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Fri, Mar 25, 2016

Icon A5 Purchase Contract May Be More Complex Than The Aircraft Itself...

Highly Restrictive, Certainly Controversial, The Purchase Agreement Leaves One Wondering -- Are You Buying An Icon A5, Or Just Borrowing It?

ANN News/Analysis/Commentary By Jim Campbell, ANN CEO/Editor-In-Chief

Over the course of a decade, the aviation world has seen projects with immense promise come and go. Some make it, and change our world for the better... Some projects are still struggling to make their way in the Aero-Verse, others have failed, and the industry inexorably strives to come up with successful ideas to put it out of its doldrums.

That's life in the Aero-Verse … where Innovation in aviation comes easily to the imagination, but far less readily to reality. There is no end to the great ideas, there is no end to a plethora of exciting concepts, and there seems to be endless/tremendous enthusiasm for "the next big thing."

Until... you know... reality.

Sadly, the turbulent search for the next big thing often leaves some debris and damage behind… And, of late, we've become greatly concerned that the long-simmering Icon Aircraft program may turn out to be one of those. With a decade of development under its belt, nearly as many broken promises as achievements, and increasing dependence on Hype and PR fluff, their intensely cute little amphibious seaplane may ultimately turn out to be more of a nightmare than a dream.

It has been the subject of a tremendous amount of force-fed press, much of it positive though much of that positive press has been carefully orchestrated/mandated by Icon's intolerant PR machine to make sure that nothing but the very most positive comments are published.

Even Icon's 'pride' over their so-called 'nomination' for a Collier Trophy is not what it seems… because Icon was not nominated as part of a credible/objective process… as Icon nominated ITSELF (as confirmed during phone calls with NAA).

"The ICON team is honored to be nominated for a 2015 Collier Trophy."

In a recent twitter exchange, where we called into question the lack of any real deliveries, Icon attempted to minimize the negativity by invoking the ceremonial 'delivery' and claimed to have built a number of completed airframes. In trying to pin down details about the questions their response raised, Icon fell silent. Despite several attempts to qualify/quantify their responses, ANN received no further response to what were, admittedly, some moderately tough questions.

During a round of so-called familiarization flights in the past year, a number of people have been allowed to fly the airplane, and under some very restrictive circumstances that seem intolerant of objective journalism. Icon has aggressively flouted "Flight Tests" from writers who are not pilots, and some truly silly though overtly positive, stories have resulted. And, not surprisingly, those aviation journalists with a reputation for the most discerning and critical editorial have been left off the invite list (or refused to give in to Icon's demands for control over the story). A few publications known for doing puff pieces got to do puff pieces… but a number of folks with strong credentials (and credibility) with this generation of sport and general aviation birds got swept aside by the Icon PR department.

Mind you; some of the folks who have been given familiarization flights certainly do know a good airplane from a bad one, BUT the kind of highly critical, carefully tasked, arduous examination of the aircraft performance, capabilities, handling, and a thorough examination of its flight envelope, has yet in our opinion, to occur - and we're not the only publication to note this.

And yet, the 'flyability' of the airplane is among the least of our concerns-as we do expect that the plane will fly reasonably well based on the skills of some of those working on it. The chief of our concerns turns out to be whether or not Icon, itself, has the expertise, ability, and even the willingness to actually build the darn thing and whether the aircraft will be able to hold up to actual use over the long term. So far… it's looking a bit sketchy.

Even the so-called "First" delivery was anything but that… the only aircraft that Icon has claimed to have delivered, that took place as part of (surprise!) a PR event, was not a delivery, per se… in that the 'delivered' aircraft wound up going back to the factory on a truck following the close of AirVenture 2015… and apparently has not yet returned. I've heard and read Icon's public claims implying that "Deliveries have started" but find the reality of the situation wholly lacking.

There have been SO many delays and broken promises… Production start dates have come and gone, much ballyhooed features have been minimized, and the hype factor just gets greater and greater-a phenomenon that does little to inspire confidence - especially when compared to some other industry failures that were long on hype and short of reality. 

While the start of production has been heralded as just around the corner for quite some time now, Icon has finally started sending out final purchase agreements, totaling nearly 40 pages, that truly make us wonder whether Icon is interested in selling airplanes or letting them be 'borrowed.'

The reason we say this, is simply that the Icon sales contract is one of the most convoluted, restrictive, anti-customer, documents that we've ever seen. A number of people that we consulted with not only agree with our concern over its restrictive nature, but also seem to indicate that aspects of the current contract may be legally indefensible.

And while nobody denies the need (especially us) for companies to protect themselves in this highly litigious, legally complex world; one wonders how much abuse a customer will take, and how many restrictions they're willing to entertain to get an aircraft that is many years behind schedule, thousands of dollars more expensive than originally conceived, and may not quite be up to offering all the capabilities originally promised.

