Jetrader - July/August 2012 - 20

appraisal

Boeing 737-700
Jack Feir President Jack B. Feir & Associates Tel: 215-345-9009 JackFeir@aol.com

Background
The roots of the 737 family go back to the mid-1960s. Even so, it was late coming to the party and had to play catch-up with the Douglas DC-9. After a rocky beginning, the 737 family was to go on to become the best-selling jet transport program in history. The current production family of 737s, launched on 1993 but still anachronistically referred to as the “Next Generation,” includes four variants designated 737-600, 737-700, 737-800 and 737-900. These are progressively larger models covering the seating capacity range from about 110 to 215 passengers. They are used primarily on domestic and regional routes of short and medium range, although a few have even been employed on longer ranges such as from the U.S. West Coast to Hawaii. By no coincidence, the competing Airbus A320 family also comes in four sizes—small, medium, large and extra-large, with designations A318, A319, A320 and A321. Both manufacturers are now each delivering between 35 and 40 aircraft of the two families every month. Even at that rate, it will take about seven years to clear the current backlog of 737s and A320s.
Annual Year-End Backlogs, Boeing 737NG Family Percentage Shares by Model

The 737-700 Market
While the demand in the market has been shifting to the larger models, the 737-700 is still no slouch. Even if there were no more orders, the world’s airlines would still have more than 1,400 of them when the current orders are satisﬁed. There is also an unusual market concentration: about 45 percent of the 737-700s are in the U.S., and the bulk of the U.S. ﬂeet of -700s is with just two operators, Southwest Airlines and Airtran, both of which still have large numbers on order. Once their ﬂeets are merged, Southwest could practically control the market for 737700s, whether they choose to be buyers or sellers. As for the prospects for freighter conversion at some time in the future, although it is technically possible that 737-700s could eventually be converted into freighters, most likely any conversion programs will focus on the larger 737-800 or 737-900 variants where the operating costs on a per-pallet or per-ton-mile basis would be lower.

Current and Future Values
The table below shows our opinions on the current Market Values and future Base Values of the 737-700 for various dates of manufacture. The ﬁgures relate to aircraft with winglets, a maximum takeoff gross weight of 140,000 lbs, and equipped with CFM56-7B22 engines, with the maintenance status of the airframe and engines being mid-time/mid-life except in the early years when they are new or nearly new as the case may be. Our values consider various factors such as the long-term growth of airline passenger trafﬁc, the expected longevity and competitive standing of the 737-700s relative to current and future aircraft, and the historical trends of aircraft values in the past.

100%

737-900
80%

60%

737-800

40%

737-700
20%

737-600
0% 1997

1998

1999

2000

2001

2002

2003

2004 Year End

2005

2006

2007

2008

2009

2010

2011

Current and Future Values ($m), as of June 2012 Year of Current Mkt Value 14.3 16.4 18.8 21.7 25.3 29.7 34.9 41.0 2012 15.8 17.9 20.4 23.3 26.9 31.4 36.5 42.5 Base Values, 2.5% Inﬂation 2014 14.1 15.9 18.2 20.7 23.8 27.6 31.7 36.3 2016 12.4 14.1 16.1 18.3 21.0 24.3 27.5 31.1 2018 10.9 12.4 14.1 16.1 18.4 21.3 23.9 26.7 2020 9.4 10.8 12.3 14.0 16.1 18.6 20.7 22.8 2022 8.0 9.2 10.5 12.1 13.9 16.1 17.7 19.3 2024 6.6 7.7 8.9 10.2 11.8 13.8 15.0 16.1

Market Demand in Transition
For the past several years, the market for the 737 family has seen a gradual shift in demand from the smaller to the larger models. The accompanying chart shows that in the earliest years of the 737NG program the 737-700 and 737-800 each accounted for about 40 percent of the of the order backlog, with the small 737-600 and the large 737-900 together accounting for the remaining 20 percent. The 737-600 quickly faded, and since 2001 the 737-700s share of the backlog declined while its bigger brother, the 737-800, now accounts for more than 70 percent of the backlog. We can also see that with the introduction of the longrange variant in 2005, the 737-900 has begun to gain strength. A similar chart for the A320 family would show the same kind of transition, so the overall average size of these narrow-body aircraft has been creeping up as airlines seek to proﬁt from their better seat-mile economics.

Build 1998 2000 2002 2004 2006 2008 2010 2012

The aircraft values stated herein are the product and the property of independent third-party sources, and ISTAT neither approves nor endorses the information contained herein or the use thereof for any purpose whatsoever.

20 The ofﬁcial publication of the International Society of Transport Aircraft Trading

http://www.naylornetwork.com/ist-nxt

Jetrader - July/August 2012

Table of Contents for the Digital Edition of Jetrader - July/August 2012