[CTT] CTT Systems: The Swedish Company Making Money from Thin Air

How CTT Systems turned aircraft humidity into a 38% margin business protecting Boeing and Airbus fleets

Origins

Every pilot knows the enemy: fatigue that creeps in at 35,000 feet, where the air carries less moisture than the Sahara Desert. Yet paradoxically, their aircrafts accumulate hundreds of kilograms of water, condensing and freezing against the cold fuselage walls – a hidden weight that silently burns millions in extra fuel each year.

In 1991, as the world was still buzzing about the release of Thelma & Louise and its iconic flight scene, three Swedish engineers were tackling a less cinematic but equally dramatic challenge in aviation. They saw an opportunity in this contradiction that had plagued aircraft since the dawn of pressurized flight. Christer Nordström, Thomas White, and Tomas Axelsson launched CTT Systems just as airlines pushed into new frontiers of efficiency and range. Their solution emerged from workshops in Nyköping: active humidity control systems that could master the physics of moisture at 35,000 feet. Aviation giants had simply lived with the problem. These outsiders decided to solve it.

The venture caught entrepreneur Tomas Torlöf's eye in 1996. A mechanical engineer with a string of startup successes, he also recognized something the aviation establishment had missed. The physics problem wasn't going away - it would only grow more pressing as aircraft flew longer routes with more passengers demanding better comfort. He began buying shares, eventually becoming CTT's largest stakeholder and chairman.

Forward-thinking airlines validated the concept. Transavia Netherlands retrofitted their fleet - industry speak for upgrading existing aircraft - in 2003. Jet2 followed in 2007. Boeing and Airbus took notice.

The Swedish solution to an obscure physics problem became standard equipment in flight decks worldwide - that's the cockpit, but pilots prefer the grander term. Today over 1,500 aircraft fly with CTT systems controlling their artificial atmospheres, their pilots alert and comfortable, while airlines save millions in fuel costs.

The physics problem remains - but now it has a master.

How do they make money

CTT Systems sells regulatory-protected revenue streams, packaged as aircraft humidity control.

The company starts by selling humidity systems to aircraft manufacturers. A typical unit costs around $200,000, and you'll find them on Boeing 787s, Airbus A350s, and an increasing number of private jets. That's the simple part.

The interesting part emerges from aviation regulations. Once CTT's system is certified on an aircraft – meaning approved by regulatory authorities – airlines must use approved parts and services to maintain their certificates. This turns a one-time hardware sale into decades of aftermarket revenue – industry speak for everything that happens after initial installation. These follow-on sales comprise 80% of CTT's revenue, with margins reaching 75-80%. Physics and bureaucracy make compelling partners.

The company reaches its market through three channels. Manufacturers, Boeing and Airbus, install systems during production. Airlines retrofit their existing aircraft – that means upgrading them after they're already flying. But the real action flows through distributors, primarily Satair, who handle the critical aftermarket business.

This setup lets 85 employees in Sweden support over 1,500 aircraft worldwide. A fleet of ten aircraft illustrates the economics: initial systems might bring in $2 million, but the aftermarket generates $30-40 million over their lifetime.

Each new platform win – aviation speak for getting certified on a specific aircraft model, like the upcoming Boeing 777X – creates another such stream. Competition exists, particularly in parts, but certification requirements provide a sturdy moat.

The details reveal multiple revenue layers. A typical Boeing 787 system generates around $75,000 in annual maintenance revenue. Airlines also save money – up to 200kg less water weight means lower fuel burn, while preventing corrosion extends aircraft life. In premium cabins, where business class tickets cost thousands, proper humidity becomes a competitive advantage. CTT's latest A350 installations include flight deck, crew rest, and business class humidification – tripling the revenue per aircraft compared to basic cockpit-only systems.

Numbers

CTT Systems operates with 311M SEK in revenue, 39% operating margins, 76M SEK net cash, and a 76% recurring revenue base. Let’s take a closer look, shall we?

