ICON A5 Legalities

[dlegg]

Everybody should have a read of this.....

 

By Paul Bertorelli

 

Icon Aircraft founder Kirk Hawkins has famously said his company aims to reshape—actually reinvent—general aviation by "democratizing" access to it. What that means exactly is about as clear as mud, but this week, Icon's buyer agreement escaped into the wild, and it appears as though Icon's view of "democratization" centers on a legal construct that gives the company broad protection against its customers while denying those customers the same basic rights buyers of other aircraft enjoy. If this is the shape of the future of general aviation, it's not very pretty, in my view.

 

The buyer agreement runs to 40 pages and is a tour de force in outlining specific protections for Icon, while forcing the buyer to legally sign away certain rights buyers of all products—not just airplanes—have traditionally assumed were part of the standard commercial transaction. Technically, the agreement is two parts, a sales agreement and an operations agreement that binds the buyer to use the airplane only in certain ways.

 

Some of the high points include a clause that has the buyer agree to indemnify Icon against lawsuits or pay an additional $10,000 to retain the right to sue. The agreement also appears to advance the claim that the buyer agrees that Icon is making no promises that the A5 is suitable for any particular purpose and that any representations made by Icon or its employees should not be relied upon. In other words, Icon won't be held accountable for whatever claims may have been made before the sale, other than what's in the POH.

 

As part of what the company has described as an effort to encourage safe operation of the aircraft, pilots must either be trained by Icon through a company-approved program or obtain their training directly through Icon. The company offers this training as an upsell at prices ranging from $1250 for a basic transition course to $9500 for a full sport pilot course with single-engine sea rating.

 

Following an example set by Robinson Helicopter, the company will require an airframe overhaul at 2000 hours or 10 years, whichever is shorter. The agreement is silent on what this overhaul entails or what it will cost, thus leaving an owner with an uncertain calculation on how an impending overhaul will impact the value of the airframe. One aspect of this buyers may very well balk at is this one: an airframe life limit that is the earlier of 10 years or 2000 hours from the second airframe overhaul. I queried Icon about this, but they declined to answer any questions on the agreement specifically. I take it to mean the airframe is limited to 6000 hours or 30 years, if the second overhaul occurs at 20 years. A reader noted that he read this as a 20-year life limit on the airframe.

 

In explaining the intent of the agreement, Icon sent me a copy of a cover letter it's sending to buyers. The letter says, in part, "How can a purchase agreement promote safety? By helping to ensure that ICON's airplanes are (1) flown by well-trained pilots, (2) flown within their operating limitations, and (3) maintained to ICON standards. We won't compromise on these principles and have structured our purchase and operating agreements around them."

 

Another company-centric feature of the contract is that the owner agrees to allow Icon to install a digital flight recorder in the aircraft, including a camera, and that Icon owns this equipment. The recording gear is to be kept running in flight at all times and Icon can do with the data what it pleases and may download it anytime, at its discretion. It grants the owner limited "revocable" access to the recorded data for his own use. And by the way, if the recorder is stolen or otherwise removed, the owner is on the hook to pay for its replacement and he's required to keep it in good repair. I suspect many would-be buyers will be put off by this kind of big brotherism. I know I would be, even though I think the intent of it has merit. Collecting data is useful for trend monitoring and that can improve safety. But it should be at the owner's option.

 

The contract notes that Icon obtained from the FAA a waivered weight increase against the LSA-specified limit and that this applies only in the U.S. Buyers outside the U.S. are on their own with whatever regulators they have to deal with. Although Icon says it intends to pursue such approvals elsewhere, it says the timing of such approvals "may never be determined." In other words, buyers writing a quarter-million dollar check to Icon aren't promised any help to obtain whatever approvals they need to legally fly the airplane outside jurisdictions of the FAA. The contract also asks the buyer to acknowledge that Icon will provide support and maintenance only in regions where it has established networks. Currently, that's only the U.S. and Australia.

