Regulations and Low Demand are Preventing Amazon's Drone Business from Taking off

In mid-January, Amazon's drone delivery chief, David Carbon, sat down for his weekly "AC/DC" video presentation to staff, in which he provided the most recent Prime Air improvements.

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The term stands for A Coffee with David Carbon, and the occasion came after a very busy 2022. Amazon began drone deliveries in two small cities a decade after the debut of Prime Air, bringing one of founder Jeff Bezos' aspirations closer to reality.

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Carbon informed staff in the video, acquired by Trade Algo, that Prime Air has recently begun durability and reliability (D&R) testing, a major federal regulatory requirement required to verify Amazon's drones can fly over people and communities.

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"We started D&R and we're approximately 12 flights into D&R at the time of this shooting," Carbon explained. "I'm looking forward to putting that behind us."

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Yet, there is a huge gap between starting and concluding the procedure, and employees may be understood for being statistical.

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According to those who worked on the project and asked for anonymity because they aren't allowed to discuss it, Carbon has been informing Prime Air personnel that D&R testing is ongoing since at least last March. He even had baseball hats produced that stated "D&R 2022" and featured the Prime Air insignia.

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But, the Federal Aviation Agency did not approve testing until December, and the business launched the campaign in January of this year, according to Amazon. Before a larger deployment, Prime Air must complete several hundred hours of flight time without incident and then submit that data to the FAA, which controls the commercial delivery clearance process.

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All of this is impeding Prime Air's development and efforts to meet Amazon's crazily ambitious goal of delivering food, medicine, and home goods to customers' doorsteps in 30 minutes or less.

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Bezos predicted a decade ago that an Amazon drone fleet will take to the sky in five years. Nevertheless, for the time being, drone delivery is limited to two test markets: College Station, Texas, and Lockeford, California, a community of around 3,500 people located south of Sacramento. 

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According to government documents, even in those hand-picked places, operations have been hampered by FAA limitations that ban the service from flying over people or roadways. This comes after years of difficulties, including crashes, missed deadlines, and significant turnover.

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As a result, while Prime Air has around 1,400 consumers signed up for the service between the two locations, it can only deliver to a handful of houses, according to three former workers. CNBC met with seven current and former Prime Air personnel who stated that ongoing disagreements between Amazon and the FAA have hampered progress in getting drone deliveries off the ground. They requested anonymity since they were not permitted to talk on the subject.

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Thousands of locals have indicated interest in Amazon's drone-delivery service, according to Trade Algo. The firm stated that it is now delivering to a small number of consumers, with hopes to expand over time.

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CEO Andy Jassy, who will take over for Bezos in mid-2021, hasn't spoken anything about Prime Air in public. He has even more difficult challenges as Amazon navigates a period of substantial cost cutbacks while attempting to reaccelerate its business after sales growth in 2022 was the weakest in the company's quarter-century on the public market.

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But, Jassy also wishes to preserve a culture that has thrived on huge investments and risk-taking. According to two employees, his leadership circle, known as the S-team, had previously established a target of starting drone deliveries in two areas by the end of 2022.

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Trade Algo previously reported that a substantial number of Prime Air employees were laid off in January as part of the largest round of layoffs in Amazon's history, totaling more than 18,000 individuals. Job losses impacted prime Air sites at Lockeford, College Station, and Pendleton, Oregon, severely straining operations.

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According to a former employee, the Lockeford location is now down to one pilot qualified to handle commercial aircraft, so Amazon flew a colleague there from College Station to assist with deliveries just days after the layoffs were announced.

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There's not much going on. Employees told Trade Algo that the Lockeford site can only deliver to two residences, which are close door to one another and less than a mile from Amazon's factory. The Information and Business Insider have already reported on some of the FAA limitations.

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Employees who remained after the layoffs told Trade Algo that morale in the division has continued to deteriorate after the downsizing. With more work to complete and less assurance about their parent company's continued commitment to the purpose, several claims they and their coworkers have begun looking for work.

