Amazon Prime Air’s drone business stalled by regulations and weak demand

In mid-January, Amazon drone delivery chief David Carbon sat down for his weekly “AC/DC” video address to 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 end until 2022. A decade after the launch of Prime Air, Amazon was beginning drone deliveries in two small markets, bringing one of the dreams of founder Jeff Bezos from reality.

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

“We started D&R and we’re in D&R at the time of this shoot by about 12 flights,” Carbon said. “So really excited to have that behind us.”

However, there is a cavernous gap between the beginning of the process and its end, and employees could be forgiven for expressing skepticism.

Since at least last March, Carbon has told Prime Air staff that D&R testing was underway, according to people who worked on the project and requested 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 them.

But the Federal Aviation Administration didn’t give permission for the tests until December, and the company launched the campaign soon after, in January of this year, Amazon said. Prior to a wider rollout, Prime Air must complete several hundred incident-free flight hours 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 meet Amazon’s hugely ambitious goal of getting food, medicine and household products to shoppers’ doorsteps in 30 minutes or less.

Bezos predicted a decade ago that a fleet of Amazon drones would take flight in about five years. But for now, drone delivery is limited to two test markets — College Station, Texas, and Lockeford, Calif., a city of about 3,500 people south of Sacramento.

Even in those hand-picked areas, operations have been crippled by FAA restrictions that prohibit the service from flying over people or roads, according to government records. This comes after years of challenges with crashes, missed deadlines and high turnover.

So while Prime Air has signed up around 1,400 customers for service between the two sites, it can only deliver to a handful of homes, three former employees said. In total, CNBC spoke with seven current and former Prime Air employees who said continued friction between Amazon and the FAA has slowed progress in delivering the drones. They asked to remain anonymous as they were not authorized to speak on the subject.

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

CEO Andy Jassy, ​​who took over from Bezos in mid-2021, hasn’t spoken much about Prime Air in public. It has much bigger issues to deal with as Amazon navigates a period of deep cost cuts while trying to reaccelerate its business after revenue growth in 2022 was the slowest in the company’s quarter-century. in the public market.

But Jassy also wants to maintain a culture that has thrived on big bets and risk taking. Its leadership circle, known as the S-team, had previously set a goal to begin drone deliveries to two locations by the end of 2022, according to two employees.

In January, a significant number of Prime Air workers were laid off in the largest round of layoffs in Amazon’s history, totaling more than 18,000 people, CNBC previously reported. Prime Air locations in Lockeford, College Station and Pendleton, Oregon were all hit by the job cuts, which further weighed on operations.

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

Not that there’s a lot of activity. Employees told CNBC that the Lockeford location can only deliver to two homes, which are next to each other and located within a mile of Amazon’s facilities. Some details of the FAA restrictions have previously been reported by The Information and Business Insider.

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

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

“We’re as excited about it now as we were 10 years ago – but the tough stuff can take time, it’s a highly regulated industry and we’re not immune to changes in the macro environment” , said Boschetti. “We continue to work closely with the FAA and have a robust testing program and a team of hundreds of people 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 long struggled to circumvent restrictions that limit its flight capabilities.

Of particular note is an effort in late 2021 to get a key rule changed. On November 29 of that year, Sean Cassidy, director of safety, flight operations, and regulatory affairs for Prime Air, wrote to the FAA asking for a waiver of an order that dictates the operational requirements for drones. Amazon, according to government documents.

Cassidy said in the letter that Amazon’s new MK27-2 drone had several safety upgrades over 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 declined Amazon’s request. The agency said Amazon did not provide enough data to show the MK27-2 could operate safely under these circumstances.

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

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

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

But in October the Pendleton crew were “still living off their suitcases”, said an employee, while the company paid for their room and board.

The following month, Prime Air moved 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 to 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 team received “extensive training” at the Pendleton flight test center before being dispatched to delivery locations.

Some staff viewed the launch as a rushed effort and wondered how the service could fully operate without the ability to hover over roads or cars, former employees said.

In addition, the demand for Prime Air’s small clientele is not exactly increasing. At the Lockeford site, employees must regularly contact the two delivery-eligible households to remind them to place orders, and Amazon incentivizes them with gift cards, according to two people familiar with the matter.

Meanwhile, Amazon is working on developing 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 scale model of the unmanned aircraft, which is supposed to be lighter and quieter than the MK27-2.

In January, Carbon was still expressing his optimism during his weekly AC/DC chats. He said Prime Air aims to make 10,000 deliveries this year between its two test sites, even with the unfinished D&R campaign and FAA limitations firmly in place.

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

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

The MK30, slated for 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 produce large-scale drones.

It’s not an accolade 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.

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