 

One of the most bizarre aspects of the contract is what reads to me like a morals clause. Here it is in its entirety: "By entering into this Purchase Agreement, Buyer is part of the ICON pilot and owner community. Promoting flight safety and responsible operations throughout that community is a primary objective for ICON. A critical component of flight safety comes from the values, attitudes, and behaviors of the pilot. ICON expects all ICON aircraft pilots and ICON aircraft owners to demonstrate responsible, professional attitudes consistent with those of safely piloting an aircraft. As set forth in the Aircraft Operating Agreement, Buyer and the Managing Pilot agree and agree to cause pilots of the Aircraft (i) to behave professionally, respectfully and with sound judgment in connection with use of Aircraft, and (ii) to participate within the ICON community in a manner that is professional and does not adversely impact others within the community."

 

If you read this the way I read this, it seems to expose the buyer to legal action from Icon if the company determines, through its continuous video and data monitoring of the owner, that the pilot hasn't behaved "professionally and respectfully." These qualities aren't exactly defined in the agreement and are, evidently, left to the discretion of Icon. Further, the company's website depicts extreme low flying that many of us might consider to show poor judgment. Why such a clause would even appear in a buyer contract is baffling, in my estimation. Icon further saddles the buyer with the legal responsibility not to allow a pilot who hasn't been through Icon-approved training to fly the airplane. Moreover, Icon insists a pilot can't carry a passenger unless he has 10 hours of PIC time in the airplane.

 

As far the price of the machine and the agreed-upon terms, once again, Icon stacks the deck in its favor and against the customer by noting that prior to the purchase agreement, "the offer of entering into this … agreement is subject to change in Icon's sole discretion at any time." There's nothing in the language that particularly favors the customer, in my view. In case of a dispute over performance or details of the purchase agreement, Icon wants the customer to submit to arbitration and waive any right of jury trial.

 

The agreement also requires the owner to agree that the agreement itself was "negotiated" between the owner and company and therefore if there is a disagreement over the contract, the owner can't claim that the contract was a take-it-or-leave-it affair (contract of adhesion), which is then interpreted against the company that drafted it. It's a lose-lose for the owner, in my view.

 

Although the base price of the airplane has been given as $189,000, the sale contract I examined shows it as $197,000 for the base. Early buyers can opt for a "Founders Edition" which, for the addition of some features, adds another $35,000. A ballistic parachute adds another $15,000, for a total of $247,000. This makes the A5 one of the most if not the most expensive S-LSA on the market. For those anxious to have their A5 sooner than they might otherwise, there's a move-up option that costs $75,000, bringing the total to just over $300,000, allowing for credits.

 

In another example of image control, the first 100 owners in the Founders program agree to accept that the service network won't be fully developed and the airplane may have flaws to be corrected by service bulletin. During this period, up to two years, the owner agrees to be "supportive" of Icon, providing regular confidential feedback to the company. Does this imply don't complain to the press or the public, too?

 

What could be a killer—and should be, in my view—for many would-be buyers of this airplane is Icon's draconian insistence that at resale, the new buyer sign and affirm the same terms that the original buyer agreed to, including an operating agreement requiring training, oversight and the above-mentioned moral clause. Failure to do that invokes this clause: "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." Moreover, even for an approved transfer to another owner, the owner has to pay Icon a $2000 fee to process and approve the transfer.

 

Furthermore, Icon demands to be notified of a potential sale and insists that it be allowed to purchase the airplane from the owner under the same terms. And by the way, failure to pay the assignment fee means the original owner has to pay Icon interest at 1.5 percent per month. However many original buyers Icon may find to sign this agreement, consider the hapless owner going out into the resale market with the same requirements to toe Icon's self-protective line. In my estimation, that would sharply limit the potential resale market and possibly tank the airplane's value on the used market from day one. You may rightly surmise that this once again puts Icon in the driver's seat, since it insists on the right to purchase at what's essentially first refusal and therefore would have considerable leverage on determining market value.