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According to Maria Boschetti, an Amazon representative, the layoffs and delays suffered by Prime Air have not harmed the company's long-term delivery goals. She stated that the firm is staffed to fulfill all applicable FAA regulations for safe operations and safety standards.

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"We're as thrilled about it now as we were ten years ago — but difficult things take time, this is a highly regulated business, and we're not immune to changes in the macro environment," Boschetti added. "We continue to collaborate closely with the FAA, and we have a comprehensive testing program and a staff of hundreds in place to satisfy all regulatory standards as we go ahead and safely provide this service to more clients in more cities."

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Irrational confidence

Prime Air's FAA issue is not a new occurrence, and the airline has long attempted to get around rules that limit its flying capabilities.

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A notable effort in late 2021 was to modify a fundamental regulation. According to federal papers, Sean Cassidy, Prime Air's director of safety, flight operations, and regulatory relations, wrote to the FAA on November 29 of that year, asking exemption from an order that sets the operational conditions for Amazon's drones.

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Cassidy stated in the letter that Amazon's new MK27-2 drone had significant safety advancements over the previous model, the MK27, rendering many of the FAA's "conditions and limits" outdated. Among the limitations Amazon sought to eliminate was one that prohibited Prime Air from flying its drones near or over people, roadways, and structures.

The FAA denied Amazon's proposal a year later, in November 2022. According to the FDA, Amazon did not offer enough evidence to demonstrate that the MK27-2 could operate securely under those conditions.

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The FAA stated that "full durability and reliability parameters have not been established to authorize" flying over or near humans.

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Amazon suffered a stunning blow. According to five employees, the firm was so certain that the FAA would soon relax the limits that it paid for approximately three dozen people to temporarily dwell in hotels and Airbnbs in the region of Pendleton, a tiny town in rural eastern Oregon about a three-hour drive from Portland.

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After the limitations were lifted, Amazon planned to relocate the workers to Lockeford and College Station, to start deliveries in the summer of 2022, according to the employees.

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However, one worker said that by October, the Pendleton team was still "living out of their luggage" while the company was covering their lodging and food.

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The personnel was relocated to their respective locations the following month by Prime Air, just in time for the FAA to reject Amazon's request for a reprieve. Yet, the business decided to go forward. Prime Air's first delivery to College Station and Lockeford was delivered on Christmas Eve, Carbon stated in a LinkedIn post.

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In the next years, we will transform these cautious initial steps into enormous leaps for our clients, according to Carbon.

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Before being dispatched to delivery areas, Boschetti said that Prime Air's delivery staff underwent "intensive training" at the Pendleton flight test facility.

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Former employees claimed that several employees thought the launch was hurried and questioned how the service would be able to function completely without the ability to fly over vehicles or roads.

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Moreover, demand from Prime Air's little client base isn't exactly on the rise. According to two persons familiar with the arrangement, staff at the Lockeford location are required to remind the two houses qualified for delivery to place purchases regularly and are rewarded with gift cards from Amazon.

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The MK30, also known as CX-3 internally, is Amazon's next-generation Prime Air drone that is currently being developed. Carbon showed a replica of the unmanned aircraft, which is meant to be lighter and quieter than the MK27-2, during a gathering in Boston in November.

Carbon continued to seem upbeat during his weekly AC/DC conversations as of January. Even though the D&R campaign is still ongoing and the FAA restrictions are still in effect, he claimed Prime Air still has a target of making 10,000 deliveries between its two test locations this year.

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Prime Air "is not immune to the expenses cuts" that Jassy is implementing, Carbon conceded, but he seemed unconcerned.

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This year will be significant, according to Carbon. A lot is going on.

The MK30, which is scheduled to debut in 2024, will be subject to the same regulatory procedures, including a different D&R campaign and so-called type certification, an even stricter FAA standard that permits a manufacturer to make drones at scale.

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The FAA is not hasty to make this difference. Only one drone manufacturer competing to transport goods commercially has gained type certification; it is a company by the name of Matternet.

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