U.S. officials are expected to cite issues including insufficient legal authority, training and compensation for Mexican air-safety regulators, some of the people said. An announcement is expected as soon as the week of May 24, people familiar with the matter said.

One U.S. official said the American government was expected to acknowledge that Mexican authorities have addressed some of the FAA’s concerns and to offer assistance resolving remaining issues. A spokesman for Mexican President

Andrés Manuel López Obrador

declined to comment.

Mexico, which has remained open to U.S. tourists throughout the Covid-19 pandemic, has been the largest international destination from the U.S. through much of the past year as health concerns and government travel restrictions prompted a sharp decline in global air traffic.

More than 2.3 million passengers flew nonstop between the two countries last month, with four times as many seats being flown in May compared with the second-ranked U.K.-Spain market, data provider OAG said.

A downgrade would have the most significant effect on Mexican airlines operating to and from the U.S., including Volaris and

Grupo Aeromexico S.A.

AEROMEX 0.72%

B. de C.V, which has a marketing arrangement with Atlanta-based

Delta Air Lines Inc.

DAL -0.44%

A downgrade could require Delta passengers to be rebooked directly with Aeromexico if they are scheduled to fly on that carrier’s jets via the airlines’ code-share agreement, people familiar with the matter said.

Delta declined to comment. Aeromexico and Volaris didn’t respond to requests for comment on Saturday.

The number of passengers flying from the U.S. to Mexico was down 16% in April compared to that month in 2019, the year before the pandemic sapped travel demand around the world, according to analysis of government data by Airlines for America, a trade group. By comparison, passenger traffic from the U.S. to the U.K. and Canada, which have tighter travel restrictions, dropped 97% over the same period, according to Airlines for America.

In recent weeks, U.S. passenger traffic to Mexico has risen above pre-pandemic levels, according to the trade group.

The FAA previously downgraded Mexico’s aviation safety rating in 2010 and has taken similar actions over the years against other countries, including South Korea and India.

—Alison Sider and Doug Cameron contributed to this article.

Write to Andrew Tangel at Andrew.Tangel@wsj.com