October 4, 2022

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ICON’s New CEO, Former CEO Differ on Foreign Investment Committee Probe

ICON Aircraft announced Tuesday that it has promoted two leaders from within the company to its C-suite. The change marks the latest chapter since an ongoing investigation by a U.S. government committee on foreign investment was triggered by concerns raised over the company’s significant ownership by a Chinese-government-connected entity—and the military applications possible for the A5 seaplane.

These allegations have basis in not just conjecture, but in at least one ongoing naval project that has been revealed to FLYING by the company’s co-founder and former CEO.

Jerry Meyer

Jerry Meyer, former senior vice president of brand experience and corporate strategy, has assumed the role of interim CEO, while Stephán D’haene was promoted from senior vice president of operations to chief operating officer.

Jason Huang, ICON’s previous president and CEO, remains president. Both Huang and D’haene report to Meyer.

In a note to A5 owners, Meyer outlined the work immediately ahead of him. 

“My near-term priorities as CEO are clear: support ICON in the successful completion of the investigation by [the Committee on Foreign Investment in the U.S.], CFIUS…implement the business plan for the company that has been approved by the board, and continue to produce, sell, service, and fly what I consider to be the safest and most exciting small aircraft in the world,” Meyer said.

ICON has brought the A5 light sport seaplane to market with roughly 145 units now in the field, with 18 delivered last year—serial number 150 is the next one to move out. It announced at EAA AirVenture 2021 its plans to pursue type certification in the primary category for the model, paving the way for additional certifications outside of the U.S.

ICON Comes Under Scrutiny

In a press release following a story in the Wall Street Journal last week, ICON outlined what it views as the true nature of the scrutiny the company faces.

In 2015, former CEO and co-founder Kirk Hawkins courted Shanghai Pudong Science and Technology Investment Co. (PDSTI) for a minor investment in the company, and for further investment in 2017, increasing PDSTI’s overall stake.

As PDSTI’s stake increased in ICON—to a current level of 46.7 percent—Hawkins and several other company leaders were forced out or resigned between 2018 and 2021, including previous president and CEO Thomas Wieners.

Kirk Hawkins

After he left the role as CEO, Hawkins remained on the board, along with several American investors, including former Boeing Company (NYSE:BA) CEO Phil Condit and Linden Blue, vice chairman of General Atomics.

Hawkins led a civil lawsuit against his former company and informed CFIUS of the potential concern for use of the ICON’s design as a militarized unmanned aerial vehicle (UAV), and the potential for the Chinese government to gain materially from the knowledge of ICON’s advanced manufacturing processes.

That concern was outlined in a filing in June 2021 to the Delaware Court of Chancery by a consortium of 35 plaintiffs on behalf of a group of minority stockholders in ICON Aircraft against PDSTI and other entities. The complaint was amended in December 2021. It accuses the defendants of making plans to expropriate ICON’s “intellectual property in aircraft design, aircraft manufacturing, and advanced carbon-fiber structures manufacturing to China,” according to the public document updated in December.

“ICON strongly disagrees that the A5 has military applications and doesn’t see PDSTI’s investment as a national security concern, just as Kirk didn’t see it as an issue back when he was CEO of the company,” said ICON in its response to the news of the inquiry. “The allegations appear to be an attempt by Kirk to enlist the support of the U.S. government to remove PDSTI as a shareholder so that he can regain control of the company. This effort appears to be nothing more than an extension of his civil litigation strategy.”

FLYING reached out to Hawkins for a response to ICON’s allegations, and he asserted that the military use of the A5 was not just a hypothetical concern but one based on fact.

“ICON strongly disagrees that the A5 has military applications and doesn’t see PDSTI’s investment as a national security concern, just as Kirk [Hawkins] didn’t see it as an issue back when he was CEO of the company.”

ICON’s response to news of the inquiry

“This is the first public comment I’ve made since leaving ICON in 2018,” said Hawkins in the statement given to FLYING. “Given the legal and CFIUS proceedings, I am limited in what I can say. What I can say is that: there are 30-plus ICON shareholders and founding team members who believed in ICON and its mission to make personal flying more accessible to more people. They are saddened by ICON’s trajectory under Chinese control.

“That group is opposed to the efforts by the Chinese controlling shareholders to expropriate ICON’s technology to China and simultaneously running the U.S. company into the ground,” Hawkins continued. “ICON’s advanced manufacturing and high-tech carbon fiber composite, aero structures design and production capabilities are some of the best in the world for small, hyper lightweight air vehicles and should not be exported to China.

