interest for the system amongst the airlines. Now that the system will also be offered for the A350, it is very likely that Cair™ will also become attractive on the Retrofit market for long-distance aircraft.

First and Business class cabins are upgraded at regular intervals by the major carriers enabling them to

already seen Entertainment-systems and Flat Seats become more or less standard on today’s long-distance airliners. A qualified guess is that Cair™ will emulate this feat in due course.

Prospects for 2009

It feels good, when we now find ourselves in the midst of a recession and look back on a very tough year for CTT, to be able to look ahead to a much better 2009. We all hope that Boeing will complete the first B787 f light in the first half of the year as planned and thereby stabilize the project. For CTT’s part, B787 deliveries in 2009 will represent a significant increase in turnover, especially in view of the initial reserve parts sales that get under way in the autumn.

The number of outstanding orders translates into VIP system deliveries of at least the same level as in 2008, whereas Air New Zealand’s order will see an increase in deliveries of Zonal Drying™ Systems after the summer. The current dollar rate means 2009 will be a better year than 2008 was. All of us, shareholders and CTT employees, should keep our fingers crossed and hope that it really was a turn- ing point we witnessed during 2008 and that CTT can forthwith earn the money needed to stand on its own feet and moreover begin to repay the shareholders.

Nyköping April 2009

CTT’s Senior Management team.

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The world’s largest airborne observatory has commenced its flight programme. A modified Boeing 747SP takes space scientists into the stratosphere to an altitude of 14 kilometres where they can observe the infrared universe.

Also on board is CTT’s Zonal Drying™ System that manages dehumidification while NASA unveils the universe’s secrets.

What does the centre of the Milky Way look like? What processes give rise to the creation and evolvement of life in space? How are stars and planets formed? These are among the questions that space research has long sought the answers to. The so-called SOFIA project will be the means by which new pieces of the puzzle will be found.

SOFIA (Stratospheric Observatory for Infrared Astronomy) features a telescope weighing 20 tons

mounted in a Boeing 747SP aircraft. By flying into the stratosphere, scientists can see significantly more than they would when using land-based telescopes.

This aircraft was christened ”Lindbergh” in May, 2007, in honour of the famous aviator of Swedish descent who made the first solo flight across the Atlantic. Three years earlier, another Swede came into the picture when CTT was contacted by the installation specialists L-3 Communications who needed to ensure the telescope would not be exposed to condensation.

why was CTT chosen?

– L-3 Communications is a Completion Center that has witnessed our advances on, amongst others,

Genom att flyga upp på hög höjd kan teleskopet observera det infraröda ljus som är dolt för landbaserade teleskop eftersom vat- tenpartiklar i den lägre delen av atmosfären är ”i vägen”.

Till vänster syns stjärnbilden Orion, dels med vanligt ljus, dels med infrarött ljus.

The Zonal Dryer is installed right next to the large telescope.

High-Level Dehumidification

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the VIP market and understood that we excel at dehumidification and humidification. As SOFIA involves dehumidification under very extreme conditions, we drew on valuable assistance from Munters prior to entering the project, explains Peter Landquist, CTT’s Af- termarket Manager who has managed contacts. These were initially with L-3 Com- munications and subsequently with NASA who now maintain the aircraft at their base in San José, California.

Four years after the first contact was established, CTT delivered a Zonal Drying™-system with a capacity three times greater than systems found in ordinary passenger aircraft. Dehumidifica- tion embraces the space occupied by the two and half metre wide telescope. About an hour prior to descent, the door to the telescope is closed and it is time for the dehumidifier system from Nyköping to do its job.

– At such high altitudes, the telescope is sub- ject to temperatures between minus 50-55°C.

Twenty minutes after leaving the conditions the aircraft must be able to land anywhere in the world, even for example at a city with 80%

humidity and temperature of 30°C. This would generate enormous condensation that could result in damage, wear and tear to the sensitive lenses and structure of the telescope.

