The High-flying Early Bird of Kerala IT

Thiruvananthapuram: At the age of 40, in 1997, he was heading the IT division of Emirates Airlines, an enviable position which no Asian had occupied till then. With his spouse and two children, the passionate aviation professional was staying in one of the finest villas in Dubai. All his expenses were taken care of by the company, including children’s education. He had the luxury of choosing a Mercedes Benz, a Land Cruiser or a Lincoln Town Car to drive around. The family could not have asked for more.

But, to everyone’s surprise, he decided to quit the job and start his own company back home. From the cosy comforts and security of a high profile overseas employment, he jumped suddenly into the risky domain of an entrepreneur. What was going on? Everyone, including his kids were surprised. But, he was determined. Fast forward to 2016; that man has become the brand ambassador of Kerala IT, steering the multinational corporation, IBS Software Services at Technopark.

In an exclusive interview with Destination Kerala at his residence at Jawahar Nagar in Thiruvananthapuram, Valayil Korath Mathews, the Founder and Executive Chairman of IBS, narrates his transition from a salaried professional to an entrepreneur. The 60-year-old is determination personified. Commencing operations with 55 relatively inexperienced engineers, Mathews has transformed IBS into one of the top providers of new generation IT solutions to the global Travel, Transportation and Logistics (TTL) industry.

IBS today offers 17 software products – iFly, iFlight, iCargo, iTravel and iLogistics – across seven business domains namely, Airline Passenger Services, Airline Operations, Airport Operations, Airline Cargo Management, Oil and Gas Logistics, Travel and Cruise Management and Hospitality Distribution. These customised solutions today manage the mission-critical operations of major airlines, airports, oil and gas companies, seaports, cruise lines and tour operators world-wide.

It currently employs over 3000 professionals of 20 different nationalities and does business from 10 offices in the Americas, Europe, Asia-Pacific, the Middle East and Africa. And the high profile list of 200-plus clientele includes leading names like All Nippon Airways, Austrian Airlines, Heathrow and Gatwick Airports, BP, British Airways, Cathay Pacific, Chevron, China Southern, China Eastern, Emirates, Etihad, Fairmont Hotels and Resorts, Hyatt, Iberia, Lufthansa, Qantas, Qatar Airways, KLM, Malaysia Airlines, Marriot, Nippon Cargo Airlines, Oman Airways, Seabourn Cruise Line, Shell, South African Airways, Star Cruises, Star Wood and Virgin Atlantic, among others.

What was your inspiration to become an entrepreneur quitting an enviable overseas job?

Frankly speaking, I had never thought of setting up a company when I started my career. After completing graduation in Mechanical Engineering, I chose Aeronautical Engineering for my MTech from IIT Kanpur because of my sheer fascination for flying. I was among the 50 engineers who had been selected for computerising Air India’s global reservation system. After three years, I joined Dubai National Air Travel Agency (DNATA) in 1983. When they started Emirates Airlines in 1985, I was asked to join the team considering my experience in the aviation industry. Thus, I was able to associate with Emirates right from the drawing board stage. Eventually, I became the head of its IT division. During that stint, I was also the chairperson of a user group comprising airlines using IBM computer systems, for six years. In the process, I got a very good understanding of what the aviation industry needed and what was truly available in the market, and of course, what was the gap.

In the meantime, I was given the responsibility of setting up Mercator, currently the IT Company of Emirates. It was established as a joint venture (JV) between Swiss Air and Emirates. I was the founder-director of that company. Thus, I also gained the experience of leading a company.

At Emirates, our management grading was from M1 to M6, and I was already M5. Considering all these, I somehow felt that it was time to call it quits. It was fraught with risk but still I went ahead and put in my papers, and came back to Kerala in1997.

Nothing is easy in an entrepreneurial journey. Anything can give you trouble. But I made sure that my family had a comfortable stay. If they start feeling like going back, I would not be able to focus on my work. I took a reasonably good house that I could afford and ensured that all the rooms were air-conditioned. But unfortunately, on the first day itself, the main power cable caught fire causing power outage. It was July 4, 1997, a Friday, and there was no power on Saturday and Sunday. It affected the water supply also. Everyone was wondering why were we here. But, I was determined to stay put.

Why did you choose Kerala, ‘the industry-hostile region’, over Bengaluru then?

Naturally, for a person coming from another country, Bengaluru was the first choice then for starting an IT company. Pune and Chennai were the other options. In fact, I had booked 4000-sq.ft. space for setting up IBS office in Bengaluru. It was then that I happened to hear about Technopark and decided to visit the campus. Technopark’s Founder CEO G Vijayaraghavan was the reason behind it. Having toured the place, I found the infrastructure and the setting very impressive and I decided to start the venture here though I had to forfeit the advance amount given in Bengaluru. In hindsight, I can certainly say that the decision to set up the company in Thiruvananthapuram, unlike what many people would think, has been one of the best business decisions that I have taken.

