Mexico’s FAA Category 1 Status and the Aviation Outlook for Late 2026

Season 2, Episode 19 | September 3Oth, 2026

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Executive Summary

This episode covers two issues facing aviation as 2026 draws to a close. First, Arturo Duhart examines Mexico’s aviation regulator, the Federal Civil Aviation Agency (AFAC), following the FAA’s August 2026 International Aviation Safety Assessment (IASA). The FAA’s findings have not yet been released. The discussion therefore does not predict whether Mexico will retain Category 1 status. Instead, it focuses on whether AFAC has the funding, qualified inspectors, training, and institutional capacity to oversee a large aviation industry effectively. A strong regulator should be a permanent objective; retaining Category 1 should follow from that capability.

Second, Nicolás Rhoads assesses the global and Latin American airline outlook. Demand remains strong, but fuel costs, geopolitical disruption, aircraft and engine shortages, and pressure on airline balance sheets make growth more selective. For airline boards, the priorities are to reassess routes against current costs, protect cash and aircraft availability, and use digital tools where they improve measurable decisions. Nicolás expects an uneven close to 2026: airlines that act quickly to protect margins while serving customers well will be best placed to capture the opportunity.

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Full English Transcript

Nicolás Rhoads and Arturo Duhart

Estimated total duration: 36–39 minutes

Part One: AFAC’s Budget and Category 1 Status Estimated duration: 15–18 minutes

NICO: Welcome to a new episode of Altitude. Today we have two topics.

First, Arturo, who has extensive expertise in this area, will discuss the proposed reduction in AFAC’s budget and its possible implications for Mexico’s Category 1 status.

Second, I, Nicolás Rhoads, will draw on my experience as an aviation strategy consultant to offer an outlook for the industry through the end of 2026.

Let’s begin with the first topic.

Just a few weeks ago, the FAA completed a new IASA assessment of Mexico, and we are awaiting the result. At almost the same time, a discussion emerged about AFAC’s proposed 2027 budget. Arturo, what is happening, and why should it matter to us?

1. What the FAA Is Actually Assessing

ARTURO: I would start with an important clarification. When we talk about Category 1 or Category 2, the FAA is not assessing Aeroméxico, Volaris, or Viva individually.

Nor is it declaring whether their aircraft are safe or unsafe. Through IASA, the FAA assesses whether Mexico has an aviation safety oversight system that meets the applicable international standards.

AFAC plays the central role in that system. It needs appropriate laws and regulations, but it also needs enough inspectors, trained personnel, procedures, resources, and the practical capacity to oversee an enormous industry.

2. How This Differs From 2021

NICO: Mexico lost Category 1 status in 2021 and regained it in 2023. Are we facing the same problem again?

ARTURO: There is a distinction that I consider important. In 2021, one of the problems was a lag in bringing Mexico’s legal and regulatory framework into line with international standards. Changing laws involves Congress and a timetable that is not entirely within the aviation authority’s control.

A substantial part of that issue was addressed during the process of regaining Category 1 status. So today’s question is different:

Does AFAC have the personnel, technical expertise, and financial resources to apply that regulatory framework properly and provide effective oversight?

You can have excellent laws, but you need qualified people to put them into practice.

3. The August Assessment and the Budget

NICO: And that is precisely where the budget controversy comes in.

ARTURO: Exactly. The FAA conducted its IASA assessment from August 10 to 14, 2026. AFAC said it had addressed the questions raised and supplied the requested evidence.

It indicated that it expected the result in approximately 60 days. We do not yet know that result, so it would be irresponsible to say today whether Mexico will retain Category 1 status.

But while we wait, another issue has emerged. The initial 2027 budget proposal contemplated a substantial reduction in the resources allocated directly to AFAC. That caused concern among pilot organizations and across the industry.

AFAC subsequently reported that the Ministry of Finance would guarantee additional resources to strengthen its regulatory, supervisory, oversight, and aviation safety functions.

I would therefore avoid reducing the discussion to the statement, “AFAC’s funding was cut.”

The question is: How much funding will AFAC ultimately receive, and will it be enough to fulfill its responsibilities properly?

4. The Issue Is More Than Funding

NICO: Does a larger budget automatically mean safer aviation?

ARTURO: Not necessarily. Funding is essential, but it is not sufficient. You need enough inspectors, and they must be capable inspectors: people with experience in flight operations, maintenance, airworthiness, licensing, aviation safety, and all the other specialties an authority must oversee.

