Icon Aircraft asks customers who have paid deposits to do much more than wait years for their new A5 aircraft to be delivered. The amphibious light sport unveiled in 2008 has wowed many in the media, including nonpilots invited to fly and review it. After many delays, the first actual customer deliveries remain weeks or months away. The price has nearly doubled since the A5 was first announced, from an “estimated” $139,000 in 2008 to a base price of $189,000 as of 2014, to the current base of $207,000, or $257,000 for an A5 “loaded” with options.
Those at the front of the long line of depositors received in recent weeks another surprise: the company’s purchase contract and associated ownership agreement, which give Icon control over the use and disposition of every aircraft sold for as long as the life-limited A5 flies (a 30-year or 6,000-hour maximum). Icon’s contracts contain some requirements similar to those imposed by other manufacturers, though Icon’s deal goes much further than any known manufacturer contract in regard to control over how their product is used, and appears to be unique in general aviation.
The details, and the contract itself, began to be discussed in online forums outside of Icon’s control this month, after prospective owners posted the documents, and voiced objections.
With the cat out of the bag, Icon Founder and CEO Kirk Hawkins sought to correct a rare lapse in the company’s long history of careful control over media coverage and “spin,” both in the sense of public discussion and in aeronautical terms (AOPA flew the A5 in 2015 and found it impossible to induce a spin), in lengthy telephone interviews March 24 and March 26.
“We really had our head down,” Hawkins said of the company’s package of required agreements, long in development but only recently released to prospective buyers. “I want to make sure that the right word gets out in the industry so the conversation is framed up with the facts. We need to get ahead of this.”
‘I have no interest’
Buyers, said Hawkins, may own the airplane, but Icon owns the brand, and the company wants to guard against damage to the brand, which could result from accidents that are the product of mistakes made by pilots.
Hawkins said depositors who don’t wish to sign the contracts will get a full refund of the $5,000 paid to hold a position in line. Once signed, the purchase agreement stipulates that Icon will retain 20 percent of payments made in advance of delivery if the buyer opts out.
Owners who sign and take delivery are bound to ensure every pilot who flies the A5 receives training from Icon-approved instructors, that the aircraft is maintained by Icon-approved mechanics, and to forsake their right (along with the right of their heirs and estates) to sue Icon for anything other than a defect of design or manufacturing that is determined by the NTSB (or an equivalent agency in another country) to be the “probable cause” of an accident.
Buyers may pay an additional $10,000 to opt out of this indemnification clause, but buyers may not opt out of Icon’s installation of a flight data recorder, and other provisions in the agreements that span 41 pages including cover and signature pages.
For comparison, Flight Design, the leading manufacturer of light sport aircraft flown in the United States, asks customers to sign a five-page agreement that does nothing to dictate owner behavior, and imposes no limits on liability. Cirrus Aircraft fits its purchase contract on a single page of dense type, and includes a flight data recorder provision, but does not require buyers to forsake their right, as Icon does, to sell the airplane to someone else as they choose.
Icon’s goal, according to Hawkins and Chief Financial Officer Chris King, the principal author of Icon’s agreements, is to enhance safety and control the cost of product liability, which contributes an unknown but likely significant sum to the cost of all aircraft as manufacturers pass the cost of legal fees and insurance premiums to buyers.
“Our goal here is to really get personal flying to be much more democratized,” Hawkins said.
Icon is taking a very authoritarian approach to “democratizing” aviation, exerting control over the use and future sale of the aircraft to a degree that no other aircraft maker has been known to attempt. It remains unclear if limiting a manufacturer’s liability will ever reduce aircraft prices, or if the various provisions Icon has written to insulate itself from liability for mistakes made by pilots and owners will hold up if tested in court.
Controlling the company’s liability cost has been a fundamental part of the business plan for a decade, though this strategy became known outside the company only when the first depositors began to receive the paperwork this month.
If it’s our fault, we’ll own it. If it’s your fault, you own it.
Hawkins said some buyers have balked, others have questioned, and many (more than 40, according to another company official) have signed. Hawkins said every customer who has listened to Icon’s pitch for the contract has signed “without exception.” (AOPA is aware of at least one exception, noted below.)
“What we’re trying to do, in a nutshell, fundamentally, is put the responsibility [for accidents] where it belongs,” Hawkins said. “If it’s our fault, we’ll own it. If it’s your fault, you own it.”
Hawkins said, bluntly, that customers have the option to take the agreement (and the airplane), or leave it.
