Icon Production Delays: The Inevitable Explained

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If there was any surprise in Wednesday’s announcement about production delays for the Icon A5, it’s that the company was so forthright in admitting what many have suspected for months. There’s a reason Icon isn’t delivering and for a company that has been obsessive about its image and marketing with a close-to-the-vest press policy, it was refreshing to hear some answers that made sense.

Basically, with about 1850 orders on the books, Icon finds itself laying off people while it has hundreds of airplanes to build. How bizarre is that? Not very, actually. Icon is in the good company of Boeing, Cirrus, Eclipse and even Cessna. Every one of these companies has, at times, struggled with the overwhelming challenge of organizing high-volume serial production. It’s difficult enough with toasters and tires, but evidently orders of magnitude worse with airplanes.

The reasons are myriad and not easily solvable, even when you can see them coming. Boeing, for instance, consumed the entire crosswind runway at Paine Field in Washington state with factory-fresh 787s. First it was structural and weight issues, then the battery fire problem and most recently vendor delays on seats. Meanwhile, vendors keep vending, piling up parts and assemblies while the factory starts and stops. Or just doesn’t start at all. Or can’t stop. Remember the 747s parked at Everett in 1970 with concrete blocks tied to the engine nacelles? Pratt & Whitney couldn’t deliver engines, or at least engines that worked.

Sometime around 2000, I think, I sat in a conference room talking to Alan Klapmeier about the fact that Cirrus was laying off workers as orders for the SR20 and the new SR22 flooded in. The production line hadn’t been organized enough to put the assemblers to work, so they were sent home. Vendor production schedules were uncertain, equipment wasn’t in place and a thousand little details were undone. Edge-of-technology electronic tracking is supposed to help such things, but sometimes all these systems do is time-stamp the chaos. 

With every new airplane project, we in the press sometimes give the impression, probably by omission, that we think this time it will be different. But it rarely is. And the more ambitious the program, the higher the likelihood that aspiration will be dope-slapped by reality.

And that’s where Icon is. It needs, as CEO Kirk Hawkins said, to slow down before it can go fast. It may take a while to figure that out and I won’t be surprised to see further stops and starts. Now, just as Cirrus did, and Eclipse did and even Boeing did, Icon enters the red risk zone. It’s burning money without bringing in substantial revenue. Cirrus survived this; the original Eclipse did not. Developments like these tend to spook investors, committed buyers and would-be buyers. The whiff of blood in the water sends some to the exits and the only realistic response for the company is to confront the reality honestly, explain it and illuminate the plan by releasing all but the most proprietary information. I give Icon credit for doing that this week. It was as voluble and least controlling as I’ve seen them be.  

Although it wasn’t a planned part of the press conference, Hawkins also released details of the revised buyer agreement. The original, you’ll recall, stirred a storm of negative reaction just ahead of Sun ‘n Fun, with a list of legal contract specifications many considered onerous and unnecessary.

Hawkins conceded the error. “It should not have gone out in the form it went out without an explanation. They had a right to be taken aback,” he said. The original intent, Hawkins explained, was to gain an acknowledgment from buyers that they understood the product liability risk Icon viewed itself as operating under.

To mitigate the damage, Icon dropped the more overbearing aspects of the agreement, including lifting the requirement for an audio/video recorder, yanking the “responsible flyer” clause, placing a $15,000 bounded price on the required airframe overhaul and removing the 30-year life limit.

However, the covenant not to sue Icon remains, as do requirements to use only Icon-approved (but not necessarily Icon-provided) training and maintenance. One sticky point Icon is retaining is insistence on involvement in the secondary sale to another owner. If the original owner sells to someone who hasn’t signed the buyer agreement with Icon, he’ll owe the company $5000. To incentivize that, Icon will offer the seller $5000 in options toward a new A5. Icon also dropped the right of first refusal to buy back the airplane that was found in the original contract.

The new agreement strikes me as far more reasonable and realistic. During April and early May, I conducted a series of interviews with industry executives and potential buyers. The full report appears in the June issue of Aviation Consumer. Not one person I spoke to thought the lawsuit covenant was a bad idea, nor do I. It’s a reasonable way to reduce liability exposure. I like the data recorder idea, too, and have no issue with the training and maintenance requirement, provided Icon takes steps to offer this themselves or trains and approves people who can. But the secondary sale restriction? I’m not sure all buyers will accept that. In my view, all it does is to sharply restrict the potential buyer universe for a primary buyer and potentially reduce the used value of the aircraft, thus placing an unreasonable burden on the original buyer. There’s no way in hell I’d have signed the original agreement. The revised version? Maybe, but the secondary sale restriction still gives me pause.