“As well, there is an active program working on the militarization of the A5 as a UAV,” he said. “Given these factors, the U.S. minority group is trying to stop this expropriation. This is not about any individual interest. It is about protecting a U.S. company from nefarious investment practices by the PRC [People’s Republic of China].

“ICON is only the tip of the iceberg, and many in the U.S. have been asleep at the wheel,” Hawkins continued. “We believe we’re engaged in the right fight for the right reasons—to protect U.S. national and economic interests, as well as help save ICON, if possible.”

“This is not about any individual interest. It is about protecting a U.S. company from nefarious investment practices by the PRC.”

Kirk Hawkins, co-founder and former CEO, ICON Aircraft

Though sticking to a broad statement in support of the complaint filed by the group— ICON Recovery LLC has been established to codify their efforts—Hawkins connected FLYING with a contact with first-hand knowledge of the A5’s potential naval applications.

Mark Gamache, CEO of XQT Aero, has 40-plus years of expertise in developing manned and unmanned aerospace systems, including work within Northrop Grumman on a conversion of a manned Bell 407 into the high-endurance MQ-8C UAV program of record for the U.S. Navy.

He codified the U.S. Navy’s interest in the ICON A5 in the following synopsis.

“In 2018, the Joint Staff J7 Directorate for Joint Force Development organization sponsored and funded, through WLIF [Warfighting Lab Incentive Fund], and with USN, NSW/NAVAIR program management, a contract to XQT LLC for an experimental development program aimed at converting the ICON A5 to a UAV for USN/USMC use,” Gamache said.

“The Ocean Eagle program has successfully completed Phase 1 to investigate the suitability of the aircraft in several key areas relevant to military use of the aircraft as a UAV. Knowledge of this program was restricted to only a handful of employees [all U.S. citizens] within ICON. Despite these restrictions, the new CEO at ICON recently indicated he has been made aware of the program’s existence.”

“Phase II of the program, when funded, would leverage existing technology currently applied to conversion of other manned aircraft to UAVs. These UAVs are currently operating in theater daily and have tens of thousands of hours of operations. Leveraging this high TRL technology allows for rapid conversion of the Ocean Eagle A5 into a fully functional UAV for the U.S. military.

“U.S. military interest in use of the ICON A5 is clearly being negatively impacted by the Chinese investment in the company.”

Mark Gamache, CEO of XQT Aero

“U.S. military interest in use of the ICON A5 is clearly being negatively impacted by the Chinese investment in the company,” Gamache said. A return to U.S. ownership would undoubtedly be in the best interest of the Ocean Eagle program goals.

“Our team has done extensive engineering analysis, modifications, and flight testing on the A5. The ICON A5 provides a unique set of capabilities for our DoD customer. We have provided input to CFIUS and remain optimistic that the right decisions will be made to allow continued development of our program for the USN customer.”

Gamache also outlined the PRC’s interest and its previous work “leveraging” a Spanish-built light amphib, the Colyaer Freedom 100, into the “U650 unmanned vehicle system.”

Since the initial filing in June 2021, both Condit and Blue have resigned from ICON’s board. Hawkins remains, in his estimation, to represent the interests of those minority stockholders and “the best interests” of ICON .

ICON offers the following timeline of its contact with CFIUS:

  • In August 2021, ICON received an inquiry from the CFIUS regarding PDSTI’s investment in the company, triggered by the minority shareholders’ complaint.
  • In November 2021, ICON and PDSTI submitted a formal notice to CFIUS in connection with PDSTI’s investment in ICON in 2017 and 2018.
  • “ICON and PDSTI have fully cooperated with CFIUS,” according to the company, “[and] provided responses to all questions received to date, and met with CFIUS to discuss the transaction. The parties expect CFIUS’s investigation will conclude at the end of February.” 

The CFIUS inquiry has been the only contact ICON has reported from the U.S. government.

[Courtesy: ICON Aircraft]

An Amphibious UAV?

Hawkins contends that the A5’s design stands head and shoulders above previous attempts made at taking an off-the-shelf aircraft and repurposing it for military use as an amphibious UAV. The very design challenges driven by the need to meet ATSM standards and FAA limitations for light sport aircraft led to a unique airframe positioned for further development, including a larger powerplant.

ICON successfully petitioned for an increase from the FAA’s maximum gross weight limit for seaplanes of 1,430 pounds to 1,680 pounds—the A5 came in less than that at 1,510 pounds.

Within that airframe, however, ICON packed its amphibious landing gear, unique stall-and-spin resistance, a hull formed with complex hydro- and aerodynamics that can withstand significant swells, and an airframe parachute.

All of these factors led to the interest Gamache outlined in his statement.