– To nullify this, our dehumidifiers fill the whole area around the telescope with air that maintains a dew point of minus 55°C. The system must be able to maintain this condition for 4½ hours, that is to say long enough after landing to ensure that no deposition of moisture can occur. This demands an extreme system that we

have been able to deliver, says Peter Landquist proudly drawing a comparison:

– On the ”Lindbergh”, our system generates 750 cubic metres of air with a dew point of minus 55°C per hour. On an airliner such as the Airbus 320 and Boeing 767, the Zonal Drying™ system produces 250 cubic metres of air with a dew point of minus 20-25°C per hour.

Do you deliver anything else to the aircraft?

– No, the other parts of the aircraft shouldn’t be dehumidified. At present, humidification onboard isn’t of interest. The scientists’ equipment and instruments are highly sensitive and should not be subjected to moisture. The need for humidification is probably not so great. I assume the space scientists who get the chance to travel are deeply involved in making observations and don’t worry themselves about the dry cabin air, says Peter Landquist and laughs.

– On the other hand, we have supplied a complete reserve system and some extra equipment to NASA. It isn’t a big order in terms of volume.

However, we place great value on our participation in such a prestigious project that clearly illustrates our ability to meet the high demands placed on us.

Have you learnt any lessons?

– Definitely. One of the challenges of develop- ing a system with such high performance was to minimize the leakage inside the dehumidifier.

Leakage, even when it is negligible, drastically reduces the dew point in the dry air that needs to be generated. Thanks to SOFIA, we have gained extensive technical experience of extreme dehumidification. Now we know that we have the capacity to manufacture more powerful dehumidifiers for new exciting projects.

The SOFIA project got under way in 1998 and is collaboration between the American National

F ACTS about ”Lindbergh”

By flying at high altitudes, space scientists can observe the infrared light that is otherwise hidden by the water particles in the lower atmosphere that ’get in the way’ and make it invisible from land-based telescopes. To the left, the star constellation Orion can be seen through a combination of normal and infrared light.

Photo: Akira Fuji Photo: Infrared Astronimical Satellite Graphic art: Stéphane Guisard; NASA, DLR, DSI

Peter Landquist

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Being biggest isn’t always best and doesn’t necessarily offer any guarantees. CTT has shown how even a small player can con- tribute when building the backbone of the world’s new airliner fleet. The Airbus 380, Boeing 787 and Airbus 350, all have CTT’s system for humidification and de- humidification onboard. Thus CTT has established a unique position as an OEM supplier. President, Torbjörn Johansson explains why.

How have you become a supplier to the world’s three largest on-going aircraft projects?

– By virtue of our unique products. We stand alone with the Zonal Drying™ System and on the humidification side we have shown that our system is better than those of our competitors. Another key factor is our persistence. Breaking into the OEM market has always been the goal we have pursued in the belief that sooner or later with perseverance and patience we would get there. Today, alongside Saab and Volvo Aero, we are Sweden’s only OEM suppliers within the aviation industry. We now find ourselves in ’good company’.

How have Boeing and Airbus become aware of Zonal Drying™ System and Cair™?

– For this we must thank the success of the Zonal Drying™ System in various Retrofit projects. Once the airlines realized how good our dehumidifiers are, they began to make demands on Boeing and Airbus to install the system from the outset. We are now beginning to see the same thing with our humidifiers, with end customers demanding the system at

least in the personnel compartments. One could say the end customers are our best marketing tool.

Aircraft manufacturers expect sub-suppliers to share risks to an ever increasing greater degree.

What’s your view of this?

– I understand why Boeing and Airbus want to spread the risks. Their development costs are enormous. Some of the suppliers are moreover almost as large as the aircraft manufacturers. With these financial muscles it is reasonable for them to par- ticipate and assume extensive responsibility for the research and development work. Even the demands on CTT are increasing. But Airbus and Boeing have realized that we, due to our size, feel better when a part of our development costs are financed. We can be happy about that.