A quick perusal of the document reveals some interesting limitations and concerns… For instance, it'll cost you $10,000 above and beyond the agreed price for the airplane, in order to preserve your right to hold Icon responsible for legal problems down the line - in other words, if you want to be able to sue them at some point, as distasteful as that concept is to all of us in aviation, it'll cost you another 10,000 bucks.

"OPTIONAL RELEASE AND COVENANT NOT TO SUE; LIMITATION OF LIABILITY
Election. The provisions of this Paragraph 5 are intended by the Parties to reduce ICON's cost of litigation and enable ICON to sell the A5 aircraft for a lower price than it would otherwise have to charge. Owner may opt out of this Paragraph 5 for an additional charge as set forth below. Check and initial next to one:
Owner and Managing Pilot each elect to opt out of this Paragraph 5. Owner agrees that the purchase price of the Aircraft will be increased by an additional US $10,000.00 plus applicable taxes (it being understood that the provisions in this Paragraph are an important consideration of ICON in determining the Aircraft's purchase price). If this election and payment are made, Paragraph 5 shall be excluded from this Operating Agreement and replaced with "[Reserved]."
Owner and Managing Pilot agree to this Paragraph 5, including the release, limitation of liability, covenant not to sue and indemnification obligations."

Initial limitations on the operation and longevity of the airframe are pretty restrictive, and may ultimately be expanded as time/experience with the airframes is accrued. And while the initial limitations seem pretty restrictive, they are particularly worrisome if Icon, as a company, doesn't survive to be able to expand the abilities of the airframe.

"Buyer understands that the Aircraft's Maintenance Manual will require major service or overhauls on yearly or hourly requirements, which currently are expected to include the following:
i. Engine overhaul - earlier of 15 years or 2,000 hours.
ii. Ballistic recovery system parachute repack - every 5 years.
iii. Ballistic recovery system rocket replacement - every 10 years.
iv. Airframe overhaul - every 10 years or 2,000 hours (whichever is shorter).
v. Airframe life limit - earlier of 10 years or 2,000 hours from the second airframe overhaul."

There are strong restrictions on who may fly it, operate it, maintain it, and control the operation of the aircraft. Icon is putting a data collection device in the airplane that belongs to them, and all the data that results. You may not tamper with it or remove it -- and if you do, it could cost you.

"Buyer understands and agrees that, in the interest of safety of Buyer and others in the ICON pilot and owner community, the Aircraft will be equipped with a flight data recorder and that data regarding operation of the Aircraft, which may include flight and cockpit video data, will be collected by, and may be transmitted directly to, ICON or its designees. Notwithstanding anything to the contrary herein, the flight data recorder and the data collected thereon is and remains after Closing the sole property of ICON. ICON hereby grants to Buyer, effective upon Closing, the limited, revocable, non-transferable, non-exclusive right to use the flight data recorder in the Aircraft and data thereon for its own non-commercial purposes related to its operation of the Aircraft. Buyer agrees not to remove or disable the flight data recorder and to keep it in good working order throughout Buyer's ownership of the Aircraft. ICON reserves the right to replace or upgrade the flight data recorder at any time."

There are fees for the transfer of the Purchase Agreement should you decide to do so, $2000 worth-and the new buyer has to agree to ALL the terms of the Purchase Agreement, to boot. There is an even bigger fee if you decide to sell the aircraft and are not able to get the buyer to agree to all the terms required by Icon prior to such a sale, and that particular fee adds up to a hefty $5000 if you don't compel cooperation within 10 days (and yes, there are also a number of clauses that control how you may sell your aircraft… and even for how much…).

"In the event Owner Transfers the Aircraft or interest therein and fails to deliver to ICON an Assignment Form signed by the transferee as Owner (and/or the Acknowledgment and Joinder Agreement for a new Managing Pilot, if applicable) within 10 days after such Transfer, then Owner shall pay ICON an assignment fee of US $5,000.00 (the "Assignment Form Fee"), which shall be due 10 days after such Transfer, to compensate ICON for the costs and expenses of obtaining the Assignment Form from the new owner and/or the Acknowledgment and Joinder Agreement for a new Managing Pilot, if applicable, and other costs which are difficult to calculate. Late payment of the Assignment Form Fee shall accrue interest of 1½% per month (or the maximum interest rate permitted by law, if less) compounding monthly, until paid. Owner's payment of the Assignment Form Fee shall not relieve or diminish Owner's obligations or liabilities under this Operating Agreement, including without limitation obligations under Paragraph 5 and the obligation to deliver an Assignment Form."

They reserve the right to report your compliance (or lack thereof), in ways that aren't completely clear at this point, to the FAA Registry, as well.

