Delta sets dividend increase and new buyback, boosting shares

* Dividend to rise to 9 cents/share from 6 cents

* $2 bln share buyback to be completed by end of 2016

* Debt seen coming down

* Shares hit highest level since airline emerged from bankruptcy (Adds share price, details on strategy)

May 6 (Reuters) - Delta Air Lines Inc (NYSE: DAL - news) said on Tuesday it will raise its quarterly dividend by 50 percent later this year and launch a new share repurchase plan as it builds on a strategy to enhance returns for shareholders, sending shares to a multi-year high.

The carrier said its board approved a $2 billion share buyback program that will be completed by the end of 2016. The quarterly payout will rise to 9 cents a share from 6 cents a share in the third quarter, the company added.

Delta, the third-biggest U.S. airline by revenue behind American Airlines Group and United Continental Holdings , also said it would keep pushing to reduce debt and continue contributing $1 billion a year to fund its defined benefit pension plans.

Last year, Delta paid its first dividend in 10 years and launched a $500 million share buyback program. The airline said the latest moves would return an additional $2.75 billion to investors through 2016.

Delta, which filed for bankruptcy in 2005 and acquired Northwest Airlines in 2008, retired fuel-guzzling airplanes, upgraded food offerings and sold seats with more leg room to improve profit. It set up partnerships with foreign airlines such as Britain's Virgin Atlantic to position itself to win new customers, and expanded flights in higher-growth markets. Its purchase of a refinery two years ago has helped cut fuel costs.

The moves have paid off. Adjusted net debt stood at $9.1 billion at the end of March, down $2.6 billion since 2012, and Delta expects it to fall to $7 billion next year. Delta was chosen to rejoin the S&P 500 last year.

Among big U.S. carriers, Southwest Airlines Co (NYSE: LUV - news) also pays a dividend and repurchases shares.

Shares of Delta rose as much as 3 percent on Tuesday to $38.64, the highest level since the airline emerged from bankruptcy in 2007. The shares were still up 2 percent at $38.30 in midmorning trading.

Other major airlines were also higher, with American Airlines up 1.3 percent at $37.07 and United Continental (NYSE: UAL - news) up 0.5 percent at $40.71.

Shares of Delta have risen 39 percent this year, compared with a 46 percent increase for American and 8 percent for United. (Reporting by Karen Jacobs in Atlanta; editing by Bernadette Baum and Matthew Lewis)