How will you manage the Retrofit and VIP markets in the future?

– As I explained earlier, Retrofit projects have been important door openers to the big aircraft projects and will remain so in the future. The downside with Retrofit – and VIP – is that these business areas are sensitive to the economic situation making it difficult to evenly distribute production. This is why it is important to maintain a strong OEM base with VIP and view Retrofit as”icing on the cake”.

Can CTT manage a substantial increase in volumes?

– Compared with, for example, the automotive industry, there are no big volumes within the aviation industry. For CTT’s part, an increase in production would be relatively simple to implement. We don’t need to be afraid of many big orders!

Airbus 380

Airbus 350

Torbjörn Johansson, President.

Another milestone passed...

Torbjörn Johansson on CTT’s unique position as an OEM supplier

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Do you see any threats for CTT in the future?

– Not really. Of course, a short-term threat would be if aircraft projects are delayed, but in the longer term I have no misgivings. We have contracts for the three major airliner projects and an order book for thirty years ahead. A very advantageous position.

– From a competition point of view, I don’t see any major threats. We were initially protected by our patents. Now it’s CTT’s solid know-how and our long-term contracts that give us strength in the face of any possible competitors.

– When it comes to the future of aviation, I’m convinced that air travel will continue to thrive. So we will be able to live well on our OEM projects long into the future!

2003 Airbus 380

– Humidification option crew rest compartments 2005 Boeing 787

– Zonal Drying™ System as standard

– Humidification of crew rest compartments and cockpit as an option

2008 Airbus 350

– Zonal Drying™ System as an option

– Humidification of crew rest compartments and cockpit

F

ACTS about OEM contracts

Boeing 787

”It is really pleasing that in my hometown, Nyköping, companies with innovative and smart solutions can establish themselves and evolve as world leading players in niche markets in an in- creasingly tougher global market. It’s an extra bonus when the company’s products and serv- ices are contributing to reductions in energy consump- tion and thereby to reduced impact on the climate and environment. One of the greatest challenges, not least for the aviation industry.”

Per Westerberg, Speaker, Minister of Trade 1991-1994

Photo: Jyrki Sirkanen

”CTT’s presence on the OEM market shows that there exists a unique competence level in Swe- den. Companies that are capable - and succeed in demonstrating this to the world - don’t need to be big to achieve successes.”

Peeter Puusepp, General Secretary Svenskt Flyg

”Research shows that ventures such as JAS 39 Gripen have resulted in substantial gains for Sweden in the form of technology, new compa- nies and new business deals. CTT is a good ex- ample of how new, visionary challenges drive technical developments forward.”

Pontus Kallén, President Saab Aerosystems

Only two other Swedish OEM suppliers

– Volvo Aero manufactures engine components for all Airbus and Boeing engines

– Saab supplies cargo doors and access doors as well as

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Humidity in balance

Technical advances over the past century have in every sense taken the aviation industry to new heights. But every step of the way has also seen some turbulence. These are the significant side effects that CTT counteracts with its humidification and dehumidification systems.

The development of aviation received significant lift with the advent of the pressurized cabin in the late thirties. This enabled us to fly at higher altitudes where more favourable weather conditions prevail.

One of the difficulties that this gave rise to was that when the heat of the airplane encountered the low temperatures, it resulted in condensation and corrosion on the fuselage. Thus a need for dehumidification was created. A need that became even more pressing as moisture-sensitive, computer-controlled systems took over an ever increasing number of the processes onboard.

Another step in the history of aviation was the jet engine that was introduced during the fifties. One advantage this gave was that we could fly further and carry more passengers. One of the side effects resulting from long-haul flights was that we had drier cabin air. This is where CTT’s humidification system Cair™ comes into the equation.

