Turning Datalex around: ‘It’s a privilege to have to clean up somebody else’s mess’

Sean Corkery, hired in 2019 to stabilise Datalex after the Irish software provider to airlines was pummelled by a profit warning and an accounting scandal, thought he had wrestled control of the cockpit early last year.

“It really only took us nine months to sort out most of the problems, and I came in in January 2020 ready to grow the business. But then, of course, Covid struck,” the technology industry veteran recalls.

Revenues would fall 38 per cent over the course of the year, to $28.1 million (€24.9 million), amid a 66 per cent slump globally in passenger numbers across airlines, which use Datalex’s software to put bums on seats.

This year hasn’t been much kinder, with the company’s sales off a further 5 per cent as of the first half, as new variants of the virus delivered pockets of turbulence, Omicron being the latest.

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“I think the airline industry initially looked at Covid as a 9/11-type event, in that after three months things would have bounced back,” says Corkery.

“What’s similar to 9/11 is that every time the Covid situation has eased, there has been a ramp up in travel. Demand is there. That’s been proven. But what’s different is that I think the pandemic has fundamentally changed behaviour in terms of how far ahead we plan travel.”

Airlines that will survive and thrive in future are those that will be able to tweak their offering and push promotions in real time.

A refocused Datalex should come into its own, according to Corkery, as digital sales lead a recovery in bookings, carriers seek to promote pricing offers at scale, and – most importantly – they cut back on building expensive, bespoke IT systems to use software companies’ products.

It's a pitch that helped Datalex raise €25 million in a share sale in June to repay expensive rescue loans from its main shareholder, businessman Dermot Desmond, and provide enough enough working capital for the time being.

“In some ways, if Covid hadn’t happened, we’d be remembered as the company that had this crash in 2019 and these guys came in and kept it going,” says Corkery. “But we’re now back up there as one of the guys [in the industry] that is coming out very strongly out of Covid. We’re kind of almost seen as a start-up.”

Lufthansa conflict

Corkery (63) is grabbing the opportunity in what he sees as his "last gig" with both hands, after a career that started off in Apple and included stints in Denis O'Brien's Esat Telecom; Dell; and O'Brien's Actavo.

Datalex saw its shares tumble 59 per cent on January 15th, 2019, when it issued a profit warning and revealed that it had uncovered accounting irregularities.

The company said at the time it was unable to recover all the set-up costs for its biggest-ever project, an overhaul of Lufthansa’s digital commerce offering, which had gone way over budget and missed key deadlines.

Worse still, the group had incorrectly booked revenue in the first half of 2018 relating to the project, following argy-bargy with the German airline over what percentage of the work had been completed as the scope of the entire project got out of hand. Both sides remain locked in a multimillion-euro battle, in cases of lawsuit and countersuit in Frankfurt.

Corkery was appointed deputy chairman in April 2019, and filled in the spot of chief executive on an acting basis just three weeks later when Datalex's long-standing chief executive Aidan Brogan quit.

He became interim chairman in June as incumbent Paschal Taggart retired, before being appointed permanent chief executive that November. David Hargaden, head of IT cloud managed services company Unity Technology Solutions and a seasoned boardroom operator, came in at that stage as chairman.

Taggart, who had already signalled plans to retire before the accounting scandal, made the initial approach to Corkery. The Cork man also met Desmond, Datalex's largest shareholder, who was propping up the group at that stage with emergency funding, before taking on the initial role.

Did he ever regret taking on the job? “I’m at this stage in my career where I want to fix things that are broken. It’s a bit of a privilege to have to clean up somebody else’s mess – because you get to re-create it into a way you think it should be. It’s much harder to clean up your own mess,” he says.

“I was excited that I could come in as an agent of change. I always say to people, ‘A great job is something that is broken enough that you can put your footprint on it, but not so broken that it’s a set-up. It definitely wasn’t the latter.”

Accounting and internal control issues aside – which Datalex tasked Niall O’Sullivan, the turnaround chief financial officer it hired during the crisis, to sort out – Corkery saw a more fundamental problem with Datalex. It had gone down the labour-intensive and low-return road of writing customised software for airlines.

The Lufthansa Group contract – including the German flag carrier's stable of carriers, from Swiss International Airlines to Brussels Airlines – was the biggest example. "Ultimately, the product got changed at every airline within the group and, so, it became something ginormous and got out of control on both sides," he says.

The essential problem was that there was no “leverage in that model”, he says. In other words, the product ends up being so tailored for one airline, that it’s difficult to use it for other customers. “It was obvious for me that we needed to develop product and move away from mass coding,” he says.

Four products

Datalex, under Corkery, has become a so-called software-as-a-service company centred around four key products: Datalex Direct, for airlines taking direct bookings; Datalex NDC, which gives airlines more control over sales through online travel aggregators, such as Tripadvisor or Expedia, and corporate travel agents; a pricing system, called Datalex Dynamic, for air fares to baggage that adapts to fluctuating demand; and Datalex Merchandiser, which helps airlines flog add-ons at every opportunity to customers.

