B737-200ADV Values Remain At Scrap Levels

While a significant number remain in service this is no justification for assuming that the type has attraction for asset-based financing. The move to replace becomes more intense as the price of fuel edges ever higher. During the 1970s and 1980s, and for some of the 1990s, the values of the B737-200ADV...

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While a significant number remain in service this is no justification for assuming that the type has attraction for asset-based financing. The move to replace becomes more intense as the price of fuel edges ever higher.

During the 1970s and 1980s, and for some of the 1990s, the values of the B737-200ADV performed extremely well for both operators and investors. Size, operating economics, and performance matched the needs of the market. Even in the late 1990s, then current values of early build (hushkitted) units were only slightly below their original $4 million purchase price, a figure that Southwest originally paid for its first B737-200s. The introduction of new noise rules during the 1990s took their toll on values but hushkits then enabled the type to remain a viable option for many operators but not for as long as many had hoped. Hushkits seemingly provided a cushion against replacement for perhaps five to seven years instead of the expected 10, a salutary lesson for future modifications. Removal from the fleet was expected to center on new noise rules in the latter part of this decade but recent events has greatly accelerated the process.

B737-200HADV Vital Statistics
LAUNCH (-100)	02/1965
FIRST FLIGHT	04/1971 (-2A)
SERVICE ENTRY	06/1971 (-2A)
ORDERS	1,114
DELIVERIES	1,114
AVAILABILITY	56 (5%)
OPERATORS	140
ENGINE TYPES	JT8D-9, -15, -17, -17A, 17R
VARIANTS	Pax, C, QC
D CHECK COST	$1.3m
ENG O/H COST	$0.5-1.1m
STANDARD MTOW	115,500
OPTIONAL MTOW	128,100
FUEL CAPACITY	5,160 USG
FUEL - OPTIONAL	5,970 USG
RANGE-115pax LGW	1,855nm
RANGE- 115pax HGW	2,530nm
CARGO	875 cu ft
PAYLOAD	34,000lbs
MZFW-STD	95,000
MLW-STD	103,000lbs
CABIN WIDTH	139 inches
LIST PRICE (IN 1987)	$19.5m
TYPICAL DISCOUNT	N/A
VALUE Y1971 - HUSH	$0.10m
VALUE Y1985 - HUSH	$0.95m
VALUE TREND	DECLINE
2010 F/V - Y1971	N/A
2010 F/V - Y1985	N/A
LEASE RATE - DoM1980	$40,000pm
RENTAL TREND	STABLE
2010 LEASE RATE -DoM 1980	$15,000PM
AIRCRAFT RATING	E+

During the 1960s the B737-200 found the competition with the DC9 particularly intense. Douglas was winning the battle for orders as operators found the performance of the B737-100 and then the -200 wanting. Boeing was forced to respond. To a large extent, the mid to late 1960s represented the last time Boeing faced a tough competitor on all fronts, at least until the arrival of Airbus in the mid 1990s. Douglas was winning with the DC9 against the B737 and the DC8 was a match to the B707 while the DC10 represented a real alternative to B747. But since the early 1970s, Boeing has had its own way and while skirmishes may have been lost, the company won the battle. Difficulties facing Boeing have focused more on technical development of products and in changing the commercial emphasis of the company.

The dominance of Boeing over a period of 30 years perhaps provides a partial explanation as to why Boeing was until recently having difficulty in meeting the challenge from Airbus; few of the existing company executives had experience of a competitor able to compete on every commercial front, accompanied by the ambition, competence and resources to match. For 20 years McDonnell Douglas represented little more than an irritation, Lockheed was not an issue, while sales of early Airbus widebodies were perceived to be more a function of politico- economic factors than commercial choice. The attitude within Boeing has since changed. Short term financial imperatives have been replaced with long term vision though hindered by a preference for outsourcing component manufacturing to the detriment of design and production goals.

Even as long ago as the 1960s, Douglas faced financial ruin, forcing the company to align with McDonnell providing Boeing with a window of opportunity. Even so, in the 1960s, Boeing was lagging behind the competition. Refinements were made to the B737-200 as from 1969 but only in 1971 were significant improvements made. The -200 Advanced greatly improved the high lift system. The high lift featured modified leading edge slats, Krueger flaps and engine nacelle fairings. Other changes included better stopping distances with automatic brakes and a new anti-skid system. More importantly new JT8D-15 engines providing 15,500 lbs of thrust powered the -200ADV.

Earlier -200s featured either -7 with 14,000 lbs or the -9 providing 14,500 lbs. Higher MTOWs were also featured with 116,000lbs offered as an option, eventually rising to 128,100lbs. The changes incorporated into the -200ADV greatly improved performance and enabled the B737 to compete more effectively with the DC9, securing more orders by the mid 1970s. Production of the -200ADV finally ended in early 1988. A total of 1,114 -200/-200ADVs were eventually built, eventually overcoming the early lead of the DC9 which attracted a total of 976 orders.

Despite the availability of much more modern aircraft and cessation of production in 1988, the B737-200ADV remained a popular aircraft until the late 1990s. The 100-120 seating capacity and performance of the aircraft proved attractive to a myriad of operators. The replacement B737-300 featured a considerable increase to the seating capacity and not until the arrival of the B737-500 in 1990 was a similar capacity model made available but which featured a higher MTOW and therefore higher weight related landing/en route charges. There are still approximately 120 operators using nearly 550 -200/ -200ADVs, though now very much in decline.

The recession of the 1990s saw a large number of B737-200/-200ADVs enter the used market. Availability reached crisis proportions and sales at scrap values - $400,000 or less - became increasingly common. The then accepted wisdom that developing nations would be able to absorb any excess of Chapter 2 aircraft proved unfounded.

From the mid 1990s onwards the surplus B737-200ADVs began to disappear. The restructuring undertaken by major airlines created opportunities for new operators. Liberalization in Europe and elsewhere also contributed to the reduction in availability. The rapid absorption of JT8D powered aircraft back into the world's fleet quickly led to a shortage of engines and engine components.

Spare engines soon became expensive commodities, fetching in excess of $1 million. With the rise in JT8D engines prices, values for the -200ADV also rose by leaps and bounds. Buyers and lessees of B737-200ADVs had, however, been able to pick and choose their aircraft leaving those in poor condition to become a forlorn sight in the desert storage lot. Values of - 200ADVs increased from $1 million or less in the early 1990s to near $4 million. The strengthening of values came at a price. Installation of TCAS, ageing airframe inspections, costly D checks and expensive engine overhauls and, finally, hushkits represented the principal factors contributing to the recovery in values during the mid to late 1990s, all of which have now faded. The values of the B737-200/-200ADV have declined as age, maintenance, higher fuel bills and more versatile equipment have taken their toll.