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Some of my Fighter Divisions have horrible morale after tangling with the German JGs. I played an Army commander's Courage card on one of the fighter divisions but it had no effect, even though the unit was less than 5 hexes away from the Army commander and theorhetically benefitting from 100% of the HQ Power modifier. Is this working as designed? If yes, how then may I improve the morale of these units?

IIRC this was discussed in Olivier's AAR a few weeks back. I dont think HQs affect aircraft, so the modifier doesnt actually have an effect. Taking this one step further I dont think the cards have an effect either.

Thinking about this some more, if I am correct with the above, then I guess the bug is that you are allowed to play the card on the aircraft unit when it doesnt have any affect?

Yeah, in a post from some time ago, Vic explained the HQ Power Modifier, Combat Modifer, etc does not apply to air units; however, I think Vic should patch the game so you can't play any cards on air units. I wasted 5 CPs which took this particular Soviet general 5 turns to accumulate.

Yes thats actually a good idea Bonners & Red Baron.