“I have no interest in running a business that’s barely trying to get by and pander to customers,” Hawkins said. “We’re not trying to monitor your life … [we are] trying to make the industry safer and more responsible.”
‘Extreme personal responsibility’
Icon’s contracts are designed to be permanently attached to each A5, even if it changes hands, with those who purchase an A5 required to convince future owners to sign the same agreements should the airplane be sold or otherwise transferred (always subject to Icon’s approval), and pay Icon $5,000 if they fail to do so. Owners must pay $2,000 to Icon, in either case, for the privilege of selling their A5, a “transfer fee” found on page 11 of the 17-page purchase agreement.
The purchase agreement also limits the life of the aircraft to 30 years, requiring an airframe overhaul at 10 years or 2,000 hours, whichever comes first, with no more than two such overhauls allowed. An engine overhaul is mandatory at 2,000 hours or 15 years, whichever comes first; the airframe parachute must be repacked every five years; and the rocket that deploys the parachute must be replaced every 10 years.
“This strategy is a well proven and successful strategy under what [helicopter maker] Robinson has sort of shown the industry,” Hawkins said, adding that life limits increase safety and reduce the potential for accidents decades after the aircraft leaves the factory.
Buyers must agree to give Icon the option to buy the aircraft back if they decide to sell, at a price capped at the initial purchase price, even if another buyer has offered more money, and Icon retains the right to void any future sale.
The company states, in an explanatory letter sent to customers, that the optional $10,000 extra payment to strike the indemnification clause corresponds to its cost of insuring aircraft owned by buyers who retain the right to sue, and related costs. Buyers who opt not to pay the extra $10,000 are bound to not only refrain from suing Icon, but to defend claims against the company made by others, at the buyer’s expense (“reasonable legal fees” is the operative phrase). The no-sue provision includes language designed to prevent the heirs and estates of A5 owners from suing Icon, except in cases where a defect of design or manufacture is deemed the “probable cause” of an accident. Hawkins and King acknowledged that it will remain unknown, unless and until these contracts are tested in court, whether the contract can survive a legal challenge, and if it will ultimately allow the company (or others that adopt Icon’s approach to selling airplanes) to reduce aircraft prices as their liability exposure is reduced. Hawkins said Icon is going to wait until there’s a track record to point to before seeking reduced liability premiums.
“We’re not asking for a deal just yet,” Hawkins said. “We’re going to do some things that, over time, we’re going to show you is going to reduce our insurance liability. In the long run we expect to differentiate ourselves meaningfully by having a noticeable track record that is better than anybody else.”
As for possible court challenges (Icon requires buyers to agree to mandatory arbitration), time will tell. Not every waiver or liability exclusion, or agreement to arbitrate, accomplishes the intended effect.
“All it’s doing is trying to put the responsibility where it belongs,” Hawkins said. “We believe in extreme personal responsibility … we also believe that the vast majority of people actually believe that, too. If you don’t like that philosophy … we don’t want a relationship with you.”
Hawkins said the company’s business model does not hinge on reducing product liability insurance premiums in the long run.
“There’s nothing right now in our current structure that is betting on this working,” Hawkins said.
‘We’re going to play the tape’
Among the eyebrow-raising provisions in the Icon contracts is a prohibition against tampering with the installed flight data recorder (Cirrus has a similar requirement in its own sales agreement). The recorder captures data including aircraft position, attitude, speed, and many system performance parameters. Icon expects that the recorders will eventually transmit data to Icon in real time, though the first models out of the factory will not have that capability.
Hawkins said the recorders, and video cameras the company plans to install in the future to capture images of the instrument panel and the view through the windshield, are also part of the company’s strategy to limit liability, reduce accidents, and improve maintenance. Under the agreement, owners may access the data through an Icon-approved maintenance provider, but may not tamper with it, and are responsible for the cost of repair or reinstallation if they do.
Hawkins said the recorders will replace supposition and conjecture that often surrounds GA accident investigations and court cases with objective facts and data about the final moments of any ill-fated flight. The recorders work much the same way as those used in airlines, recording a loop and continuously replacing older data with new.
“We’re not going to use it to spy on you,” Hawkins said. “If there’s an accident, there’s no question … we don’t get litigation attorneys spinning the facts in a courtroom. We’re going to play the tape.”
Tesla knows how fast your car is going. Do they tell the DMV you’re speeding? No.