Development continues unabated and competition intensifies. In today’s tough business climate airlines are using ever more subtle means to attract the passengers. In this respect, in-flight comfort carries as much weight in this battle as environmental issues and ticket prices. Those who can keep down fuel consumption and consequently ticket prices – and also point to positive environmental effects while offering a better onboard climate –

can, in our opinion, find themselves in a win-win situation.

This is where CTT’s humidification and dehumidification systems come into the picture.

Z^onal D^rying™ S^yStem prevents condensation in aircraft by combating the root cause. Less condensation means less weight resulting in lower fuel consumption and emissions. And, in the long term, increased lifetime of aircraft components and insulation.

C^air™ provides humidified fresh air to the cabin, a measure that improves the passengers’ all sensory experienc- es. They feel better, sleep better and

arrive in better shape.

C^rew H^umiDifierS enables increased humidity in crew rest compartments and flight deck for the comfort and wellbeing of the crew.

With the help of our systems, aircraft manufacturers and airlines can improve their passengers’ wellbeing and reduce fuel costs and, at the same time, actively contribute to a better environment. We call it ”Humidity in Balance”.

Air New Zealand strengthens its ”environmental position”

Last year’s major order for 42 Zonal Drying™ systems came from an airline perceived as a world lead- er in environmental issues. Air New Zealand expects to reduce carbon dioxide emissions by 4,700 tons

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annually when the systems are installed. Roughly calculated this equals the emissions of 1,500 cars.

In addition, there’s also a fuel saving of 1,500 tons per year.

For a company that prioritizes environmental issues this is a strong card in terms of marketing, according to Captain David Morgan, Air New Zealand’s General Manager Airline Operations and Safety:

”Reductions in both fuel consumption and emissions initially attracted our interest, but the elimi-

nation of condensation in the aircraft also improves the effectiveness of the insulation which results in a healthier cabin environment and reduces the chances of corrosion. Once these advantages were verified our decision was quite easy and we moved swiftly to ensure the four aircraft types in our fleet could reap the benefits. Installation of the Zonal Drying™

System enables us to improve the environment inside and outside the aircraft.” The order represents a real breakthrough for CTT. ”It is highly significant that Air New Zealand, as one of the leading airlines

within the environmental sector, invests in our system based on cost savings and, more importantly, environmental beneficial aspects. This should send a clear signal to the market!” says Vice President Sales and Marketing, Ulf Liljenberg.

Airbus and Boeing select humidification as an option.

The world’s two largest aircraft manufacturers, Air- bus and Boeing, have recognized the value of good air onboard and offer CTT’s system for humidification as an option for their new aircraft types.

Airbus’ new superjumbo A380 has humidifiers as an option for the crew rest compartments. The new A350 goes a step further, also offering the equiva- lent for the cockpit, and now, for the first time ever, with Cair™, offering humidification as an option in sections of the passenger cabin.

Crew on Boeing’s B787 Dreamliner may also be able to enjoy a more humane humidity in their crew compartments and cockpits. This is where CTT’s humidification technology is optional

Now the manufacturers have taken this step, it is up to the airlines to decide how their future aircraft fleets will be equipped. The tougher the competition, the greater the likelihood that they prioritize the wellbeing of passengers and crews and offer air humidification as a standard feature on long-haul flights.

4700

^tons/year

Air New Zealand expects to reduce carbon dioxide emissions:

1500 tons/year in fuel savings

+

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CTT | humidity in balance

Condensation in aircraft has been a problem in the aviation industry for a long time. It occurs when passengers’ moist exhaled air makes contact with the in- terior of aircraft fuselage. Condensation water is gathered in the fuselage resulting in a whole range of problems including, for example:

Increased aircraft weight

Condensation can increase the weight of the aircraft by over half a ton. This unwanted increase means higher fuel consumption with negative effects for both transport economy and the environment.

Electrical disturbances

Large parts of the electrical cable network in an aircraft are located in areas where condensation accu- mulates. This can lead to short circuits in sensitive equipment, that can result in delays and expensive repairs.