"Owner agrees that ICON may file a notice with the FAA title registry (and foreign registries, as applicable) indicating the obligations of Owner to comply with the transfer restrictions herein, including delivery of an Assignment form."

And, oh yes, you are also contractually obligated to 'be supportive' of the company…

"Owner is receiving an early production run aircraft. These initial aircraft are intended for ICON's closest customers who are committed to the success of the company and the ICON pilot and owner community. Owner understands that the Aircraft will be an early production run aircraft and, as a result, Service Bulletins may be frequent and ICON's service network may not be fully developed. Owner agrees to be supportive of the company during this product introduction and growth phase. Owner acknowledges it may take two years or more to fully develop local support in their home region. Owner agrees to provide regular and confidential feedback to ICON for the purposes of helping ICON improve its products and customer experience."

For those who think they may be able to escape some of the limitations in regards to airframe and engine overhaul, as well as some of the parachute overhaul costs and restrictions, which apparently can only be carried out by an Icon authorized maintenance organization, and think that the transfer of the aircraft's certification to E-LSA might present some answers… Well, the Icon contract forbids you from doing that, too.

Icon also doesn't seem to be that confident of its ability to produce an aircraft with the kind of appearance and finish quality that buyers might expect… even including language that tames those expectations

"Buyer may inspect the Aircraft and Options during the Closing Window. Following the inspection and during the Closing Window, Buyer will provide written notice to ICON of any matters Buyer believes may not conform to ICON's internal quality specifications (the "Quality Standards"). If ICON, in its reasonable discretion, determines that the items identified by Buyer do not meet the Quality Standards, ICON will correct such issues at its expense prior to Closing and the Closing Window shall be automatically extended until such issues meet the Quality Standards as reasonably determined by ICON. If such issues are not resolved within 30 days, then the Buyer may terminate this Purchase Agreement for breach by ICON under Paragraph 8.d as Buyer's sole and exclusive remedy. ICON aircraft are made of light-weight, aerospace composite structures that have a low resin-to-fiber content. As such, these high performing structures are naturally prone to small surface variations and paint imperfections and will not have an automotive grade surface finish. It is understood and agreed that imperfections in paint or interior or otherwise identified by Buyer in its notice that do not constitute non-conformance with the Quality Standards will be corrected by ICON only after Closing and at Buyer's sole expense."

And if you go all the way through the process and the Icon A5 doesn't meet what you believe you were promised, there are all manner of issues involved in that process… including the imposition of a "Retention Amount" that Icon feels that may be due if you ultimately decide you've been sold a bill of goods.

"Buyer consents to ICON's retention of the Retention Amount and agrees that the Retention Amount shall apply regardless of any mitigation of damages by ICON or any alleged failure of ICON to mitigate its damages."

Not being a lawyer, though having a number of folks in the legal profession weighing in on various aspects of this document, I'll admit that the very complex nature of this thing suggests many more questions than answers…

But the real question, ultimately, is this… Is this any way to treat a customer? And... is this truly the type of behavior that we should expect from a company that claims to be building part of aviation's future? Among those disappointed in Icon's hype/bluster and other concerns, the names of several of sport aviation's bitter historical disappointments are brought up... Revolution Helicopter, the BD-5, and so forth. More than a few folks are holding their breath to see if Icon can do what they say and ALSO be good aviation citizens... or if storm clouds are gathering.  

Among the folks who claim to have been in line for one of these aircraft at some point in the future, and have brought up issues involving the sales contract or some of the other doubts that have been swirling around the company's hype intensive PR campaign, most of what we hear (so far), are folks who have come to the reluctant conclusion that the Icon A5 is not for them, and have signaled their intention to cancel the contract, or have already done so.

A reasonably equipped Icon A5 will cost more than a quarter-million dollars… some $100K more than a competitive bird like the Progressive Aerodyne SeaRey amphib… a respected LSA that is offered by a company with decades of experience in the game and has been delivering both experimental kits and completed LSAs for years. Our last look at a SeaRey contract showed a document that was not nearly as restrictive for an aircraft that boasts many of the same capabilities. 

Hmmm…

There's more… but we're waiting for additional input and data from some legal experts as to the legality of this contract, and frankly, this thing is a tough read. Every time we run through it, we discover something (often new and/or problematic) else. We have attempted to contact Icon all through the past week… and received no answers… heck, we couldn't even get anyone to come to the phone from either the LA or Vacaville offices. Finally; a short/polite call to Icon Boss Kirk Hawkins, via his cell phone, received a terse response in which he clearly did not want to respond to questions--and did not. ANN continues to attempt to make contact with Icon in order to understand the meanings, methodologies and intent of this contract and whether the company truly intends to do business this way. We will continue to do so in order to derive more information for a further update.

We hope to follow up shortly…

FMI: www.iconaircraft.com, https://twitter.com/wheels_up/status/701776235278503936

 


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