Down a long, quiet road surrounded by farmland in central California, there's a warehouse that was once used for concrete manufacturing. Now it's where Amazon launches drones to deliver items under 5 pounds to a handful of homes in the 4,000-person town. Or at least that's what's supposed to happen. I would love to see the drones flying around.
You know, I can't wait. I haven't seen any yet. A decade ago, Amazon created a lot of buzz when it announced big plans for drone delivery. This looks like science fiction. It's not. Wow.
Amazon is testing delivery packages using drones. Last summer, it finally said drones were going to start making true commercial deliveries by the end of the year, starting in two small markets: College Station, Texas, and Lockeford, California, with big promises about scale. Delivering 500 million packages by drone annually by the end of this decade.
So far, Amazon told us it's made 100 deliveries. We headed to Lockeford in April, but we saw no activity on the warm, calm Friday afternoon. And we weren't alone. Maybe they thought they were going to start it in December, but I haven't seen anything yet. But where Amazon has stalled, other companies' drone programs have taken off, some having completed tens of thousands of commercial deliveries so far. We went to see Wing, a subsidiary of Google parent
company Alphabet, at a drone test facility in Hollister, California, as it did demo deliveries for the FAA with 37 drones in the air at once. So tell me a little bit about this aircraft. How big is it? How much does it weigh? How much can it carry? So it's it's about, it's about 10 pounds and carries around three pounds of stuff. So this is a box that's got the same amount of weight in it. And we went to Arkansas, where Walmart has completed thousands of commercial deliveries with partners DroneUp, focused on U.S.
drone inspections and deliveries, and Zipline, known for making hundreds of thousands of medical deliveries in Rwanda. We operate in three states North Carolina, Arkansas and Utah. And for some of the families in those states that we serve day-in and day-out, I mean not only is drone delivery a thing, not only is it possible, it's also now boring. We wanted to find out why Amazon has not reached this point yet. And despite every drone company facing the same stringent regulations here in the U.S., why competitors like Walmart and non-delivery
companies like Google are beating Amazon to the skies. In 2013, then-CEO Jeff Bezos went on 60 Minutes to unveil Amazon drones that he said would be delivering packages in about 4 or 5 years. He called it Prime Air. Half-hour delivery? Half-hour delivery. And we can carry objects, we think, up to 5 pounds, which covers 86% of the items that we deliver.
But a decade later, Amazon drones still aren't doing commercial deliveries at scale. I think those of us who were in the industry at that time could foresee many of the challenges that were coming to actually fulfill that vision. Delivering packages via drone is a very complicated problem because what we're talking about is theoretically thousands of autonomous drones carrying packages over people's heads, avoiding structures, avoiding other air traffic. And this is a particularly difficult problem in the United States because we have the busiest and most complex airspace in the world. In 2020, Amazon brought in former Boeing executive David Carbon to lead Prime Air.
It's actually not that hard to deliver a package via drone. It's a very different problem space to design, build, certify and operate an autonomous safety-critical system that can operate over densely populated environments within the national airspace. Carbon announced the program's first official deliveries on LinkedIn on Christmas Eve 2022.
Then in mid-January, Carbon said during an address to employees that the goal is at least 10,000 deliveries in 2023. Four months later, Amazon told CNBC it's made 100 commercial deliveries and that its 2023 goals have changed. Amazon told CNBC in a statement, "While the FAA broadened Prime Air's authority to conduct drone deliveries to include sites in California and Texas, the phased process for expanding our service areas is taking longer than we anticipated." Just days after Carbon's January address, a significant number of Prime Air workers were let go as part of the largest round of layoffs in Amazon's history.
And in March, Amazon employees told CNBC it's only delivering to two homes in Lockeford, located next door to each other less than a mile from the warehouse. I would love to sign up for that. Thomas and his wife and son have owned this local deli for 20 years where some Amazon drone employees come for lunch. One guy said they had 14 customers signed up, which seems kind of low to me. Safety, Amazon says, remains top priority, which could explain taking it slow. There have been multiple crashes at Amazon's test site in Pendleton, Oregon, including one in 2021 that sparked a 20-acre brush fire.
In a statement, Amazon pointed out that Pendleton is a closed testing facility where the intent is to learn the limits of our technology and said it's never had an incident during an actual customer delivery flight. When you build a new aircraft, when you build a new robotic system, it is going to fail early on. And you just have to work through that until it stops failing.