 

I spent a couple of days this week shopping Icon's idea with other manufacturers with this overarching question: Would or should anyone sign such a buyer agreement with a manufacturer? One aftermarket manufacturer, who also happens to be a lawyer, opined that the attempt at legal hold harmless may be the shape of the future. Despite the General Aviation Revitalization Act that was supposed to resuscitate the industry, high-dollar lawsuits continue to dog manufacturers. For that reason, Icon's attempt to limit its liability has an understandable appeal. But in my view, it's doubtful it will have the desired or any effect. One CEO of a major aircraft company told me it entered into a limited hold harmless arrangement to work out warranty claims and got sued anyway. Even winning such a suit is losing, given the high cost of defending such things. Further, Icon's indemnification language implies that it be held harmless if the NTSB finding absolves the aircraft as being at fault. But federal law specifically prohibits NTSB findings as trial exhibits.

 

My guess is a lot of lawyers will be advising their clients not to sign Icon's agreement or to amend it significantly. In my view, it so egregiously erodes basic customer rights and protections as to fundamentally reset the seller/buyer equation that it's a gross distortion of what business should be. If my lawyer source is correct and this is the direction we have to go to assure GA's survival, I'd just as soon knock out the lights and call it a day. You can't have an industry on this basis. In my view, no airplane, no matter how sexy or how sweet, would be worth such a subservient relationship with a company manufacturing something I intended to buy. Particularly if that certain something consumed a quarter million dollars of my wealth.

 

It's impossible to say where this will go. (As I was posting this, I was copied on one reader's email to Icon cancelling his order.) My view is that Icon's fundamental idea—a retooling of the general aviation concept with a flashy, Tiffany-type product pitched outside traditional GA marketing channels—is both refreshing and sound. I'd rank it as conceptually one of the best ideas for GA resurgence I've seen. Icon has clearly taken a long time to develop the airplane because the company wanted it to emerge as close to perfect as possible. Its promotion and sales material has been consistent with the perception of quality and it has attempted to fiercely control its image to the point of declining requests for flight demos from media outlets critical of it. Notably, that includes AVweb.

 

Have we seen this movie before? Maybe. Recall the original Eclipse kicked open the doors in 2002 and declared it would show the world how to build airplanes with a small, sophisticated jet built on an assembly line with unheard-of efficiencies and a price far below the competition. The phrase of the day was "disruptive technology." The whole thing tanked, buried under a heap of overmarketing hype and mismanagement. Eclipse got into trouble with late deliveries and you have to wonder if Icon might be struggling with deliveries, too. With great fanfare at AirVenture, it announced a delivery to EAA, but we've seen nothing since.

 

That Eclipse survives yet today in resurrected form is the sort of miracle only aviation is capable of. With Icon, the phrase is "democratization" but, in my view, it's hard to see much democracy in a buyer agreement that so lopsidedly favors the company against the customers' interests. Wouldn't it be better to build a relationship with the customer based on trust, a sound product and good service rather than herding buyers into a legal corral and giving them the impression you put them there so they can do the least harm?

 

Maybe that's just too old-fashioned. Maybe the bold new world of general aviation will be populated by manufacturers camped inside a compound with 12-foot walls lined by lawyers. If so, what a shame. This stuff used to be fun.

 

 

[Happyflyer]

This aircraft was about the only one you couldn't go up close to and touch at Oshkosh. Roped off and surrounded by minders. The whole ICON show was a lot of media froth and bubble. The marketing department must be the largest part of the company. There are a lot of nice toys out there for half the money they are asking for this.

 

 

[Pearo]

They can put all legal mumbo jumbo in front of you and make you sign it, but its worthless until tested in court.

 

The problem here is that in any commonwealth country that adheres to common law (that was designed to be fair to both poor and rich) who ever has the best lawyer wins.

 

At the end of the day, if you don't like the contract, don't sign it. If you can afford to buy one, you can afford to spend a couple of thousand for a lawyer to decipher the legal tripe. For those that buy with out legal and finacial advice, well lets hope they have enough liquid cash to cover any unknown expenses.