Icon may not have anticipated every possible consequence of its approach. When asked if Icon would turn over customer data, which includes aircraft GPS location data, to law enforcement authorities on request, Hawkins said, “I don’t think it would be legal for us to release that information for law enforcement purposes,” though he added that a federal invocation of national security interests “could change all kinds of things.”
Hawkins said that Icon has no intent to use data collected from customers’ aircraft for law enforcement.
“Tesla knows how fast your car is going. Do they tell the DMV you’re speeding? No,” Hawkins said. “We’re not going to hurt you. We would have zero interest in regulatory policing and enforcement.”
Hawkins said he would, if the situation ever arises, take the same approach to protecting customer privacy as Apple, which refused to cooperate with an FBI demand to create software to unlock the iPhone of a terrorist involved in the December shootings in San Bernardino, California.
“Absolutely … particularly under my helm,” Hawkins said.
Jason Talley, a California businessman and CFI who placed a deposit to hold position 121 in the A5 production line, and also has a law degree, said Icon would have little choice.
“With all due respect to Kirk [Hawkins], he’d find himself in contempt and in jail over that” refusal to produce the data on request by law enforcement, Talley said. He noted that in Apple’s case, the government was seeking the creation of a decryption tool, above and beyond a request for data already in company hands. He listed many other concerns about Icon’s terms, including the potential that data recording could cause pilots to consciously or subconsciously fear being second-guessed after the fact based on data taken out of context, and thus compromise decisions by pilots in flight. He also said that Icon has not been able to answer many of his questions, including how he could qualify to give Icon-approved instruction to his children, or others, and the fact that Icon would have the right to prevent any future sale of the aircraft to another party.
“I’m kind of renting the airplane, aren’t I?” Talley said of Icon’s terms. “They can prohibit the sale and they can modify their transfer agreement at will… I certainly won’t sign this document as it exists today.”
AOPA requested from Icon names and contact information for individuals who have signed the purchase and ownership agreements. Icon complied, and both John Grillo, who operates an air charter company in Ronkonkoma, New York, and Julian Gates, who holds one of the first positions in line and has purchased several piston aircraft previously, said data privacy, to name one of the aspects that concern Talley, was not an issue they considered.
“Frankly, I didn’t think about that, nor did my attorney,” Grillo said in a telephone interview. “I’ll just say to you that if there’s somebody there with an Icon that’s moving illicit cargo, whether it’s drugs or people that shouldn’t be allowed to cross borders, and the FBI has what I consider a substantial amount of evidence, then I think Icon ought to release [the flight data] to them.”
Grillo also took no issue with Icon’s strategy to limit the company’s liability in case of accidents. Gates said his biggest problem with the contract was trying to stay awake while reading it, given its extreme length and complexity compared to the many other aircraft purchase contracts he has signed, but the flight recording provisions and Icon’s exclusive control of that data did not give him pause.
“There’s nothing I could do in the aircraft that could be … other than flying through a restricted area, things that could happen whether you meant to or not, I can’t see how it would affect me negatively,” Gates said. “For anybody who’s an honest flier, it shouldn’t be any issue.”
Gates said his main concerns about the contract related to the short, one-year duration of the warranty (which is not included in the purchase agreement or ownership agreement), and he also had concerns about the payment schedule, though neither of these issues prevented him from signing.
“I’m pretty respectful of their rationale and their purpose behind it,” Gates said. “I don’t really feel like I’m being held in harm’s way. I would hope to have to never be in a position to want to sue Icon.”
Questionable assumptions
The explanatory letter sent to customers notes that the company’s approach to selling airplanes is informed by research:
“In addition to protecting ICON against frivolous lawsuits brought by the contingent fee attorneys that target aircraft companies, we believe this sharing of risk between the two parties (manufacturer and pilot) that can most impact safety will lead to fewer accidents. This concept is well-documented in a study called Product Liability and Moral Hazard: Evidence from General Aviation by Claremont McKenna Economics Professor Eric A. Helland and George Mason University Economics Professor Alexander Tabarrok. The study uses the introduction of GARA (General Aviation Revitalization Act) in 1994 to show that accident rates decrease when liability is shared between manufacturer and the pilots.”
The study was published in 2012, though it did not attract much attention in the GA community. The study appears to rely on problematic assumptions and complex mathematical and statistical models that are fraught with potential for misinterpretation.
“When an aircraft is exempted from tort liability, the probability that the aircraft will be involved in an accident declines,” the authors wrote, going so far as to calculate a 13.6-percent decline in that probability, which they attribute to increased likelihood that pilots and owners, knowing they cannot sue the aircraft maker, will take more affirmative steps to ensure safety. “Direct evidence of pilots’ and owners’ behavior is also consistent with moral hazard.”