Then you have to train them and, perhaps most difficult of all, retain them. AFAC competes with the industry itself for that talent. If you spend years training an experienced inspector and then lose that person, you have lost more than a position. You have lost knowledge and institutional experience.

And if staffing is insufficient, the consequence is not that aircraft suddenly begin falling out of the sky.

The effect can be much less visible: fewer inspections, delays, heavier workloads, and an authority that becomes increasingly reactive rather than preventive. Over time, that weakens one of the safeguards in the aviation safety system.

5. Should We Be Concerned About Category 1?

NICO: Then I have to ask the inevitable question: Do you think Mexico risks returning to Category 2?

ARTURO: Until the FAA publishes its findings, I think we should avoid speculation. But I also do not think we should judge AFAC’s strength solely by asking whether Mexico will pass the IASA assessment. That would be a mistake. Mexico should have a sufficiently strong aviation authority even if the FAA assessment did not exist. We have one of Latin America’s most significant aviation industries, millions of passengers, extensive aviation links with the United States, and Mexican airlines that operate internationally.

An industry of that scale needs a regulator equal to the task. Closing of Part One NICO: What thought would you like to leave our listeners with?

ARTURO: A simple one:

The objective should not be to strengthen AFAC merely to pass the FAA’s assessment. The objective should be to maintain a competent authority with enough personnel, training, experience, and resources to oversee Mexican aviation effectively.

If we do that well, retaining Category 1 should be a consequence. And when the FAA publishes the result of this assessment, we can return to Altitude to examine the more useful questions: What did the FAA actually find, and what does it mean for Mexican aviation?

NICO: We will be watching closely.

Part Two: Outlook for the End of 2026 Estimated duration: 18–20 minutes Transition

NICO: Before we close, let’s broaden the discussion. We are entering the final quarter of 2026 with signals that may seem contradictory.

Demand remains strong, but fuel costs and geopolitics are adding pressure. Manufacturers have record order books, yet airlines face shortages of aircraft, engines, and spare parts. Some airline groups are accelerating, while others are adjusting capacity or restructuring.

Arturo, it is your turn to interview me. Let’s look at what we should be watching between now and December.

1. Global Assessment

ARTURO: If you had to summarize the state of global aviation as we approach the end of 2026, what would your assessment be?

NICO: The industry continues to grow, but the environment has become more selective. Filling aircraft is no longer enough. An airline can achieve high load factors and still erode its margins if fuel costs rise, it retains weak routes to defend market share, or too many aircraft are out of service.

The difference will lie between airlines with liquidity, hedging, fleet flexibility, and the ability to adjust their networks quickly, and those entering winter with strained balance sheets. Wizz Air illustrates that tension.

Reuters reported on September 17 that it had reduced its planned winter capacity by 5% because of the fuel shock and the war between the United States and Iran. At the same time, it raised its near-term revenue forecast after a better-than-expected summer and maintained ambitious targets for 2030. That is near-term caution without abandoning long-term growth.

For boards, the question is not simply whether to grow. It is where to grow, how to protect cash, and how quickly capacity can be withdrawn if conditions change.

2. Fuel and Geopolitics

ARTURO: Is fuel the main risk for the rest of the year?

NICO: It is the most visible risk and one of the fastest to reach the income statement. Reuters reported that American, United, and Southwest were cutting or reconsidering flights for late 2026 and 2027 despite solid demand. American estimated that higher fuel prices could add roughly $1 billion to its fourth-quarter costs.

Associated Press also reported temporary route suspensions at American and a reduction of 20,000 short-haul flights across Lufthansa Group. But the impact is not the same for every airline. Emirates said that it had hedged close to half of its fuel requirements, with protection extending into 2028 or 2029. Fuel is also a test of cash management, hedging, and network design.

ARTURO: What does geopolitics add beyond the price of oil?

NICO: It affects costs, flight times, connectivity, and customer confidence. Airspace closures and diversions increase fuel burn, complicate crew planning, and disrupt traffic flows between hubs.

Etihad reported in September that passenger demand had recovered after the initial disruption. Its capacity was 15% to 17% higher, and its August load factor was 92%. Demand can return quickly, but bookings may come closer to departure. That is why airlines need to review scenarios weekly and decide, route by route, when fuel, insurance, flight time, and operational risk make a particular frequency unattractive.

Disciplined airlines will remove marginal frequencies, protect routes with the strongest contribution, and pass on part of the higher cost where the market allows.