Of course, availability of talent was a challenge. Non-Keralites were finding it difficult due to the lack of adequate social infrastructure facilities. We did not have even a proper hotel near Technopark. Since it was not a half-hearted attempt, I never thought of shifting to Chennai or Dubai citing those reasons. To be honest, IBS did not face those issues that many others consider as ‘problems.’ For example, labour militancy or political intervention. In fact, it was the other way round. We have received total support from both the Left and Right Governments. IBS was launched when E K Nayanar was the Chief Minister and he was very supportive.

Kindly share the growth story

As I have already mentioned, it was a risky journey. When you start a new company, you are a nobody. However, considering my track record in the industry, Emirates and Swiss Air became our first clients. We were not even sure whether it was going to be a product company or not. Nonetheless, I was absolutely determined about two things – sticking to the domain and working on next generation technology. The technology used in the aviation industry at that time was developed about half a century ago. But we had resolved to work only on modern technology and develop transformational solutions. The success of IBS was the result of our ability to stay on course and remain ahead of the pack in many ways.

Joint Venture with Swiss Air

It was the turning point for IBS. On December 31, 1999 Swiss Air became the joint venture partner of IBS. The objective was to go for product development. They were also our largest customer. However, by October 2001, our JV partner went bankrupt. It was a body blow to us. I did not see it coming. Closing down the company was the safest option before me. But with the kind of capability we had, I realised that dismantling it would be a blunder. Besides over 300 employees would lose their jobs. I opted to utilise their expertise in the aviation sector and stick it out.

Using internal accruals and loans, we began developing products in early 2002. In 2003, we were able to sign a JV agreement with New York-based Cendant Corporation for developing a passenger service product. That association continued till 2008 and it offered significant opportunity for both of us in the market and we were able to sign a number of deals. The growth of Emirates Airlines also helped us at that time. In 2001, we took a small step into the oil and gas logistics sector. We were able to get Shell, the multinational Oil and Gas Company, to sign up for an aircraft scheduling system. It gradually moved up. In 2003, we started our cargo product development and the solution we developed, iCargo, went on to dominate the sector in the ensuing years.

In the meantime, we took over companies to acquire capabilities in the domain and increase our clientele. The first one was in 2002. We acquired TopAir, a versatile and fully integrated flight management solution, developed by Aero Computers. Later, in 2003, we acquired Avient Solutions from Honeywell, based in UK. It was for flight and airport operations.

Lot of thinking happens before every acquisition. One criterion is that the company should be strategically aligned with the Travel Transportation and Logistics vertical. The association should help us plug a gap that exists or it should substantially increase our customer base. Till date, we have made six acquisitions. With each acquisition came new clients – Royal Caribbean, Cathay, Air Canada, Starwood, Marriot, Rolls-Royce etc. – as well as new offices across the globe. The JV with Swiss Air resulted in the setting up of our first overseas office in Zurich while the tie-up with Emirates saw the opening of our second office in Dubai. With the acquisition of Avient from Honeywell, we opened office in the UK, our third overseas office. By acquiring Discovery Travel Systems, we commenced our operations in Washington DC. Today, we have four data centres – one each in Japan, Australia, US and Frankfurt. All of our global data centre operations are managed from our office at Technopark.

Currently, the aviation business share of IBS is about 60 per cent; 20 per cent is travel and hospitality and another 20 per cent is oil and gas. The two most difficult markets for our kind of products are India and China as these markets are not mature. There are two problems with the Indian market. For one, IT system is considered as an expense and not as an investment. Our solutions are value-based. Secondly, there is a lack of financial discipline.

What about global private equity fund Blackstone’s minority stake in the company?

Blackstone came on board in 2015 with an investment of $170 million. The initial PE investor General Atlantic, which had invested $60 million in 2007, exited as a result of this transaction. Altogether, Blackstone has less than 30 per cent stake in IBS. We zeroed in on Blackstone after a scrutiny which ran for about a year and a half. From an initial list of 80 firms, we identified 30 and finally narrowed it down to six companies, including Blackstone, Bain Capital, Carlyl and Advent. Morgan Stanley and JP Morgan were the lead investment bankers. KPMG is our auditor, E&Y deals with restructuring, Deloitte does internal audit and PwC looks after our global tax requirements. Latham & Watkins and Cyril Amarchand Mangaldas (CAM) acted as legal counsels for the deal.