Corrosion

The problem with corrosion is that it entails extra expense for the airlines that often have to replace structural parts at major maintenance checks and overhauls.

Damaged/impaired insulation

Water gets trapped in insulation making the material heavier and more reducing its functional capacity. Passengers can often feel a cool draught from windows and doors. Mould can also flourish in wet insulation. Insulation must therefore be regularly replaced in aircraft.

Rain in the plane

Air passengers can be exposed to dripping water during take-off and landing. Condensation gath- ering on ceiling panels causes this phenomenon known as “Rain in the plane”.

*

Based on 3,000 flight hours per year. 200 kg less weight gives a fuel saving of 7 kg per flight hour with a 90% load factor, fuel efficiency factor of 3.5%. Source: www.luftfartsverket.se Figures are approximate.

65 ^tons

CO

2

/år*

21 ^tons*

less fuel

consumption/per year

zonal drying

™

can save

Reduced emissions/per aircraft and year:

CO₂ 65 tons, NO_x 190 kg, HC 35 kg, CO 460 kg

CO2 – Carbon dioxides

Contributes to the greenhouse effect that results in an increase of the earth’s average surface temperature.

NOx – Nitrogen oxides

Contribute to acidification and over fertilization of land and water.

HC – Hydrocarbons

Daylight ground-level ozone that is created by reaction can harm vegetation and affect human health.

CO – Carbon Monoxide Detrimental to human health.

Challenge 1: Too much moisture

Example: Boeing 737 NG

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15

In addition to the many benefits balanced air humidity constitutes in terms of economy, environment, aircraft and safety, it also has a significance for the wellbeing of the passengers and health of the personnel. Cair™ has been created to enhance the passengers’ wellbeing by humidifying the dry cabin air.

Normally the relative indoor humidity in homes and offices is between 50-60%. In an aircraft this drops to 5-15%. This is because half of the air is drawn in by the engines at a height of around 10,000 m where the air is extremely dry. So the longer the flight continues, the drier the cabin air becomes and the more evident the symptoms become for the passengers.

Discomforts with dry air

When people are subjected to air humidity lower than 20% they experience a series of different problems. For example sleep disorders, dry eyes, de- hydration of the skin and mucous membranes, as well as the fact that food doesn’t taste so good in an airplane. Other discomforts include the need to

remove contact lenses, increased likelihood of colds, a greater risk of viral infections, as well as problems with dry skin and allergies. This is particularly ex- asperating for cabin personnel, who are constantly subjected to the dry air. Increasingly longer flights, now with durations up to 18 hours, only aggravate the symptoms further.

Feel better

Cair™ humidifies the dry cabin air and alleviates all of the aforementioned problems substantially.

The passengers gain more strength and energy and do not feel as tired when they reach their destina- tion. It is scientifically proven that passengers feel better with an air humidifier on board. In addition to the enhanced wellbeing of all in the aircraft and improved working environment for the cabin crew, the system has other advantages. The capacity to be able to offer good air during flights is a strong com- petitive advantage for airlines. Especially when one considers the growing demands for good levels of cabin comfort. And to be able to offer a flight with minmized environmental effect is yet another com- petitive advantage.

Cold symptoms Soar throat, dryness in mouth, nose and eyes Jet lag

General discomfort on arrival

Many passengers on long- distance flights experience:

With Cair™

Increased humidity in business area + 25%

Increased humidity in economy area +15%

Average Cabin Humidity without Cair™

Relative lHumidity % 30,0 25,0 20,0 15,0 10,0 5,0 0,0

Average Cabin Humidity with Cair™

First / Business Economy

Passengers and crew with Cair™

installed in the aircraft:

Feel better Sleep better

Food and wine taste better

Reduced risk for airborne infections Feel more relaxed on arrival

Ta ke c ai r

Challenge 2: Too little moisture

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Market overview

From fuel crisis to financial crisis

It does not need a detailed analysis to understand that the aviation industry faces what is probably its greatest ever challenge over the next two years. Just as the price of fuel finally began to fall, its constraints were replaced with those of a worldwide financial crisis. In the event that air travel drops as a result of decreased demand, at the same time as airlines take delivery of a record number of aircraft, many airlines will find themselves in a difficult situation.