The top line reveals both scale and focus. At 311M SEK – roughly USD 30M – CTT represents a fraction of the aerospace component market. Yet this revenue base generates EBIT margins of 39%, or 121M SEK in operating profit. The aerospace supplier median hovers around 20%. Forecasts look at sharp revenue increase, while margins remain stable.

Aftermarket dominance drives these margins. As explained earlier, regulatory-protected replacement parts and services constitute 76% of revenue. The segment's gross margins exceed 75%, pushing ROIC – return on invested capital, the true measure of business efficiency – above 32%.

Balance sheet metrics reflect conservative management. Net cash of 76M SEK provides strategic flexibility. The capital structure carries minimal leverage with total debt of just 41.8M SEK against 118M SEK in cash reserves. Free cash flow yield runs at 13%, exceptional for the sector.

Working capital efficiency stands out. CTT converts sales to cash in 58 days, while peers typically need 90-120. Accounts receivable turnover – how quickly customers pay – leads the industry. The company's 80 employees each generate 3.9M SEK in annual revenue.

Current inventory levels raise questions. At 123M SEK, or 40% of sales, working capital absorption has increased. Management points to higher OEM production rates ahead. The Boeing 787 program will rise from 4 to 10 monthly units by 2026, while the A350 targets 12 monthly by 2028.

R&D intensity appears light. The 5.5M SEK spent in 2023 represents 1.77% of revenue, versus an industry standard of 4-8%. CTT's asset-light model and mature technology base explain the variance, though technology investment bears monitoring.

Revenue mix continues evolving. Danish sales surged to 182M SEK while U.S. revenue declined to 42M SEK. The shift tracks changing aircraft delivery patterns between Boeing and Airbus. Geographic concentration risk warrants attention.

The installed base provides visibility. CTT's systems fly on over 1,500 aircraft, each generating roughly 75K SEK in annual maintenance revenue. The current backlog of 47M SEK understates future cash flows. Simple multiplication suggests 112M SEK in recurring annual revenue from existing installations.

The financial architecture works like clockwork: minimal capital in, steady streams of cash out. Key monitoring metrics include working capital trends, particularly inventory levels, and R&D investment adequacy. The financial profile combines current strength with clear indicators for tracking future execution.

People

Every business claims people matter most, but few can prove it like CTT Systems. When airlines bet millions on fuel savings from systems they'll never see, they're really betting on 85 engineers in two Swedish towns.

Everything about CTT makes more sense once you look at who owns it. Tomas Torlöf, an engineer who built several tech companies, started buying shares in 1996. Today he owns 13.6% and chairs the board, leading a distinctly Swedish ownership base. Major national institutions hold another 45%, while employees collectively rank among the top twenty shareholders through a profit-sharing foundation. It's an ownership model built for stability rather than quick wins.

Management reflects similar priorities. CEO Henrik Höjer arrived from aerospace giants SAAB and RUAG, bringing industry expertise to complement the chairman's entrepreneurial instincts. Both regularly buy company shares – Höjer even as headwinds emerged in 2024, Torlöf with a 6.25 million kronor purchase in October. In business speak, they're investing alongside other shareholders.

The workforce numbers reveal something unusual. Of 85 employees between Nyköping and Nybro, 82% have stayed beyond five years – remarkable in an industry where talented engineers have abundant options. Average tenure runs twelve years, with just 6% annual turnover. A "Great Place to Work" certification with a 74% score suggests this stability stems from satisfaction rather than inertia.

Customer relationships span similar timeframes. Jet2 started with eight Boeing 757s in 2007, steadily expanding until CTT systems protected their entire fleet. Transavia Netherlands has operated moisture-free aircraft since 2003, accumulating measurable benefits like 2,300 metric tons in annual CO2 savings. The technical merits earned initial orders; the human relationships sustained them.

The company operates like a Swedish industrial algorithm: institutional owners allocate capital, aerospace veterans optimize processes, technical staff accumulate decades of expertise. Two small Swedish towns, 38% margins, worldwide reach - it works because everyone knows their role.

