- Amazon Prime Air has ambitious delivery targets for 2023, but the company has yet to clear regulatory hurdles necessary to grow the business.
- To get approval from the FAA, Prime Air must complete several hundred hours of flying without any incidents, and then submit the data to the agency.
- At one of its two test locations, in Lockeford, California, Amazon incentivizes its two existing customers by offering them gift cards, according to people familiar with the matter.
In mid-January, Amazon's drone delivery head 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 to 2022. A decade after Prime Air's launch, Amazon was starting drone deliveries in two small markets, bringing one of founder Jeff Bezos' dreams closer to reality.
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In the video, which was obtained by CNBC, Carbon told employees that Prime Air had recently kicked off durability and reliability (D&R) testing, a key federal regulatory requirement needed to prove Amazon's drones can fly over people and towns.
"We started D&R and we're into D&R as of the time of this filming by about 12 flights," Carbon said. "So, really excited to get that behind us."
However, there's a cavernous gap between starting the process and finishing it, and employees could be forgiven for expressing skepticism.
Since at least last March, Carbon has been telling Prime Air staffers that D&R testing is underway, according to people who worked on the project and requested anonymity because they aren't 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 provide clearance for testing until December, and the company began the campaign shortly after, in January of this year, Amazon said. Before a broader rollout, Prime Air must complete several hundred hours of flying without any incidents and then submit that data to the FAA, which oversees the approval process for commercial deliveries.
That all 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 that a fleet of Amazon drones would take to the skies in about five years. But as of now, drone delivery is restricted to two test markets — College Station, Texas, and Lockeford, California, a town of about 3,500 people located south of Sacramento.
Even in those hand-picked areas, operations have been hamstrung by FAA restrictions that prohibit the service from flying over people or roads, according to government records. That 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 to 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 weren't 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's 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 talked a lot about Prime Air in public. He's got much bigger problems to solve 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 on the public market.
But Jassy also wants to maintain a culture that's thrived on big bets and risk-taking. His leadership circle, known as the S-team had previously set a goal of beginning drone deliveries in 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 sites in Lockeford, College Station and Pendleton, Oregon, were all hit by the job cuts, further straining 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 flew a staffer there from College Station to help with deliveries.
Not that there's much activity. Employees told CNBC that the Lockeford location can only deliver to two homes, which are located next door to one another and sit less than a mile from Amazon's facility. Some details of the FAA restrictions were previously reported by The Information and Business Insider.
Employees who remain after the layoffs told CNBC that morale in the division has continued to sink since the cuts. With more work to do and less clarity on their parent company's ongoing commitment to the mission, some are saying that they and their colleagues have started searching for jobs.
Maria Boschetti, an Amazon spokesperson, said in a statement that the layoffs and delays experienced by Prime Air haven't affected its long-term plans for deliveries. The company is staffed to meet all applicable FAA requirements for safe operations and safety standards, she said.
"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," Boschetti said. "We continue to work closely with the FAA, and 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 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 been working to try to maneuver through restrictions that limit its flying capabilities.
Of particular note was an effort in late 2021 to get 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 that dictates the operational 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, the MK27, that rendered 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 nearby 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 sufficient data to show that the MK27-2 could operate safely under those circumstances.
"Full 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 the restrictions that, according to five employees, it paid for around three dozen staffers to temporarily live in hotels and Airbnbs in the area of Pendleton, a small town in rural eastern Oregon that's about a three-hour drive from Portland.
Upon lifting of the restrictions, Amazon intended to move the workers to Lockeford and College Station, with the goal of beginning deliveries in the summer of 2022, the employees said.
But by October, the Pendleton crew was still "living out of their suitcases," one employee said, while the company paid for their 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 effort for a reprieve. But the company opted to proceed 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 careful first steps that we will turn into giant leaps for our customers over the next number of years," Carbon wrote.
Boschetti said Prime Air's delivery team received "extensive training" at the Pendleton flight test facility before they were sent to delivery locations.
Some staffers viewed the launch as a rushed effort and questioned how the service would be able to operate fully without the ability to fly over roads or cars, former employees said.
What's more, demand from Prime Air's tiny customer base isn't exactly soaring. At the Lockeford site, employees have to 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 development of its next-generation Prime Air drone called the MK30, and known internally as CX-3. At an event in Boston in November, Carbon unveiled a mockup of the unmanned aircraft, which is supposed to be lighter and quieter than the MK27-2.
As of January, Carbon was still expressing optimism at his weekly AC/DC chats. He said Prime Air has a target to make of 10,000 deliveries this year between its two test sites, even with the D&R campaign unfinished and the FAA limitations firmly in place.
Carbon acknowledged that Prime Air "is not immune to the costs savings" that Jassy is implementing, but he sounded undeterred.
"This year is going to be a big year," Carbon said. "We've got lots going on."
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 so-called type certification, an even more rigorous FAA benchmark that allows a company to produce drones at scale.
It's not a distinction the FAA is quick to hand out. Of all drone makers vying to deliver commercially, only one has received type certification — a startup called Matternet.
Correction: Amazon Prime Air has ambitious delivery targets for 2023. An earlier version misstated the year.
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