Published: Mon, June 26, 2017
Markets | By Noel Gibbs

Takata files for bankruptcy protection in Japan

Takata files for bankruptcy protection in Japan

Japanese air bag maker Takata Corp.

Takata Corp. filed for bankruptcy protection in the US and Japan on Sunday.

TK Holdings Inc. headquarters is shown in Auburn Hills, Mich., Sunday, June 25, 2017.

Some remnants of Takata will be folded into an entity with a different name to keep manufacturing inflators used as replacement parts in recalls, said the people, who didn't want to be identified because the bankruptcy terms have not been made public.

The company's stock plunged more than 65% last week following reports that its bankruptcy filing was imminent.

The companies expect to seal definitive agreements for the sale in coming weeks and complete the twin bankruptcy processes in the first quarter of 2018.

Key Safety Systems (KSS) said on Sunday that it had reached a deal with Takata to purchase almost all of its assets for about 175 billion yen ($1.57 billion), after the air-bag maker filed for bankruptcy in the United States and Japan.

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The company at the heart of one of the worst auto safety scandals in history has filed for bankruptcy.

Takata's air bag inflators are blamed for rupturing and spewing unsafe debris into a vehicle's cabin, as NPR's Sonari Glinton reported.

So far 100 million inflators have been recalled worldwide, the largest automotive-related recall in US history. CEO Takata Shigehisa, the third-generation head of the company, is also expected to step down. "As a maker of safety parts for the automobile industry, our failure to maintain a stable supply would have a major impact across the industry".

The Tokyo Stock Exchange said shares of Takata would be delisted on July 27 after it filed for bankruptcy protection.

In a deal that took 16 months to hammer out, KSS agreed to take over Takata's viable operations, while the remaining operations will be reorganised to continue churning out millions of replacement airbag inflators, the two firms said.

Takata faces billions in lawsuits and recall-related costs to its clients, including Honda, BMW (BMWG.DE), Toyota Motor Corp (7203.T) and others which have been paying recall costs to date. Industry sources have said that recall costs could climb to about $10 billion.

USA lawmakers have criticized the pace of the recalls. Apart from the fatalities, they're also responsible for at least 180 injuries, and touched off the largest automotive recall in USA history. The scope of the recalls means some vehicle owners face lengthy waits for replacement parts, meanwhile driving cars with air bags that could malfunction in a crash.

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The defect in the inflators stems from use of the explosive chemical ammonium nitrate in the inflators to deploy air bags in a crash. The chemical can deteriorate when exposed to hot and humid air and burn too fast, blowing apart a metal canister.

Takata has already agreed to pay a billion-dollar fine to settle with USA safety regulators over its airbags, and the company was heavily criticised for staying largely silent as the crisis grew. Of that amount, $850 million goes to automakers to help cover their costs from the recalls.

Attorneys for those injured by the inflators worry that $125 million won't be enough to fairly compensate victims, many of whom have serious facial injuries from metal shrapnel. "One gentleman cannot smile anymore".

Nissan does not disclose whether it continues to use Takata inflators but said it has established new supply lines for the component and is working with alternative suppliers to "develop new inflators for prompt rollout in future vehicles".

Key makes inflators, seat belts and crash sensors for the auto industry and is owned by China's Ningbo Joyson Electronic Corp.

Key said it won't cut any Takata jobs or close any of Takata's facilities.

But that figure is not expected to increase because of Takata's bankruptcy, Honda spokesman Kosuke Kachi said. The defect, which triggered the largest recall in US history, been linked to at least 16 deaths and more than 180 injuries. The automaker later became its biggest customer, a relationship that came back to bite Honda when Takata became embroiled in its defective inflator scandal.

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