The Bud and Buddies films weren't made/produced by Disney, they were made by Vancouver production company, Keystone, which partnered with Air Buddy's owner.
When the original film was made, Miramax (then owned by Disney but not run by Disney) funded the production in return for worldwide distribution rights for the film and its sequels. It was supposed to be released either as a Miramax/Dimension film but Disney rebrand it as "Disney" before release.
While not a blockbuster, the film was successful, it returned $30M on a $3M budget. Whether it wasn't profitable enough or the loss of Air Buddy made them have doubts, Disney didn't bother with the sequel which released theatrically as a Dimension picture (Dimension was an alternate banner for Miramax).
But, 20 years ago, selling straight-to-DVD movies at
Walmart/Target/Kmart/CVS/Walgreens/etc. was big business and Disney/Keystone saw the potential for cheaper, straight-to-video releases and Bud sold well...and the Buddies sold even better. When the home video market dried up in favor of streaming, and Disney pulled the plug on the Buddies films in 2013 and Keystone moved on to other (non-Disney affiliated) pet films.