Competition & the Moat(?)

The competitive dynamics of aerospace parts work differently than you might expect. Most industries pit multiple players against each other in direct combat. CTT instead faces three distinct challenger types, each revealing something different about their market position. Understanding these dynamics explains both their current success and future vulnerabilities.

The first competitor type seems obvious but isn't: parts manufacturers with regulatory approval to supply alternatives. These "PMA suppliers," in industry parlance, offer cheaper replacement parts for CTT's systems. Several airlines have tried switching to save money.

We have been winning back more than one airline,

notes CEO Henrik Höjer, highlighting a pattern that reveals both CTT's technical advantages and pricing constraints.

Liebherr Aerospace presents a more complex case. They make competing humidifiers for small private jets, yet recently partnered with CTT to pursue larger aircraft programs. The collaboration highlights a crucial market reality: even major aerospace suppliers find CTT's niche expertise valuable enough to partner rather than compete. Liebherr brings systems integration capability; CTT contributes specialized humidity control knowledge.

The third competitor requires no factory: simply accepting the status quo. Many airlines just tolerate moisture problems, especially in economy cabins where premium comfort matters less. The ROI calculation shifts dramatically during periods of low fuel costs. CTT must continuously prove their value through measurable benefits in fuel consumption, maintenance costs, and passenger experience.

These competitive dynamics point to CTT's real advantage: process power in humidity control at altitude. Their core technology,

developed together with Munters and then together with Boeing and Airbus, FAA and FDA approved,

creates a foundation that competitors struggle to match. The company has accumulated two decades of operational data proving their systems' reliability. Each new installation adds to this knowledge base.

Boeing's decision to remove CTT's anti-condensation system as standard equipment on the 787 revealed the limits of this protection. The company responded by focusing on premium cabin applications where their expertise brings highest value. The episode showed how CTT's specialized knowledge allows them to adapt when market conditions shift, even if individual product positions prove vulnerable.

Mr. Market

The stock market tells stories through price, and CTT Systems' chart reads like a classic tale of expectations versus reality. The usual.

From pandemic lows around 100 SEK, the stock traced an unremarkable path through 2021 and 2022, trading sideways as aerospace slowly recovered. Then, from late 2023 levels around 205 SEK, the stock began a steady climb as aerospace momentum built. Strong margins and accelerating market share gains fueled optimism. Coming into May 2024's Aircraft Interiors Expo in Hamburg, where three airlines confirmed A350 selections and another chose CTT for the 777X program. The stock surged toward 330 SEK, pricing in both execution and expansion.

Reality proved messier. First came whispers of supply chain disruption, then confirmation of Boeing delivery delays. The stock retreated to 270 SEK by July as margins began compressing. October brought harder evidence: revenue down 22%, EBIT margins falling from 41% to 26%, and guidance slashed. At 240 SEK, the market was pricing in prolonged headwinds rather than temporary setbacks.

Recent price action suggests a more nuanced thesis emerging. A January 2025 order worth 120 million SEK sparked renewed interest. Management backed their confidence with capital – the CEO purchased shares at 247.87 SEK while the Chairman deployed 6.25 million SEK at 250 SEK. Management put their kronor where their mouth is - a refreshing departure from the usual 'trust us' mantra.

The stock now trades at 284 SEK, implying 43.5 times estimated 2024 earnings.

CTT's multiples encode a particular set of assumptions. At 11.8 times sales and 31.4 times EBITDA, CTT commands premium multiples but sits below previous peaks. The market appears to be pricing three specific elements: margin recovery after 2024's "transition year," accelerating growth with analysts forecasting 57% revenue expansion in 2025, and sustained competitive advantages from Boeing and Airbus sole-supplier status.

These metrics point to an unusually well-designed industrial operation. CTT generates 76% recurring revenue, maintains dominant market share, and operates behind strong regulatory barriers. The market's willingness to maintain premium multiples through recent turbulence suggests confidence in these fundamentals, even as near-term execution faces headwinds.

