Takata Declares Bankruptcy, Assets To Be Acquired By Key Safety Systems

Angelica Greene
June 27, 2017

Michigan-based-but-Chinese-backed Key Safety Systems announced separately that it would work with Takata to develop a restructuring plan allowing the US company to purchase the Japanese company's assets and operations around the world for $1.59 billion. The company faces billions of dollars in lawsuits connecting to its airbag recall, and its American division filed for Chapter 11 bankruptcy in DE, where it claimed liabilities of $10 billion to $50 billion.

Drowning in a sea of lawsuits and recall costs, Japanese air bag maker Takata Corp.is expected to seek bankruptcy protection in Tokyo and the United States early Monday.

Both Takata and KSS say that the U.S. and Japanese filings should have "no effect" on access to replacement inflators. FILE - This July 6, 2016, file photo, shows the logo of Takata Corp.at an auto supply shop in Tokyo.

In addition to its US-based subsidiary in the state of DE, which is under the protection of Chapter 11 on bankruptcy, its various units, particularly in China and Mexico, are concerned.

The recalls will eventually cover more than 120 million inflators worldwide, Scott Caudill, chief operating officer for US unit TK Holdings Inc., said in a court document. He disclosed that Takata has recalled, or expects to recall, by 2019 about 125 million vehicles worldwide, including more than 60 million in the United States.

At least $1 billion from the sale will be used to satisfy Takata's settlement of criminal charges in the USA for concealing problems with the inflators.

The final cost will depend on the outcome of discussions with carmaker customers, according to a lawyer for Takata.

Under the $1.59 billion deal, Detroit-based Key Safety Systems would acquire 56 Takata plants that employ 46,000 people and leave responsibility for the recalls and other liabilities with the reorganized Takata. Ningbo Joyson acquired KSS in 2016 in a $920 million deal.

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"Although Takata has been impacted by the global airbag recall, the underlying strength of its skilled employee base, geographic reach, and exceptional steering wheels, seat belts and other safety products have not diminished", said KSS President and CEO Jason Luo in a statement. Carfax, which sells vehicle history reports, also lets people check open recalls for free. The agreement is meant to allow Takata to continue operating without interruptions and with minimal disruptions to its supply chain.

Takata does not plan to hold an auction of its assets, often used to ensure assets fetch top dollar for creditors. In fact, researchers have now confirmed that, when exposed to high levels of heat and humidity, Takata's airbag inflators can become ticking time bombs. That makes it unclear whether anyone injured by inflators in the future would have any legal recourse against either company.

First, it will sell its assets (its factories, mainly) to a rival company, Key Safety Systems, which is based in MI. But it could take years to get the unsafe devices off the road in the USA and around the world. However, operations linked to the defective airbags will not become part of the combined company, and will later be wound down.

"We're in a very hard situation, and we had to find ways to keep supplying our products", Takada said. His family - which still controls the 84-year-old company - likely would cease to be shareholders.

Takata's problems began in 2008 when it was forced to recall 100 million airbag inflators around the world, which were being used by major auto manufacturers such as Honda, Ford, Volkswagen and BMW. So far, about 100 million inflators have been slated for recall, a process which will take until about 2020 to complete.

"We now have pending a number of cases across the United States involving wrongful deaths, people that are hit with these flying shrapnel", he said.

It said it would continue talks with the supplier but anticipated difficulties in recovering the bulk of its claims. With the rising costs of the deadly airbags, Takata has been in the red for the last three years.

Other reports by GizPress

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