Global passenger airlines are only "moderately positioned" to adapt to a low-carbon future, with technological challenges proving to be a major hurdle, Moody's said in a report.
The ratings agency surveyed 21 rated passenger airlines for carbon transition assessment and rated them CT-7, which indicates a moderate positioning on its 10-point scale.
"Our assessments reflect our view that global passenger airlines face technological challenges in the transition to a low-carbon future," said Ram Sri-Saravanapavaan, an analyst at Moody's.
"We expect aviation to be subject to increasing pressure from governments and shareholders to reduce emissions in order to deliver on net-zero targets."
The global aviation sector has increasingly come under the spotlight as countries strive to curb emissions amid the pandemic.
The aviation sector currently represents 2 per cent of global CO2 emissions, according to the International Civil Aviation Organisation – a figure that could rise as air travel resumes as movement restrictions ease across the world. But the industry has been struggling to navigate a successful transition due to the inherent structural and technological challenges.
Several initiatives are being undertaken to help airlines adopt sustainable fuels such as biofuel or hydrogen in place of jet fuel, which is a crude product.
"Global passenger airlines face technological challenges in the transition to a low-carbon future, as the likelihood of achieving low or zero-emission engines for aircraft of the size of the industry's current fleet is low and because it will take decades for the output of sustainable aviation fuel to come close to the global industry's annual fuel consumption," Moody's said in the report.
The agency also recommended buying into eligible carbon offsetting programmes until sustainable aviation fuels are developed at scale to power future flights.
Earlier this month, Rolls-Royce, which makes engines for planes and ships, said it planned to achieve net-zero emissions by 2050 through making its aircraft engines capable of running on sustainable aviation fuels (SAFs) and by decarbonising all new products.
The British engineering company outlined its green goals last week and pledged all new products will be compatible with net-zero targets by 2030. Rolls-Royce also said its engines will be able to operate with 100 per cent sustainable aviation fuels by 2023, which produce less carbon than traditional jet fuel.
It further committed to make its entire business carbon-neutral by 2050 at the latest.