Amazon (AMZN, Financial), the biggest Internet retail online store in the United States, has spread its "talons" even further to begin tests on their drones service. The Federal Aviation Administration (FAA) had expressed resignation at this venture initially forcing Amazon to test and develop its drones outside the U.S. in Cambridge, U.K. The project that was launched in October 2013 has, however, finally received a go-ahead from the FAA albeit with very limited permissions. According to the Experimental Airworthiness Certificate issued by the FAA, the drones shall fly under 400 feet and only during the hours of daylight. Amazon will need to provide the FAA data logs of its flights and their respective operators on a monthly basis. The drone needs to be kept in sight at all times. The operators need specific and relevant certification like pilot certification as well as medical authorization.
Drones and ecommerce
Seattle-based electronic commerce giant Amazon’s decision to launch its own delivery service through drones under the Amazon Prime Air wing may very much be a competitive move keeping up with another Internet retail biggie from China, Alibaba (BABA, Financial), which has begun testing drones for delivering tea. Through the drone service Amazon aims at instant delivery to consumers, within 30 minutes or less. Prime Air centers are currently being developed in countries like the United Kingdom and Israel, apart from the United States. Once such a service starts, which seems to be likely soon, it will be a major boost for the retailer. It will be one step ahead of its competitors, like Zulily Inc (ZU, Financial) which is also trying to improve delivery time, and investors are surely keen to see this happen.
Stock price surge following the FAA Green Signal
As a result of the FAA’s permission to Amazon to allow its drone tests, the share prices of the company have recorded growth of almost 5% in mid-day trading itself. Its stock rose from $15.59 to $343.51. However, certain investors are of the opinion that the share prices following the FAA announcement may not impact Amazon’s share prices positively as they believe that shares of Amazon are overvalued. The stock has seen a dip of approximately 18% since the year’s beginning.
What are drones?
Drones are aircrafts that are often called Unmanned Aerial Vehicles (UAVs) and are controlled from the ground by operators or "pilots." Most of the time the drones are pre-programmed for specific missions and are controlled autonomously. Drones have mainly been used so far for surveillance and reconnaissance by the governments, government controlled investigative agencies and their armed forces for missile attacks and bombing activity. Drones are used regularly for espionage because of their ability to maintain invisibility owing to their small size.
Recently, drones have begun to be used for commercial purposes because of their ability to stay in flight longer than normal pilot manned aircrafts. They are no threat to any flight crew because they are control remotely. The Federal Aviation Administration has given a go-ahead for the commercial use of drones that include the realms of film making (for aerial shots), aerial photography, agricultural inspection and several other fields like consumer goods delivery for which Amazon’s recent initiative is a prime example. The innovation of drone technology is therefore, opening up new vistas in today’s global markets.
Bottom line
It still seems like it will be awhile before Amazon can actually begin its delivery service to people’s doorsteps as the FAA has only allowed for test launches. According to Paul Misener, the vice president for Amazon’s global public policy, the restrictions imposed by the FAA are getting in the way of the company’s research and development, proper experimentation and operation of their drones tests. Looks like Amazon might have to look at the European airspace to begin commercial operations before the United States due to less restrictive regulations by the European counterpart of FAA, the European Aviation Safety Agency (EASA).