Where once the stock priced acceleration at 330 SEK, today's 284 SEK prices recovery – a more demanding but still optimistic view of CTT's prospects. The market, it seems, has moderated its expectations without abandoning its conviction.

Quick note

I’d like to take a moment to note that, readers familiar with U.S. mega-caps need to understand three key differences when interpreting CTT's price movements.

First, at roughly $350 million market capitalization, CTT operates in a different liquidity universe. Price swings of 5-10% can occur on relatively modest trading volume, and the stock can move significantly on single pieces of news that would barely register for larger companies.

Second, welcome to Nordic price discovery: where two analysts and a newsletter constitute a crowd. That makes company announcements and earnings calls disproportionately important for price discovery. The concentrated ownership structure – major institutions and insiders hold significant positions – means fewer shares actively trade, amplifying price movements.

Third, aerospace supplier dynamics create distinct trading patterns. Long development cycles, regulatory hurdles, and lumpy order flow mean stock reactions often anticipate industry shifts months or years ahead. Any time CTT announces a major airline win, for instance, the stock prices in years of future revenue rather than immediate impact.

These characteristics explain why CTT's chart shows sharp moves on company-specific news, followed by periods of relative calm. Price discovery happens in steps rather than the continuous flow seen in heavily traded stocks.

Bear Thesis

Every business has a secret it would rather not discuss. For CTT Systems, it's a number: 38%. That's their operating margin, nearly double the aerospace supplier average. Wall Street loves such profitability. But like most things in aviation, what goes up must eventually come down.

Let’s think for a second what that margin really means. In an industry where suppliers typically earn 15-20 cents on every dollar, CTT collects 38. They're squeezing margins like an economy class passenger in a middle seat. And they manage this through a concentrated customer base – three buyers generate 78% of sales – and a regulatory-protected aftermarket business. It's a beautiful model, until it isn't.

The cracks appeared subtly at first. Airlines began changing how they buy parts, favoring bulk orders through consolidated purchasing. Even Boeing, a cornerstone customer, now orders "below actual shipset value" – corporate speak for demanding better prices. Once you realise your customers start studying your margins this closely, you know they rarely admire them for long.

The financial evidence accumulates pretty quickly. Operating margins compressed from 41% to 26% in a single quarter. Management calls it temporary, but industry veterans know better. The order backlog, that crucial measure of future business, has dropped from 79M to 47M SEK. Meanwhile, inventory grows 15% while sales decline 22% – classic signs of a business model under strain.

Technical barriers offer less protection than advertised. Yes, regulations create hurdles for competitors. But airlines have already proven willing to switch to alternative parts suppliers, forcing CTT to "win back" customers – corporate speak for competing on price. The company's minimal R&D investment, just 1.77% of revenue versus an industry standard of 4-8%, suggests either complacency or limited room for innovation.

Here's a telling detail: despite two decades of effort, only four airlines have adopted CTT's cabin humidification systems among fifty-plus customers. The private jet market remains elusive despite years of pursuit. Their celebration of "similar selection rates to 787" on new A350s, coupled with past program “disappointments”, raises questions.

Meanwhile, CTT trades at 43.5 times forward earnings and 11.8 times sales, pricing in both margin recovery and accelerating growth. The market expects revenues to expand 57% in 2025 as Boeing and Airbus ramp production. That's a lot of optimism for a company showing signs of pricing pressure and penetration challenges.

Think of it this way: CTT solved a specific problem in commercial aviation, earning exceptional profits in the process. But success has consequences. Customers notice. Competitors emerge. The same dynamics that enabled those stunning margins now attract the kind of attention no supplier wants. In aerospace, such attention eventually finds expression in economics.

Bull Thesis

Every airline obsesses over weight. They've switched to lighter seats, thinner magazines, even removed olives from salads. Yet these same carriers fly around with hundreds of pounds of water condensing in their aircraft, silently burning fuel worth millions. CTT turned this contradiction into one of aviation's most unusual business models.