Amazon's drone design has evolved significantly over the years from a vertical lifting octocopter with eight exposed rotors, to a design with four large enclosed rotors, to a version that could take off vertically and then fly forward like a plane. The latest design was first unveiled in 2019. Now it's on its second iteration, the MK27-2. We got to see it at an Amazon event in November.
So how fast does it actually go? So this this drone flies about 50 miles an hour. The MK27-2 is about 5.5 feet wide and weighs about 80 pounds without anything on board. So if the drone encounters another aircraft when it's flying, it'll fly around that other aircraft. And if when it gets to its delivery location, your dog runs underneath the drone. We won't deliver the package. And also the
technology that's required to operate these safety features means that the drone needs to be bigger. For years, Amazon has been doing thousands of test flights. But the U.S. is a particularly tough regulatory environment for commercial aviation. That means that until a drone operator like Amazon gets certified as an actual air carrier by the Federal Aviation Administration, it's not able to charge for delivery.
When you're introducing really a radically new technology set where we are now making aircraft fly autonomously without pilots, that's a pretty big policy shift. In other parts of the world where air traffic might not be as dense, where they might have a different history with aviation, it might be quicker to deploy autonomous drone technology. That's why many drone delivery companies like Wing, Zipline and the ones owned by Reese Mozer's Ondas Holdings, started in other parts of the world like Australia, Africa and the Middle East. In the U.S., only five drone operators have
succeeded at getting air carrier certification from the FAA. It's called Part 135. It's the same authorization granted to on-demand air transportation. Think medical airlifts, private chartered travel and scenic flights. The FAA granted Amazon Part 135 in 2020, but there are multiple levels of Part 135 clearance.
Prime Air drones, along with most other drones trying to do delivery, operate under a slew of federal exemptions that greatly restrict where and how they can fly, like having to avoid active roadways and people. The FAA also greatly limits operations of drones beyond visual line of sight, known as BVLOS. Meant to ensure a human will see and steer away from other aircraft that could cause a crash, BVLOS is also perhaps the biggest current obstacle to drone delivery scalability. How many of your resources are going specifically towards BVLOS? I would say all, like in the simplest sense because otherwise, like, you know, what's the point of using an airplane. Introduced in February, the Increasing Competitiveness for American Drones Act of 2023 would streamline the BVLOS approvals process. We helped write the legislation.
We got bipartisan support from Senator Warner and Senator Thune to submit that. The reason this is really a monumental moment in the drone industry is this is the first time that industry, the FAA and Congress are aligned. But for now, getting around the restriction remains tricky.
If it goes beyond visual line of sight, you need a waiver. You need to have that, have that cleared with the with the FAA. One big way to get that waiver is for drones to use what's known as detect and avoid systems.
Amazon calls its system sense-and-avoid. The idea is to identify moving objects like other aircraft and people and pets, and static objects like a chimney or a clothesline, and automatically steer clear of them. That actually turns out to be a really hard problem to solve if you're trying to control for what if it's raining? What if there are clouds? If there are clouds, cameras won't allow us to see it. What if it's dark out? So a lot of folks have tried different ways of solving this problem. Most of the ways of solving the problem, like LIDAR or radar or cameras, don't operate in all weather, which is really problematic. They're also very expensive, very heavy, very power consumptive, which are all really bad things for vehicles that are flying.
Zipline uses microphones to listen for and automatically avoid other aircraft. The FAA just certified Zipline's detect and avoid system so its drones can fly beyond visual line of sight. This is the first BVLOS approval of an autonomy system that can fly over populated areas.
CEO Keller Rinaudo Clifton says this will enable Zipline drones to deliver to homes about 65 miles away from the Walmart in Arkansas where it flies out from. In absence of a certified detect-and-avoid technology in the U.S., the way that other companies have been trying to do drone delivery is basically having a human standing where the vehicle is taking off from and the vehicle can't fly farther than that human can see. This also means many companies can't fly after dark, and some are sending observers in cars to watch deliveries at customer homes. Like that person's getting paid to to stand there and watch that drone. And if that, that all factors into
the cost. So very quickly you can see that's not going to make sense for anybody if you've got to pay somebody to do that. In late 2021, Amazon wrote to the FAA about its new MK27-2 drone. The goal was to point out the new model's safety upgrades in hopes the FAA would remove some restrictions that prohibit Amazon's drones from flying nearby or over people, roads and structures. But in November, the FAA declined Amazon's request, saying Amazon didn't provide sufficient data to show the MK27-2 could operate safely over people, roads or structures. It didn't stop Amazon from moving forward anyway.
