RIYADH, May 3 (Reuters) - State-owned Saudi Arabian Airlines (Saudia) has started the sale of its medical services business in Jeddah, valued at around $500 million, as part of a drive to reduce non-core assets, sources familiar with the matter said.

The medical business, which is called Saudia Medical Services and owns a major hospital, could be attractive for investors as the Jeddah healthcare market is underserved, the sources said, declining to be named as the matter isn't public.

Jadwa Investment, an adviser for the sale, has reached out to potential buyers and the sale process could be completed by the third quarter. Saudia and Jadwa did not respond to requests for comment.

Saudia has been spinning off some subsidiaries through stock market listings; it listed Saudi Airlines Catering 6004.SE in 2012. But the sale of the Jeddah medical business would be a complete exit, one of the sources said.

The sales are part of a five-year strategy to make the airline profitable by 2020. Saudia appointed a new chief executive, Jaan Albrecht, late last year.

(Reporting by Saeed Azhar and Tom Arnold; Additional reporting by Katie Paul and Alexander Cornwell; Editing by Andrew Torchia) ((Saeed.Azhar@thomsonreuters.com; +65-64035664 ; Reuters Messaging: saeed.azhar.reuters.com@reuters.net))