3. Aircraft, Engines, and Availability

ARTURO: Manufacturers describe enormous demand for aircraft. How do we reconcile that with the shortages airlines face today?

NICO: There is no contradiction. Long-term demand can be strong while near-term deliveries remain constrained. Airbus projected a need for approximately 42,000 new aircraft over 20 years, with roughly 45% destined for Asia-Pacific. Yet airlines still face delivery delays, grounded engines, lengthy repairs, and component shortages.

The strategic effect is significant: An aircraft that is available today is worth more than one that has been promised for later. That is why we are seeing lease extensions, greater use of ACMI arrangements, investment in inventory, and more demanding support agreements. Networks can no longer be designed around demand alone; technical availability must also shape them. Looking ahead to 2027, network planning will need to work very closely with fleet management, maintenance, procurement, and crew planning.

ARTURO: What does the airBaltic case tell us in that context?

NICO: A modern fleet and a recognized brand cannot substitute for a sustainable financial structure. airBaltic entered Chapter 11 proceedings in New York to restructure debt and protect its operations.

Reuters reported a proposed €350 million financing package, substantial obligations, discussions with labor representatives, and a review of its wet-lease business. Some bondholders objected to aspects of the financing; we need to distinguish their allegations from the court’s eventual findings.

The commercial questions are concrete: How much value does airBaltic’s own network generate relative to ACMI? How much capacity can its cash position support? What role might a strategic investor play?

The situation can also create opportunities for competitors with enough liquidity to enter routes, obtain slots, or establish themselves at bases that others leave.

4. Artificial Intelligence and Execution

ARTURO: Is artificial intelligence already changing airline results, or is the discussion still ahead of the reality?

NICO: We are moving beyond isolated pilots. AI creates value when it is connected to a decision. In revenue management, it can forecast demand, personalize offers, and identify willingness to pay. In operations, it can anticipate disruptions and support recovery. In maintenance and supply, it can improve fault prediction, inventory management, and repair turnaround times. The risk is buying technology without redesigning the process around it.

If decisions remain fragmented among commercial teams, operations, airports, and customer service, the algorithm simply produces another recommendation that nobody implements. I would ask four questions:

What decision changed?

What revenue or savings did it generate?

Who has the authority to act?

And how is the outcome measured each week?

Without concrete answers, we still have a demonstration rather than a transformation.

5. Latin America

ARTURO: Let’s turn to Latin America. Is the region entering the final months of 2026 in a better or worse position than the rest of the world?

NICO: It has attractive underlying demand, but it is more exposed to external shocks.

The region has large markets, fewer trips per capita than North America or Europe, and geography that favors air travel. But many airlines earn revenue in local currencies while paying for fuel, leases, maintenance, and insurance in US dollars.

That mismatch can quickly erase a commercial improvement. Groups with scale, access to capital, and diversified networks can absorb the shock more effectively. Smaller or more concentrated operators need rigorous capacity and liquidity discipline.

The opportunity remains, but growth must be financed and operated sustainably.

ARTURO: Which regional example best illustrates the ability to respond?

NICO: LATAM. In May, it reported net income of $576 million and capacity growth of 10.4%, but warned that fuel could add more than $700 million to second-quarter costs under its price scenario.

It responded through revenue management, selective capacity adjustments, cost control, liquidity, and hedging. Scale does not solve every problem, but a regional platform offers more ways to redeploy capacity, diversify revenue, and respond. LATAM, Avianca, and Copa will need to protect their connecting banks and highest-contribution routes without pursuing growth that fails to cover the cost of fuel and capital.

Today, the quality of revenue matters more than volume. 6. Brazil and Mexico

ARTURO: What should we watch in Brazil?

NICO: Three issues dominate Brazil: financial structure, consolidation, and cost. GOL and Azul have gone through complex processes, and any reorganization will affect capacity, competition, airports, and negotiations with suppliers. Between now and December, I would watch four indicators: domestic capacity relative to demand, real fares, fleet availability, and cash.

An integration creates value when it combines networks, removes duplication, improves utilization, and strengthens purchasing. If poorly executed, it adds complexity before the benefits appear.

ARTURO: Mexico had an exceptional year because of the World Cup. What remains after that boost?

NICO: The World Cup accelerated demand and visibility while putting more pressure on airports. But the challenge begins afterward.

Aeroméxico, Volaris, and Viva need to normalize their comparisons with this year before making capacity decisions. Mexico retains important advantages: a large domestic market, substantial visiting-friends-andrelatives and leisure traffic with the United States, a favorable geographic position, and cities with international potential.