The paid up capital of IBS, when the company was set up in 1997 was Rs. 1.76 crore, which was very high for any company at that point of time. On top of that, we had a Foreign Currency Term Loan of $1.1 million given by Canara Bank.

Going forward, what is your mission?

The true strengths of IBS are its deep domain expertise, capital efficient R&D, the breadth and depth of product portfolio, marquee customer base, global presence and a multi-cultural workforce. If you take the top 20 airlines, 10 are our clients. Four out of the top five oil companies are our customers. Among the top 20 players in the hospitality industry, 16 seek our services. We have invested 7500 man years to create next generation Intellectual Property. If someone has to do it now, it will cost close to a billion dollars.

Our growth strategy is to make sure that we complete all our research and development work, drive SaaS adoption so that the revenue is annuity-based and predictable and also participate in the embedded growth. We focus on enhancing our sales and marketing capabilities significantly and going for selective acquisitions. We believe that we are at an inflection point because our platforms are more mature now. For instance, we were able to streamline cargo services of Virgin Australia in four weeks compared to three years taken for Lufthansa. We want to become the strategic IT supplier to the TTL industry worldwide.

Please explain the expansion and diversification plans of the company? 

We are planning to go for an IPO in 2019. We have been doing the financial management and governance preparation for quite some time now. We will use the fund for inorganic growth – acquisition and industry consolidation – and developing new products and platforms. Diversification is not on the agenda now. Travel and tour is one of the largest business segments in the world with GDP contribution of around $7.5 trillion; around 10 per cent of global GDP. I think it is more important for us to go deeper and wider instead of getting into other sectors.

How do you view succession planning?

From an owner-driven business, IBS has now moved to a highly corporate governed company. We are truly run by the Board and have a professional CEO since last five years. Succession planning for us is about who will be the next CEO. Now, my role is to make sure that the company stays committed to its vision and make sure that the strategy is not diluted. I provide Board-level support and stand as an ambassador for the company’s cause globally. We are a highly delegated organisation and I have only the CEO reporting to me.

What is your advice to aspiring entrepreneurs?

The key word that lives in our story is ‘Focus’. Domain Focus – we remain focused on TTL domain; Technology Focus – we have decided to adopt only modern technology. This is my recommendation. You have to stay focused on your core competence.

What changes would you like to see in Kerala’s IT sector?

IT industry is best suited for Kerala, no doubt. Not much power or land is required and it is a green and clean industry. Still, our share is just over one per cent of the country’s IT output. Compared to Karnataka, TN or AP, we are nothing. For this to change, both the government and private sector should make a combined attempt to promote IT industry.

What is your advice to investors considering Kerala?

If you really want to be an entrepreneur in Kerala, you can only do it for the right reasons. Nobody can come to Kerala and think that they can set up a company and exploit. People here are conscious of their rights. I do not believe that people are not supportive generally. Our State is the least corrupt place. While setting up IBS, we have taken an absolute position that we are not going to bribe any one under any circumstances. You cannot actually operate a company unless you have a fair system of governance. When you compare all those things, I can tell you that Kerala is one step ahead of all other states.

What do you think will be the fallout of Brexit and US Presidential election?

I do not believe that Brexit will have any impact whatsoever on Indian IT sector for various reasons. If at all something happens – may be slight devaluation of Pound or depreciation of Euro – most of our companies have their own hedge policies to manage that risk caused by such currency fluctuations. To answer your question on a wider perspective, Brexit, however, is going to be detrimental to the interests of Britain in the future as they will lose the 500-million people common market. It definitely will shrink UK’s economy. While being a part of EU, Britain had the ‘best of both the worlds’ advantage. They never had the burden of common currency, Euro, as Britain negotiated and stayed away from it. After the Second World War, the US has been nurturing relationship with the UK to have influence over greater Europe. UK has been the largest FDI country in the world. With Brexit, UK is going to lose all of these advantages. In my view, not only UK, none of these countries have fully mastered the art of operating in a liberalised, globalised and privatised economy.

As far as US presidential election is concerned, I think a Republican president is ideal as they generally believe that you need to create wealth first to distribute it. Democrats believe that distribution is more important because human happiness is dependent more on equitable wealth rather than more wealth. Hence, whenever a Republican President is in office, you will have policies which are good for the business. If you are trying to create barriers, it is not good for business. Why does an American company want to outsource the business? Not because they love India or they love Indians or just because they think that only Indians can do this. It is only because it is good for their company. In that process, it is also good for India. If somebody says no to that, you are choking your own business. No President, nobody in a democratic country can ever do that. Economically, if outsourcing is the right thing to do, I am quite sure it will happen.