April Aircraft Report: The Boeing 737-300

Source: Flightglobal.com
This story is sourced from Flightglobal.com

The 737-300 is the first of the three-member second generation CFM International CFM56 powered 737 family, which also comprises the stretched 737-400 and the shortened 737-500.

The 737-300 model started off as a simple stretch over the 737-200 but Boeing decided to adopt the CFM56 high bypass turbofan to reduce fuel consumption and comply with the then proposed International Civil Aviation Organisation Stage 3 noise limits. Boeing announced the development of the 737-300 variant in 1981 and delivered the first aircraft to USAir in November 1984.

The success of the second generation 737 family, also called 'Classic', pushed sales to over 3,000 aircraft, a record at the time.

The 737-300 received over 1,000 orders throughout its production, which ceased when Boeing handed over the last aircraft to Air New Zealand in December 1999.


According to Flight's ACAS database, there were 850 passenger aircraft in service at March 2011 with more than 165 customers. Another 179 aircraft were parked or stored. ACAS says 458 aircraft are owned, another 386 are leased while six are subleased.

The average fleet age is now approaching 20 years of age. The North American average fleets age is 21.1 years while in South America average fleet age is 20.1 years. The Europe and Middle-East/Africa regions average fleet age is 19 years.  Asia/Pacific-Rim average fleet age is 17.9 years.

This compares with 917 passenger aircraft in service at January 2010 with 195 aircraft parked or stored.

Geographically, North America accounts for 336 aircraft, or 39.5% of the total fleet. Asia/Pacific-Rim had 192 aircraft with 29 customers, Europe has a 192-aircraft fleet with 48 customers, Middle-East/Africa accounts for 53 aircraft with 20 customers while South America has a 76-aircraft fleet.

At the beginning of 2010, North America represented 359 aircraft, Asia/Pacific-Rim 209 aircraft, Europe had a 236-aircraft fleet, Middle-East/Africa accounted for 53 aircraft while South America had a 60-aircraft fleet.

In the North American region, only 23 aircraft are in operations with airlines (Canadian North, Capital Airways, Swift Air, US Airways and Vision Air) in addition to the 174-aircraft Southwest Airlines fleet. The remaining aircraft are in the hands of lessors, investors and banks.

Since the beginning of the year, CAO has recorded about 15 transactions. KV Aviation completed the acquisition of three 1989-vintage 737-300s with leases attached to Comair. Southwest Airlines and Jet Time recently extended leases by another two years on some aircraft with ORIX Aviation. Viva Aerobus has continued its fleet expansion by adding another three aircraft while Webjet also added one unit. The other main market is Asia with Indonesian carrier Citilink and Sriwajaya adding aircraft along with Cambodia’s Tonselap Airlines.

Southwest 'fatigue incident'

Following an incident on 1 April 2011 in which a 1994-vintage Southwest Airlines 737-300 lost part of its upper fuselage in-flight, Southwest grounded 79 aircraft. In the first quarter conference call with analysts, President & CEO Gary Kelly said that Southwest found five aircraft had surface cracks. “We repaired all of them and put them back into service, but we continue to do inspections,” he commented.

Fred Klein, president of Aviation Specialists told CAO earlier this month that the ‘fatigue incident' is likely to have little affect on Boeing 737 Classic values.

“The event airplane was 15 years old and had about 50,000 hours and about 40,000 cycles. The aircraft was part of a batch of 570 that was constructed between 1993 and 2000 with a slightly different method than those preceded it and the Next Generation 737s that followed. Boeing designed this batch for 60,000 cycles before key inspections would be required; fatigue developed only two-thirds of the way there.”

There are 175 737 Classics of all sub-types that have 30,000 cycles or more; in the US. Klein said that 87 of Southwest's nearly 200 737-300s and 737-500s have at least 40,000 cycles, based on Flighglobal's ACAS database. Forty-five percent, or 78 airplanes, are 1991 and older-but these pre-date the change in the construction method involving the event airplane. Fully 160 of the nearly 200 airplanes are 1996 and older, Klein said, some involving the different construction method.

"If you [retired] the [entire] Southwest Classic fleet in the next two or three years, I think Southwest would fly them to the heavy check and engine run-out and just park them," Klein said.

AVITAS’ director - Asset Valuation Martin O'Hanrahan believes that of immediate concern is the emergency directive issued by the FAA and the implications. “The FAA required that initial and repetitive fatigue damage inspections be carried out for 737-300/-400/-500 aircraft having accumulated more than 30,000 flight cycles. The aircraft involved developed lap-joint cracking, at a much earlier stage in its service life than had been expected by Boeing,” he comments.


