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.