Amazon’s drone business can’t get off the ground as regulations, weak demand stymie progress

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  • Amazon Prime Air has ambitious delivery goals for 2022, but the company has yet to clear the regulatory hurdles needed to scale the business.
  • To receive approval from the FAA, Prime Air must complete several hundred flight hours without incident, and then submit data to the agency.
  • At one of its two test locations, Lockford, Calif., Amazon incentivizes two of its existing customers by giving them gift cards, according to people familiar with the matter.

mid January, Amazon’s Drone delivery head David Carbon sits the staff down for his weekly “AC/DC” video address, where he gives the latest updates prime air,

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The acronym stands for A Coffee With David Carbone, and the event followed a very busy end to 2022. A decade after the launch of Prime Air, Amazon is launching drone delivery in two small markets, bringing one of founder Jeff Bezos’ dreams closer to reality.

In the video, which was obtained by CNBC, Carbone told employees that Prime Air had recently stopped durability and reliability (D&R) testing, a key federal regulatory requirement required to prove that it was safe. Amazon’s drones can fly over people and towns.

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“We started D&R and at the time of this filming we’ve been in D&R for about 12 flights,” Carbone said. “So, really excited to get behind us.”

However, there is a vast difference between starting a process and getting it done, and employees could be forgiven for expressing skepticism.

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Since at least last March, Carbon has been telling Prime Air employees that D&R testing is underway, according to people who worked on the project and requested anonymity because they were not authorized to discuss it. are not. They even had baseball caps that said “D&R 2022” with the Prime Air logo on them.

But the Federal Aviation Administration didn’t give approval for the test until December, and the company began operations sooner this year in January, Amazon said. Before a wider rollout, Prime Air must complete several hundred hours of flight without incident and then submit that data to the FAA, which oversees the approval process for commercial deliveries.

All of this stands in the way of Prime Air’s expansion and its efforts to achieve Amazon’s wildly ambitious goal of whisking food, medicine and household products to shoppers’ doorsteps in 30 minutes or less.

Bezos Predicted A decade ago a fleet of Amazon drones would take to the skies in about five years. But so far, drone delivery has been limited to two test markets — College Station, Texas, and Lockford, California, a city of about 3,500 people located just south of Sacramento.

Even in those chosen areas, operations have been curtailed by FAA restrictions, according to government records, which prevent the service from flying over people or roads. This comes after years of challenges with accidents, missed deadlines and high turnover.

So, while Prime Air has signed up about 1,400 customers for service between the two sites, it can reach only a handful of homes, three former employees said. In all, CNBC spoke to seven current and former Prime Air employees who said ongoing friction between Amazon and the FAA has slowed progress in getting drone deliveries off the ground. He asked to remain anonymous because he was not authorized to speak on the matter.

Amazon told CNBC that thousands of residents have expressed interest in its drone-delivery service. The company said it is making deliveries to a limited number of customers with plans to expand over time.

CEO Andy Jassy, ​​who will replace Bezos in mid-2021, hasn’t talked much about Prime Air publicly. He’s got huge problems to solve as Amazon embarks on a period of deep cost cuts while trying to reshape its business in 2022 after revenue growth has been the slowest in a quarter century for the publicly traded company.

But JC also wants to maintain a culture that thrives on big bets and risk-taking. According to two employees, his leadership group, known as the S-Team, had previously targeted launching drone deliveries at the two locations by the end of 2022.

CNBC previously reported that in January, a significant number of Prime Air employees were let go as part of the largest round of layoffs in Amazon’s history. Prime Air sites in Lockford, College Station and Pendleton, Oregon, were all affected by job cuts, further straining operations.

The Lockford site is now down to one pilot certified to operate commercial flights, so a few days after the layoffs were announced, Amazon flew an employee out of College Station to help with deliveries, said a former employee.

Not that there’s a lot of activity. Employees told CNBC that the Lockford location can only deliver to two homes, which are located next to each other and less than a mile from the Amazon facility. Some details of the FAA restrictions were previously reported by Information And business Insider,

Employees who survived the layoffs told CNBC that morale in the department has been steadily declining since the cuts. With more work to do and less clarity on his parent company’s ongoing commitment to the mission, some are saying he and his colleagues have begun looking for jobs.

