Annual Report 2019

2. Summary of significant accounting policies (cont’d.) 2.10 Leases (cont’d.) Accounting policies applied from 1 January 2019 (cont’d.) Group as a lessor (cont’d.) ii) Operating leases The Group classifies a lease as an operating lease if the lease does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset to the lessee. The Group recognises lease payments received under operating lease as lease income on a straight-line basis over the lease term. iii) Sublease classification Until the financial year ended 31 December 2018, when the Group was an intermediate lessor, the subleases were classified as finance or operating leases by reference to the underlying assets. From 1 January 2019, when the Group is an intermediate lessor, it assesses the lease classification of a sublease with reference to the ROU asset arising from the head lease, not with reference to the underlying asset. If a head lease is short-term lease to which the Group applies the exemption described above, then it classifies the sublease as an operating lease. The Group as an intermediate lessor accounts for the sublease as follows: – If the sublease is classified as an operating lease, the original lessee continues to account for the lease liability and ROU asset on the head lease. – If the sublease is classified as a finance lease, the original lessee derecognises the ROU asset on the head lease at the sublease commencement date and continues to account for the original lease liability. The original lessee, as the sublessor, recognises a net investment in the sublease and evaluates it for impairment. Sale and leaseback transactions Under a sale and leaseback transaction, the transfer is assessed to be a sale in accordance with MFRS 15. It is expected that all sale and leaseback transactions will meet these requirements, however these will need to be assessed on a lease-by-lease basis. If the transfer of the asset is a sale, the seller-lessee will: – Derecognise the underlying asset; and – Recognise the gain or loss, if any, that relates to the rights transferred to the buyer-lessor and adjusted for off-market terms. NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 December 2019 (CONT’D.) 242 MORE THAN JUST AN AIRLINE >