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AerCap Holdings NV (AER) announced plans Friday to acquire Genesis Lease Ltd. (GLS) in a $300 million all-stock merger that would create the world's third-largest aircraft leasing company by fleet size.

The proposed combination is valued at $1.75 billion including debt, and comes amid a flurry of deal activity in the capital-intensive leasing sector.

Funding problems and weakness in the airline industry are forcing a number of companies to seek buyers for their leasing units.

Klaus Heinemann, AerCap's chief executive, said Genesis provided the best fit because the operations have little overlap. Its listed status also made valuation easier.

"We're hoping that the market will see this as a sea-change," said Heinemann in an interview, noting that it reflected growth opportunities for lessors not weighed by troubled parents.

Some of the sector's biggest players, including units of American International Group Inc. (AIG) and Royal Bank Of Scotland Group PLC (RBS), are seeking buyers at a time when aircraft values and lease rates are falling.

Airlines have increasingly turned to renting aircraft as weak finances left them unable to purchase equipment. The operating lease sector has burgeoned, only for tightening credit markets to leave some players unable to finance huge aircraft orders.

Heinemann, an aircraft finance veteran, will run the enlarged AerCap business and its fleet of 358 aircraft, second only to the Gecas unit of General Electric Corp. (GE) and AIG's International Lease Finance Corp. business.

Heineman said the merger will produce synergies, including cost-savings and increased clout with aircraft makers, Boeing Co. (BA) and Airbus.

Another key goal is to build shareholder value: While aircraft leasing has been profitable through the recent recession, industry funding problems left Genesis undervalued, according to John McMahon, its chairman and chief executive.

AerCap is offering one of its own shares for each Genesis share, valuing the latter at $8.81 apiece, a 45% premium to their 30-day average. Genesis shareholders would hold 29% of the enlarged company.

Genesis shares were recently down 1% at $8.36, with AerCap off 3.3% at $8.52. Both companies floated in 2006, and Genesis shares peaked above $30 the following year.

Both companies have young fleets, with an average age of 6 to 7 years, that have found customers even as some airlines downsized and grounded older aircraft.

Pending approval by Genesis shareholders and government regulators, the deal should close by the end of the year, the executives said.

McMahon, who worked at AerCap until 2003, said he won't have a role in the merged company. Genesis went public in 2006, with backing from GE, which still holds more than a 10% stake in the company.

Following the merger, AerCap would have 116 airline customers in 50 countries and a lease portfolio valued at $6 billion, Heinemann said.

AerCap said Friday it would buy 13 aircraft from Gecas. GE has been servicing Genesis' portfolio, but will end that arrangement when AerCap chooses to do so.

"I have the option to terminate at any time, but for the time being, I'm happy with leaving the situation as it is," Heinemann said.

Heinemann said AerCap's near-term growth will focus on markets that are gaining economic strength, including China and Brazil. In China, he said, AerCap is securing aircraft financing from local banks, which haven't been hurt by the global credit crunch.

-By Ann Keeton and Kevin Kingsbury, Dow Jones Newswires; 312-750-4120;ann.keeton@dowjones.com