* Avolon to become third-biggest lessor after purchase
* Deal is latest evidence of industry consolidation
* Cheap financing, global ambitions drive Asian lessors
* Leasing accounts for 40 pct of global airline fleet (Adds details of deal, industry context)
By Anshuman Daga and Michael Flaherty
SINGAPORE/NEW YORK, Oct 7 (Reuters) - Avolon Holdings, part of China's acquisitive HNA Group, is acquiring CIT Group's aircraft leasing assets worth $10 billion in a deal that will create the world's third-largest lessor in a rapidly consolidating sector.
Asian lessors, led by cash-rich Chinese banks, are spending billions of dollars to expand in the $228 billion global plane-leasing sector that offers long-term revenue in dollars. Leasing accounts for some 40 percent of the world's airline fleet as carriers increasingly rent planes to lower fixed costs.
"When you have a depreciating currency and local industries are not showing strong growth, then aircraft leasing looks like a pretty good option," said Johnny Lau, who ran aircraft leasing units at some Chinese banks before starting his own consultancy.
Chinese conglomerate HNA bought Irish lessor Avolon last year, building on a series of acquisitions in recent years as it expands its global presence in aviation and related sectors.
Avolon is valuing CIT's aircraft leasing business at $10 billion, a 6.7 percent premium over the net asset value. CIT said in a presentation the deal had an implied equity value of $3.9 billion.
CIT, whose shares rose 7.6 percent to $39.16 in extended trading, had been exploring a sale or a spin-off of the business since about a year.
The transaction will help Avolon add 334 owned and managed aircraft and 133 planes already on order or committed to its fleet of 443 planes, giving Avolon access to an additional 69 airlines.
"While this transaction is strategically compelling and will double the scale of Avolon, it is not the summit of our ambition," Avolon's CEO, Domhnal Slattery, said in a statement.
Reuters reported in September that Avolon was nearing a purchase of CIT's aerospace assets, which were also being pursued by China's Ping An Insurance Group's aircraft leasing arm, and Century Tokyo Leasing - a joint venture partner of CIT.
Other interested buyers included lessor AirCastle, which offered potential tax advantages as a U.S.-based company, sources said.
AerCap Holdings and General Electric's GE Capital Aviation Services still dominate the global leasing sector.
The CIT transaction will be funded by a combination of Avolon's cash, new equity contributed by Avolon's parent Bohai and debt financing of $8.5 billion. Bohai bought Avolon in 2015 and closed the transaction this year.
With the new purchase, Avolon said it will have a fleet of 910 planes valued at over $43 billion. The deal is expected to close in the first quarter of 2017.
The deal also marks another victory for Hudson Executive Capital, the activist hedge fund founded by two former JPMorgan bankers last year. Hudson held 1.2 million shares of CIT, or around 0.5 percent of the stock, according to the fund's latest regulatory filing.
Hudson was among the investors pressing CIT to sell the aircraft leasing arm, sources said, adding that the fund has also pressed CIT to shed its rail business and lending operations.
Avolon's financial advisers for the transaction are UBS Investment Bank and Morgan Stanley & Co LLC. Weil, Gotshal & Manges LLP and Freshfields Bruckhaus Deringer are its legal advisers. (Additional reporting by Tim Hepher in PARIS and Narottam Medhora, Diptendu Lahiri and Ankit Ajmera in Bengaluru; Editing by Bill Rigby and Muralikumar Anantharaman)