The positive side is that most airlines have implemen- ted cost savings during the past year and moreover decided to withdraw some aircraft from their fleets.

These measures are proving advantageous for airlines facing a probable downturn in air travel during 2009 and 2010.

The rise and fall of fuel prices during 2008 has otherwise been the focus of widespread discussion in the aviation branch. The year began with a price of around USD 120 per barrel peaking at USD 180 in July. Towards the end of 2008, the price slumped to around USD 60 per barrel, a price level not seen since 2004. Having recently been forced into introducing stringent fuel cost saving measures, airlines are now having to plan for a downturn in passenger traffic.

Global profits for airlines in 2007 were USD 12.9 billion. In December 2007, the International Air Trans- port Association (IATA) forecast a profit of USD 5 billion for 2008. Now the IATA predicts a global loss of around USD 5 billion for 2008 and around USD 2.5 billion for 2009. The lower losses for 2009 are mainly attributable to American carriers. The IATA expects to see the largest fall in Europe and Asia.

Record number of deliveries

Growth in RPK (Revenue Passenger Kilometres) terms during 2008 was 1.6% (7.4% in 2006 and

5.2% in 2006). This can be compared with 4-5%

growth in a normal year. However, passenger traffic declined heavily during the fourth quarter and it dropped by 4.6% in December alone. The IATA predicts a 3% decrease in traffic (RPK) during 2009.

A natural consequence of this was a decrease in the number of airliner orders, with Boeing and Airbus recording orders for 1,439 aircraft in 2008 compared with 2,754 in 2007 (a reduction of around 50%). Air- bus won most with 777 orders compared to Boeing’s 662. The forecast for 2009 is that Boeing and Air- bus will together sell around 600-800 airliners. They have a combined backlog that continues to swell and exceeded 7,500 aircraft at the end of 2008. With this huge backlog, both will remain strong even after ta- king into account some cancellations in the next few years as the market adjusts itself to the reduced demand in air travel. During 2009, Boeing and Airbus

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will deliver around 930 aircraft and thereby set a new record (see illustration below).

1000 800 600 400

200

No

2005 2006 2007 2008 2009

(estimated) Deliveries of aircraft by Airbus and Boeing until end of 2008.

Airbus

Boeing

As per Dec 31, 2008 the status for the various aircraft can be seen in the table.

Aircraft type Delivered Backlog Orders in 2008

A32x 3 723 2 598 559

A330/A340 948 449 146

A380 13 185 9

A350 0 483 186

B737NG 2 689 2 270 488

B757 999 0 0

B767 969 70 29

B777 748 350 54

B747-400 606 8 0

B787 0 910 94

B747-8 0 106 3

CRJ 1 483 157 49

EMBRAER 1 365 426 112

Source: Flight International, February 2009.

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A sympathetic environmental aspect and positive response from the media

CTT has continued to work itself into a relatively new market segment for the company, namely the larger airlines. They see the advantages of investing in the Zonal Drying™ system for three main reasons: fuel savings, environmental concern and PR/Media. In 2008, we won an order from Air New Zealand for 42 systems where these three specific reasons were decisive. We see how the airlines are

drawn by both the environmental issues and the positive PR they attract in the media by ordering our systems. We have therefore adapted our marketing material to clearly illustrate which benefits one can be assured of when investing in our systems.

