By Nick Carey and Nandita Bose

(Reuters) - United Parcel Service Inc's launch this week of drone test flights simulating emergency medical-supply deliveries highlights a race for data to prove such deliveries can be performed safely.

UPS's medical emergency at the Children's Island summer camp off the Massachusetts coast was fictional. But gathering data about the drone's flight and others like it is a vital part of a new effort to convince U.S. regulators to loosen the reins on using robotic aircraft for deliveries.

UPS's test flight was handled by drone maker CyPhy Works, in which it owns a stake.

"The technology for drones is there and it's moving extremely fast," said CyPhy founder Helen Greiner. "But it's also true that we need to prove we can operate them safely and reliably."

The UPS-CyPhy test comes amid a burst of U.S. drone activity, including companies focusing on package delivery. Amazon.com Inc is focusing on tests abroad, but UPS and others want to win over the U.S. Federal Aviation Administration, whose primary concern is safety.

The Obama administration estimates the commercial drone industry could generate more than $82 billion for the U.S. economy and support up to 100,000 new jobs by 2025.

The FAA's rules published on Aug. 29 dictate conditions for commercial drones. The aircraft must weigh under 55 pounds (25 kg), may not fly over people not involved in operations and must remain within the operator's line of sight.

Drone makers, retailers and package delivery companies are now angling for waivers, largely to operate out of the line of sight, using small tests to collect data on everything from air speed to operating in bad weather and the frequency of accidents.

To obtain an FAA waiver exempting them from certain rules, companies must spell out a business case and use data to prove their drones are safe.

Some drone proponents have chafed at how slowly the FAA has moved to regulate drones, said Logan Campbell, CEO of drone consulting firm Aerotas.

"The only way things could move more quickly is if everyone were to share their data," he said. "But ... no one wants to lose their competitive edge so that's not going to happen."

An FAA spokeswoman said the agency grants waivers "if we find the proposed operation can be safely conducted using risk mitigation strategies."

Ben Marcus, CEO of drone software provider AirMap, said the "big burden is being shifted from regulators ... to actual operators and developers" to demonstrate their technology can function safely.

STEP BY STEP

The FAA's cautious approach has encouraged some companies to test package delivery drones overseas. Amazon is testing deliveries in the United Kingdom, where it can fly drones out of the line of sight.

Since the FAA's most recent guidance, more is happening in the U.S. market.

PrecisionHawk is developing a system enabling drones to detect objects in the air and on the ground to avoid collisions - technology that could help deliver packages.

Vice President Tyler Collins said PrecisionHawk received an FAA waiver last month to operate out of the line of sight, based on years of data from crop inspections, as doing so would save farmers time and money.

Package delivery vehicles maker Workhorse Group has developed the HorseFly drone which launches from a vehicle's roof.

In current testing, the driver must stand and watch the drone. CEO Steve Burns said Workhorse has applied for an FAA waiver in a few rural ZIP codes to allow the driver to continue his route while the drone is in the air. Once Workhorse proves its case, it will seek a waiver for more ZIP codes.

Burns said the HorseFly costs only 2 cents per mile to operate versus package delivery vehicles, some of which get 5 miles to the gallon - making traditional vehicles far more expensive to run.

"What we're doing is of interest to people who deliver things - we have their attention," Burns said.

UPS is using drones to manage inventory in warehouses, as is Walmart Mart Stores Inc, which can also gather data.

Adam Shaw, CEO of drone seller Maverick Drone Systems, has seen an uptick in company requests for drones to scan barcodes in warehouses.

Fred Smith, CEO of FedEx Corp, UPS's main rival, said this week FedEx has robotics programs under way including drones, but declined to provide details.

(Reporting by Nick Carey and Nandita Bose in Chicago; Editing by Leslie Adler and Matthew Lewis)