Airplanes in ICON’s training fleet are easy to identify with their distinguishing red-and-white paint scheme. [Photo: Myles Beeson]

So, Does the A5 Have Military Applications?

The current leadership at ICON Aircraft clearly takes a different view. “While the ICON A5 is a fantastic aircraft for sport flying,” said the company, “the plane is loaded with stylistic and safety features that make [it] wholly unsuited for military application.” Furthermore, because the A5 is built “from commercial off-the-shelf products and it does not have any autonomous piloting, artificial intelligence, or machine learning capabilities,” ICON does not deem the aircraft program to be capable of delivering any critical aerospace technology to the Chinese government—or any other international actor. 

Also, the company “does not manufacture, design, develop, or test any position, navigation, and timing technology or advanced materials” that would also be of interest to a foreign military.

Similar questions arose following the purchase of Cirrus Aircraft in 2011 by Zhuhai-based CAIGA (China Aviation Industry General Aircraft), a division of AVIC (Aviation Industry Corporation of China). This wasn’t that Chinese entity’s only foray into American aerospace—CAIGA owned the assets of Epic Aircraft from 2010 to 2012. 

The decision made by Cessna Aircraft Company in 2008 to assemble the light-sport Cessna 162 Skycatcher in Shenyang, China—in partnership with SAC (Shenyang Aircraft Corporation)—raised eyebrows as well, as to whether the Chinese government would use the program to siphon off advancing technology. CAIGA has also manufactured the Citation XLS+ light-midsize jet and 208B Caravan turboprop under a joint venture with Cessna (now Textron Aviation), delivering the first Zhuhai-assembled XLS+ in April 2015 to a Chinese customer.

In each of these cases, however, the aerospace technology involved was deemed to be below the threshold of concern for the U.S. government.

However, it’s possible that the transfer of ICON’s IP to China has already begun, according to the amended complaint filed in December. 

“PDSTI has executed on this appropriation scheme by arranging for an affiliated Chinese entity—Shanghai Feike Technology Development Co., Ltd. ‘Flying Tech’—to enter into an IP Licensing Agreement with ICON in July 2021. Under this IP Licensing Agreement, Flying Tech has gained access to ICON’s Intellectual Property for use in China.”

The company responded: “Unfortunately, we cannot control what someone else says or lawsuits that they file against the company. These accusations are unfounded, and ICON’s legal counsel is vigorously pursuing dismissal. This is an active legal matter, and thus, we cannot provide further comment at this time.”

ICON employees work on an A5 at the manufacturer’s facility in Vacaville, California. [Courtesy: Icon Aircraft]

ICON Continues Growth of Manufacturing in Tijuana

So, a companion reason for the raised alarm concerns the possible movement of the A5’s technology—including its manufacturing processes—to China.

In its early days, ICON had little in-house expertise required of an OEM to both produce light aircraft in quantity and support the A5 in the field through parts manufacturing and service. In fact, the company originally outsourced a portion of its carbon-fiber layup to Cirrus Aircraft.

However, in early 2016, ICON began the process of bringing those functions into its own headquarters in Vacaville, California—by hiring production leadership with solid credentials in the automotive industry, and by building a new manufacturing facility in Tijuana, Mexico.

The 300,000-square-foot plant opened in 2017, and as of summer 2020, ICON had shifted its final assembly and composite lay-up process to Tijuana—up to 90 percent of the total effort—with the remainder of completion, testing, and delivery taking place in Vacaville. The transition resulted in a cost reduction for the light-sport A5, which was passed on as a price savings to customers—at the time, from $389,000 to $359,000—which remains the price for the LSA model.

Meyer said that the company has a lot of room to grow in the Tijuana facility. 

“No, no plans [to expand over to China],” he said in FLYING’s interview. “We believe that there’s real advantage to having the facility we have in Tijuana—it has capacity to do a lot more airplanes. The staff there is highly trained, highly capable, and really we just need to ramp that up.” 

Meyer would like to see that ramp up in production to a rate of nearly one A5 per week.

Primary category certification has been “a bit slower than we want,” with Meyer reporting the latest update from the FAA projecting a May 2022 completion. The certificated model will feature either the Garmin 796 or the 3X Touch with autopilot.

ICON immediate plans with the primary category model include expanding its reach in Canada, where it already has enthusiastic support—but no LSA umbrella under which to market the airplane. “[We’ll] continue to grow our market through international expansion, which is really our focus for the back half of this year once we receive type certification,” Meyer said.

Whether those plans move forward as the company currently envisions will depend on the outcome of the CFIUS investigation–and the suitability of the A5 as a militarized amphibious UAV.

More details as FLYING continues its look into this developing story.