Gradually, in Lockeford and College Station. Amazon told CNBC the two markets were chosen because of their demographics and topography. The FAA cares about two things. They care about you colliding with another aircraft and they care about you hurting someone on the ground. So if you were in a less populated area
means there's less people on the ground, less chance for injury, and there's also probably just less air traffic. Cost effectiveness is another factor for choosing rural over urban markets for early deployment. In those urban environments, it's really tough to beat the efficiency that they already have with the, with the driver who has, who has a van full of stuff that is dropping stuff off in a five-block radius or whatever it is. Where it changes though is in rural environments. And that if you're, if that driver is taking something out to just that one person that's ten miles out, like it can be much cheaper for a drone to do that.
That's why for now, very little drone delivery happens in major cities. Yet some big players have succeeded in getting broad certifications with fewer limitations than Amazon. In 2019, Wing and the United Parcel Service, UPS, became the first two to get Part 135 certification. By 2022, UPS announced it had made more than 10,000 deliveries with Matternet's M2 drone. In September, Matternet became the first to receive the FAA's type certification, authorizing it to transport cargo and make deliveries over people. In contrast, Amazon and others must pursue individual exemptions for things like delivering over people and active roadways.
Meanwhile, Wing says it's completed 330,000 deliveries, thousands of which are in the U.S., in Virginia and Texas, but far more in Australia, where Woodworth says the regulatory framework is more solidified. Wing delivers orders from DoorDash and Coles grocery to homes in more than 50 suburbs in Australia.
The service area that we cover there is between 70 and 100,000 people and it's a relatively sort of geographically constrained location. So if you look at metrics from last year, we were seeing on the order of about 1,000-plus deliveries a day to that one snapshot of the planet. Wing is also doing U.S. deliveries of Walgreens orders, hot meals and ice cream from restaurant partners and some consignment type goods from Wing's first-party marketplace. DoorDash and Walgreens put their own
branding on the lightweight cardboard cartons that get lowered to the ground. It delivers from about 21 feet up. And there's another 10 feet or so of rope on there.
So if if this does happen to get stuck or if somebody grabs it and is trying to mess with the airplane, the it'll just go to, it'll release the torque on this and it'll just unspool and it's like a bobbin where it's not tied to anything. Last year, Zipline became the fourth company to get Part 135 certification, and it's FAA-certified detect and avoid system means it can fly beyond visual line of sight and over people. Although it won't break out deliveries by region, Rinaudo Cliffton says it's made more than 600,000 commercial deliveries with its fixed-wing aircraft. It has Styrofoam. I mean, it looks so unfancy. It's like, yeah, it's unfancy because it's inexpensive. And our customers like the fact that it's inexpensive. It's like, well, it's a fixed
wing. The way you deliver isn't very fancy. You know, this aircraft delivers using this paper parachute. It's like, yes, our customers like that because the vehicle doesn't come anywhere close to humans. Zipline, it's more efficient.
I don't have to worry about dealing with people. It's secure in our backyard. So if we're not here and we get a delivery, nobody has access to our backyard. So it really helps. And emissions. And global warming has me worried, so I like it that no delivery cars are used. In March, Zipline unveiled a far different model which lowers a droid to the ground by a tether.
A growing list of companies are signing up to deliver using the new drone: salad shop Sweetgreen, a Seattle pizza chain, a health care company in New York and GNC. The thing that's really been very helpful in our case is that Zipline achieved 40 million commercial autonomous miles with zero human safety incidents before we sought certification in the U.S. DroneUp is another deliverer, also partnered with Walmart. CEO Tom Walker says its drones have done more than 110,000 deliveries in the U.S. We have 34 locations operating in six states today and we're delivering in less than 30 minutes.
