DUBLIN, Sept 13 (Reuters) - Irish leasing giant Avolon

has agreed to acquire smaller rival Castlelake Aviation Limited,

adding a $5 billion portfolio of assets that include 118

aircraft, the world's second-largest aircraft lessor said on

Friday.

Avolon said the transaction will build its fleet of more

than 1,000 aircraft at attractive yields and is expected to

close in the first quarter of next year.

"This transaction accelerates our growth plans adding a

portfolio of assets that will further strengthen our cashflow

and earnings profile," Avolon Chief Executive Andy Cronin said

in a statement.

Castlelake Aviation is owned by global alternative

investment manager Castlelake L.P. Its assets include 105

aircraft on lease to airlines and commitments to purchase 13 new

aircraft, Avolon said.

Avolon, along with AerCap ( AER ) and SMBC Aviation Capital,

is one of a trio of Ireland-headquartered companies that

dominate the aircraft leasing industry. More than half of the

world's passenger aircraft fleet is owned by aircraft lessors.

Avolon said it would finance the transaction with $3.3

billion of debt acquired from Castlelake, with the balance made

up from existing sources of liquidity.