Japan's embattled Takata Corp. said on Monday that it had filed for bankruptcy protection and would sell its business to a USA third party, in what is the biggest corporate failure ever of a Japanese manufacturer.
The beleaguered company is under financial pressure for millions of defective air bag inflators installed in vehicles.
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.
Takata faces billions in lawsuits and recall-related costs to its clients, including Honda, BMW, Toyota Motor Corp (TM.N), which have been paying recall costs to date. It is responsible for billions of dollars to banks and automakers for the costs of replacing the parts.
Takata recently pleaded guilty in a US court to criminal charges for its handling of the scandal, agreeing to pay $1 billion in penalties, including the fund for people injured as a result of the fiery shrapnel hurled from its air bags.
"KSS is the ideal sponsor as we address the costs related to airbag inflator recalls, and an optimal partner to the company's customers, suppliers and employees", Takata CEO Shigehisa Takada said in a statement.
More than 100 million cars with Takata air bags, including around 70 million vehicles in the USA, have been recalled since concerns first emerged in 2007. They're responsible for at least 17 deaths and 180 injuries worldwide and have touched off the largest automotive recall in USA history.
After absorbing Takata's assets, Key Safety Systems will have about 60,000 employees in 23 countries.
Trading in Takata shares was suspended at the opening of the stock market Monday after a week of wild volatility and the Tokyo exchange said it would delist the firm on July 27.
Under its agreement with Key, remnants of Takata's operations will continue to make inflators to be used as replacement parts in the recalls, which are being handled by 19 affected automakers. A federal bankruptcy judge will have to authorize the deal, which will help Takata raise funds to pay its recall and settlement costs. So far 100 million inflators have been recalled worldwide including 69 million in the US, affecting 42 million vehicles.
Takata said its agreement with KSS would mean the company could continue to operate without interruptions to its operations. "Although we have acquired the right to be reimbursed for the costs of both past and future recalls from Takata and its affiliates, following Takata's filing, it is likely that we will not be able to exercise this right in most cases", Nissan said.
Takata's troubles stem from use of the explosive chemical ammonium nitrate in the inflators to deploy air bags in a crash.
Takata will essentially be divided into two companies. It is expected those will be run by the reorganised Takata and "eventually will be wound down".
Millions of airbags produced for some of the largest automakers, including Toyota and General Motors, are being recalled because of the risk that they could improperly inflate and rupture, potentially firing deadly shrapnel at the occupants. Like other Japanese automakers, Honda said it anticipated difficulties in recovering the bulk of its claims. It started producing airbags in 1987, becoming the world's second producer of the safety products.
Takata's debts have spiraled to an estimated $9 billion due to the massive recall program for defective airbags supplied to nearly two dozen automakers and used in an estimated 100 million vehicles across the globe.