Air bag recalls, lawsuits lead Takata to file for bankruptcy

James Marshall
June 26, 2017

Troubled airbag maker Takata Corp. decided on Monday to file with Tokyo District Court for bankruptcy protection under Japan's civil rehabilitation law, informed sources said. Nikkei also reported the decision, without citing any sources for the information.

In the biggest bankruptcy of a Japanese manufacturer, Takata faces tens of billions of dollars in costs and liabilities resulting from nearly a decade of recalls and lawsuits. This would open the door for a financial rescue from US auto parts supplier Key Safety Systems, which Takata has tapped as its preferred financial sponsor.

At least 16 deaths and more than 180 injuries have been linked to the air-bag defect, which causes the air bags to explode with too much force and spray shrapnel into vehicle cabins.

In February, Takata pleaded guilty to fraud and agreed to the $1 billion settlement.

Takata agreed to pay the US $1 billion in criminal penalties earlier this year, including a $25 million fine, $125 million to those who were injured by the airbags, and $850 million to automakers. "We were running out of funding and there was a risk that we wouldn't be able to continue supplying products", Takada said with regards to filing for bankruptcy.

The second company, which will be transferred back to Takata's US arm or another subsidiary, will be reorganized and continue to supply replacement inflators for the recall, operating independently from KSS.

"It's likely every automaker involved in this recall will have to subsidise the process because the value of Takata's assets isn't enough to cover the costs of this recall", said Karl Brauer, executive publisher of Kelley Blue Book and Autotrader.

Jason Luo, president and CEO of KSS, said in a statement the "underlying strength" of Takata's business had not diminished despite the airbag recall.

Honda Motor Co, Takata's biggest customer, said it had reached no final agreement with Takata on responsibilities for the recall.

Key, which makes inflators, seat belts and crash sensors for the auto industry, would not comment on reports that it would purchase the Takata assets.

Because of the size of the recall, some vehicle owners face lengthy waits for replacement parts, and are still operating their cars anxious that the air bag could malfunction in a crash.

The problems stem from use of the explosive chemical ammonium nitrate in the inflators used to deploy air bags in a crash.

At least a billion dollars (£784 million) from the sale to Key is expected to be used to satisfy Takata's settlement of criminal charges in the USA for concealing problems with the inflators. Of that amount, $850 million goes to automakers to help cover their costs from the recalls. Takata already has paid $125 million into a fund for victims and a $25 million fine to the U.S. Justice Department.

That settlement will speed the removal of faulty inflators from 15.8 million vehicles and compensate consumers for economic losses, Prieto said. Takata says it is seeking $1.6 billion in aid from KSS, which will allow Takata to continue to operate without interruptions.

The Tokyo Stock Exchange said shares of Takata would be delisted on July 27 after it filed for bankruptcy protection. Its global headquarters and USA technical center is in Sterling Heights, Michigan.

The Takata corporate name may not live on after the bankruptcy.

Seko said he hopes that Key Safety Systems Inc. will fix Takata's battered finances and that he "expects a quick turnaround".

Founded as a textiles company in 1933, Takata began producing airbags in 1987 and at its peak became the world's Number 2 producer of the safety products.

Other reports by Click Lancashire

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