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Business

Amazon Prime Air drone business hampered by regulations, weak demand




  • Amazon Prime Air has ambitious delivery goals for 2022, but the company has yet to clear the regulatory hurdles necessary to grow the business.
  • To get approval from the FAA, Prime Air must complete several hundred hours of flight without incident and then submit the data to the agency.
  • At one of the two test locations, in Lockeford, California, Amazon is incentivizing its two existing customers by offering them gift cards, according to people familiar with the matter.

David Carbon, vice president of Prime Air at Amazon.com Inc., speaks during the Delivering the Future event at the Amazon Robotics Innovation Hub in Westborough, Massachusetts, United States, Thursday, Nov. 10, 2022.

Bloomberg | Bloomberg | Getty Images

In mid-January, Amazon’s drone delivery chief David Carbon sat down for his weekly “AC/DC” video address to employees, giving the latest updates on Prime Air.

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

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

“We started D&R and we’re in D&R as of the time of this filming with about 12 flights,” Carbon said. “So, very excited to get that behind us.”

However, there is a gulf between starting the process and completing it, and employees could be forgiven for expressing skepticism.

Since at least March of last year, Carbon has told Prime Air employees that D&R testing is underway, according to people who worked on the project, who spoke on condition of anonymity because they are not authorized to discuss it. He even had baseball caps made that said “D&R 2022” with the Prime Air logo on it.

But the Federal Aviation Administration did not grant approval for testing until December, and the company began the campaign shortly after, in January of this year, 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 customers’ doorsteps in 30 minutes or less.

Bezos predicted a decade ago that a fleet of Amazon drones would take to the skies in about five years. But as of now, drone delivery is limited to two test markets — College Station, Texas, and Lockeford, California, a town of about 3,500 people located south of Sacramento.

Even in the handpicked areas, operations have been hampered by FAA restrictions that prohibit the service from flying over people or roads, according to authorities. It comes after years of challenges with crashes, missed deadlines and high turnover.

So while Prime Air has signed up about 1,400 customers for the service between the two sites, it can only deliver to a handful of homes, three former employees said. In all, CNBC spoke with seven current and former Prime Air employees who said continued friction between Amazon and the FAA has slowed progress in getting drone delivery off the ground. They asked to remain anonymous because they were not authorized to comment on the case.

Amazon told CNBC that thousands of residents have expressed interest in the drone delivery service. The company said it supplies a limited number of customers, with plans to expand over time.

CEO Andy Jassy, ​​who succeeded Bezos in mid-2021, has not talked much about Prime Air publicly. He has much bigger problems to solve as Amazon navigates a period of deep cost-cutting as it tries to accelerate its business after revenue growth in 2022 was the slowest in the company’s quarter century on the public market.

But Jassy also wants to maintain a culture that thrives on big efforts and risk-taking. His leadership circle, known as the S-Team, had previously set a goal to begin drone deliveries at two locations by the end of 2022, according to two employees.

In January, a significant number of Prime Air workers were let go as part of the largest round of layoffs in Amazon’s history, totaling more than 18,000 people, CNBC previously reported. Prime Air facilities in Lockeford, College Station and Pendleton, Oregon, were all hit by the job cuts, further straining operations.

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

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

Employees remaining after the layoffs told CNBC that morale in the division has continued to decline since the cuts. With more work to do and less clarity about the parent company’s ongoing commitment to the mission, some say they and their colleagues have begun looking for jobs.

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

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

Prime Air’s FAA problem is not a new phenomenon, and the company has long worked to try to maneuver through restrictions that limit flight capacity.

Particularly notable was an attempt at the end of 2021 to have a key rule changed. On Nov. 29 of that year, Sean Cassidy, Prime Air’s director of safety, flight operations and regulatory affairs, wrote to the FAA seeking relief from an order dictating the operating conditions of Amazon’s drones, according to authorities.

Cassidy said in the letter that Amazon’s new MK27-2 drone had several safety upgrades from the previous model, the MK27, that made many of the “conditions and limitations” set by the FAA obsolete. Among the restrictions Amazon sought to remove was a provision prohibiting 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 the MK27-2 could operate safely under these circumstances.

“Full durability and reliability parameters have not been established to allow” flying over or near people, the FAA said.

An Amazon drone operator loads the simple shoebox size that can fit inside the MK27-2 Prime Air drone.

Amazon

It was a surprising setback for Amazon. By early 2022, the company was so convinced the FAA would soon lift the restrictions that it paid for about three dozen employees to temporarily stay in hotels and Airbnbs in the Pendleton area, a small town in rural eastern Oregon, according to five employees. it’s about a three-hour drive from Portland.

Upon lifting the restrictions, Amazon intended to move the workers to Lockeford and College Station, with the goal of starting deliveries in the summer of 2022, the employees said.

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

The following month, Prime Air moved the employees to their respective sites, just in time for the FAA to deny Amazon’s efforts to obtain a reprieve. But the company chose to continue anyway. On Christmas Eve, Carbon announced in a LinkedIn post that Prime Air had made its first deliveries in College Station and Lockeford.

“These are cautious first steps that we will turn into giant leaps for our customers over the next few years,” Carbon wrote.

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

Some employees saw the launch as a rushed effort and questioned how the service would be able to fully function without the ability to fly over roads or cars, former employees said.

Also, demand from Prime Air’s tiny customer base isn’t exactly sky-high. On the Lockeford site, employees must regularly 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 should be lighter and quieter than the MK27-2.

As of January, Carbon continued to express optimism at his weekly AC/DC chats. He said Prime Air has a goal of making 10,000 deliveries this year between the two test sites, even with the D&R campaign unfinished and FAA restrictions in place.

Carbon acknowledged that Prime Air is “not immune to the cost savings” that Jassy is implementing, but he sounded undaunted.

“This year is going to be a big year,” Carbon 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 stricter FAA benchmark that allows a company to produce drones on a large scale.

It’s not a difference the FAA is quick to hand out. Of all the drone manufacturers vying to deliver commercially, only one has received type certification – a startup called Matternet.

SEE: Amazon CEO Andy Jassy on changing consumer habits



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