3 Takeaways from Amazon’s Bid to Begin U.S. Drone Tests

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Everyone who thought Amazon’s (AMZN) idea to use unmanned aerial vehicles to deliver packages in 30 minutes or less was a publicity stunt, it’s time to eat crow. AMZN filed a petition with the Federal Aviation Administration (FAA) this week, asking for an exemption to test drones at its R&D lab in Seattle and at FAA’s drone test sites with an eye toward taking its Prime Air service live in just four or five years.

In a letter to FAA Administrator Michael Huerta dated Wednesday, Amazon asked the agency to grant its first “expedited operational authorization” to Amazon to conduct research and development for Prime Air drones. “We are rapidly experimenting and iterating on Prime Air inside our next-generation research and development lab in Seattle. In the past five months, we have made advancements toward the development of highly automated aerial vehicles for Prime Air,” AMZN said in its petition.

Those advancements include testing capabilities for new eighth- and ninth-generation UAVs, deploying drones that can fly 50 miles per hour and carry a five-pound payload — AMZN says 86% of its products weigh less than five pounds. In recent months, AMZN has assembled a team of “world-renowned roboticists, scientists, aeronautical engineers, remote sensing experts and a former NASA astronaut.”

While AMZN’s petition has seriously upped the ante in the coming drone wars, will that be enough to force the FAA to clear its UAV plans for takeoff? Here are three takeaways from Amazon’s bid to begin drone tests:

BP Clearance, FAA Rules Offer Mixed Messages

Amazon’s petition comes on the heels of two watershed events in drone regulation. Last month, the FAA approved the first commercial drone over U.S. land — BP’s (BP) Puma drone, manufactured by AeroVironment (AVAV), will be used to monitor oil fields in Alaska.

While it seemed likely that BP’s win would clear more commercial drones for takeoff, FAA slammed that door shut less than a week later, clarifying that existing model aircraft rules do not apply to UAVs used for a commercial purpose.

In what appeared to be a direct warning to Amazon, the FAA said using a model aircraft to move a box from point to point without any kind of compensation would be allowed by current rules, while “delivering packages to people for a fee” would be illegal without a specific FAA exemption.

AMZN Isn’t Just Buying Drones, It’s Building Them

Amazon’s petition asks the FAA to treat its drones the same as it would UAVs operated by hobbyists — as a commercial enterprise, AMZN is barred from flying its drones over the U.S. The drones would meet current requirements including a weight of less than 55 pounds, operation at or below 400 feet, and be a battery-powered rotorcraft. Tests would be conducted over Amazon’s private property in Seattle; it also may conduct tests at any of the FAA’s six designated test sites.

Here’s the problem: AMZN’s petition seeks permission not only to use existing UAVs to deliver packages, it plans to design, build and test new drones. Under FAA rules, AMZN will need to get special airworthiness certificates for each new drone model — potentially delaying the takeoff of Prime Air. A key factor in BP’s approval to fly UAVs over Alaska was the fact that the AVAV drone had already been approved for military operations, the FAA basically viewed that prior use as a type certificate.

Safety, Privacy Issues Loom Large

While Congress set a deadline of late 2015 for the FAA to start licensing commercial drones, the agency is under the gun to comply. The FAA will miss that deadline because its first duty is to ensure the safety of the National Air Space. There are myriad issues that must be worked out for any new drones to legally fly over the U.S.

Drones — which are powered by highly flammable lithium-ion batteries — pose unique risks to aircraft in the case of a collision. Bird strikes are an all-too-common threat for aircraft — and metal drones with hot batteries can do a lot more damage if they are sucked into an engine. Homeland security issues are obvious, as are privacy concerns.

Bottom Line

Amazon’s petition to the FAA is another bold stroke by innovation czar Jeff Bezos to reinvent how products are delivered to customers. The filing also shows AMZN has been working seriously on its UAV initiative for quite a while — and that’s a game changer for the future of e-commerce. It also sends a shot across the bows of FedEx (FDX) and UPS (UPS), who have changed shipping rates to the size of a package rather than the weight.

But even with a Congressional mandate to get drones flying, the FAA will not quickly clear AMZN’s drones for takeoff. I think the FAA will grant some of AMZN’s petition by ordering limited tests and certifying the airworthiness of a particular drone type — and that potentially could raise the ire of existing drone manufacturers like AVAV.

While Amazon’s drone bid is an exciting development, the FAA is likely to rule that Prime Air is not quite ready for prime time.

As of this writing, Susan J. Aluise did not have a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/07/amazon-drones-amzn/.

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