From 2012, all flights within and to/from the EU will be included in the accounting system for emission rights. This will force the airlines to spend more capital on fuel and emission reduction technology, a

Zonal Drying™ System

Aircraft type Total ordered Delivered Customers

B737 90 72 Sterling, Hapag-Lloyd, Air Berlin, Transavia, Luxair, Sun Express, Excel Airways, Air New Zealand B757 70 68 Icelandair, JetAviation, First Choice, Thomas Cook,

Monarch, Continental, Jet2.com, Tui Fly Nordic

B767 32 28 Martinair, KLM, JetAviation, Monarch, First Choice, Air New Zealand

B747 1 1 Lufthansa

B777 8 0 Air New Zealand

BBJ 1 1 Jet Aviation

A320/A321 39 26 First Choice, Monarch, Martinair, My Travel, Air New Zealand

A330 9 9 Emirates, LTU, Monarch, My Travel, TAP

A300 4 4 Monarch

MD80 2 2 Austrian

MD11 33 33 KLM, Swiss, Martinair

CRJ-100/200 66 66 Lufthansa Cityline, Adria Airways, Tyrolean/Lauda/Austrian

355 310 per December 31, 2008

Cair™

Aircraft type Total ordered Delivered Customers

B767 2 2 AAC, Jet Aviation

B747 1 1 Jet Aviation

BBJ 14 14 Lufthansa Technik, Jet Aviation, AAC

A340 12 4 Jet Aviation, Qatar, Air Mauritius, Baysys Technologies, Gore

A330 3 2 Qatar, Lufthansa Technik

A320 3 2 Jet Aviation, Airbus Corporate JetCentre, AMAC

A319 3 3 Stork, Airbus Corporate JetCentre, AAC

38 28 per December 31, 2008

Product and Customer overview December 31, 2008.

Market potential

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circumstance that will naturally benefit our Zonal Drying™ system. We take the view that, as a direct result of aviation’s impact on emission rights, there is a high probability that the system will sell itself to customers who haven’t been previously interested.

During 2009 we start marketing the Zonal Dry- ing™ System for the A350. Airbus has 483 orders from 22 airlines and 7 leasing companies. This will provide CTT with an excellent opportunity not only to market the system for the A350 but also for its installation in other existing aircraft. At times of financial uncertainty and restraint it is difficult to forecast the sales potential for 2009, but we expect an order intake similar to that of 2008.

Historical cabin humidification

We expect the Retrofit market for Cair™ to be more difficult than in recent years. Few airlines will dare to invest in passenger comfort in a depressed market.

Instead, one instinctively defends its current position as best it can. We will however, as is the case with the Zonal Drying™ System, fully exploit every opportunity to market Cair™ for the A350. Noteworthy with Cair™ for the A350, is that this is the first time in the history of aviation that cabin humidification has been offered directly by a manufacturer. Our expectation is that most of the airlines will show an interest in this especially for the first class cabin.

Otherwise, VIP aircraft remain the strongest market segment for Cair™. In 2008, we sold no less than eight systems.

Cair™ is now well established on the VIP market with customers spontaneously enquiring after the system ever more frequently. In 2009, we will under- take a marketing campaign directed at the VIP market with a new brochure to further spread the word and increase the awareness of Cair™ and its benefits.

We expect 5-8 systems to be a realistic annual forecast of sales to the VIP market.

From 2012, all flights within and to/from the EU will be included in the accounting system for emission rights. This will force the airlines to spend more capital on fuel and emission reduction technology that will naturally favour our Zonal Drying™ System.

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CuSTOMeR, ZONAL DRyING™ SySTeM

CuSTOMeR, CAIR™

CuSTOMeR, OeM

ca ir zo n al d ry in g

Customer overview

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Dehumidifier systems

CTT is currently the only supplier of active dehumidifier systems for the aviation industry.

Hitherto, aircraft manufacturers have tackled the problem of condensation in aircraft with the follow- ing measures:

• Cover the cabin with fibreglass blankets

• Install gutters to lead away the water

• Fasten pieces of rubber foam to rods, etc, to catch running water

• Adhere felt to roof panels, etc, to catch water which should then evaporate

• Install ”bilge trays” to raise insulation in the hold of the aircraft enabling condensation to run underneath

• The ”SPUD-System” that blows relatively dry ECS air into the crown area during flight only.

