TOKYO Japan's Takata Corp (7312.T), the firm at the centre of the auto industry's biggest ever product recall, filed for bankruptcy protection in the United States and Japan, and said it would be bought for $1.6 billion by U.S.-based Key Safety Systems.

In the biggest bankruptcy of a Japanese manufacturer, Takata faces tens of billions of dollars in costs and liabilities resulting from almost a decade of recalls and lawsuits.

Its airbags have been linked to at least 17 deaths around the world.

TK Holdings, its U.S. operations, filed Chapter 11 bankruptcy in Delaware on Sunday with liabilities of $10 billion to $50 billion, while the Japanese parent filed for protection with the Tokyo District Court early on Monday.

Takata's total liabilities stand at 1.7 trillion yen ($15 billion), Tokyo Shoko Research Ltd estimated.

Final liabilities would depend on the outcome of discussions with carmaker customers who have borne the bulk of the replacement costs, a lawyer for the company said.

The filings open the door to the financial rescue by Key Safety Systems (KSS), a Michigan-based parts supplier owned by China's Ningbo Joyson Electronic Corp (600699.SS).

In a deal that took 16 months to hammer out, KSS agreed to take over Takata's viable operations, while the remaining operations will be reorganised to continue churning out millions of replacement airbag inflators, the two firms said.

The U.S. company would keep "substantially all" of Takata's 60,000 employees in 23 countries and maintain its factories in Japan. The agreement is meant to allow Takata to continue operating without interruptions and with minimal disruptions to its supply chain.

"We believe taking these actions in Japan and the U.S. is the best way to address the ongoing costs and liabilities of the

airbag inflator issues with certainty and in an organised manner," Takata CEO Shigehisa Takada said in a statement.

Takada said he and top management would resign "when the timing of the restructuring is set."

His family - which still has control of the 84-year-old company - likely would cease to be shareholders.

Jason Luo, president and CEO of KSS, said in a statement the "underlying strength" of Takata's business had not diminished

despite the airbag recall, citing its skilled employee base, geographic reach and other safety products such as seat belts.

The companies expect to seal definitive agreements for the sale in coming weeks and complete the twin bankruptcy processes in the first quarter of 2018.

The filings have, however, not resolved all issues.

Honda Motor Co (7267.T), Takata's biggest customer, said it had reached no final agreement with Takata on responsibilities for the recall.

Honda said it would continue talks with the supplier but anticipated difficulties in recovering the bulk of its claims.

UNPRECEDENTED RECALLS

Takata faces billions in lawsuits and recall-related costs to its clients, including Honda, BMW (BMWG.DE), Toyota Motor Corp (7203.T) and others which have been paying recall costs to date.

It also faces potential liabilities stemming from class action lawsuits in the United States, Canada and other countries.

Global transport authorities have ordered about 100 million inflators to be recalled.

Industry sources have said that recall costs could climb to about $10 billion.

The ammonium nitrate compound used in the airbags was found to become volatile with age and prolonged exposure to heat,causing the devices to explode.

Costs so far have pushed the company into the red for three years, and it has been forced to sell subsidiaries topay fines and other liabilities.

Founded as a textiles company in 1933, Takata beganproducing airbags in 1987 and at its peak became the world's No.2 producer of the safety products.

It also produces one-third ofall seatbelts used in vehicles sold globally, along withother components.

The Tokyo Stock Exchange said its shares would be delisted on July 27. The stock has collapsed 95 percent since January 2014 as the recalls mounted.

(Reporting by Naomi Tajitsu; Additional reporting by David Shepardson on Washington D.C., Tom Hals in Wilmington, Delaware and Maki Shiraki in Tokyo; Editing by William Mallard, Stephen Coates and Edwina Gibbs)

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Japanese airbag maker Takata files for bankruptcy, gets US sponsor - Reuters