NEW YORK/WASHINGTON - Japanese air bag maker Takata Corp is preparing to file for bankruptcy as early as next week as it works toward a preliminary deal for financial backing from US auto parts maker Key Safety Systems, people familiar with the matter said on Thursday.

Takata, one of the world's biggest automotive suppliers, has been working on finalizing a deal with Key as it faces billions in liabilities stemming from defective air bag inflators, the people said. Also at stake is $850 million owed by the Japanese airbag system maker to major global automakers under a settlement agreed to earlier this year.

The people, who asked for anonymity because they were not authorized to speak with the media, cautioned that a deal with Key may not be reached before Takata files for bankruptcy. The company plans to begin proceedings in both the United States and Japan, the people said.

Takata declined to comment. Key did not immediately respond to a request for comment. Nikkei reported details of the timing earlier on Thursday.

Major global car manufacturers have expressed concern about the company filing for bankruptcy without a deal in place because of disruption it could cause to the production of replacement airbag inflators. More than 65 percent of 46.2 million recalled Takata airbag inflators in the United States have not been repaired.

Takata inflators can explode with excessive force, unleashing metal shrapnel inside cars and trucks, and have prompted the largest automotive recall in history.

In January, Takata agreed to plead guilty to criminal wrongdoing and to pay $1 billion to resolve a Justice Department investigation into ruptures of its air bag inflators linked to at least 16 deaths worldwide. They also have been blamed for more than 180 injuries worldwide.

Takata has already paid a $25 million fine and $125 million to a victim compensation fund, including for future incidents.

Takata has until early 2018 to pay the remaining $850 million owed to automakers, or within five days of securing a financial backer. Then-US Attorney Barbara McQuade said in January if Takata filed for bankruptcy, the Justice Department would be a creditor in the restructuring.

Michigan-based Key, owned by Chinese supplier Ningbo Joyson , was chosen earlier this year as the favored buyer for Takata. Since then, Key has been working with Takata on a restructuring plan.

Inflator recalls began around 2008 and involve around 100 million inflators around the world used in vehicles made by 19 automakers, including Honda Motor Co, Ford Motor Co , Volkswagen AG and Tesla Inc.

Reporting by Jessica DiNapoli in New York and David Shepardson in Washington

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