TOKYO -- Embattled Japanese air bag maker Takata is preparing for a possible bankruptcy protection filing in the U.S. amid the mounting costs related to the company's defective air bags, which have been linked to some deaths.
The move could help the Tokyo-based company find a financial backer to ensure its parts-supplying operations remain ongoing as it seeks an out-of-court reorganization -- an important consideration for its automaker customers.
The subsidiary eyed for a Chapter 11 filing, Michigan-based TK Holdings, contributed just over 30% of Takata's group sales for the year ended in March. But the unit suffered a fourth consecutive annual net loss, hit by the rising cost of air bag recalls.
As of the end of March, TK Holdings had roughly 145 billion yen ($1.4 billion) in liabilities, surpassing its assets by some 30.5 billion yen. Sales for the year to March totaled 236.6 billion yen.
Takata already faces recall costs exceeding 1 trillion yen, with 69 million air bags on recall in the U.S. alone. TK Holdings likely will have to shoulder even more recall expenses as well as damage payouts down the road. A Chapter 11 filing would clarify the unit's liabilities and possibly lead to reductions.
The Japanese parent, through its financial adviser, has urged would-be sponsors to propose turnaround plans based on the assumption that the U.S. unit would file for bankruptcy protection. Global air bag leader Autoliv of Sweden, U.S. private equity funds and other potential backers have submitted proposals on this premise.
Honda Motor, Toyota Motor and other customers that have shouldered some of the recall costs for Takata are also believed to be leaning in favor of TK Holdings entering bankruptcy protection. The automakers are expected to seek repayment of recall costs and other claims, but not to the extent that it would compromise Takata's ability to supply parts.