The routes are designed to minimize the flight over people, minimize flight over moving vehicles, and it chooses the optimum route both from a safety standpoint but from an efficiency standpoint. Overall, Walmart says it's made more than 6,000 drone deliveries across seven states in 2022, with Zipline, DroneUp and a third partner, Flytrex, which in January became the fifth company to get Part 135 approval, through its partner Causey Aviation Unmanned. But in addition to regulatory hurdles, drone companies are struggling to find suppliers for certain parts. One of our biggest challenges is batteries right now. There's not manufacturers of these batteries at scales that can keep up with our orders.
We're having to move around and order from four, five, six different vendors. Swoop Aero is another player, focused primarily in Australia, with plans to deliver in the U.S. by the end of next year. CEO Eric Peck says its drones have delivered more than 1.4 million items across 14 countries, although most of those are medical instead of commercial.
We won the world's first competitive contract for medical drone delivery released by UNICEF and the government of Vanuatu in 2018. And if I fast forward to now, we've got six networks operating across three continents, and every day there are 4.5 million people that rely on our service for delivery of healthcare. Wing, Zipline and others may have beat Amazon to commercial delivery and clearing some FAA hurdles.
But the issue of public acceptance remains a significant obstacle facing the whole industry. I did think some people might try to shoot it down. First of all, there's concerns about privacy. The biggest public pushback is what is that drone doing? It's probably spying on me. All the drone companies told us their cameras don't record or the video isn't made available to operators. So the cameras on our aircraft are just for navigation and they just look straight down.
So they can't move around and there's no feedback to the operators. So they're just used to help the plane figure out where it is. And then there's the noise. Some residents worry drones will change the quiet, rural feel of Lockeford. There's a field with cows in it you know, and that's just down the street from the Amazon warehouse. You know, I don't know if the cows will be bothered by the drones or not.
Horses might be, though. You know, horses are skittish. We're constantly working to improve the noise signature of the drone. And the three-blade propeller is an improvement in that category. Prime Air drones are not expected to exceed 58 decibels, according to an FAA assessment. That's about the noise level of an outdoor air conditioning unit. Wing says its drones stay under
55 decibels at cruising altitude. Zipline says it's coming P2 model is even quieter. People completely hate the way that quadcopters and octocopters sound.
It is super annoying. It sounds like an angry swarm of bees and there is zero chance that communities are going to accept that kind of an experience like scaling up and becoming something that you have to listen to multiple times a day. Weather remains another hindrance to consistent, reliable delivery, more so for some drone companies than others. Zipline has a proven track record overseas. We fly in really crazy rain storms, lightning storms, dust storms. We fly in wind that is so strong that
sometimes the aircraft is actually moving backwards relative to the ground. That is a gigantic engineering challenge. It's taken us seven years of hardening every part of the system. DroneUp had to cancel flights on the day we went to see its drones in action due to high winds. Wing says its drones can operate in sustained winds above 20 knots and moderate rain. Amazon says the MK27-2 operates in clear, dry weather and it can handle sustained winds up to 14 knots. So now Amazon is working on its next model,
the MK30, meant to better handle high temperatures and rain, fly further and be lighter, smaller and half as loud. This is our Mark 30, due to enter an expanded service in 2024. The question remains, however, whether all this will matter if user demand is weak. It doesn't sound particularly useful. I mean, I'm still trying to figure out what exactly the, the benefit or the perk of the drone program would be.
Customers in Lockeford and College Station told CNBC that Amazon incentivizes them to order drone deliveries by offering them gift cards. Amazon says it was demand that drove the program from the start. We've heard overwhelming from customers that they're excited about this and that's what Amazon does.
We listen to our customers and then we work backwards to design the most efficient service that we can. Of course skepticism will persist as it does for all disruptive new technologies. All the drone companies told us they welcome competition in hopes it's soon the norm for online orders to be lowered from the skies.
Particularly in an environment where no one is at the finish line yet, I wish, I wish everybody else in the space the best luck because I want the space to exist. There's going to be a Boeing of drones. There's going to be an Airbus of drones. And when that happens, it's going to be positive for the industry because we're going to get high quality products at better prices.
And those unit economics starting to work makes this last-mile delivery actually profitable rather than just cost effective. I do think you're going to start to see deliveries. They're not going to be quite as immediate, I'm sure, as Amazon hoped or anybody originally thought. I think it's going to be a much more gradual process, but we will eventually get there.
2023-05-21