The U.S. Transportation Department has halted its review into the planned joint venture (JV) between ULCCs Allegiant Air and Viva Aerobus.

The carriers have been seeking antitrust immunity since December 2021 to operate a transborder alliance between the U.S. and Mexico. As part of the deal, Allegiant will also invest $50 million in its Mexican counterpart.

However, the department suspended a procedural review into the JV on July 31, citing “outstanding questions relating to the continued implementation of the U.S.-Mexico air transportation agreement.”

In a letter to Mexico’s under-secretary of transportation, the department highlighted recent actions taken by the Mexican government that will affect U.S. carrier operations at Mexico City’s Benito Juarez International Airport (MEX). It said these have “called into question the existence” of a fully liberalized air transport agreement between the two countries.

At MEX, airlines have been affected by capacity restrictions as authorities look to bolster operations from Felipe Angeles International Airport, which opened last year and is located about 30 mi. away from the historic center of Mexico City.

Additionally, the FAA downgraded Mexico’s safety rating to Category 2 status in May 2021, meaning Mexican airlines have not been able to add new routes and frequencies to the U.S. The decision also prevents equipment changes, such as swapping in larger aircraft.

Without the restoration of Mexico’s Category 1 status, Allegiant Air and Viva Aerobus will be prevented from implementing the bulk of their proposed alliance.

“Given these circumstances, we are not able to further consider the Viva/Allegiant case pending additional information demonstrating compliance with, and full implementation of, the terms of the U.S.-Mexico air transportation agreement through our continued consultations with [Secretaría de Infraestructura, Comunicaciones y Transportes],” the department says.

Allegiant Air and Viva Aerobus unveiled their partnership in December 2021. At the time they announced the plans, the airlines said that an ability to coordinate on pricing, scheduling and other elements involved in gaining antitrust immunity would allow for each to significantly broaden their reach in the U.S.-Mexico market.

Mexico’s Federal Economic Competition Commission authorized the commercial agreement unconditionally in October 2022.