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OBW H6 VDC, Tribeca, XT6
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1996 Outback has two different engines, this applies to 1996 only and Outbacks only, not other years or models:
96 automatic has a DOHC EJ25
96 manual has EJ22

Your friends 2003 has a SOHC EJ25

The 96, if it's an EJ22 (manual) doesn't work.

The 96, if it's an EJ25 (automatic) - doesn't work either. It is neither plug and play, nor are the intake manifolds interchangeable, nor can you easily swap the 2003 wiring harness onto the 96, the idle control is different and it's MAP, not MAF based. With some creativity I think it's doable...

If the 96 is an EJ25 - then you can use the short block and bolt your friends 2003 heads to it - assuming the engine is good. But you have to be careful about clearances and make sure you use thick headgaskets, there's very little clearance between the valves and pistons.

While I have done that swap before, I would not recommend using DOHC EJ25 blocks myself.

I would get the proper engine for it:
2000 - 2004 EJ25 engines are a direct swap.
Any 1999-2001 EJ22 is also a direct swap.

Sometimes you have to swap the passengers side cam sprocket and crank sprocket for the timing belt as they have different trigger points, but that's really easy with the engine out. If you simply swap it out as a rule, you're golden - if they're the same, then they're the same.

You should be installing a new timing belt kit anyway so it's really no extra work.

Ebay kits are $160 - $200 for all new timing belt, tensioner, and pulleys. Interference engine so it's not a good idea to skip those.

You can use later engines as well....but unlikely you'll find those for a reasonable price.

DOHC EJ25 in your friends car..
the 2003 has a SOHC, not a DOHC Ej25, they are not interchangeable.

I reckon any EJ25 is a direct swap.
there are three EJ25 varieties and they are not interchangeable: DOHC, SOHC, and VVT
 

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OBW H6 VDC, Tribeca, XT6
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As to the MT verses AT does not matter, they have no variances by transmission.

The only issue you have to be aware of is EGR: Be on the look out for one of the following, Subaru is rather cracked up with EGR placement on some but not others:

1. If the existing motor has an EGR valve then you'll want the new motor to have EGR valve.
2. If the existing motor does NOT have an EGR valve then actually you can use any EJ25 - if you get one with EGR you just block it off, it's really easy. Or - get a motor without EGR.

i did find a '98 outback legacy...so that wont work either without doing a header swap?
No, 1996-1999 Legacy/Outbacks and 1998 Foresters won't work. Wrong EJ25.

Unlike in 1996 where there are two motors for the Outback, in 1998 all Outbacks are EJ25 so you can definitely use the block if you're into doing a head swap as mentioned above.

be careful as "head swap" and "header swap" (you said "header"....I never did, I said "head") are two completely different things, one is really simple and easy (header swap), the other is much more complex and has a lot of variables to it (head swap).

there is no "header" swap needed, only a "head" swap. unfortunately the difficult one.

You're going to find those older vehicles cheaper and on the market more (since they're not worth as much, not worth fixing more often) than the newer ones, keep looking though and get the right engine for it as outlined in my first post.
 
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