Icon Aircraft files for bankruptcy, seeks buyer
Amphibious light sport aircraft maker deep in debt
Icon Aircraft, which first delivered the amphibious light sport A5 in the summer of 2016, petitioned for Chapter 11 bankruptcy protection in Delaware, where the company headquartered in California (with facilities in Florida and Tijuana, Mexico) is incorporated, on April 4.
The company issued a news release reporting the bankruptcy filing, and that it intends to continue operations while the process unfolds. The company said it seeks to sell the business to new owners using Section 363 of the bankruptcy code, which could enable the buyer to take ownership free and clear of any liens.
According to the petition (among several documents filed on the first day of the proceeding included in an online docket maintained on Icon’s behalf), Icon owes $68 million to the company’s 30 largest creditors, 95 percent of that total—$65 million—owed to East West Bank of El Monte, California. The company owes a much larger sum—$105.4 million—to three lenders who issued 21 unsecured notes in recent years. Of that total, $93 million, came from the entity based in China that also owns about half of the company's equity, according to other documents in the case file.
According to data compiled by the General Aviation Manufacturers Association, Icon has delivered 209 aircraft since the first A5 was sold in 2016, through the end of 2023. While the company did not report billing revenue in the GAMA reports prior to 2022, total revenue for that year was $12.9 million, according to GAMA's year-end report, with 36 aircraft delivered, dropping to $12.6 million for 2023 with 33 aircraft delivered.
An affidavit filed in support of the petition notes that the company needs to produce and sell eight to 10 aircraft per month to break even.
The document lists the company's total debt at $173.7 million, including $3.3 million owed to vendors and suppliers, and $170.4 million in unsecured notes issued since March 2020, 54.6 percent of which came from Pudong Science and Technology Investment (Cayman) Co. Ltd., which, according to the affidavit, also owns "approximately" 50 percent of Icon's equity.
PDSTI's investment in Icon came under scrutiny in 2021 by the Committee on Foreign Investment in the United States, according to the affidavit. "Although CFIUS eventually cleared PDSTI’s investment without the need for mitigation in February 2022, the investigation consumed significant portions of the Company’s already limited resources, including management’s time as well as professional expenses," the affidavit states.
Shareholders also took issue with the company's ownership in a lawsuit filed in Delaware Chancery Court in June 2021 against other shareholders, attempting to force changes in executive leadership and halt alleged transfer of technology to China, a case that is ongoing.
Manufacturing and supply chain strain during the COVID-19 pandemic was listed first among the factors contributing to the company's declining liquidity, and the company ramped up borrowing quickly, even as the pandemic was still emerging as a global crisis, starting with $12.5 million loaned by PDSTI in March 2020, followed by another $23.9 million in January 2021. Lenders, primarily PDSTI, provided an additional $19 million during the course of 2022, and just under $50 million in 2023, all but $5 million of which was loaned by PDSTI.
“The purpose of the Chapter 11 filing is to resolve the Company’s financial challenges and position the A5 for success for years to come,” Meyer said in the release. “We understand that this situation creates a hardship for everyone involved. However, without taking these steps, there is not a viable path forward for the business to do what we do best—build incredible airplanes and support our aircraft owners.”
The A5 is the only model Icon has produced. It earned a positive review from AOPA Pilot Editor at Large Dave Hirschman in 2015, among the first to fly the amphibious light sport aircraft. First announced in 2008, the company began collecting deposits years before the first airplane was delivered, and employed an unusual purchase agreement for the two-seat airplane, including contract provisions that gave the company the power to approve or disapprove any future sale. The price, first projected to land around $139,000, had climbed to a base of $207,000 by the time those purchase agreements were employed. It has climbed higher since: According to the GAMA data, the 2022 billing divided by the number of aircraft delivered comes to $359,000, which increased to $381,818 in 2023 with fewer aircraft delivered. A5 deliveries peaked in 2018, at 44 aircraft shipped for the year.
While the company touted safety features including a “spin-resistant” design, standard angle of attack indicator, and ballistic airframe parachute, a series of incidents and accidents put a dent in the A5’s image, including the 2017 death of A5 designer Jon Karkow and his passenger when, according to the NTSB, the aircraft struck terrain while maneuvering at low altitude, likely after mistakenly entering a different canyon than intended. That was followed five months later, in November 2017, by the death of legendary MLB pitcher Roy Halladay, who had taken the first delivery outside of the company’s training fleet and hit the water while flying low in Florida.
Other accidents followed, not always involving injuries, but each raising afresh questions about the safety of the A5 that Hirschman examined in a 2019 story.
“The reasons for this litany of horrors are varied, and few threads seem to tie them together,” Hirschman wrote. “Having flown the A5 for about 40 flight hours—including a formal checkout and a transcontinental ferry flight—I suspect that pilot overconfidence is a factor. The airplane flies so obediently, and it has such benign handling characteristics, that it gives the false impression it can do anything. Its spin-resistant design, however, doesn’t mean it won’t stall. It will. The airplane is easy to overload, and with a gross weight of 1,510 pounds and a mere 100-horsepower engine, the A5 has a meager power-to-weight ratio.”
Hirschman noted, however, that available data contradicted the notion that low-time sport pilots were flying themselves into trouble with the A5. “In fact, low-time sport pilots are yet to be involved in a single Icon accident,” Hirschman wrote. “Instead, it’s high-time, experienced pilots—many with advanced ratings—who are at fault. Not once has a mechanical problem contributed to an Icon crash. Every one of them has been pilot error, according to NTSB and FAA reports.”
More recently, Icon announced in March that the FAA had approved a 60-pound increase in the A5’s useful load, to 490 pounds, along with FAA certification in the primary category, which makes the A5 subject to fewer restrictions in Europe, Asia, Australia, and South America.
Icon noted in the press release that it has secured debtor in possession financing and will seek an expedited sale under the bankruptcy process.
“To minimize the adverse effects on its business and the value of its estate, the company has filed customary motions with the Bankruptcy Court to get court approval to sustain its operations in the ordinary course, including honoring commitments to customers and vendors and fulfilling obligations to all employees,” the April 4 press release states.
In contrast to the A5’s long-delayed arrival on the market, the bankruptcy filing suggests the company has prepared carefully and filed the petition with many key pieces in place. A first-day hearing was scheduled for April 5 at 10 a.m. in the U.S. Bankruptcy Court for the District of Delaware, with judge Craig T. Goldblatt presiding.
