Air bag maker Takata declares bankruptcy

Air bag maker Takata declares bankruptcy

Air bag maker Takata declares bankruptcy

Michigan-based-but-Chinese-backed Key Safety Systems announced separately that it would work with Takata to develop a restructuring plan allowing the USA company to purchase the Japanese company's assets and operations around the world for $1.59 billion.

In the meantime, millions of vehicle owners are forced to nervously wait for someone to fix a problem blamed for at least 16 grisly deaths worldwide, 11 of them in the United States.

Such a plan now involves Sumitomo Mitsui Banking Corp. providing Takata with a bridge loan of up to 25 billion yen, while Takata's USA subsidiary TK Holdings Inc. has also filed for Chapter 11 bankruptcy protection.

Takata's embattled shares, meanwhile, will be yanked off the Tokyo Stock Exchange next month.

The Tokyo-based company rose to prominence in the early 90s after creating a less expensive type of air bag. Proceeds from the sale will be used to settle plea agreement with the U.S Department of Justice.

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However, the filings have not resolved all issues. Honda said it will continue talks with the supplier but anticipates difficulties in recovering the bulk of its claims.

The company is under pressure from lawsuits and recall costs worldwide related to defective vehicle air bag inflators.

More than 70 percent of the airbags recalled in Japan have been replaced, and 36 percent in the USA, said Hiroshi Shimizu, a Takata vice president. A federal grand jury also indicted three Takata executives for their role in the scandal in January. That part of Takata will eventually be wound down, according to a statement from Key Safety Systems. So far, about 100 million inflators have been slated for recall, a process which will take until about 2020 to complete. Industry sources have said that recall costs could climb to about $10 billion.

The problem with the inflators is that they use ammonium nitrate to deploy airbags, and ammonium nitrate is a notoriously unsafe compound.

Small businesses that may be affected by Takata's bankruptcy will get support including loan guarantees says Japanese trade minister Hiroshige Seko.

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The Japanese firm is now supplying only 25% of the replacement inflators, according to Upham, with rival companies providing the rest. Most victims were in the United States.

At least $1 billion from the overall sales will be used to help Takata satisfy its criminal settlement in the USA for concealing known problems. It also produces one-third of all seatbelts used in vehicles sold globally, along with other components. He has promised to resign after a new management team takes over.

The filing at the Tokyo District Court followed a Chapter 11 bankruptcy protection filing in the United States.

Takata is said to be a massive $10 billion in the hole, and that doesn't even include most of the costs of the ongoing airbag recall. Kay Safety Systems' purchasing of Takata would not affect the recall, and the airbag inflator replacements will continue as scheduled.

Jason Luo, president and chief executive of KSS, voiced confidence in Takata's rehabilitation. Key Safety Systems will retain nearly all of Takata's employees and does not intend to shut down any of Takata's manufacturing facilities.

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"The sad saga of Takata. has resulted in the implosion of one of the automotive industry's oldest and most successful suppliers due to technical hubris, mismanagement and a systemic corporate culture of manipulation", said Scott Upham, the CEO of Valient Market Research. In the air bags being recalled, Takata didn't use a chemical desiccant, a drying agent that can counteract the effects of moisture. In addition, Takata said it had obtained financing of up to $227 million from the Japanese Sumitomo Mitsui Banking Corp.

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