Financial Analyst

Total Content 126

Articles 117

Takata Throws in the Towel

By Sera Akinci  |  28/06/2017 08:29
One of the largest Japanese airbag-manufacturing companies in the world has filed for bankruptcy.  Takata's US sector filed Chapter 11 bankruptcy in the US state of Delaware, listing liabilities between $10 and $50 billion dollars. The parent company filed for bankruptcy protection with Tokyo's District Court.  The Tokyo Stock Exchange said all Takata shares would be delisted on July 27th.
 
Originally founded as a textiles firm in 1933, the Takata Corporation began making airbags in 1987 and was the world's 2nd largest producer, before a plethora of recalls started almost ten years ago in 2007.  Takata faces huge recall liabilities and lawsuits of over tens of billions of dollars regarding faulty airbag inflators.  The company has declared that it will pursue a $1.6 billion aid agreement with US auto parts supply firm, Key Safety Systems (KSS). KSS had been made Takata's preferred sponsor in recent years, to assist Takata in producing replacement airbag inflators.  With the help of the financial support provided by KSS, Takata expects to continue operating as normal for the time being.  In exchange for financial aid, KSS will acquire most of Takata's assets, spare those involved in the production of the replacement airbag inflators.  In the meantime, Takata will continue to supply replacement inflators as per the various recall requirements, but will eventually draw down even these operations.  Additionally, all proceeds from Takata's KSS sponsorship will go towards settling plea agreements with the Department of Justice.  Such plea agreements stem from Takata's illegal concealment of airbag defects.  Takata themselves agreed with the US government in January to pay over $1 billion dollars towards such pleas, a $25 million government fine, $125 million to all injured people, and $850 million to car manufacturers who utilized the airbags in their products.
 
Over the last decade, an unprecedented 100 million of Takata's airbag inflators have been subject to recall by various transport authorities worldwide. Out of the 100 million affected cars, 70 million were located in the US.  The issue with Takata's airbags was found to be in the ammonium nitrate used in the inflators.  The ammonium nitrate was discovered to become unstable with extensive exposure to heat and ageing of the airbag, causing the airbag to explode.  In total, Takata's faulty airbag inflators have killed at least 17 people and injured more than 180 over the past decade.
 
Filing for bankruptcy has not cleared Takata of all its responsibilities however.  For example, Honda, Takata's largest customer, stated that no final deal had been reached regarding Takata's obligations over recall responsibility.  Honda will continue negotiations with Takata but does not expect the majority of its claims to be fulfilled.  Takata is also accountable to several other prominent car companies, including BMW and Toyota.  Liability costs have pushed Takata into the red for the last three years, and as a result, Takata has been forced to sell loose assets and various subsidiaries.  Additionally, Takata has been forced to rely on competitors to help meet its recall obligations, including Swedish firm Autoliv Inc. and now KSS. 
 
Takata is expected to be able to fulfil its recall obligations while under bankruptcy.  However, this depends on the airbag manufacturer encountering no more problems in the near future, including no further lawsuits or recalls.  If this occurs, hangs in the balance whether any car manufacturer will have their total recall claims met.
 
- The Nikkei 225 was in the green on Monday, up +22.27 (+0.11%) from 20,132.80 opening on Monday. 6:12 AM BST
 

Share

Author's Other Opinion & Analysis

Show More Articles

Sentiment

Open a Demo Account Open A Live Account

Losses can exceed deposits

RISK WARNING

The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice.

If such information is acted upon by you then this should be solely at your discretion and GKFX will not be held accountable in any way.

  • ForexF
  • IndicesI
  • CommoditiesC
        Back

        Login to Market Insight Account

        Your Market Insight account gives you access to the tools that we offer our customers including our
        Technical Studies & Sentiment for your accounts.

        Forgot Password?

        Don't you have a Market Insight account? With a few easy steps you can easily register to Market Insight

        Create a Market Insight's Account

        Your Market Insight account gives you access to the tools that we offer our customers including our Technical Studies & Sentiment for your accounts.

        register_ty

        Thank you!

        Welcome to Market Insight family!

        You have succesfully completed the registration.
        We will send you an e-mail to give you some
        instructions and our Terms and Conditions!
        Our account representatives will be contacting you as
        soon as possible. If you have any further questions
        please do not hesitate to mail us via info@marketinsight.com