 

 

[Camel]

This aircraft was about the only one you couldn't go up close to and touch at Oshkosh. Roped off and surrounded by minders. The whole ICON show was a lot of media froth and bubble. The marketing department must be the largest part of the company. There are a lot of nice toys out there for half the money they are asking for this.

I'm very keen on ampibiams, can you enlighten me on some of the cheaper alternatives that I may not already know of ?

 

 

[bexrbetter]

Being a registered Cynic, I see the bigger picture as Icon have gone in way too deep into debt, no way in the world can they recover their 120 million and it's just best that they go under - and this contract is a good way to help that process happen sooner. the more people don't want to buy their plane, the better. tough luck investors and shareholders.

 

 

[coljones]

 

xxxxxxxxxxxx

 

 

[Camel]

Being a registered Cynic, I see the bigger picture as Icon have gone in way too deep into debt, no way in the world can they recover their 120 million and it's just best that they go under - and this contract is a good way to help that process happen sooner. the more people don't want to buy their plane, the better. tough luck investors and shareholders.

Some basic maths confirm your opinion and I agree, my quick calculation is that if they invested $120 m

 

Then if they could make $100,000 on each plane they would need to sell 1200 planes to break even.

 

The plane is too dear at present, I heard US$260 K so in oz it would have to be around $300k with import and GST, can't see them selling enough planes. The real shock to me was the Lisa Amphibian which was going to be a winner but it also is a lot more expensive than the Icon ! I honestly thought these would be real winners but the price tags are too high for the current market. It seems if you invent or pioneer a product some are going to take advantage of the hard work developing new ideas.

 

 

[fly_tornado]

Icon are still pushing for deposits on the A5

 

another good article on the A5 contract

 

shady as

 

http://www.planeandpilotmag.com/article/icon-purchase/#.VwRn3npq1E5

 

 

[winsor68]

I've always thought it was a bit dodgy.

 

 

[fly_tornado]

Icon always appeared to be over promising and under delivering, they got a weight exemption for the A5 to accommodate the extras they added to the air frame, like folding wings. The seaplane market is pretty niche, these extra restrictions won't do the sales department any favours.

 

 

[KRviator]

I saw a similar article a few days ago and thought "WTF?!?" Would anybody actually sign that to own an A5? I certainly wouldn't, and let's face it, nice an aircraft it may be, it still isn't an overly pretty arcraft - mind you, this is coming from a bloke who things the A10 (twice as good as an A5??) is one of the sexiest aircraft out there... For the price of a new A5, you can buy a SeaRey and a very nice RV for your cross-country needs - and not have to worry about all that legal bullshyte Icon seem willing to force on their customers.

 

"Thou shall not speak ill of Icon", "We shall maintain your airplane to whatever cost we determine" and a host of other warning sigs are massive red flags to me. This kind of contract may well become the norm in aviation in years to come, but right now, I forsee Icon going the way of Bede aircraft. At least this time, there won't be a host of partially completed BD5's on the market for years to come....

 

 

[DOC a5]

hey everyone from Sydney when a friend received the 41pages of conditional ownership for a icon a5 along with pressure over the phone to sign it I went in search of forums to see some responses so here I am. I tried to find any forums about icon over the years with not much found but since the 41pages its everywhere. yes I am a position holder no I am not some rich ahole I worked hard saved and sacrificed to hopefully own an A5 but now I'm not so sure. my friend is test flying the A5 soon and will wait for his report on everything to do with this democratizing aircraft company. Another friend is already considering not buying also I am further up the list I hope some sanity prevails before I am given a 41page head ache I hope this does not change or damage the aircraft industry and the LSA market in ways the majority of us don't want. thanks doc a5.

