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Icon steps on it

Unread postby Paul Jackson » Tue Apr 05, 2016 11:24 am

http://www.aopa.org/News-and-Video/All-News/2016/March/31/Icon-gambit?WT.mc_id=160401epilot&WT.mc_sect=tts

I have watched this one from the fist appearance at the OSH Seaplane base a few years back. It looked to me a lot like the Eclipse "We believe" program that ended up with millions of seed money and hundreds of unfilled orders and an airplane that does not accomplish the low cost mission like what is was intended to do at twice the cost.

The Icon is a great design but that doesn't mean it will be a great manufactured aircraft. Cirrus is constantly used as an example of how to make it but if it were not for the Bank of Bahrain coming in early in the first years of production with huge mezzanine level financing it would have run to zero like the Eclipse did. The toughest part most development programs believe is certification and getting to production. The toughest part is the first two years of production and keeping the cash flow and customer orders filled and not have them vacate. Icon already is showing the first symptom of of this problem and that is they have significantly increased the price for the aircraft.

What happens to companies as they start production is that the cost to manufacture the first say 100 units is markedly higher than the next 100 unit. The problem is the time is also markedly higher (part of the cause of higher cost) to manufacture the first 100 units than the next 100. Also, suppliers are reticent to bet on the come line on a new design. In other words if you need 100 flat screens made, they won't spool their production until you prove you can make it and they likely will be slower than contracted to deliver for the first 100 units.

The next problem is revenue. As noted above cost and time are higher for the first 100 units. The problem is that they are really unknown until the line is running and suppliers are delivering. The manufacturer has set a price based on best knowledge and market forces for the pre-ordered aircraft. Add to this the uncertainty of the ratio of deposit to firm orders and you have a recipe for a cash flow nightmare that is very dependant on cash reserves and second round financing.

Icon just threw a curve ball to their order holders in the above 41 page contract that reads more like a Robinson helicopter program than one from a company like Cirrus. Hard drop dead hourly airframes and unmatched data and hold harmless language are likely to scare away a number of deposit holders. Add to this the price increase and the useful load shrinking and the number of orders to sustain production in the early run is going to be interesting to observe. My guess is the market is much smaller for a 2 place rotax powered wet hulled VFR only aircraft with a price point above $250K than can sustain production of a certified aircraft. "Neat" can fill the shoreline at the Seaplane base but it has a long way to go to make a viable business model.
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Re: Icon steps on it

Unread postby cubdriver2 » Tue Apr 05, 2016 1:48 pm

I never liked it, another over priced over weight airplane that has limited appeal to real world places to fly.

Buy a carbon cub on amphibs and do it all

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Re: Icon steps on it

Unread postby RKittine » Tue Apr 05, 2016 1:59 pm

+1

I shoot with a guy that has a new Carbon Cub. Now if I could just get him to buy amphib floats for it!

I did the deal with Robinson on an R-22B in 1992 and at least received it for the price quoted. Glad when I sold it though.

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Re: Icon steps on it

Unread postby jjbaker » Tue Apr 05, 2016 2:04 pm

This is a great comment, Paul.

I initially learned of this new contract with the help of Paul Bertorelli from AVweb, who wrote a pretty straight forward blog about it.
Distinctly remember looking at the date (April 1) and thinking it may be a well articulated marketing stunt/ April fools joke.

Very unfortunate how Icon positioned itself. I guess the plane was always reserved as an ultimate luxury toy for a small bunch of very exclusive adventurers. IMO, the company lacked in showing its general aviation connection and aimed for the cream of the crop from the start. In all I think I never had more than two or three people in my network with any ambitions to purchase the aircraft. People with connections to the company do not ever discuss the company or the aircraft on "normal people forums".

Most of the target clientele has expensive and smart attorneys and future heirs with "concerns". With a contract like this (likely unenforceable in many states) there will be cancellations. Will it be enough cancellations to warrant a filing and reorganization of the company? What is especially disturbing is the first refusal being afforded to Icon in case the airframe is sold, thereby trying to further limit subsequent product liability.