The risks include fragmented airport infrastructure in the Mexico City metropolitan area, slot constraints, dollar-denominated costs, exposure to the United States, and intense price competition.

Looking toward 2027, the discussion will be how to coordinate Mexico City International Airport, Felipe Ángeles International Airport, and Toluca; protect connectivity; and turn World Cup visitors into repeat travelers.

Valuable growth is not measured by route announcements. It comes from building frequencies that mature and support a profitable network.

7. Regional Connectivity and Long-Haul Flying

ARTURO: How do you see Central America, the Caribbean, and northern South America?

NICO: Copa retains an advantage through the simplicity of its Panama hub, its location, and a relatively uniform fleet. Its challenge is to protect connectivity as costs rise and point-to-point competitors emerge. Avianca rebuilt its model with a leaner cost structure and a strong network. It now needs to balance efficiency with a coherent customer proposition.

Leisure demand in the Caribbean may hold up, but it depends on the United States, weather, and the overall cost of travel. Partnerships, interline agreements, and sound airport policy can generate more value than sustaining a national airline that lacks sufficient scale.

ARTURO: Is Europe’s growing interest in Latin America a structural trend?

NICO: Yes, although it must be assessed route by route. British Airways announced a 25% increase in Latin American capacity for summer 2027 and a daily nonstop flight between Heathrow and Buenos Aires. That signals confidence in specific markets and puts pressure on connections through Madrid, Lisbon, Paris, Amsterdam, and the United States.

The Latin American response does not always need to be matching capacity. Airlines can improve schedules, regional feed, product, loyalty, partnerships, and sales in the point-of-origin market.

Long-haul flying requires patience and a rigorous view of seasonality, cargo, premium demand, and connections. A full flight during a vacation period does not guarantee a profitable route across the year.

8. Decisions Before Year-End

ARTURO: To close, what decisions should Latin American airline boards make before the end of 2026?

NICOLÁS: First, review the network using current fuel and exchange-rate scenarios, rather than relying on a budget approved months ago.

Second, protect cash and availability. Every aircraft, engine, and critical spare part should have a support plan and a clearly understood financial impact.

Third, focus the digital agenda on decisions that deliver measurable revenue, on-time performance, or savings.

And fourth, strengthen execution. Many airlines understand their problems. What is missing is the speed to redeploy capacity, adjust pricing, renegotiate contracts, redesign processes, and coordinate commercial and operational teams.

My outlook is moderately positive because demand remains. But the end of 2026 will be uneven.

The winners will protect margins and cash while continuing to serve customers well and pursuing opportunities left by less-prepared competitors.

Closing

ARTURO: Nicolás, if you had to leave us with one sentence to describe the rest of 2026, what would it be?

NICO: Demand creates the opportunity, but discipline determines who captures the value. ARTURO: On that note, we close this episode of Altitude.

Thank you, Nicolás, for helping us put a demanding year-end in perspective, one that also offers considerable opportunity to those who respond in time. And thank you to everyone listening.

We will see you in the next episode, on your favorite platform.

Production References Sources consulted as of September 18, 2026

• Reuters, “Wizz Air trims winter capacity but sets 2030 growth targets,” September 17, 2026.

• Reuters, “US airlines scale back schedules as fuel shock reshapes flying,” September 16, 2026.

• Reuters, “Airbus sees no softening in demand despite geopolitical headwinds,” September 15, 2026.

• Reuters, “Etihad sees demand recovery despite war disruption,” September 14, 2026.

• Reuters, “airBaltic files for Chapter 11,” September 14, 2026.

• Reuters, “airBaltic discusses workforce reductions with unions,” September 14, 2026.

• Reuters, “British Airways expands Latin American capacity,” September 17, 2026. • Associated Press, “American temporarily suspends routes due to jet fuel costs,” June 4, 2026.

• Associated Press, “Lufthansa Group cuts 20,000 flights as fuel prices rise,” April 22, 2026.

• Associated Press, “Emirates reports fuel hedging through 2028 to 2029,” May 7, 2026.

• LATAM Airlines Group, first-quarter 2026 results and revised fuel outlook, May 5, 2026.

• US Department of Transportation, Air Travel Consumer Reports, 2026.

Production note: The figures and examples reflect information available when the original script was prepared. Before publication, review material developments concerning fuel prices, airspace closures, court proceedings, the IASA result, and capacity announcements.