Saudi Wealth Fund Is in Talks to Acquire National Airline

(Bloomberg) -- Saudi Arabia’s sovereign wealth fund is in early talks to acquire the kingdom’s flagship carrier as it looks to pour billions of dollars into turning the country into a tourism hotspot.

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The Public Investment Fund is considering a deal that would see it add the 80-year old Saudia to its growing portfolio of aviation assets as soon as next year, according to people familiar with the matter, who asked not to be identified as the information is private.

The PIF would be taking over ownership of the airline from the government with a view to improving efficiency and profitability, the people said. The carrier could then be privatized or merged with Riyadh Air, which the wealth fund is currently setting up, they said.

It’s unclear how Saudia would be valued by the PIF, which has in the past received assets from the government without having to pay in order to prepare them for privatization. The carrier has a fleet of over 142 aircraft and flies to more than 90 destinations around the world.

No final decisions have been made. Talks are still at an early stage and the plan may be delayed or abandoned, the people said.

Representatives for Saudia and the PIF declined to comment.

Read More: Saudia’s Catrion Gains as Wealth Fund Said to Acquire Airline

Tourism Push

Saudi Arabia aspires to turn Riyadh into a powerful business hub and compete with larger Gulf airlines for global transfer traffic.

Riyadh Air, which was set up by the PIF as part of those efforts, is seeking to build its network and challenge regional incumbents Emirates and Qatar Airways. Meanwhile, Jeddah-based Saudia, the biggest airline in the country, is being repositioned to focus on religious pilgrimages.

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Last year, the two Saudi carriers collaborated on an order of 78 Boeing Co. 787 Dreamliners, a deal the White House valued at almost $37 billion.

Saudi Arabia wants to attract 150 million tourists a year by 2030 as part of plans to diversify the economy and attract more foreign currency to the oil-dependent economy. As part of those efforts, the PIF is redeveloping Riyadh’s airport into one of the world’s largest. It also started an aircraft leasing company, a helicopter firm, and has invested in Saudia’s engineering unit.

The fund was handed an additional stake in Aramco earlier this month, and now has more than $900 billion in assets. That’s just short of Crown Prince Mohammed bin Salman’s goal of $1 trillion by next year.

The PIF is the main entity tasked with driving Saudi Arabia’s Vision 2030 program. With the government predicting a deficit every year until 2026, there’s a sense of urgency at the fund to line up funding for its billions of dollars of spending commitments, Bloomberg News reported last week.

“The Saudi government has some financial constraints, like all governments do, and so it’s having to prioritize,” Tarek Fadlallah, head of Nomura Holdings Inc.’s asset management arm in the Middle East, told Bloomberg TV.

“At the moment, we see the priority on sectors like tourism, aviation, healthcare and entertainment,” he said. “These are the low hanging fruits the government is committing available resources to over the short and medium term.”

--With assistance from Lizzy Burden.

(Updates with details on PIF’s assets, fundraising plans and quote in final three paragraphs.)

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