I am still somewhat hopeful that someone at Icon will come out to rectify the whole shebang as a misplaced and ill worded April's Fools joke.
Since I am wrong most of the time, I guess thats not going to happen. The new generation of prospective seaplane pilots is a high risk group. Only few can afford the fun and not all of those who can afford it should have, own or fly one. Being a confident and successful business person does not translate into pilot skills by default. IOW's we should have tried to avoid letting the wallet become the single means of selecting who flies and who doesn't.

I personally believe we bred this monster by continuing our exclusiveness and "exotic - luxury special group - removed from reality of GA" stance.
Continuously positioning above and beyond everyone else attracts people who fly for the prestige, not because they enjoy flying.
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Re: Icon steps on it

Unread postby RKittine » Tue Apr 05, 2016 3:48 pm

Seems way too detailed and supported to be an April Fool's Day Hoax. I actually thought that the Robinson contract and rebuild arrangement was very good and well thought out. After having owned a lot of Lease-Back aircraft, one trap an owner can into is taking the revenue and not re-investing it into a accrual account to pay for needed time related costs. 100 Hour inspections, engine overhauls etc. Forced by Robinson to pay into a fund per hour resulted in no "surprise" expenses where funds might not be available and made it more important to plan rental and use rates accordingly. In 1985 I bought a brand new Cessna 172 instrument trainer and leased it back to TAG Aviation. Since it was new and I was also a part time instructor there, the other instructors and I always scheduled it first and it averaged 125 hours of rental a month, which meant at least one 100 hour inspection per month and plenty of other wear costs including time toward engine overhaul. It would have been easy to take the net cash flow and spend it each month rather than saving for those costs.

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Re: Icon steps on it

Unread postby Paul Jackson » Wed Apr 06, 2016 12:36 am

Great comments but I am reticent to believe that Frank Robinson took 1,800 deposits from R22 buyers and then told them they were buying a life limited airframe. Robinson is a great program and you can price the OH and life but you know that going in. This is a Monday morning surprise and was never part of the sales pitch. The data collection is another thorn and resale and only approved mx sounds much like the failed Eclipse model.

I agree with the lack of users in my circle. I flew the Petrel for the TV show and loved it but wondered is I would use it in my mission of more outback flying and fishing. I may be old fashioned but a PA-18 or 185 on amphibs is hard to beat.

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Re: Icon steps on it

Unread postby RKittine » Wed Apr 06, 2016 1:13 pm

Not sure how things originally started with Robinson, but when I purchased mine, it was already built and ready to deliver and the rebuild program was part of the deal from the gitgo. There was no increases in price as the price quoted was the price paid. I had a few friends that went through the Delorian fiasco and constant price changes and extended delivery times, but not crazy use contract.

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Re: Icon steps on it

Unread postby jjbaker » Fri Apr 08, 2016 12:11 am

Uncut interview with Jack Pelton.

EAA was given one of those planes to auction and the new "agreement" has some consequences for the pending auction...

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Re: Icon steps on it

Unread postby RKittine » Fri Apr 08, 2016 1:16 pm

I will not be buying a Chance for it.
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Re: Icon steps on it

Unread postby jjbaker » Sun Apr 10, 2016 11:45 am

Here's the purchase agreement.

ICON_A5_Purchase_Agreement_Complete_3_25.pdf
(3.84 MiB) Downloaded 429 times
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Re: Icon steps on it

Unread postby RKittine » Sun Apr 10, 2016 6:01 pm

What Pre-Purchase position do you have J.J.?