The physics creates the opportunity. At cruise altitude, outside air contains almost no moisture. Yet this bone-dry atmosphere still manages to condense against cold fuselage walls, adding weight that burns extra fuel. CTT's solution, protected by regulations and technology developed with Boeing and Airbus, generates remarkably predictable cash flows.

Look at the the economics. A typical system costs around $200,000 to install but produces roughly 75,000 SEK ($6,800) in annual maintenance revenue for decades. With 1,500 aircraft already flying CTT equipment, this creates a foundation of recurring revenue that's proved remarkably resilient - even through aviation's darkest days, margins stayed above 35%.

But the real opportunity lies ahead. Three separate catalysts converge in 2025-26: Boeing and Airbus doubling production rates, airlines tripling CTT content per aircraft through premium cabin adoption, and a wave of retrofits as 400 A350s reach upgrade age. Recent evidence supports this trajectory - Air India's A350 order included full cabin humidification, while another European carrier just committed to 146 aircraft worth 120M SEK.

Current headwinds - margin pressure, inventory builds - reflect preparation for this growth rather than structural challenges. The company's 76M SEK net cash position and established infrastructure of 84 employees can support significantly higher volumes without proportional cost increases. Management's recent share purchases at 247-250 SEK suggest confidence in this operating leverage.

Sustainability adds another dimension. CTT's systems already reduce airline CO2 emissions by 134,000 tonnes annually. Transavia Netherlands alone saves 2,300 tonnes per year across their fleet. As environmental pressures on aviation intensify, these concrete benefits gain importance in fleet decisions.

The market assigns CTT a premium multiple - 43.5 times 2024 earnings. But this compresses to 26.8x on 2025 estimates just as growth accelerates. For a company selling regulatory-protected recurring revenue with expanding margins and multiple growth vectors, that's hardly excessive.

They've discovered the ultimate arbitrage - selling airlines their own water back to them.

So what do we make of all this?

CTT Systems embodies one of those beautiful market inefficiencies that occasionally surface in public markets.

The company basically monetized the laws of thermodynamics,
with regulatory barriers keeping competition at bay.

At SEK 311M in revenue, CTT represents a microscopic slice of aerospace components. Yet they maintain 38% operating margins in an industry where 20% margins prompt champagne corks to pop. The moment a small company achieves twice the industry's normal profitability, we should pay attention to why.

The bull case appeals to quality-focused investors who appreciate companies with high returns on capital, regulatory protection, and pricing power. CTT's 76% recurring revenue from aftermarket sales, combined with its position as sole supplier to Boeing and Airbus, creates the kind of predictable cash generation that compounds nicely over time.

The bear case attracts margin-focused skeptics who understand that 38% operating margins tend to attract attention - and that attention from customers rarely leads to margin expansion. Three customers driving 78% of revenue creates uncomfortable visibility into margins.

Some first principles emerge:

1. Physics problems persist - aircraft will always battle condensation at 35,000 feet

2. Regulatory barriers protect incumbents effectively

3. Airlines optimize aggressively for fuel efficiency

4. Premium cabin experience drives airline differentiation

5. Environmental benefits matter increasingly

The scenarios ahead look intriguing. The optimistic case sees CTT riding Boeing and Airbus production doubling by 2026, while expanding from cockpit-only systems to full cabin humidification. The pessimistic case focuses on margin compression and customer concentration risk. Reality probably lands somewhere between "growth with stable margins" and "growth with compressed margins."

I guess we could summarize CTT as a Swedish physics arbitrage operation. They found two persistent aviation problems, developed protected solutions, and now print cash while airlines save fuel. Having so many complex business models around us, there's something refreshing about a company that makes money by managing water vapor at altitude.

The fundamental tension feels obvious: can CTT's pricing power survive its own success? Every great compounding story starts with high margins - the trick lies in keeping them.

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