UPDATE 3-Delta, Northwest to create largest airline

(Recasts lead, adds Delta comment, industry finances, details)

By Kyle Peterson and Jui Chakravorty Das

NEW YORK, April 14 (Reuters) - Delta Air Lines Inc (DAL.N: Quote, Profile, Research, Stock Buzz) will buy Northwest Airlines Corp (NWA.N: Quote, Profile, Research, Stock Buzz) for more than $3 billion under a proposal unveiled Monday to create the world's biggest airline, as carriers seek to counter skyrocketing fuel prices and a weak economy.

After racking up $35 billion in losses and finally emerging from a five-year slump in 2006, U.S. airlines are hoping mergers could lead to higher fares as combined carriers reduce flights and use their increased market power to raise prices.

The all-share deal will give Northwest shareholders 1.25 Delta shares for each Northwest share they own, a 17 percent premium to Northwest'q closing price of $11.22 on the New York Stock Exchange. Delta shares closed up 4.7 percent at $10.48.

"It's a very optimistic view on an industry that's been very dismal for the last couple of weeks," said airline consultant Robert Mann.

The airlines also face a renewed sense of urgency to consolidate and cut costs amid the relentless upward march of fuel prices, a weakening economy, and a growing competitive threat from European carriers. Jet fuel prices [JET-NYH] have more than doubled since the start of last year.

If given regulatory approval, the new airline, led by Delta chief executive Richard Anderson, will be headquartered in Atlanta and will operate under Delta's flag with over $35 billion in annual revenue and about 75,000 employees.

"Together, we are creating America's leading airline -- an airline that is financially secure, able to invest in our employees and our customers, and built to thrive in an increasingly competitive marketplace," Anderson said in a statement.