Leases

12 Months Ended

May 31, 2023

NOTE 7: LEASES

The following table is a summary of the components of net lease cost for the period ended May 31 (in millions):


	2023		2022
Operating lease cost	$	3,300	$	3,100
Finance lease cost:
Amortization of right-of-use assets		36		26
Interest on lease liabilities		18		16
Total finance lease cost		54		42
Short-term lease cost		531		556
Variable lease cost		1,435		1,368
Net lease cost	$	5,320	$	5,066

Supplemental cash flow information related to leases for the period ended May 31 is as follows (in millions):


	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	3,207	$	2,981
Operating cash flows paid for interest portion of finance leases		15		15
Financing cash flows paid for principal portion of finance leases		94		99
Right-of-use assets obtained in exchange for new operating lease liabilities	$	3,317	$	3,489
Right-of-use assets obtained in exchange for new finance lease liabilities	$	414	$	56

Supplemental balance sheet information related to leases as of May 31 is as follows (dollars in millions):


	2023			2022
Operating leases:
Operating lease right-of-use assets, net	$	17,347		$	16,613

Current portion of operating lease liabilities		2,390			2,443
Operating lease liabilities		15,363			14,487
Total operating lease liabilities	$	17,753		$	16,930

Finance leases:
Net property and equipment	$	821		$	455

Current portion of long-term debt		75			32
Long-term debt, less current portion		725			436
Total finance lease liabilities	$	800		$	468

Weighted-average remaining lease term
Operating leases		9.5			9.8
Finance leases		27.5			30.8

Weighted-average discount rate
Operating leases		3.42	%		2.85	%
Finance leases		4.22	%		3.45	%

We utilize certain aircraft, land, facilities, retail locations, and equipment under finance and operating leases that expire at various dates through 2060. We leased 1% of our total aircraft fleet under operating leases as of May 31, 2023 and 2% as of May 31, 2022. A portion of our supplemental aircraft are leased by us under agreements that provide for cancellation upon 30 days’ notice. Our leased facilities include national, regional, and metropolitan sorting facilities; retail facilities; and administrative buildings.

A summary of future minimum lease payments under noncancelable operating and finance leases with an initial or remaining term in excess of one year at May 31, 2023 is as follows (in millions):


	Aircraft and Related Equipment			Facilities and Other			Total Operating Leases			Finance Leases			Total Leases
2024	$	103		$	2,790		$	2,893		$	104		$	2,997
2025		84			2,708			2,792			52			2,844
2026		82			2,419			2,501			46			2,547
2027		81			2,137			2,218			37			2,255
2028		81			1,836			1,917			37			1,954
Thereafter		90			8,411			8,501			1,207			9,708
Total lease payments		521			20,301			20,822			1,483			22,305
Less imputed interest		(35	)		(3,034	)		(3,069	)		(683	)		(3,752	)
Present value of lease liability	$	486		$	17,267		$	17,753		$	800		$	18,553

While certain of our lease agreements contain covenants governing the use of the leased assets or require us to maintain certain levels of insurance, none of our lease agreements include material financial covenants or limitations.

As of May 31, 2023, FedEx has entered into additional leases which have not yet commenced and are therefore not part of the right-of-use asset and liability. These leases are generally for build-to-suit facilities and have undiscounted future payments of approximately $1.8 billion and will commence when FedEx gains beneficial access to the leased asset. Commencement dates are expected to be from 2024 to 2026.

FedEx Express makes payments under certain leveraged operating leases that are sufficient to pay principal and interest on certain pass-through certificates. The pass-through certificates are not direct obligations of, or guaranteed by, FedEx or FedEx Express.

We are the lessee under certain leases covering a portion of our leased aircraft in which the lessors are trusts established specifically to purchase, finance, and lease these aircraft to us. These leasing entities are variable interest entities. We are not the primary beneficiary of the leasing entities, as the lease terms are at market at the inception of the lease and do not include a residual value guarantee, fixed-price purchase option, or similar feature that obligates us to absorb decreases in value or entitles us to participate in increases in the value of the aircraft. Therefore, we are not required to consolidate any of these entities as the primary beneficiary. Our maximum exposure under these leases is included in the summary of future minimum lease payments.