Note 18 - Leases

When the Group acts as lessee, the present value of lease payment commitments that are fixed or fixed in substance and due under concession agreements in transport hubs and hospitals, building leases or leases of other equipment, are recognised within lease liabilities against a corresponding right-of-use asset.
The variable portion of lease payments under concession agreements, based on passenger flows or revenue earned by retail outlets, continues to be shown in external charges or in other operating expenses. In application of the full retrospective method, lease liabilities are discounted at the rate set at the start of each agreement. The discount is updated to take account of any modifications, notably as regards the leased premises or lease term. The discount rates applied are within a range of between 0.05% and 8.93%.

Changes in right-of-use assets and lease liabilities were as follows in 2020 and 2019:

Right-of-use assets

  Gross amount Depreciation and impairment losses Carrying amount
Concession agreements Buildings and other Total Concession agreements Buildings and other Total Concession agreements Buildings and other Total
At 1 January 2020 3,871 778 4,649 (1,467) (323) (1,790) 2,404 455 2,859
New leases 333 11 334       333 11 344
Depreciation       (400) (73) (473) (400) (73) (473)
Impairment losses       - - - - - -
Translation adjustments (105) (22) (127) 47 10 57 (58) (12) (70)
Lease modifications (530) 17 (513)       (530) 17 (513)
Lease remeasurements (214) 3 (211)       (214) 3 (211)
Changes in scope of consolidation - (15) (15) - 12 12 - (3) (3)
Terminated leases (175) (33) (208) 175 33 208 - - -
Other 8 (1) 7 (2) 10 (1) 6 - 6
At 31 December 2020 3,188 738 3,926 (1,647) (340) (1,987) 1,541 398 1,939
  Gross amount Depreciation and impairment losses Carrying amount
Concession agreements Buildings and other Total Concession agreements Buildings and other Total Concession agreements Buildings and other Total
At 1 January 2019 3,229 912 4,141 (1,220) (369) (1,589) 2,009 543 2,552
New leases 441 29 470       441 29 470
Depreciation       (473) (73) (546) (473) (73) (546)
Impairment losses       - - - - - -
Translation adjustments 40 11 51 (17) (4) (21) 23 7 30
Lease modifications 58 14 72       58 14 72
Lease remeasurements 13 (7) 6       13 (7) 6
Changes in scope of consolidation 336 1 337 - - - 336 1 337
Terminated leases (250) (73) (323) 250 73 323 - - -
Discontinued operations and other 4 (109) (105) (7) 50 43 (3) (59) (62)
At 31 December 2019 3,871 778 4,649 (1,467) (323 (1,790) 2,404 455 2,859

Lease liabilities

  Non-current lease liabilities Current lease liabilities Total lease liabilities
Concession agreements Buildings and other Total Concession agreements Buildings and other Total Concession agreements Buildings and other Total
At 1 January 2020 2,032 495 2,527 512 58 570 2,543 554 3,097
New leases 327 10 337 - - - 327 10 337
Interest expense - - - 57 17 74 57 17 74
Covid-19 lease negotiations/gains on lease modifications (171) - (171) - - - (171) - (171)
Lease payments - - - (206) (79) (285) (206) (79) (285)
Reclassifications(*) 3 (77) (74) (3) 77 74 - - -
Translation adjustments (48) (14) (62) (13) (2) (15) (61) (16) (77)
Lease modifications (530) 17 (513) - - - (530) 17 (513)
Lease remeasurements (214) 3 (211) - - - (214) 3 (211)
Changes in scope of consolidation - (1) (1) - (3) (3) - (4) (4)
Other 1 - 1 (5) 3 (2) (3) 2 (1)
At 31 December 2020 1,400 433 1,833 342 71 413 1,742 504 2,246
  Non-current lease liabilities Current lease liabilities Total lease liabilities
Concession agreements Buildings and other Total Concession agreements Buildings and other Total Concession agreements Buildings and other Total
At 1 January 2019 1,730 553 2,283 395 63 458 2,124 617 2,741
New leases 438 28 466 - - - 438 28 466
Interest expense - - - 66 19 85 66 19 85
Lease payments - - - (518) (77) (595) (518) (77) (595)
Reclassifications(*) (523) (64) (587) 523 64 587 - - -
Translation adjustments 21 8 29 5 - 5 26 8 34
Lease modifications 58 14 72 - - - 58 14 72
Lease remeasurements 13 (7) 6 - - - 13 (7) 6
Changes in scope of consolidation 295 1 296 38 - 38 333 1 334
Discontinued operations and other - (38) (38) 3 (11) (8) 3 (49) (46)
At 31 December 2019 2,032 495 2,527 512 58 570 2,543 554 3,097

(*) Reclassifications relate to the current portion of lease liabilities, reclassified within current lease liabilities.

In all countries concerned by global air traffic restrictions and subsequent lockdown measures, local management held negotiations with airports and stations with a view to obtaining rent relief during the period when air traffic was restricted, and even after that time.
These negotiations were based on concession agreements with many different legal forms, for example providing for guaranteed minimum payments or including/excluding clauses allowing them to renegotiate lease payments in the event of force majeure or a collapse in passenger traffic.
At 31 December 2020, various forms of rent relief were granted by lessors, including for example:

  • the cancellation of all or part of guaranteed minimum payments over a given period;
  • the cancellation of guaranteed minimum payments based on applicable contractual conditions;
  • more general revisions to lease terms and premises leased. The IFRS 16 amendment published in May 2020 was applied where the renegotiated leases met the requisite conditions. Under this amendment, rent relief obtained in connection with Covid-19 may be recognised as a deduction from lease liabilities against a gain in the income statement.