Moral hazard is a concept often cited in economics and public policy discussions, in essence the belief that people are more likely to take risks if others pay for the consequences or cost of failure. Pilots may pay for failure with their own lives, and it is unclear whether product liability has actually had any impact on aviation behavior at all.
Among the experts not consulted by the authors, or previously aware of the study, is David Jack Kenny, the AOPA Air Safety Institute analyst and statistician who has been a key member of the aviation safety analysis team since 2008, and a professional statistician since 1989 whose past work includes 15 years of designing and analyzing clinical trials. Kenny quickly identified several potentially serious flaws in the methods and analysis employed by Helland and Tabarrok, including failure to account for “an obvious and extremely important confounding factor.”
In layman’s terms, the results of the 2012 study may not reflect what actually happened, and could actually reflect the opposite of what happened.
King, the principal author of Icon’s purchase and ownership agreements, said he was persuaded by the study that aircraft owners and pilots who cannot sue the manufacturer, and thus share a greater portion of the risk of flying, are more likely to take steps to mitigate risk, and that he discussed with Helland Icon’s plan to apply the concept in a practical way.
“That study was very influential on me because it turned the sort of mission of writing this agreement into something that I really felt would save lives,” King said. “Obviously we care about product liability expense … the one thing we’ve done more than anything is trying to keep people from killing themselves … the idea that this moral hazard of just shifting enough of that risk to the pilot who has a really greater than the manufacturer role to play in safety, if that makes the difference then let’s do it in the contract.”
Results to be determined
In chess, a gambit refers to a move in which a player sacrifices a piece in exchange for a positional advantage. In Icon’s case, the company is willing to sacrifice potential sales (customers who balk at the terms) in exchange for what they hope will be fewer accidents and incidents that could tarnish the brand, and lower liability costs that may result from a reduction in accidents.
Some customers, particularly those experienced in buying and selling airplanes, say they’ve never seen a purchase agreement like this, Hawkins said. Others are opting out because of life changes, or the increased purchase price. Others have raised objections, or questioned specific terms.
“When they call us up and we talk them through why” those terms exist, Hawkins said, “without exception” those customers have signed. (Talley said he told Sara Allen, Icon’s director of business development, that he could not sign the contract in present form. He awaits the company’s promised response to specific questions.) So far, the company has sent purchase and ownership agreements to the first 200 depositors, and the list is far longer. As to whether Icon succeeds in closing the deals, “I’ll have better data on that in six months or so,” Hawkins said.
Allen said in an email that more than 40 contracts have been signed to date, and deliveries will begin soon. The first 15 aircraft off the line (including one that was ceremonially presented to Sean D. Tucker and the EAA Young Eagles program in June 2015) have been retained by the company for “flight training and for marketing activities,” Allen said. “But we are making them [EAA] a new A5 for their auction this summer.”
Gates and Grillo expect their deliveries in June or July. Talley said Icon offered to move up his position in the production line for an additional payment of $75,000 or $80,000, “which I have to say leaves a bad taste in my mouth when they don’t want me to sell the airplane in the first year. It doesn’t sound fair.”
Talley’s hesitation is unrelated to the A5 itself: “I like the airplane,” Talley said.
Speaking of the Icon documents collectively, Talley said Icon’s terms “make me nervous. Maybe I shouldn’t be, but I usually try to listen to my gut.”
An unusual contract
Icon Aircraft’s purchase and ownership agreements contain several very unusual restrictions on the use and future sale of their A5 aircraft.
- Icon retains the right to approve or deny any future sale of the aircraft, and requires owners to pay Icon a $2,000 “transfer fee” if they do sell, and another $5,000 if they fail to convince the new buyer to sign all of Icon’s agreements.
- Buyers must agree not to sue Icon (and bind their heirs and estates as well) for any reason other than a manufacturing or design defect that is determined by a government agency to be the “probable cause” of an accident. Buyers may opt out of this provision by paying another $10,000.
- Buyers must obtain all maintenance from Icon-approved maintenance providers.
- Buyers must appoint a “managing pilot” who is trained to Icon-approved standards, and that “managing pilot” (who may be the owner) must ensure that all pilots who fly the A5 complete Icon-approved training before doing so.
- Icon limits the life of the aircraft to 30 years or 6,000 hours, with an airframe overhaul required every 10 years or 2,000 hours, whichever comes first.