What to expect in defective air bag maker Takata's looming bankruptcy

What to expect in defective air bag maker Takata's looming bankruptcy

A worker demonstrates a pyro-electric wheel airbag initiator during a presentation for journalists at the international automotive supplier Takata Ignition Systems in 2014

Troubled auto supplier Takata is tumbling toward a widely expected bankruptcy filing following a costly scandal that has killed at least 16 people worldwide.

The Japanese supplier recently pleaded guilty in a U.S. court to criminal charges for its handling of the scandal, which involved exploding air bags.

The company agreed to pay $1 billion in penalties, including funds for people injured as a result of the fiery shrapnel hurled from its air bags. The defect has been blamed for more than 100 injuries and 16 deaths.

More than 42 million vehicles were equipped with the potentially defective parts, triggering the largest recall in U.S. history.

With reports circulating that the company could file for court protection as early as this week, here are several factors to watch:

1. Repairs won't stop: Although bankrupt companies can sometimes seek to sever obligations such as warranties, Takata will be required to prioritize the production of replacement parts.

Automakers have contributed hundreds of millions of dollars to accelerate the repairs, ensuring that the recall campaign will continue unimpeded after the bankruptcy filing occurs.

As of May 26, automakers had replaced 38.1% of air bags affected by the recall, according to the National Highway Traffic Safety Administration.

2. Takata likely will get new ownership: Chinese-owned Key Safety Systems is widely expected to acquire Takata as part of the company's bankruptcy restructuring plan.

Key Safety Systems, whose U.S. headquarters is in Sterling Heights, Mich., would become the world's second-largest air bag manufacturer if the deal goes through, according to Evercore ISI analysts. The company would have market share of 20% to 25% following the deal, trailing only Autoliv's 40%.

3. Victims will still get compensation: People hurt by Takata air bags and families whose loved ones died because of the defect are eligible for compensation through a $125 million fund established as part of the company's criminal settlement.

Bankruptcy filings can disrupt previously pledged payments to third parties, but the victim compensation fund pledged as part of the government settlement is expected to take priority over other debts.

Former FBI director Robert Mueller had been appointed to administer the victim compensation funds, but he recently relinquished that post to take over as special counsel investigating Russian influence in the U.S. presidential election. His replacement is Kenneth Feinberg, who administer victim compensation funds for 9/11 and the General Motors ignition switch.

4. Current vehicle owners might get paid: Takata recently reached a settlement with owners of nearly 16 million Toyota, Mazda, Subaru and BMW vehicles equipped with the supplier's defective air bags. The deal called for Takata to pay $553 million in compensation to cover the economic losses they've incurred because of the scandal.

The deal, which must still be approved by a federal judge, will cost Toyota $278.5 million, BMW $131 million, Mazda $75.8 million and Subaru $68.3 million.

The accord leaves open the possibility that Takata will reach similar agreements with other automakers, which would likely remain in place even following the bankruptcy filing.

Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.



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