 

 

[Robbo]

hey everyone from Sydney when a friend received the 41pages of conditional ownership for a icon a5 along with pressure over the phone to sign it I went in search of forums to see some responses so here I am. I tried to find any forums about icon over the years with not much found but since the 41pages its everywhere. yes I am a position holder no I am not some rich ahole I worked hard saved and sacrificed to hopefully own an A5 but now I'm not so sure. my friend is test flying the A5 soon and will wait for his report on everything to do with this democratizing aircraft company. Another friend is already considering not buying also I am further up the list I hope some sanity prevails before I am given a 41page head ache I hope this does not change or damage the aircraft industry and the LSA market in ways the majority of us don't want. thanks doc a5.

Doc, I will say one thing...

Be very very careful.

 

 

[DOC a5]

understood and appreciated yes there is financial considerations foremost but I am also thinking the A5 could end up an unwanted orphan in LSA history.

 

 

[Camel]

An LSA can only be if it is supported by the manufacturer, when or if they go broke it no longer can be LSA unless someone takes the helm of the brand ! As I said before " some basic maths makes it not look so good " .

 

 

[DOC a5]

yes camel I always rely on basic maths most of the time without a calc and it has kept me alive so far in many ways. its early days for this icon 41pages however all info appreciated that's why I joined to share info. doc a5

 

 

[Ultralights]

go over it with a good lawyer, and dont be afraid to pen amend the contract to suite you better. then if they dont sign it, they lose a sale.

 

 

[Happyflyer]

The plane is too dear at present, I heard US$260 K so in oz it would have to be around $300k with import and GST, can't see them selling enough planes. The real shock to me was the Lisa Amphibian which was going to be a winner but it also is a lot more expensive than the Icon ! I honestly thought these would be real winners but the price tags are too high for the current market. It seems if you invent or pioneer a product some are going to take advantage of the hard work developing new ideas.

$US260,000 today is about $AU345,000 plus GST is $AU379,500. You would not get change from $400,000 after shipping costs even if you could certify it in Australia. They must have had a bit of clout in the US to get the weight exemption but I will be surprised if any other country makes the exception for one manufacturer.

 

 

[DOC a5]

yes I agree and was thinking similar but I am in the position to wait and see how icons biggest market reacts (usa) and that market will decide their survival in a very tough industry.

 

 

[Robbo]

I actually purchased this aircraft, it doesen't fly to bad.

 

Take a look here

 

http://www.modelflight.com.au/parkzone-ultra-micro-icon-a5-rc-plane-bnf.html?gclid=CMCe5-f3-csCFYeYvAodibACRQ

 

Now for the video..

 

 

 

[PA.]

"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."

Buy the plane under one entity then sell it to a another entity, pay the USD $5,000 fee and the new owner does not have to comply with any conditions of the original contract. Small price to pay if you need to take them to court at a later date.

 

 

[Jaba-who]

Best management of this situation is: if you don't like it don't buy it.

 

To play devils advocate, I can understand any aircraft manufacturer wanting to set up some sort of self protection like this. They are not in this to be sued which is what happens to all aircraft manufacturers, at some time, even when they do nothing wrong, they are in this to make a profit/living. I think experience shows and I doubt any of us would disagree that pilots behaving badly is the major cause of crashes. Icon is trying to close a loophole where pilots doing the wrong thing are still able to try and sue the manufacturer.

 

Cessna, piper and a few other manufacturers ceased producing small singles aircraft in the 1980s directly because of the law suits they were continually faced with. It took Clinton to introduce a bill which stopped people suing as broadly before any of them would dare start making planes again. But they can always try to sue ( even when they have little hope but can try for a settlement just to make them go away. ) So I can understand a company wanting to try to stop this happening again.

 

But really, don't like it - don't complain - buy something else.

 

 

[fly_tornado]

1500Lbs in a draggy airframe being pushed along by a 912S, who wants a LSA that cruises at 80knots?

 

 

[Birdseye]

+1 for the idea they are actually doing their best to default on their investors. Seriously, if a car manufacturer tried the same thing how long would they last?

 

 

[Robbo]

This popped up in the news feed

 

http://www.avweb.com/avwebflash/news/Icon-Contract-Raises-EAA-Auction-Concern-226019-1.html