NEW YORK ( TheStreet) -- Airlines have prioritized ever increasing stock buybacks in order to win friends on Wall Street, but in United's (UAL) - Get Report case the buybacks are being questioned by pilot and flight attendant leaders.
United last week reported a second-quarter profit of $1.3 billion, the highest quarterly profit in the carrier's history. The carrier also said it will buy back an additional $3 billion worth of its stock by 2017. It is still completing a $1 billion share repurchase program, having spent $770 million from that allocation.
"Buying back shares of a company's stock signals to investors that executive management cannot think of anything to do with its excess cash," Jay Heppner, chairman of the United chapter of the Air Line Pilots Association, wrote in a letter to members.
In a separate letter, the three top officers in United ALPA's Chicago domicile wrote, "The recently announced $3B stock-buy-back is an insult to us."
The buyback is occurring even as CEO Jeff Smisek "can't even pay us accurately (or) provide us with the necessary tools to do our jobs, outsources our maintenance, skimps on training, and continues to put Band-Aids on a broken infrastructure," the three pilots wrote.
Sara Nelson, president of the Association of Flight Attendants, voiced similar thoughts immediately after the company reported earnings and announced the buybacks. "Announcing a $3 billion stock buyback plan is outrageous as current management fails to invest in flight attendants who are among the front-line working people who make the airline go," Nelson said.
United's top officers seemed to anticipate the resistance during last week's earnings call.
"In the quarter, we generated $1.8 billion of operating cash flow and almost $0.5 billion of free cash flow," Smisek said. "We put our cash to good use by investing it in our employees and our business, prepaying debt and making significant contributions to our pension plans, buying back stock and investing in strategic partnerships."
During the second quarter, United spent $1.26 billion on capital expenditures including aircraft and airport upgrades while it repurchased $250 million of stock, said Chief Financial Officer John Rainey. The carrier also prepaid $800 million of debt and spent $620 million funding its pension plan, bringing pension funding this year to $800 million.
"We continue to take a balanced approach to deploying our cash," Rainey said.
United shares gained $1.61 on Tuesday and closed at $58.42. Shares are down 13% year-to-date.
United is not alone in compounding its stock buyback efforts.
On Friday, American (AAL) - Get Report said its board authorized a $2 billion share repurchase program to be completed by Dec. 31, 2016. That is in addition to an ongoing $2 billion share repurchase plan authorized in January. So far, American has spent $943 million buying back shares.
All of the big three airlines repeatedly make the case that the current boom in airline earnings, which results from high demand, capacity discipline, ancillary revenue and relatively low fuel costs, allows spending on a variety of needed expenses including both employee costs and share buybacks as well as capital improvements, some long neglected.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.