HONG KONG (Reuters) - A group of Chinese companies,including Industrial and Commercial Bank of China (ICBC), is intalks to buy nearly all of American International Group Inc'saircraft leasing unit for about $5.5 billion, AIG said onFriday.

The deal is expected to be announced as soon as early next week,a source familiar with the matter said on condition ofanonymity.

AIG, which has been selling assets to pay back a $182 billionU.S. government bailout from 2008, had long been hoping to floatits ILFC unit through an initial public offering, but poor marketconditions forced it to delay those plans.

An IPO was expected to value the company at $6 billion to $8billion, according to previous reports on the plans.

AIG Chief Executive Robert Benmosche said last month that he waswaiting for markets to improve to take ILFC public.

AIG said it is in talks to sell a 90 percent stake in the unitto a consortium including trust company New China Trust Co Ltd,China Aviation Industrial Fund, and an investment arm of ICBC ,China's largest bank. New China Trust is 20 percent-owned byBritish bank Barclays Plc.

“The talks are reasonably far along,” a second source said.

Shares in AIG rose 2.2 percent to $33.98 in midday trading,their highest level since early November.

INDUSTRY LEADER

According to AIG's third-quarter earnings report, ILFC's netbook value as of Sept. 30 was $7.9 billion. In the past, Benmoschehad been adamant about not selling ILFC for less than book value,although the fact that the IPO process has languished for 15 monthsmay have changed his thinking.

The report said ILFC had total assets of $39.6 billion andreported $39 million in operating income in the third quarter,compared to an operating loss of $1.3 billion a year earlier, whenit took $1.5 billion of impairment charges and fair valueadjustments.

Founded by leasing legend Steven Udvar-Hazy, who sold thecompany to AIG and eventually formed his own group, ILFC is one ofthe world's largest leasing companies and among the world's biggestowners of passenger jets. Its main rival is GECAS, the aviationleasing arm of General Electric Co.

ILFC's customers include most of the world's major airlines.

Since it was founded almost 40 years ago, ILFC has bought acombined total of more than 1,500 passenger jets from Boeing Co andAirbus, according to manufacturer figures.

ILFC has a portfolio of more than 1,000 owned or managedaircraft. It has on order 239 new fuel-efficient planes, includingBoeing 787s and Airbus A320neos, and has the rights to purchase anadditional 50 such aircraft.

The leasing company has been looking for areas of growth andbeefed up its presence in the Asia Pacific region by openingoffices in Singapore and Beijing this year.

CHINESE BUYING SPREE

China has shown interest in buying aircraft leasing businessesbefore.

China Development Bank, the country's policy lender, was amongthe short-listed bidders for Royal Bank of Scotland Group Plc'saviation business earlier this year, according to a previousReuters report.

That business was bought by a consortium led by Japan's SumitomoMitsui Financial Group.

Analysts say China tends to balance its orders between Airbusand Boeing, the world's two dominant aircraft manufacturers, partlyfor political reasons.

As a result, the manufacturers may not need to compete asheavily for orders as in the rest of the world, so China is payinga premium for aircraft, industry experts say. The order books ofILFC could mean cheaper planes for China.

Chinese companies have launched about $51.3 billion worth ofoverseas acquisitions this year, making the country Asia'ssecond-biggest spender on outbound transactions, according toThomson Reuters data, behind Japan.

A spokesman for ICBC declined to comment. Reuters was unable toreach New China Trust and China Aviation.