Amazon Prime Air’s drone business is bogged down by regulations and weak demand

In mid-January, David Carbon, Amazon’s head of drone delivery, sat down for the weekly “AC/DC” video address for employees, where he gives the latest updates on Prime Air.

The acronym stands for A Coffee with David Carbon, and the event followed a very busy finale to 2022. A decade after launching Prime Air, Amazon has begun deliveries of its drones in two small markets, bringing founder Jeff Bezos’ dreams closer to reality.

In the video, obtained by CNBC, Carbone tells employees that Prime Air has recently begun durability and reliability (D&R) testing, a key federal regulatory requirement necessary to prove Amazon drones can fly over people and cities.

“We started D&R and we’ve been in D&R as of the time of this shoot for about 12 flights,” Carbon said. “So, I’m really excited to get through that.”

However, there is a cavernous gulf between starting and ending the process, and employees can be forgiven for expressing their doubts.

Since at least last March, Carbon Prime Air employees have been told that D&R testing is in progress, according to people who worked on the project and asked not to be identified because they were not authorized to discuss it. He even wore “D&R 2022” baseball caps with the Prime Air logo on them.

Amazon said the FAA didn’t provide clearance for the testing until December, and the company began the campaign shortly after, in January of this year. Before launching into wider operation, Prime Air must complete several hundred hours of flying without incident and then provide 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 efforts to meet Amazon’s wildly ambitious goal of getting food, medicine, and household products to shoppers’ doors in 30 minutes or less.

Bezos and expect A decade ago, Amazon’s fleet of drones would have taken to the skies in about five years. But as of now, drone delivery is limited to two test markets — College Station, Texas, and Lockford, California, a town of about 3,500 people south of Sacramento.

Even in those hand-selected areas, operations have been hampered by FAA restrictions that prevent the service from overflying people or roads, according to government records. This comes after years of challenges with crashes, missed deadlines, and high staff turnover.

So while Prime Air has signed up about 1,400 customers for the service between the two locations, it can only deliver to a handful of homes, three former employees said. In all, CNBC spoke to seven current and former Prime Air employees who said that ongoing friction between Amazon and the FAA has slowed progress on delivering drones on the ground. They asked not to be identified because they are not authorized to speak on the matter.

Amazon told CNBC that thousands of residents have expressed interest in the 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 succeeded Bezos in mid-2021, hasn’t spoken much about Prime Air in public. He has much bigger problems to sort out as Amazon goes through a period of deep cost cuts as it tries to re-accelerate its business after revenue growth in 2022 was the slowest in a quarter-century for the company in the public market.

But Gacy also wants to preserve a culture that thrives on big bets and risk-taking. His leadership circle, known as 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 slew of Prime Air workers were let go as part of the largest round of layoffs in Amazon history, totaling more than 18,000 people, CNBC previously reported. Prime Air’s locations in Lockeford, College Station, and Pendleton, Oregon, were affected by job cuts, further straining operations.

Lockeford now had only one pilot certified to operate commercial flights, a former employee said, so days after the layoffs were announced, Amazon moved an employee there from College Station to help with deliveries.

Not that there is a lot of activity. Employees told CNBC that the Lockeford location can only deliver to two homes that are located next door to each other and sit less than a mile from the Amazon facility. Some details of the FAA’s restrictions have been previously reported the information And Business interested.

Employees who remained after the layoffs told CNBC that morale in the department has continued to decline since the cutbacks. With more work to be done and less clarity about the parent company’s continued commitment to the mission, some say they and their colleagues have begun to look for jobs.

Amazon spokeswoman Maria Pochetti said in a statement that Prime Air’s layoffs and delays have not affected its long-term plans for delivery. She said the company is staffed to meet all applicable FAA requirements for safe operations and safety standards.

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

Prime Air’s FAA problem is not a new phenomenon, and the company has been working for a long time to try to maneuver through the restrictions that limit its air capabilities.

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

In the letter, Cassidy said Amazon’s new MK27-2 has several safety upgrades from the previous model, the MK27, which have rendered many of the FAA’s “conditions and restrictions” obsolete. Among the restrictions Amazon sought to remove was a provision that prohibited 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 enough data to show that MK27-2 can operate safely under these conditions.

The FAA said, “The perfect durability and reliability standards have not been established to allow” overflying over or near people.

It was a surprising setback for Amazon. In early 2022, the company was confident the FAA would soon lift restrictions that, according to five employees, have pushed nearly thirty employees to live temporarily in hotels and Airbnbs in the Pendleton area, a small town in rural eastern Oregon. That’s about a three hour drive from Portland.

When restrictions are lifted, employees said 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 were still “living out of their suitcases,” one employee put it, while the company paid for their room and board.

The following month, Prime Air moved employees to their own locations, just in time for the FAA to repudiate Amazon’s deferment efforts. But the company chose to move on anyway. On Christmas Eve, Carbon announced In a post on LinkedIn that Prime Air made its first deliveries at College Station and Lockeford.

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

Boschetti said the Prime Air delivery team received “extensive training” at the Pendleton flight test facility before they were sent to delivery locations.

Some employees viewed the launch as a hasty effort, former employees said, and questioned how fully the service could operate without the ability to fly over roads or cars.

Moreover, demand from Prime Air’s small customer base isn’t quite up. At the Lockeford location, employees have to regularly call two eligible delivery families to remind them to place orders, and Amazon motivates them with gift cards, according to two people familiar with the situation.

Meanwhile, Amazon is developing the next generation of its Prime Air drone called the MK30 and known internally as the CX-3. At an event in Boston in November, Carbon unveiled a mock-up of the drone, which is supposed to be lighter and quieter than the MK27-2.

As of January, Carbon was still expressing optimism in his weekly chats with AC/DC. He said Prime Air has a goal of making 10,000 deliveries this year between its two test sites, even as the D&R campaign and Federal Aviation Administration (FAA) restrictions are not firmly completed.

Carbon acknowledged that Prime Air “isn’t immune to the cost savings” that Jassy is implementing, but he seemed undeterred.

“This year is going to be a big year,” Carbon said. “We have a lot of events.”

The MK30, expected to launch in 2024, will have to go through the same regulatory process, including a separate D&R campaign, as well as a so-called Type Certificate, a stricter FAA standard that allows the company to mass-produce drones.

It’s not discriminatory that the FAA is quick to distribute. Of all the drone makers vying to deliver commercially, there is only one And she has received Certificate type – startup called Matternet.

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