* $1 billion share buyback planned; carrier to repay debt
* Adj Q2 profit of $1.98 a share compares with $1.95 estimate
(Adds earnings comparison, details on deployment plan)
July 24 (Reuters) - American Airlines Group said Thursday it will pay its first dividend since 1980 and buy back stock as it reported improved second-quarter earnings.
American, the largest airline by traffic, which was formed from the late 2013 merger of US Airways and AMR Corp, declared a dividend of 10 cents a share for shareholders of record Aug. 4. It also planned a $1 billion share repurchase program and said it would make additional pension contributions.
The carrier reported net income rose to $864 million, or $1.17 a diluted share, from $220 million, or 79 cents a share, a year earlier, when the company was not merged.
On a combined basis, American said net profit excluding charges was $1.5 billion, compared with $681 million for the year-earlier period.
Quarterly revenue was $11.36 billion, compared with $11.33 billion expected by analysts. Yield, a measure of the average fare, rose 6.5 percent to 17.34 cents in the second quarter.
Adjusted for charges, which came to $592 million and primarily reflected merger costs and non-cash expenses tied to the sale of fuel-hedge contracts, profit was $1.98 a share, compared with $1.95 a share expected by analysts on average, according to Thomson Reuters I/B/E/S.
As part of its program to enhance shareholder returns, American said it would complete its $1 billion share buyback by the end of 2015. Its dividend will be paid on Aug. 18.
The carrier also said it would prepay $2.8 billion on debt and plane leases by the end of this year. It plans to contribute $600 million to defined benefit pension plans this year, more than the $120 million in minimum contributions required.
American lowered its costs in bankruptcy and is now tasked with integrating computer systems and resolving labor issues. The company is adding newer planes and plans to boost revenue with efforts such as reorganizing flight schedules at big hubs like Miami and Chicago.
It is the latest carrier to announce plans to boost investor returns. Delta Air Lines, which acquired Northwest in 2008, resumed a dividend and share buybacks last year.
(Reporting by Karen Jacobs in Atlanta; Editing by Jeffrey Benkoe and Bernadette Baum)