Jeff Bezos Is Smiling: Regulators Approve "Limited Drone Deliveries"

Amazon couldn't be happier.

Roughly four years ago, CEO Jeff Bezos surprised investors during a December, 2013 appearance on CBS' "60 Minutes" when he revealed that Amazon was testing delivery via "octocopter" drones, but that the program wouldn't be ready for another "four or five years."

Unfortunately, US regulators had other ideas: Initially, the Federal Aviation Administration stubbornly blocked Amazon from testing its drone technology in the US - forcing it to shift its research to the UK, where it quickly developed. Bezos responded by threatening to move even more of Amazon's research to the United Kingdom.

Back in December 2016, the company revealed that it had successfully completed its first commercial drone delivery (in England, of course). During the intervening years, incremental updates about the program's progress were released in drips and drabs.

Now, after a nearly half-decade wait, the FAA is reportedly preparing to approve "limited package deliveries" using drones during the coming months, according to the Wall Street Journal. Ten pilot programs have reportedly been given permission to begin commercial package deliveries, WSJ said. Furthermore, Amazon is pushing the agency to allow detailed designs on a drone (presumably to paint them with the Amazon logo) and other operating rules.

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While the 10 participants weren't named, some "proponents of drone delivery" told WSJ they expect to be ready to operate by the summer, according to FAA official Jay Merkle. And the Amazon executive in charge of the company's "Amazon Air" program told WSJ that the company could be ready to begin drone deliveries in certain test markets early next year.

Amazon officials declined to provide details. But Gur Kimchi, vice president of the company’s package-delivery organization called Prime Air, was hopeful that necessary approvals would be secured by 2019. Responding to questions on the sidelines of the conference about probable locations and timelines to initiate delivery flights, he repeatedly said "ask me next year."

Earl Lawrence, who runs the FAA’s drone-integration office, had a similar upbeat message. Airborne deliveries may be “a lot closer than many of the skeptics think,” he told last week’s gathering. Some experimental efforts already are under way and “they’re getting ready for full-blown operations,” he said in an interview. “We’re processing their applications,” and “I would like to move as quickly as I can.”

Today's report provides some important context for an exclusive published by WSJ over the weekend saying a consortium involving Amazon, GE, Boeing and Alphabet's Google wanted to create a privately funded and operated air-traffic control network that would be separate from  federal controls. 

WSJ said the testing was being supervised by NASA, which, at the behest of the Trump administration - which, despite Silicon Valley's aggressively public resistance to his administration's agenda, is pushing for drone delivery to become a reality, a marked departure from Obama's extremely cautious (some might say stifling) approach.

In conjunction with the National Aeronautics and Space Administration, validation tests are slated over the next three months at a handful of sites. The intent is to develop a “totally different, new way of doing things,” Parimal Kopardekar, NASA’s senior air-transport technologist who first suggested the idea of an industry-devised solution, told approximately 1,000 attendees at the conference.

The coming flights are intended to explore, among other factors, how such a network would interact, when required, with the Federal Aviation Administration’s existing ground-based radars and human controllers. Another major goal is to ensure swift and easy access to data for law-enforcement agencies looking to identify errant, suspicious or hostile drones.

When it comes to embracing drone technology, the US has lagged Australia, Singapore and the UK. Despite years of studies and advisory panels saying drone deliveries could be accomplished safely, relatively little movement has happened on the government side.

But it appears the Trump administration has made drone deliveries a priority, forcing the FAA to act.

In recent months, however, there has been a marked shift in tone from Washington. Lawmakers increasingly are prodding the FAA and urging swift action. Senior officials at the Transportation Department, which is the FAA’s parent agency, “get calls from the White House fairly regularly” demanding faster decisions, according to Derek Kan, DOT’s undersecretary for policy.

During last week’s conference, FAA officials urged startups and established industry players alike to submit a variety of proposals, repeatedly using the catchphrase “the FAA is open for business.” As long as essential safety standards are met, Mr. Lawrence and his colleagues promised to tailor exemptions and waivers to modify basic rules written decades ago when drones weren’t in the picture.

The FAA’s Mr. Merkle, who has helped implement automated traffic management changes around airports for less-ambitious drone uses, was even more blunt about the agency’s stance. In general, applicants “need to understand what you need (and) when you need it” from the FAA, he said during a conference panel. Encouraging companies to move quickly to try various operational concepts, he said “we’ll help you get there.”

Amazon has said its long-term goal is to pick up packages weighing a maximum of 5 pounds from distribution centers and deliver them to customers within a 20-mile radius. Drones would need to navigate safely over populated areas and landing in pinpoint locations - two of the most biggest impediments to widespread adoption.

But while the cooperation of the FAA is an important and crucial step in the transition to a future where fleets of drones occasionally blot out the sun, local governments are still a major impediment, as local officials worry about angering residents with the noise, privacy and security issues.

In some cases, those principles mean neighborhood controls could pre-empt federal approvals. In announcing the disagreement among participants, Brendan Schulman, co-chair of the task force and a top policy and legal official for drone maker DJI, at the time said participants were “very much looking forward to new direction from the FAA.”

Still, as WSJ explains, the US is moving inexorably toward drone delivery. And with Amazon already working to expand its grocery delivery program, as well as developing a service to compete with FedEx and UPS, Bezos is poised to become king of the sky, as well as the land.

The question for investors, or rather the Fed, is how might this impact the economy (and stocks) as drone deliveries will surely put further thousands of delivery workers out of work, pressuring wages lower, and further pushing back on the Fed's mythical goal of reaching 2% inflation.