These methods do not prevent condensation. In the short-term, they stop water from entering the cabin, but water will still be present in the fuselage with the problems this entails: increased weight, corrosion, mould and fungus in the insulation, and the risk of disturbance to the electrical system and components.

Humidifier systems

There are currently three other suppliers of humidifier systems for aircraft:

Hamilton Sundstrand

Hamilton Sundstrand (USA) has developed a humidifier in which water diffuses through a membrane system. This humidifier is available as an option for Boeing 777 and 747 aircraft.

Liebherr-Aerospace

Liebherr-Aerospace (Germany/France) develops a humidifier that uses a heatexchanger to generate steam with the help of hot air emitted from the aircraft’s engines. The system is available as an option for the Bombardier Global Express business jet.

Le Bozec Filtrations & Systems

Le Bozec Filtrations & Systems (France) has developed a humidifier that generates steam with electrical power. Le Bozec offers its system to airlines for humidification of cockpits and also executive aircraft. Le Bozec’s humidification technology has been acquired by Liebherr-Aerospace that also markets the product.

Competition

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Zonal Drying™ System

The outer skin of the aircraft is extremely cold and when the cabin air meets this surface, condensation occurs in the form of frost that turns to ice. When the outer skin heats up during landing, the ice melts.

Most of the water runs out through drainage vents when the aircraft is on the ground, but some accu- mulates in the insulation blankets and as pools in the fuselage.

The Zonal Drying™ System takes air from the cabin, removes the moisture, and blows the air between the cabin and the aircraft’s outer skin. There, a bar- rier of dry air, which dries the insulation blankets, creates a weak over-pressure. At the same time, the relative humidity of the air coming into contact with cold surfaces are reduced, eliminating condensation.

The technology is based on Munters’

well-known moisture removal technology, which is already used in the military aviation industry with land-based equipment. CTT has refined this technology by building small, lightweight drying units, which can be installed for perma- nent operation in an aircraft. A Zonal Dryer consists of a fan, a heater and a rotor. The rotor is made from glass fibre and is impregnated with silica gel, a sub-

stance with excellent properties for absorbing and dissipating moisture.

Two separate airstreams are led through the slowly moving rotor. One, comprising about 80 percent of the air, passes through the rotor for drying. The dry air is then led to the area to be dried.

The other 20 percent of the airstream is warmed before passing through and drying the rotor. This moist air is re-circulated in the cabin, either directly or via the aircraft’s air conditioning system.

Depending on the aircraft type, the Zonal Drying™

System is either fitted in the crown area or beneath the cabin floor. The system remains in operation as long as the aircraft has electric power, in other words during flight and most of the time on the ground.

The Zonal Drying™ System has been adapted and installed in various aircraft types.

Humidity control – the technology

Moist air Dry air

Rotor motor Electrical interface

Heater Air intake

Rotor

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tHeHumiDifier uses the technique of evaporative humidification and has been developed in co-operation with Munters. The main component in the humidifier is a pad of glass fibre with specially designed air channels moistened via a spreader system. When dry air passes the moist surface of the pad, the water evaporates and the air is humidified while it is cooled. By dimensioning the pad according to the airflow to be humidified, as well as controlling the supply of water and air temperature before the pad, the humidifier can operate without further regula- tion. Minerals and other contamination in the water are precipitated in the pad which is replaced at regular intervals depending on the mineral content of the water.

The risk of bacteria spreading via the humidifier is minimal since the water evaporates during transfer to the air and thus cannot carry any bacteria.

The humidifier is installed in supply ducts to the zones to be humidified. Water is taken from the aircraft’s regular water system.

Moisture management – the technology

Water spray tube Potable fresh

water supply

Trim air Drain to bilge

Overflow to bilge Cabin temp

sensor

Air out Pad Air in

Annual Report 2008