Insurer American International Group (AIG) has announced plans to sell its aircraft-leasing business to AerCap Holdings for $5.4 billion, after four years of trying to divest its biggest non-insurance business in fits and starts.

The agreement will give AerCap, a Netherlands-based lessor, a fleet of 1,329 aircraft - the second largest after General Electric's aircraft leasing division GECAS, which owns and services 1,630 aircraft.

AerCap will pay $3 billion plus stock for International Lease Finance Corp (ILFC), in a deal which would see it take a 46 per cent stake in the company and result in the insurer finally securing a sale of the business after four years of trying.

Abu Dhabi-based investment firm Waha Capital, which is the largest shareholder in AerCap with a 26.3 per cent stake has welcomed the deal. The company on Tuesday said it would vote in favour of the AIG acquisition.

"We are supportive of this transaction which we expect to be value enhancing for AerCap's existing shareholders and indirectly for our own shareholders," remarked Salem Rashid Al Noaimi, the CEO of Waha Capital, in an Abu Dhabi bourse filing.

"This transaction uniquely positions AerCap as the leading aircraft leasing company in an industry with strong growth prospects over the coming years,” he added.

Should the deal complete, Waha's holding will be reduced to about 14 per cent.

AIG, which was nearly wiped out by derivative bets during the financial crisis, put ILFC on the block after receiving a $182 billion government bailout package in 2008. AIG repaid the rest of the money owed to the US Treasury in March, but still wanted sell ILFC as part of its efforts to focus on insurance.

As part of the cash and stock deal, AIG will end up holding a nearly 46 per cent stake in AerCap for at least nine months after the deal closes. But the move nevertheless rids AIG's balance sheet of ILFC's debt and aircraft purchase commitments, and allows the insurer to focus on its property-casualty and life insurance operations.

The deal will result in annual operational cash flow of $3 billion and savings of about $100 million a year by the end of 2015, AerCap chief executive Angus Kelly said in a call with analysts.

AerCap's shares rose more than 35 per cent following news of the deal and were up 30.5 per cent at $32.53 late Monday afternoon. AIG shares edged up 1 per cent to $50.23 on the New York Stock Exchange.

"It's a good transaction for AIG," said Clifford Gallant, an analyst with Nomura Equity Research, a division of Nomura. "It gets to retain 46 percent, so they get a future earnings stream from the company. ... It simplifies AIG's balance sheet, enabling them to do things like buy back stock or have more capital flexibility."

The deal comes almost exactly a year after AIG announced it was selling a 90 per cent stake of ILFC to a group of investors based mainly in China for $4.7 billion. That deal valued ILFC at about $5.3 billion.

But last spring, the consortium was late with a payment for the business, raising concerns about whether the deal would close.

By late summer, AerCap began lining up financing to strike a deal to buy ILFC, according to three people familiar with the situation who are not authorized to speak to the media.

Under the terms of the deal, AIG will get $3 billion in cash and 97.56 million new common shares of AerCap, giving the deal a value of $5.4 billion based on AerCap's closing share price on Friday.

The insurer can begin selling its stake in AerCap in stages over a nine- to 15-month period after the deal closes. The deal is expected to close in the second quarter.

But while AIG will retain a stake in AerCap for some time, the deal enables the insurer to wipe $21 billion in debt associated with the business off its balance sheet. Net cash proceeds to AIG at closing are expected to be around $2.4 billion.

UBS was the financial adviser to AerCap while Goldman Sachs was the financial adviser to AerCap's board.

Citigroup was the lead financial adviser to AIG, and Morgan Stanley and JPMorgan Chase & Company also advised on the deal, an AIG spokesman said.-Reuters