The lack of fresh -600 orders for nearly four years has raised the prospect of the variant becoming marginalized, widening the gap in value compared to the much more popular - 700 and -800.

Values of the -600 were placed "On Watch" status over two years ago. With the last orders having been placed in December 1999 by Air Algerie/Tunisair, the absence of new orders since has inevitably caused values to deteriorate. Values of the B737-700 and -800 have conversely managed to achieve at least a measure of stability.

The last two years has seen the order book fall from just over 100 down to only 76. Even the original 35 ordered by International Lease Finance Corp. (ILFC) as a means of keeping deposits and progress payments to the minimum in anticipate on of switching to the -700 and -800 at a later date has now been whittled down to only 26 units. The last five years have seen only 10 fresh orders.

Though ILFC placed the first order for the current 26 -600s nearly seven years ago, none has been delivered. Of the 50 that have been delivered to other customers, all 28 ordered by SAS have been delivered, as have all six to Tunisair, both units to Lauda, the only single unit to Pembroke and all seven to lessor GE Capital. This leaves only ILFC with any outstanding orders, suggesting that further units may be switched to the larger and more popular variants. The absence of outstanding orders destined for operators clearly underlines the difficulties that the type faces in seeking to preserve values.

The last five years should have provided ample opportunity for Boeing to take advantage of the on-going development of the competing A318.

While demand for the earlier version of the -600, the -500, had been in 2000-2001 as operators in Europe in particular sought replacement capacity for ageing B737-200ADVs, such appetite for 100 seaters has since withered. Values of -500s, initially strong due to the exceptional demand, have since experienced a considerable fall. The -500s acquired by Air France and British Airways represented a stopgap measure until the arrival of A318s. Despite this previous focus on the -500, viewed as a precursor to demand for the -600, no further orders have been placed for the -600.

Pricing the B737-600 remains difficult for Boeing. Because of the need to bolster the similar capacity B717, there has to be a clear differential in pricing between the ex- McDonnell Douglas product and the -600. In addition, the production cost structure of the B737NG is likely to be built around the B737-700.

There is essentially little difference in terms of monetary cost between the -700 and -600. A few less seats and a little less metal makes the cost price of the -600 only slightly lower than the -700. Offering both the B717 and B737-600 at around $24 million to $26 million makes neither economical nor marketing sense. The price of B737-600 has to be at least $4 million higher.

The lack of sales for the -600 however is more indicative of market structure that has experienced significant change from the time of the ubiquitous B737-200ADV and DC9-30. . The 100-seat market used to be the preserve of the major operators. The majors used jet equipment and the commuter/regional airlines operated turboprops. Over the last decade, this demarcation has undergone a remarkable change. The 100-seat market now straddles the markets served by both the majors and regional airlines. A major airline now finds difficulty in making a 100-seat aircraft pay. Higher wage bills - an experienced pilot with a major airline can easily command a $100,000 salary - and other overheads simply do not work for a 100 seater. Major airlines also tend to operate out of congested airports and a 100 seat fails to make the best use out of a valuable take-off slot.

Conversely a regional airline will find a 100 seater too large. Too many passengers may have to be carried at discounted rates to achieve a sufficiently high load factor. A 100-seat aircraft also costs more to operate in terms of navigation and landing charges. Long range requires a higher MTOW (maximum take off weight), and therefore will need more powerful engines, all adding to operating costs. For many intra-regional routes, long range is not necessarily a prime consideration. The new generation of larger regional jets, featuring 70-90 seats, offer economics that work for the smaller operators. While efficiently using labor resources, the new range of regional jets also match capacity with demand and the increased emphasis on yields. The new regional jets seek to maximize the operating efficiencies of a dedicated regional jet design as well as offering extensive commonality with smaller regional jet equipment.

Conversely, for the major operators, as the smallest member of a narrowbody family, the 100 seater is likely to be seen as an important addition for a handful of routes - an ancillary variant to the basic type rather than form the basis of a fleet. However, a number of additional orders can be expected for the -600, not least as the B737-200ADV is increasingly replaced and as the -500 ages. If operators experience an increase in traffic, then for regional airlines, the larger regional jets will be the main target for acquisition while the majors will seek to use larger narrowbodies such as the B737-700 and A319.

Values for the -600 have to date traded on the past performance of the B737 product, reflecting membership of one of the most successful aircraft families ever built. This strength by association no longer has merit for the -600.

As the market structure has changed and new competitive products appear to offer more, the time has come for values to more accurately reflect the lack luster order book. Current and residual values for the B737-600 have historically been higher than those offered for the first A318s. However, once the A318 proves itself in service, orders meet expectations - in excess of 200 by service entry - and production specification stabilizes then it seems likely that the trend line will be reversed. Those A318s built in late 2003 will then feature higher current and future values than similar vintage -600s, should any be actually delivered in the coming months.

Aircraft Asset Assessment: The B737-600

Market Presence. In developing the B737NG Boeing has created another more than capable product. Range, operating costs and interior flexibility have all been addressed. However, the market for the -600 has changed and the A318 represents an extremely competitive alternative. The range performance of the higher gross weight -600 examples has been greatly increased. The -600 is now able to fly over 3,200nm compared to the 2,420nm of the -500. However, the basic range of the -500 and -60 remain comparable except that the MTOW of the new version is some 8,000lbs higher. A number of operators simply do not require long range capability.

The CFM56 remains the ubiquitous powerplant for most narrowbodies. The Double Annular Combustor addressed the emissions issue and by derating the engine, on-wing performance is enhanced. However, the DAC has seemingly become of more value to the original customer than the investor. Few customers of any B737NG variant select the DAC.

The competition in the form of the A318 and B717 remains intense, particularly as Boeing is seeking to force success from the product. The B717 has a similar capacity as does the A318. A new generation of larger regional jets has now emerged to offer a lower operating cost. With such a crowded marketplace, orders for the -600 will be even more difficult to secure.

Market Outlook. It had been previously suggested that the -600 may be a "sleeper" in terms of value, just like its predecessor, the -500, experienced a fleeting moment of popularity. A "sleeper" is indicative of a type that is expected but has yet to find its market niche. The 100 seat market is however crowded with at least four types. The segment of the market also straddles the needs of the major and regional operators. The absence of orders is a concern, regardless of whether the -600 is part of a larger family. Marginalization in terms of orders has eventually lead to marginalization of values. At least 150 orders are needed to be secured before confidence in the program is likely to return. But with orders actually falling from over 100 to only 76, the variant faces an uphill struggle.