The off-the-shelf products are designed in a way that minimises the amount of configuration needed to plug them into airlines’ existing systems. By contrast, Corkery says that customisation accounted for 70 per cent of the Lufthansa job.

"That's unsustainable. It may be attractive in the short term. But there are much better-positioned companies to do that kind of business – predominantly in India, China and eastern Europe. We're not a mass coding house."

Corkery says Datalex was paying about 800 employees and contactors when the Lufthansa gig was in full flow. That figure is now down to about 300.

Last week Datalex unveiled its first major contract since its 2019 travails, with Virgin Australia, a carrier acquired last year from administration by US private equity group Bain Capital, opting to use all four of its new flagship products.

Corkery says the pipeline is the busiest it has been in years, with the company “out the door” finishing off work on airline requests for proposals. On Wednesday morning, in the company’s EastPoint Business Park offices in Dublin, members of his team were next door giving a demonstration to “a fairly big European airline”, which is coming to the end of a search for a partner. He declined to identify the carrier.

Corkery will be “disappointed” if he does not have “a couple” of further announcements next year along the lines of the Virgin Australia deal.

“What’s hard to determine is when airlines will ultimately makes decisions, especially with the evolving situation around Covid,” he says. “The medium- to long-term is easier to predict than the near-term. The short term looks very bumpy, but the direction in which the industry is going is very much in our favour.”

Apple years

Corkery is the son of bus driver in Cork city. He studied economics at University College Cork before joining the then fledgling Apple in 1981 after a brief stint as a secondary school teacher.

“We used to have an annual celebration, an anniversary, every year in Apple. It was like, ‘Holy sh*t, this has lasted another year’, because the whole thing was so new at the time.”

Corkery, who worked his way up to become a director of Apple’s Pacific operation, left the group in 1993, in the middle of a period of decline that would soon have experts proclaim it was doomed.

Today, Apple is on the cusp of becoming the first public company to reach a $3 trillion valuation. Corkery, who got stock options like everybody else in the company in the early days, says he does not think he still has any shares.

Following a period with AST Computers, O'Brien hired the executive in 1997 as chief operations officer of Esat Telecom as the company was preparing to float on the Nasdaq. Corkery left as it was acquired by BT in 2000.

He spent the next 13 years with Dell in a series of international roles, culminating in a period as its head of global supply chain operations.

Corkery presided over the closure in 2009 of Dell's manufacturing plant in Limerick, with the loss of 1,900 jobs in a city where he has lived since his AST days. Although it was a "difficult" task, he insists the decision to move manufacturing to Poland, where labour costs were lower, was right.

“I think one of the trainings you get from a company like Dell is to be very data driven … You have absolutely no place in Dell, or any of those companies, with emotion.”

Denis O'Brien approached Corkery in 2013 to run Siteserv, a construction services company he had bought the previous year for €45 million in a deal that saw taxpayer-owned Irish Bank Resolution Corporation (IBRC), formerly Anglo Irish Bank, write off €119 million of €150 million owed by the business.

A commission of investigation was set up in 2015 to look into the transaction, after Social Democrat co-leader Catherine Murphy raised Dáil questions about IBRC's relationship with O'Brien.

The Irish Times reported in September that Justice Brian Cregan, chairman of the commission, had concluded in a draft report that the State could have squeezed a further €8 million out of the deal.

Corkery, however, says O’Brien paid a “mad price” for the business, which was subsequently rebranded as Actavo. “I think it was overpaid for – and I remind Denis of that all the time,” he says.

Takeover speculation

His decision to step down as chief executive of Actavo in May 2018, which surprised some observers at the time, was largely because the company was delving deeper into servicing oil and gas refineries, and needed an industry expert – which it found in Brian Kelly, formerly of the Kentz Group – to lead the business.

Corkery remains an 11 per cent shareholder in Actavo, even after stepping down as non-executive director in early 2020. He also resigned from the board of O’Brien’s Digicel telecoms group later in the year to focus more on Datalex.

The past 12 months or so have also seen him step down from the boards of CTI Global, an IT security firm that O'Brien owned, medical nutrition company Nualtra, and online teacher training company Hibernia College, as each was sold on.

Datalex itself has been the subject of takeover speculation over the years, and was said to have been in talks with a third party before the accounting issues were disclosed.

Corkery initially believed the company’s days of independence were numbered when he took charge.

“One thing that maybe I thought when I started in 2019 was that, ultimately, we probably needed to be part of some consolidation with some partner – not because of the financials but just because it seemed too hard to [continue alone],” he says, noting that the software companies behind the clunky historic passenger service systems (PSS) that airlines continue to use at their core were looking to get into Datalex’s area.

“I have changed my view on that. Now, I very much believe that we have an independent future, particularly with the fantastic opportunity that there is in the market for us now. And I certainly wouldn’t like to just partner with the slowest member of the pack.”

Corkery says a public limited company model is “essential” as Datalex is in growth mode again and will probably look to raise fresh equity in the future to support this. Could it come to market again next year?

“Not that early,” he says. “We’d obviously have to get a few more Virgin Australias behind us, first.”