By Kylie Madry

MEXICO CITY Mexico may repurchase about $4.2 billion in outstanding bonds issued to finance a partly built Mexico City airport that was later canceled, a senior official said on Wednesday.

"It's a possibility," Deputy Transportation Minister Rogelio Jimenez Pons told reporters, noting that the finance ministry would lead any talks with bondholders.

After being elected in 2018, Mexican President Andres Manuel Lopez Obrador scrapped the partially built airport started by his predecessor, slamming it as corrupt and too expensive.

His government bought back $1.8 billion of $6 billion in bonds issued to pay for the airport. The project was meant to alleviate pressure on the capital's hub, Mexico City International Airport (AICM).

Lopez Obrador instead converted a military base into a commercial hub, last year opening Felipe Angeles International Airport north of AICM.

Lopez Obrador now wants the Mexican Navy to take charge of AICM.

To repay the outstanding bonds, the government has pulled revenue from the AICM usage tax. That will change before the Navy takes over the airport, Jimenez said.

"That needs to be resolved first," he said. "I think the most important thing is to give bondholders the certainty that Mexico will fulfill the obligations it has with them."

On Tuesday, a draft decree was published to give the Navy control over the airport, a fresh step in the military's increasing role in the sector.

Lopez Obrador had praised the Navy's role at the airport, where it runs security operations and customs, for reducing drug trafficking and smuggling.

(Reporting by Kylie Madry. Editing by Gerry Doyle)