TOKYO -- Japan's Takata is considering selling all operations to a newly created company after filing for bankruptcy protection, leaving the stripped-down autoparts maker to repay creditors such as car manufacturers for expenses linked to a massive recall of defective air bags, and then shut down.
An external committee charged with formulating a plan for Takata's rescue in February recommended Key Safety Systems of the U.S., a subsidiary of China's Ningbo Joyson Electronic, as a turnaround sponsor. Leading Takata creditors including Honda Motor and Toyota Motor have since discussed with Key Safety ways in which recall expenses borne by the automakers might be repaid, largely agreeing on a plan that would transfer core operations to a new company.
First, Takata would seek bankruptcy protection. Key Safety would then expend nearly 200 billion yen ($1.79 billion) to create a company that would purchase Takata operations including air bags, seat belts and child safety seats. U.S. investment firm Bain Capital would help the turnaround sponsor procure the necessary funds.
Takata itself would be left with heavy liabilities linked to the recall, which proceeds from the sale would help pay down. The Tokyo-based company is expected to be liquidated eventually. Japanese automakers will effectively shoulder all liability for future recall expenses, having reached a broad agreement not to go after Key Safety or its future subsidiary for the costs.
No other way
As of last October, exploding Takata air bags had been linked to 11 deaths in the U.S. alone. Transport authorities there and in Japan ordered all potentially affected products to be recalled, saddling more than 10 automakers around the world with an estimated 1.3 trillion yen or so in total costs.
Takata's founding family, including CEO Shigehisa Takada, sought to negotiate these liabilities in private, fearing a court-supervised settlement could disrupt parts shipments. But automakers and the likely sponsor prefer a more official approach. "We cannot accept a process without high transparency -- we have a responsibility to explain [any settlement] to our shareholders," an executive at a Japanese automaker said, staking out a position in favor of court-mediated bankruptcy.
Even if Takata were to reach a private settlement to reduce its debts to some major creditors, further costs, such as claims for damages from car-crash victims, could sound the death knell for the parts maker. It remains to be seen how the family, which holds around 60% of the company's shares, will fare under the sell-off plan. Negotiations between Key Safety and Takata's management are set to take center stage as the turnaround drama continues.
The company is still "an indispensable player in the auto industry," an auto executive said. Takata holds around 20% of the global seat belt and air bag markets.
Japanese automakers have largely finished writing down recall-related charges. Honda, Takata's largest customer, booked 556 billion yen in those costs across fiscal 2014 and fiscal 2015. Bankruptcy proceedings for Takata are not expected to saddle carmakers with further heavy costs.