Air bag maker Takata Corp. said Monday it has filed for bankruptcy protection and decided to sell its business to a U.S. rival, marking the biggest corporate failure of a Japanese manufacturer and capping off years of struggle to handle an unprecedented safety recall.
Takata's liabilities are estimated at over 1 trillion yen ($9 billion), far eclipsing the previous record bankruptcy of a manufacturer, involving a Panasonic Corp. subsidiary that had a debt of 500 billion yen.
U.S. auto parts maker Key Safety Systems Inc. said it will buy Takata's business including seat belts and child seats for 175 billion yen, enabling it to continue supplying automakers and maintain its workforce.
"To all our creditors and those who have supported us thus far, I apologize from the bottom of my heart" Takata Chairman and CEO Shigehisa Takada said at a press conference in Tokyo, before bowing deeply.
Takada, the grandson of the company's founder, said he intends to step down after clearing the way for a finalized deal with Key Safety Systems.
Automakers have recalled tens of millions of cars since 2008 in a global recall of defective air bag inflators made by Takata that can explode and spray shrapnel inside vehicles.
Takata's air bags have been linked to at least 11 deaths in the United States alone and have triggered the country's biggest ever car recall involving 42 million vehicles across 19 automakers.
The family-led company, founded in 1933 as a textile manufacturer, had been struggling for years to address the massive cost of the recalls, while finding it difficult to swiftly provide replacement inflators.
Takata had originally sought an out-of-court turnaround, but the plan met opposition from automakers and Key Safety Systems, who pushed for court-led restructuring to ensure transparency in the process.
"It was difficult to reach an agreement with automakers and our sponsor," Takada said.
"Meanwhile, the terms of business with our suppliers worsened, while at the same time we faced a human resources drain. We were running out of funding and there was a risk that we wouldn't be able to continue supplying products," Takada said in explaining the filing with the Tokyo District Court under the civil rehabilitation law.
After selling its operations to Key Safety Systems, which is owned by Chinese company Ningbo Joyson Electronic Corp., by early 2018, it will continue making inflators through March 2020.
Takata's U.S. subsidiary TK Holdings Inc. has also filed for Chapter 11 bankruptcy protection.
As part of the restructuring plan, Sumitomo Mitsui Banking Corp. will provide Takata with a bridge loan of up to 25 billion yen.
The Tokyo Stock Exchange said after the filing that Takata shares will be delisted on July 27.
Takata said its liabilities totaled 380 billion yen as of the end of March, but Tokyo Shoko Research Ltd. estimates the figure will climb to 1.7 trillion yen when factoring in recall costs that have been shouldered by automakers.
Toyota Motor Corp. said it may not be able to collect or will see a delay in collecting 570 billion yen in recall fees. Honda Motor Co., Takata's biggest customer, said it expected "difficulty" in collecting 556 billion yen in fees.
Takata's bankruptcy will have a wide impact not only on automakers but also small and medium-sized companies that depend on it for business. More than 130 companies in the country serve as tier 1 suppliers to Takata, according to Tokyo Shoko Research.
Hiroshige Seko, minister of economy, trade and industry, told reporters he instructed ministry officials to set up a "safety net" for companies that could be affected by Takata's decision.