Amazon spokeswoman Maria Boschetti said in a statement that the layoffs and delays experienced by Prime Air have not affected its long-term plans for deliveries. He added that the company is working to meet all applicable FAA requirements for safe operation and safety standards.

“We are just as excited about this as we were 10 years ago – but tough things can take time, this is a highly regulated industry, and we are not immune to changes in the macro environment,” Boschetti said. “We continue to work closely with the FAA, and have a robust test program and a team of hundreds that will continue to meet all regulatory requirements as we move forward and safely bring this service to more customers in more communities.” deliver.”

irrational self confidence

Prime Air’s FAA problems are not a new phenomenon, and the company has long been trying to maneuver through restrictions that limit its flight capabilities.

Of particular note was the effort to change a key rule in late 2021. On November 29 of that year, Sean Cassidy, Prime Air’s director of safety, flight operations and regulatory affairs, wrote to the FAA seeking relief from the order setting operating conditions for Amazon’s drones, according to government filings.

Cassidy said in the letter that Amazon’s new MK27-2 drone had several safety upgrades from the earlier model MK27, which rendered several “conditions and limitations” obsolete by the FAA. Among the restrictions Amazon sought to remove was a provision banning Prime Air from flying its drones near or over people, roads and structures.

A year later, in November 2022, the FAA denied Amazon’s request. The agency said Amazon did not provide sufficient data to show that the MK27-2 could operate safely under those conditions.

“Full stability and reliability criteria have not been established to allow people to fly over or near them,” the FAA said.

It was a stunning blow for Amazon. In early 2022, the company was so confident that the FAA would soon lift the restrictions, according to five employees, that it temporarily moved about three dozen employees to live in hotels and Airbnb accommodations in the area of ​​Pendleton, a small town in rural eastern Oregon. paid for. It’s about a three-hour drive from Portland.

Employees said that upon lifting the restrictions, Amazon intends to move workers to Lockford and College Station, with the goal of starting deliveries in the summer of 2022.

But by October, the Pendleton crew was still “living out of their suitcases”, said one employee, while the company paid for their room and board.

The following month, Prime Air transferred the employees to their respective sites, right after the FAA rejected Amazon’s crackdown attempt. But the company chose to go ahead anyway. On Christmas Eve, Carbon announced in a linkedin post That Prime Air made its first deliveries to College Station and Lockford.

“These are the first careful steps that we will turn into giant leaps for our customers over the next several years,” Karbonn wrote.

Boschetti said Prime Air’s delivery team received “extensive training” at the Pendleton flight test facility before being dispatched to delivery locations.

Former employees said some employees saw the launch as a rushed effort and questioned how the service would be able to operate at all without the ability to fly over roads or cars.

What’s more, Prime Air’s small customer base isn’t driving demand at all. At the Lockford site, employees routinely contact the two households eligible for delivery to remind them to place orders, and Amazon incentivizes them with gift cards, according to two people familiar with the situation.

Meanwhile, Amazon is working on the development of its next generation Prime Air drone called the MK30, and known internally as the CX-3. At an event in Boston in November, Carbon unveiled a mockup of the unmanned aircraft, which is said to be lighter and quieter than the MK27-2.

By January, Carbone was still expressing optimism in his weekly AC/DC chat. He said Prime Air has a goal of making 10,000 deliveries between its two test sites this year, even as the D&R campaign remains unfinished and the FAA limits are firmly enforced.

Carbone acknowledged that JC is enforcing that Prime Air “isn’t immune to cost savings”, but he seemed unimpressed.

“This year is going to be a big year,” Carbone said. “We have a lot going on.”

The MK30, which is expected to launch in 2024, will have to go through the same regulatory process, including a separate D&R campaign, as well as so-called type certification, an even more stringent FAA benchmark that allows a company to mass-produce a drone. allows to do.

This is not a distinction that the FAA hands out quickly. The only one out of all the drone manufacturers willing to commercially distribute Has received Type Certification – A startup called Matternet.

Watch: Amazon CEO Andy Jassy on changing consumer spending habits

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