The impact of IFRS 16 on concession agreements in the Travel Retail business is neutralised when calculating recurring operating profit (loss) of fully consolidated companies. Accordingly, irrespective of the IFRS 16 treatment adopted (see below), rent relief agreed with lessors was taken into account in recurring operating profit (loss) of fully consolidated companies in 2020. This represented a positive €362 million impact, corresponding to the difference between the fixed lease expense initially expected in 2020 and the expense actually recognised during the year.
A decision tree was prepared taking into account the IFRS 16 Covid-19 amendment in order to identify the accounting treatment applicable to the leases renegotiated in 2020, which can be summarised as follows:

  • When the original lease contains a clause (force majeure, decrease in passenger traffic or in business, store closures, etc.) and describes the financial implications of that clause, the corresponding rent relief is accounted for as a negative variable lease payment by reducing the lease liability against a gain in the income statement.
  • When the original lease does not contain any clause or contains only a simple review clause, the relief is analysed as follows:
    • rent relief granted over a period up to 30 June 2021 at the latest, with no substantive change in other terms and conditions of the lease: this is deducted from the lease liability against a gain in the income statement, pursuant to the Covid-19 amendment to IFRS 16. If the rent relief is conditional, it is only recognised to the extent that the underlying conditions have been met at 31 December 2020;
    • rent relief granted over a period beyond 30 June 2021: the Group applies IFRS 16.44-46, whereby the rent reduction is treated as a lease modification. In this case, the lease liability is deducted against the right-of-use asset. Future lease payments are discounted using a revised discount rate;
    • other rent relief, such as an extended lease term, adjustments to rent, guaranteed minimum payments, or premises leased: this is treated as a lease modification with no exceptions. Future lease payments are discounted at a revised discount rate, and the lease liability is adjusted against the right-of-use asset;
    • deferral of lease payments granted by the lessor: in this case, the lease liability is adjusted against the right-of-use asset to reflect the change in the payment schedule agreed with the lessor.

At 31 December 2020, lease liabilities and right-of-use assets were reduced by €895 million and €724 million, respectively. This reduction breaks down as:

  • A reduction in lease liabilities recognised against a gain in the income statement amounting to €171 million, of which €101 million meets the conditions set out in the IFRS 16 amendment.
  • A reduction in lease liabilities recognised against right-of-use assets for €513 million (lease modifications), including:
    • an increase in lease terms and in premises leased, representing a positive €138 million;
    • a decrease in lease terms and in premises leased, representing a negative €70 million;
    • lease modifications representing a negative €550 million;
    • the impact of discounting future lease payments at a revised discount rate, representing a negative €31 million.
  • A reduction in lease liabilities recognised against right-of-use assets for €211 million (lease remeasurements), relating mainly to changes in estimated lease payments representing a negative €208 million.

Interest expense on lease liabilities amounted to €74 million in 2020, compared to €85 million in 2019, a decrease of €11 million mainly attributable to the decrease in lease liabilities.
Lease payments represented €285 million at 31 December 2020 compared with €595 million at 31 December 2019.
Certain leases do not give rise to a right-of-use asset or a lease liability. These are leases with variable lease payments, with a term of less than 12 months, or with a low-value underlying asset. The corresponding rental expenses, representing €104 million in 2020 (€207 million in 2019), continue to be shown in external charges or in other operating expenses, including €96 million in respect of variable lease payments under concession agreements.
In the Group’s segment information (see note 5), the rental expense reclassified in recurring operating profit (loss) of fully consolidated companies amounts to €213 million for concession agreements in 2020 (€532 million in 2019).

The table below shows the maturity of undiscounted lease liabilities at 31 December 2020 and 2019:

Lease liabilities 31 Dec. 2021 31 Dec. 2022 31 Dec. 2023 31 Dec. 2024 31 Dec. 2025 Beyond 5 years Total
Concession agreements 386 387 312 279 161 366 1,891
Buildings and other 87 78 71 66 60 215 576
At 31 December 2020 473 465 383 345 221 581 2,467
Lease liabilities 31 Dec. 2020 31 Dec. 2021 31 Dec. 2022 31 Dec. 2023 31 Dec. 2024 Beyond 5 years Total
Concession agreements 569 511 456 362 261 588 2,748
Buildings and other 94 94 86 76 68 276 695
At 31 December 2019 663 605 542 438 329 864 3,443

At 31 December 2020, the residual weighted average term of concession agreements and building leases was six years and nine years, respectively.
Concession agreements and building leases signed at 31 December 2020 but not yet effective, represented total undiscounted lease payment commitments of €35 million.
The Group sub-lets retail premises and office space under operating leases in which it acts as lessor. The associated income from sub-leasing such premises continues to be included within other operating income.
In certain cases, sub-leases cover substantially all of the risks and rewards of the principal lease, and are recognised as finance leases.
Right-of-use assets relating to the principal lease are derecognised and a financial receivable booked.