Icon pledges to release the detailed, much shortened version of the buyer agreement in a few days. You can read it and decide for yourself. As the company goes into a months-long period of retooling for efficient, rapid production, it will need all the loyal buyers and good press it can get. Hawkins admitted the delay will tarnish enthusiasm for the A5, but he at least took a step to minimize that this week. Furthermore, as the factory gears for building production airplanes, the company will use the airplanes it has available to begin training pilots and owners. The more of these flights that take place, the better. We’ll have a better chance of finding out if the A5 is as good as Icon says it is.  

In the next blog, I'll look at how Icon's plans might affect the GA market.

Comments (9)

Well, it is a kind write up. I hope it pans out.

Posted by: Rafael Sierra | May 26, 2016 9:00 PM    Report this comment

Amended contract or not, I wouldn't touch these guys with a ten-foot pole. The implied "trust" between buyer and seller has been violated in my humble opinion, and you just don't get that back with an "Oh, I'm sorry" or "Here, let me stick you a little less painfully".

After years of varied experiences when dining out, my spouse and I have developed a rule. If we enter a restaurant and sit down, and detect anything out of order (staff issues, cleanliness, etc) no matter how minor it may seem, don't simply look the other way; get up and leave NOW. Believe me, it will only get worse, especially considering as a customer you only can see a shadow of what's really going on behind the counter. This has worked beautifully for us.

We found this principle works well with other vendors too; there are just too many good alternatives available to waste time & money on something you keep hoping and hoping will get better. Not going there again...

Posted by: A Richie | May 27, 2016 9:10 AM    Report this comment

Delighted to see some realism in their production plan. They could learn from other LSA producers; RANS, Cubcrafters, Legend and Flight Design. A slow steady production ramp delivers much better quality and within 50-100 copies, a version 2 product which is better, and easier to produce.

Posted by: Serena Ryan | May 27, 2016 10:23 AM    Report this comment

Maybe too many cancellations due to amended "agreement"?

Posted by: Ari Tamminen | May 28, 2016 3:50 AM    Report this comment

Let's see now, if Eclipse did it, Boeing did it, Cirrus did it, even Cessna did it, you would have thought Icon would have figured it out, or at least a little bit and would have tried to avoid a little bit of what all four others did. To go from a supposed 175 units down to essentially zero with a one year extension on delivery which you already know is bogus, coupled with a rescinded agreement which was nothing short of eye popping is mind boggling. Icon is toast. If this isn't boarder line fraud it's at least gross incompetence.

Posted by: Thomas Cooke | May 29, 2016 5:07 AM    Report this comment

Thomas:

Design-for-serial-productuon is a discipline in and of itself - going far beyond simply ( ! ) designing a good product. Supply-chain issues can bring production lines to a standstill, as even the mighty Boeing learned painfully on their 787 program. Parallel-production sounds like a ready solution, and it is - to those who believe that you can make a baby in a month, if you just get 9 ladies pregnant.

It's difficult enough to get it right if you stick with the run rate that was ( ? ) a part of the original design specifications. Attempts to alter that after the design is frozen are... a challenge. Experienced experts fail; rookies beware.

-YARS

Posted by: Tom Yarsley | May 30, 2016 3:50 AM    Report this comment

It is a tricky one -- 1,850 is too many to hire 10 people, teach them how to build the planes one at a time and then tell them to produce one a month @ 140 hours each -- which presumably is doable in a fully fitted out and supported factory.
For the company 120 deliveries a year probably makes sense except for the screaming waiting list.
So it will have to move away from bespoke production to factory production and there are limits how long people will be prepared to mould and cook carbon fibre parts for a low wage before they walk away and do something like roofing in the summer.
The only similar numbers I can think of, off the top of my head are car makers like Rolls Royce and Bentley, and even then they have 1) raised prices significantly and 2) now usually sell more like 2,000 cars a year.
In fact, the Rolls Royce Motorcars website now claims they make 20 cars a day with 1,400 employees.
Let us hope Icon have understanding bankers...

Posted by: John Patson | May 30, 2016 9:31 AM    Report this comment

The Mercedes AMG line might be the other example. Limited production, high performance versions of Mercs. They employ and probably invented the Alfing production system that Continental uses for its diesel engines.

Of course, this stuff never exists as off-the-shelf technology so it ends up being reinvented on the spot, here the delays.

Posted by: Paul Bertorelli | May 30, 2016 9:45 AM    Report this comment

Get all money needed, outsource everything. No room for small and financially fragile startup companies. It's a tough scenario. We're not in Kansas anymore Toto.

Posted by: Rafael Sierra | May 30, 2016 11:29 AM    Report this comment

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