E-commerce giant Amazon.com Inc.’s AMZN drone deliveries are no more a distant reality. After almost a year of struggle, Amazon’s drone dream is set to take off after the U.S. Federal Aviation Administration (FAA) granted it an experimental airworthiness certificate to conduct test and experiment with certain drones.
Terms of the Contract
Per the agreement, the Amazon logistics unit has been given the permission to test drones in its fleet for research, development and crew training. In addition, the flight operation of drones must be carried at 400 feet or below during daylight hours. Also, the vehicle should remain within the operator’s line of vision. The drone operators must possess a private pilot license and recent medical certification.
Moreover, Amazon is entitled to provide FAA with monthly updates including the number of flights conducted and information regarding any hardware or software failures while testing. The FAA has however granted Amazon an exemption from further flight restrictions so that the experimental drones can easily conduct those flights.
Amazon Prime Air
In Dec 2013, Amazon CEO Jeff Bezos told the entire world about his dream to deliver packages using drones. Amazon wanted to use unmanned drones to deliver parcels to its clients in as little as 30 minutes. All that was required, according to the company, was the government approval for such deliveries. In case the government agreed, Amazon hoped that its dream of delivering packages via drones would take off in 2015.
In Jul 2014, Amazon asked the FAA for permission to test drones in outdoor areas near Seattle. However, the FAA did not grant permission.
In Dec 2014, Amazon informed the FAA that it had begun testing drone deliveries in countries with fewer restrictions.
In February this year, the FAA released a set of draft regulations for the legalization of commercial drones. According to the draft, drone operators must stay within the line of site from their drones. They are also not permitted to fly drones over people who are not in control of the aircraft. The draft still must go through public comment and revision before becoming final, which is expected to take at least a year.
The implementation of the proposed rules would obstruct/delay fulfillment of Amazon’s dream to employ drones for delivery of packages, at least in the U.S. Amazon even voiced its disappointment.
What are Drones?
Drones are unmanned aerial vehicles (UAVs) that are either controlled by pilots from the ground or are pre-programmed to execute specific missions. Drones vary greatly in size – some are as massive as jumbo jets, while others are so small that they can fit in a child’s palm. With applications ranging from surveillance and agriculture to pizza delivery as well as extreme photography and rescue operations, drone technology is still in a nascent stage.
Our Take
Amazon is mainly an online retailer. This kind of business has a very low barrier to entry. It is cheaper to set up and thus attracts a lot of competition.
There is no limit on the number of competing businesses that are waiting to snatch share away from the existing players. eBay EBAY and Alibaba BABA are all part of this bandwagon. Online retailers also face competition from brick and mortar stores pursuing an omni-channel strategy like Walmart WMT.
To maintain position in this market, Amazon must constantly provide excellent services. That’s where drones have a role to play. Drone deliveries are among the several initiatives taken by the e-commerce giant to help control rising shipping costs and take on brick-and-mortar retailers.
This new certificate is a very minor win for Amazon, as it is still only for experimentation. The FAA has not yet permitted Amazon to conduct commercial drone flights. But there’s definitely a ray of hope now that testing has been allowed.
Amazon currently holds a Zacks Rank #4 (Sell).
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