Demand for the aircraft was strong between 2005 and 2007, especially for the models powered with -3C1 engines. At the time, no replacement for the A320 and 737NG was in sight. Since availability has climbed to high levels as Continental and United capacity cut announcements in June 2008 involved the retirement of 67 737-300/500 Continental aircraft and 94 737-300/500 United aircraft.

The current environment, with oil prices relatively high, encourages operators to switch to most efficient aircraft but there are still some opportunities to place aircraft. Few transactions are materialising as owners may have their aircraft on their balance sheet with high book values not matching current aircraft market values.

Some trading sources says that there is no market for 737-300s and 737-400s as they come off lease and the scrapped market, which was active as the type still has a large number of operators, is also becoming increasingly saturated.

The 737s has also been under pressure from other aircraft, among them the Airbus A320 with -A1/5A3 engines. One source says the competitiveness of the A320 has affected the Classic market.

Gueric Dechavanne, Vice President - Commercial Aviation Services of Collateral Verifications says values have remained fairly steady over the past year, with lease rentals continuing to drop by about 15-20%. “Even with the recovery for the industry under way, we feel that these numbers will either continue to remain stable or drop slightly for the foreseeable future as Collateral Verifications feels that values and lease rates for the type have most likely hit bottom. 

“In the current environment, older vintage aircraft [analogue with CFM56-3B1 engines] will continue to be viewed as part-out candidates at best and/or remain stored indefinitely. It seems that the current demand for the type from operators is for the newer EFIS aircraft with -3B2/-3C1 engines. With the cargo market recovering as well, we do expect that there is some potential for some of these aircraft to be converted to freighter to replace other ageing aircraft."

Dechavanne says the 737-300 will not rebound greatly from a value or lease rental perspective. “With the increase in production from the manufacturers of new single aircraft, the focus from operators will either be newer aircraft or older A320/737NG aircraft with the newer engine variants. Not unlike its predecessor, the Boeing 737-200, the time for this aircraft to shine has now passed.”

According to him, a 1984-vintage aircraft has a $1.66 million current market value (CMV). A 1988-vintage analogue aircraft is estimated at $1.8 million CMV or $2.3 million for an EFIS type.

Dechavanne values a 20-year old aircraft at $2.87 million, a 1995-vintage at $3.83 million while the youngest aircraft (1999-vintage) at $5.54 million CMV.

AVITAS says a 1984-vintage aircraft is valued at $1.8 million, while a 1988-build model has a $2.2 million CMV.

O'Hanrahan values a 20-year old aircraft at $2.7 million, a 1995-vintage at $3.7 million while the youngest aircraft at $4.9 million CMV.

O'Hanrahan believes that the market for the 737-300 remains soft. “As evidenced during the industry recession, the 737-300 is regarded as older technology and many surplus units were parted out, failing to make the jump to freighter configuration. As the cargo market continues to strengthen, we would expect the pace of conversions to gather momentum.”

Klein notes that because of the age and higher cycles of the Southwest aircraft, and the fact that Southwest's Classics are all analogue aircraft, the values are going to be less than other Classics. Additionally, Southwest's planes are equipped with the CFM56-3B1, "the least desirable" of the CFM56 engines, which also will depress values.  "The values of the oldest 737-300s are in the $2 million range," Klein said, and most of this is in the engines. Values of the younger -300s average between $5 million and $6 million, according to him.

“I don't think that the [Southwest] incident will have any effect - prices were already at a very low level of about $2-5 million capital value,” says a trading source.

Lease rates

The 737-300 market is predominantly a lease market and given the operator base, most airlines operating the type will probably not replace their fleet anytime soon.

Average lease rates for a majority of oldest aircraft are in the $45,000 to $70,000 a month bracket but CAO understands that some airlines have renewed below those rates.

AVITAS says lease rates for a 737-300 model range from $50,000 to $120,000 a month depending on the terms and the lessee credit. Collateral Verifications estimates monthly lease rates in the $45,000 to $105,000 range.

Collateral Verifications sees the 1995-99 built aircraft in the $85,000 to $105,000 a month range while AVITAS estimates that range in the $90,000 to $120,000 a month.

AVITAS says the market for 1984-88 vintage aircraft is in the $50,000 to $75,000 range while Collateral Verifications estimates monthly lease rentals between in the $45,000 and $55,000.

A 1991-vintage lease rate is in the $75,000 to $85,000 range for Avitas and around $65,000 for Collateral Verifications.