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Re: Icon steps on it

Unread postby jjbaker » Mon Apr 11, 2016 2:15 am

The one right behind you, Bob. ;-)

Mistel Suzuki is a couple spots before us. Once he gets out of the hospital he will update everyone.
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Re: Icon steps on it

Unread postby Paul Jackson » Wed May 25, 2016 7:20 pm

[url]http://www.flyingmag.com/icon-throws-out-controversial-purchase-agreement?cmpid=enews052516&spPodID=030&spMailingID=25581243&spUserID=MzYzMTcwNjg1NTgS1&spJobID=803946720&spReportId=ODAzOTQ2NzIwS0
[/url]
Well that went well didn't it? Icon is seeing that the GA market is not ready for a Tesla and would prefer buying from someone who acts more like Cessna. They threw out the bad in the contract (or most of it possibly) but did they also signal something that is more troubling?

The production cut from 175 to 20 smacks of pending cash problems and possibly the inability to get suppliers to provide parts on credit. The build time for these first 20 will be very high and with no credit from vendors they are going to be bleeding cash even worse than in the development phase as that was done with a throttle to match money in hand. Now all bets are off and customers are the drivers not VC who is in this for the long play (5 years is reasonable to return investment grade returns on seed money). They need another round of cash and apparently quick.

The next round of financing is onerous as is is debt based. It is often called mezzanine or bank round. It is based on sales (which they now have) and the ability to scale the model to start cash flowing. Cutting production sounds to me like they are not finding success without proving they can produce aircraft. The rub is this is where most of the founders and seed players get squeezed as they have to forego their returns to pay for the debt round in stock or in actual interest. TO raise cash you have to sell your soul (or lots of stock). This is where Eclipse died (right after production started early in first years) as this round has to have good solid banking math behind it or it wont get funded. Cirrus was on the ropes and only a wierd round from the Bank of Bahrain saved them and allowed them to get the machine primed and running. Manufacturing is tough in this round as getting the math right is very hard with long and expensive production times early in the process. (JetBlue, for example, was able to do this round quickly as the spool time to get cash flowing for an airline is as quick as your first flight).

On the contract, If I had an order I would be spooked by the 10 year life limit and the fact that you are betting this company will be around to provide guidance and support to owners as they try to comply with an airframe inspection. If they are gone it is still possible but I would not want to own an orphan with a life limit that is hard like this one. Taylorcraft isn't around but their maintenance manual didn't turn their planes into pop cans after 10 years without a factory inspection.

The last I will say is performance and pricing. Orville and Wilbur missed their weight and price target and every one who has bolted planes together since has also. They all are heavier and cost more. Skycatcher to A380 to Icon. The difference there isn't much weight to play with in this niche and the price point here is critical as order fulfillment v order list is key to powering the cash flow model. I recall the frenzy to order a Skycatcher that was killed by the weight and resulting product that came out the other end of development. Textron could eat that and burp; Icon will convulse and die if they miss on weight or price point.

I am very cynical of people with big tents at OSH with big dreams and lots of millennials with flat bellies saying this is new and different. Eclipse went from the big star to zero quick. I wish these guys the best but as a VC guy said to me a couple years back when I was pitching for money for an aircraft manufacturing startup company, "Do you have anything harder and more complicated to pitch?" I smiled and said "nope this is as hard as it gets......"
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Re: Icon steps on it

Unread postby TriPacer » Tue May 31, 2016 9:57 pm

Sometimes I wonder what it would take to generate an affordable new airplane. It seems everyone who attempts this ends up costing and weighing way too much. Is there really nothing that can be done to build a plane to sell for 50-60k? Or is it just that the FAA and certification issues persist?
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Re: Icon steps on it

Unread postby RKittine » Wed Jun 01, 2016 7:42 am

If there was a market to sell thousands of them allowing for automation of production like the auto industry and if there was plenty of new pilots out there ready to start training and provide profit to the normal buyers of new single engine aircraft, flight schools, and we have some legal Tort reform (ones of the biggest issues) and there was less government red tape and there was etc. etc. etc. Than maybe our great great grand children will see it. The C-172 Seat issue and the punitive damages awarded , was one of the biggest set backs to new single engine aircraft production and that was during what might have been the hayday or General Aviation.

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