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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Amazon’s Craziest New Business Plan

Amazon has always been an original. Ever since the company was founded it has done things its own way. For instance, that trend showed up last year when Amazon announced a very odd addition that will feature prominently in its new headquarters building. Amazon’s latest plan though is far more forward looking and perhaps even crazy.

The company was recently awarded a patent by the U.S. Patent Office for a giant flying warehouse that will act as a launch site for deliveries of products via drones. The flying warehouse is described by Amazon as an “airborne fulfillment center” (AFC) which could be an airship or blimp like the recent product announcement by Lockheed Martin. The airship would be stocked with products that were then transported by drones to customers.

Amazon has been interested in drones for a while, but it has always been unclear how the company would be able to use them for deliveries economically. The AFC helps to address that issue. The airship floats at 45,000 feet and when a customer places an order, a drone flies down to deliver it. Amazon says that the system requires limited energy usage because the drones are floating down to the customer, though it remains unclear how they get back up to the AFC again without using substantial power.

Related: OPEC’s Spare Capacity Will Calm Oil Markets In 2017

As Amazon describes it "When the UAV departs the AFC, it may descend from the high altitude of the AFC using little or no power other than to guide the UAV towards its delivery destination and/or to stabilize the UAV as it descends".

(Click to enlarge)

Amazon envisions a variety of possible uses for the AFC including sporting events like a football game where customers may want the item. The AFC could also be used during the game as a giant billboard – though not if it is flying at 45,000 feet.

Amazon foresees the AFC remaining aloft for long periods and being refueled via a secondary shuttle craft. Given the complexity and size of the aircraft involved, Amazon would certainly need regulatory clearance with the FAA. Amazon does not have much experience with that thus far, though the firm is getting more involved in the aerospace sector.

Amazon recently began a major subcontractor relationship with an under-the-radar air freight service which could prove to be a big opportunity for stockholders in that firm in the long run.

Related: Are Proven Oil Reserves Just A Political Tool?

Amazon’s plans for how to use drones are clearly still up in the air though. Last July the firm was awarded a patent for drone docking stations to be placed on the top of tall buildings and structures.

Drones certainly have the potential to change the landscape of the economy in many sectors. Conventional uses for drones so far have included applications in energy and real estate including aerial photography of pipeline assets for instance. Amazon’s AFC may or may not be realistic in retail, but it could provide a foundation for concepts in energy where multiple drones are used to carry out tasks like inspection and testing of assets before returning to a centralized departure point.

It is impossible to say what the future holds, and it is certainly good that Amazon is looking forward and being imaginative. However, compared to the AFC, past ideas that many have questioned such as Elon Musk’s Hyperloop look much more realistic and feasible.

By Michael McDonald of Oilprice.com

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